Business context and reporting period
The supplied filing is Sport Endurance, Inc.’s unaudited Form 10-Q for the quarter and nine months ended May 31, 2013; this differs from the requested company name, SRX Global Inc., and should be verified. Sport Endurance describes itself as a development-stage company planning to manufacture and distribute sports energy drinks, but production and distribution had not begun. Its fiscal year ends August 31.
Key financial metrics
| Metric | Three months ended May 31, 2013 | Nine months ended May 31, 2013 | Comparison / balance date |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in comparable 2012 periods |
| Operating expenses | $5,970 | $16,110 | 2012: $4,878 and $12,238 |
| Interest expense | $983 | $2,852 | 2012: $458 and $1,955 |
| Net loss | $6,953 per financial statements | $18,962 | 2012: $5,336 and $14,193 |
| Operating cash flow | Not separately reported | $(11,716) | 2012 nine months: $(13,507) |
| Cash and cash equivalents | Not applicable | $0 at period end | $38 at August 31, 2012; $21 bank overdraft at May 31, 2013 |
| Current liabilities / working capital deficit | Not applicable | $84,439 / $(84,439) | At August 31, 2012: $68,659 / $(68,621) |
| Total assets | Not applicable | $9,620 | $12,802 at August 31, 2012, principally equipment |
Net loss per share was $(0.12) for the quarter and $(0.31) for the nine-month period, versus $(0.09) and $(0.24) in 2012. No meaningful revenue or profit margins are available because the company reported no revenue.
Related-party amounts due were $55,194, consisting of unsecured demand loans bearing 8% interest; accrued related-party interest was $7,403. Accounts payable were $21,821. Financing activities provided $11,678 during the nine months, principally from $11,657 in related-party loans; cash decreased by $38 to zero.
Material changes versus prior comparable periods
- Nine-month net loss increased $4,769, or approximately 34%, while revenue remained zero.
- Operating expenses increased by $3,872 for the nine-month period, including higher general and administrative and professional fees. Interest expense rose $897, which management attributed to related-party loans.
- Current liabilities increased by $15,780 from August 31, 2012, and the working capital deficit widened by $15,818.
- The company effected a 1,000-for-1 reverse stock split in November 2012 and issued 203 post-split common shares for fractional-share adjustments. Shares outstanding were 60,403 as of May 31, 2013.
Outlook, risks, contingencies, and unusual items
- Management said it was pursuing new ventures and additional capital, and anticipated operating losses over the next 12 months. It did not expect sales-generated income to be sufficient to meet working-capital needs. Financing plans include equity, debt, third-party or bank financing, with no assurance funds will be available.
- The filing states that recurring losses, a $255,339 accumulated deficit, a $84,439 working capital deficit, and lack of cash raise substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for a possible failure to continue.
- A major shareholder provided an additional $1,100 unsecured demand loan at 8% on June 7, 2013, after the reporting date.
- The company reported no employees other than its unpaid CEO, no material off-balance-sheet arrangements, and no known material legal proceedings. It reported no change in risk factors from its 2012 Form 10-K.
- Management concluded disclosure controls were not effective, citing no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. It said remediation depended on obtaining resources.
- The MD&A gives quarterly net loss as $6,593 in one passage, while the financial statements report $6,953; the filing text does not reconcile this discrepancy. The MD&A also describes the quarterly increase as $1,617, which does not match the difference between the stated comparative losses.
Most important facts for investors to verify
- Confirm the issuer identity: the filing names Sport Endurance, Inc., not SRX Global Inc.
- Reconcile the quarterly net-loss and year-over-year change discrepancies between the MD&A and financial statements.
- Assess the going-concern warning, immediate liquidity shortfall, and the availability and terms of further financing, particularly related-party demand loans.
- Verify whether the planned energy-drink business has commenced and whether any revenues or operating funding have been secured since the filing.
- Evaluate the disclosed ineffective controls and whether promised governance and accounting improvements were implemented.