Business Context and Reporting Period
Company: Sport Endurance, Inc. (formerly Cayenne Construction, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: May 31, 2011
Business Stage: Development Stage. The Company intends to manufacture and distribute sports energy drinks but has not yet commenced production or generated revenue. The Company was revived in 2009 after ceasing concrete operations in 2002.
Key Financial Metrics
| Metric | Three Months Ended May 31, 2011 | Nine Months Ended May 31, 2011 | Balance Sheet (May 31, 2011) |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(10,292) | $(29,203) | N/A |
| Cash Balance | N/A | N/A | $322 |
| Total Assets | N/A | N/A | $18,326 |
| Total Liabilities | N/A | N/A | $46,630 |
| Working Capital | N/A | N/A | $(46,308) |
| Accumulated Deficit | N/A | N/A | $(208,824) |
| Shares Outstanding | 60,200,000 | 60,200,000 | 60,200,000 |
Debt & Liquidity: The Company has no long-term debt but holds significant related-party liabilities. Total current liabilities include $21,585 due to related parties and $19,784 in accounts payable. Cash flow from operations was negative $(13,882) for the nine-month period, offset by $14,145 in financing proceeds from related-party loans.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss for the three months ended May 31, 2011, increased to $(10,292) from $(3,834) in the prior year period (168% increase). For the nine months, the loss increased to $(29,203) from $(20,195) (45% increase).
- Expense Drivers: The increase in losses is primarily attributed to higher professional fees (legal and accounting) and general and administrative expenses (stock transfer agent fees) required to maintain public company status.
- Interest Expense: Interest expense rose to $502 for the quarter (from $93) and $1,018 for the nine months (from $93) due to new loans from related parties.
- Working Capital Deficit: The working capital deficit widened from $(20,249) at August 31, 2010, to $(46,308) at May 31, 2011.
Outlook, Risks, and Management Commentary
Going Concern: Management explicitly states that the Company's recurring losses, accumulated deficit, and working capital deficit raise substantial doubt about its ability to continue as a going concern. The Company is dependent on securing additional equity or debt financing to fund operations.
Capital Resources: The Company has no employees other than the non-paid CEO. It received $14,145 in unsecured loans from related parties during the nine-month period. There is no assurance that related parties will provide further funding.
Internal Controls: Management concluded that disclosure controls and procedures are not effective. Deficiencies include a lack of an independent board of directors, no audit committee, and inadequate segregation of duties, as all financial reporting is handled by a financial consultant.
Risks: Key risks include the inability to generate revenue from the planned energy drink line, failure to secure financing, and the inherent risks of a development-stage company with an unpredictable business model.
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to secure immediate financing given the $322 cash balance and $46,308 working capital deficit.
- Related Party Dependence: Assess the sustainability of operations relying on loans from the CEO and major shareholders (BK Consulting) totaling over $21,000.
- Revenue Timeline: Confirm if there is a concrete timeline for the commencement of sports energy drink production and sales, as no revenue has been generated since inception.
- Internal Control Remediation: Determine if the Company has a funded plan to hire independent directors or accounting personnel to address the ineffective internal controls.
- Shareholder Dilution: Monitor potential future equity issuances required to fund operations, which could significantly dilute existing shareholders.