Business context and reporting period
The supplied filing is Sport Endurance, Inc.’s unaudited Form 10-Q for the quarter and six months ended February 28, 2014 (fiscal Q2; fiscal year ends August 31). This does not match the request metadata naming SRX Global Inc.; confirm the issuer identity. Sport Endurance is a development-stage company that intends to manufacture and distribute sports energy drinks, but had not begun production or distribution.
Financial performance and position
- Revenue: $0 for both the three and six months ended February 28, 2014, and the comparable 2013 periods. Margins are not meaningful because there was no revenue.
- Loss: Net loss was $13,832 for the quarter, versus $6,300 in 2013; six-month net loss was $28,225, versus $12,009. The six-month increase was 57%, primarily reflecting higher interest expense and operating costs. Six-month operating expenses were $14,942, including $9,245 of professional fees.
- Interest expense: $7,859 for the quarter and $13,283 for six months, compared with $980 and $1,869, respectively, in 2013. The increase was primarily attributed to amortization of the beneficial conversion feature on convertible debt.
- Cash flow and liquidity: Operating cash outflow was $12,796 for the six months, funded by $12,796 of financing cash flow, including $12,818 in related-party convertible loans, offset by a $22 bank-overdraft repayment. Cash was $0 at February 28, 2014. Current assets were $0; current liabilities were $39,609, producing a $39,609 working-capital deficit.
- Debt and equity: Convertible debt was $18,289 at February 28, down from $68,068 at August 31, 2013. Accounts payable were $21,320. The company converted $62,597 of related-party debt into 31,298,500 common shares; shares outstanding rose from 60,403 to 31,358,903. Stockholders’ deficit was $33,133.
- Assets and accumulated losses: Total assets were $6,476, consisting of net equipment. Accumulated deficit was $358,772.
Changes, outlook, and risks
- Quarterly loss increased by $7,532 year over year; six-month loss increased by $16,216. Management attributed higher professional fees to accounting and audit fees and higher general and administrative costs for the six-month period to stock servicing and bank charges.
- Management expects operating losses over the next 12 months and does not expect sales revenue to cover working-capital needs. It plans to seek funds through sales, equity, debt, or bank financing, but states there is no assurance financing will be available. Failure to obtain financing could require reduced or suspended operations.
- The filing states that recurring losses, no cash, and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Management is pursuing new ventures and additional capital; the financial statements include no adjustments for a possible failure to continue.
- A subsequent event: on April 8, 2014, BK Consulting provided a $1,700 unsecured, non-interest-bearing convertible loan, due on demand and convertible at $0.002 per share.
- Disclosure controls and procedures were deemed ineffective. The filing cites no independent board or audit committee, limited segregation of duties, and reliance on a financial consultant. Management proposed addressing these weaknesses when resources permit. No material legal proceedings or material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Confirm the mismatch between the requested issuer, SRX Global Inc., and the filing registrant, Sport Endurance, Inc.
- Verify the company’s ability to obtain near-term financing and the status of its going-concern plans.
- Review the related-party debt conversions, $0.002 conversion price, resulting share issuance, and potential dilution.
- Assess the basis and continuing impact of the debt-discount interest expense and confirm the remaining convertible-debt balance and terms.
- Evaluate the ineffective disclosure controls and whether the proposed governance and accounting improvements were implemented.