Business context and reporting period
This filing is a Form 10-K for Sport Endurance, Inc. for the fiscal year ended August 31, 2013, not a quarterly report. The request identifies SRX Global Inc.; the filing itself names Sport Endurance, Inc. as the registrant. The company describes itself as a development-stage business marketing an energy soft-gel product, but says it had not distributed the product or begun major operations.
Financial performance and condition
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating loss | $22,080 | $13,217 |
| Net loss | $94,170 | $15,909 |
| Interest expense | $72,090 | $2,692 |
| Cash used in operating activities | $17,188 | $17,737 |
Gross margin is not meaningful because there were no sales. At August 31, 2013, cash was $0, total assets were $8,572, current liabilities were $89,361, and working capital deficit was $89,361. Convertible debt was reported at $68,068; accounts payable were $21,271 and bank overdrafts were $22. Accumulated development-stage losses were $330,547. The filing reports no material off-balance-sheet arrangements.
Material changes versus prior year
Net loss increased by $78,261. Interest expense rose by $69,398; the company attributes approximately 94.4% of FY 2013 interest expense to amortization of discounts on convertible notes. General and administrative expenses and professional fees also increased, while depreciation was unchanged. Current liabilities increased from $68,659 to $89,361 and cash fell from $38 to zero. The company received $17,128 in convertible-loan proceeds during the year and no proceeds from private equity placements.
Outlook, risks and unusual items
- The independent auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. Management said it lacked cash to meet the next 12 months’ commitments and expected operating losses to continue.
- Management cited a need to raise capital, including a stated minimum $75,000 to start operations. Financing sources were not secured; failure to obtain funding could require the company to curtail or cease operations. Management did not expect sales to cover working-capital needs.
- Related-party financing is significant: demand loans were converted or issued as convertible debt, generally convertible at the holder’s discretion at $0.002 per share. Further related-party funding was not assured, and additional equity could dilute shareholders.
- The company had no employees other than its unpaid CEO, no customers, and no product distribution. It cited competition, customer acceptance, marketing execution, funding availability, and limited operating history as key risks.
- Management reported ineffective disclosure controls and material weaknesses in internal control over financial reporting. The board had no independent members, no audit committee, and no audit committee financial expert identified in the control discussion.
- Unusual filing details warrant attention: the business description alternates between soft-gel capsules and energy drinks; the filing gives inconsistent outstanding-share counts (60,200 versus 60,403); and it describes the stock both as OTCBB-traded and as lacking an established public market.
Important facts for investors to verify
- Confirm the registrant’s identity and whether this filing is relevant to SRX Global Inc.; the document names Sport Endurance, Inc.
- Reconcile the reported common shares outstanding, authorized shares, and any subsequent issuances or conversions of convertible debt.
- Review the convertible-note balances, conversion terms, debt-discount accounting, and the extent of related-party financing.
- Verify current cash, liabilities, funding commitments, and whether the company obtained the capital needed to commence product production and sales.
- Confirm the stock’s current trading venue and liquidity, given the filing’s conflicting market descriptions.
- Assess remediation of the disclosed control weaknesses and any subsequent changes in operations, management, or going-concern status.