Sport Endurance, Inc. — Form 10-Q Summary
Entity note: The request identifies SRX Global Inc., but this filing names Sport Endurance, Inc. as the registrant. Verify that this is the intended filing.
Business context and reporting period
This unaudited quarterly report covers the three and nine months ended May 31, 2012; the company’s fiscal year ends August 31. Sport Endurance is a development-stage company that intends to manufacture and distribute sports energy drinks. Production and distribution had not commenced, and the company reported no revenue.
Key financial metrics
| Metric | Three months ended May 31, 2012 | Nine months ended May 31, 2012 | At May 31, 2012 |
|---|---|---|---|
| Revenue | $0 | $0 | |
| Net loss | $5,336 | $14,193 | |
| Operating expenses | $4,878 | $12,238 | |
| Cash from operating activities | $(13,507) | ||
| Cash and cash equivalents | $110 | ||
| Current assets / current liabilities | $110 / $68,063 | ||
| Working capital | $(67,953) | ||
| Total assets / total liabilities | $13,922 / $68,063 | ||
| Stockholders’ deficit | $(54,141) | ||
| Accumulated deficit | $(234,661) |
There was no reported gross profit or operating margin because revenue was zero. Related-party unsecured demand loans bearing 8% interest totaled $39,379; accrued related-party interest was $3,814. The company received $13,580 in related-party loans during the nine-month period and reported no private-placement proceeds. These loans are included in current liabilities. No cash interest or income taxes were paid during the period.
Material changes versus prior comparable periods
- Nine-month net loss narrowed to $14,193 from $29,203, a decrease of about 51%; quarterly net loss narrowed to $5,336 from $10,292, about 49%.
- Nine-month general and administrative expense fell to $1,871 from $7,316, and professional fees declined to $7,223 from $17,725. Management attributed the reductions primarily to lower stock-servicing, accounting, and legal costs.
- Nine-month interest expense rose to $1,955 from $1,018, attributed to related-party loans.
- Cash increased by $73 during the nine months, to $110. The working-capital deficit widened to $67,953 from $56,904 at August 31, 2011; related-party amounts due rose to $39,379 from $25,799.
Outlook, risks, and other notable disclosures
- Management anticipates operating losses over the next 12 months and expects any sales-generated income to be insufficient to meet working-capital needs. It plans to seek equity or debt financing, credit facilities, and other capital; success is not assured.
- The filing states that recurring losses, the accumulated deficit, the working-capital deficit, and inadequate cash raise substantial doubt about the company’s ability to continue as a going concern. It says the company lacks cash resources to meet operating commitments for the next 12 months. The financial statements include no adjustments that might result if the company cannot continue as a going concern.
- Management is pursuing new ventures and expects no significant near-term research and development or equipment purchases. The filing provides no quantified revenue, launch, or financing guidance.
- Disclosure controls and procedures were deemed ineffective. The filing cites no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. Management said it plans improvements when resources permit.
- The company reported no material pending legal proceedings, no material change in risk factors from its 2011 Form 10-K, and no subsequent events through the filing date.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for Sport Endurance, Inc., not SRX Global Inc.
- Assess the feasibility, timing, and funding needs for the proposed energy-drink business, given the absence of revenue and the stated expectation that near-term sales will not cover working capital.
- Review the availability and terms of future financing, including whether related parties will continue lending; existing loans are unsecured, due on demand, and bear 8% interest.
- Evaluate the going-concern warning, extremely limited cash, current-liability obligations, and ineffective disclosure controls.
- Confirm the reported nine-month cash-flow and balance-sheet figures against the complete filing and subsequent reports.