Sport Endurance, Inc. — FY2016 Form 10-K
Entity and period: The supplied filing is for Sport Endurance, Inc. (OTCQB: SENZ), not SRX Global Inc. It reports the fiscal year ended August 31, 2016, rather than a standalone 2016 fourth quarter. The filing was signed December 5, 2016.
Business context
The company was a startup seeking to market dietary supplements and performance, wellness, and recovery products through online and direct-mail sales. It had not yet established material sales; management said marketing efforts would ramp up when financing became available. In May 2016, it purchased inventory and related product assets for $250,000.
Financial results and liquidity
| Metric | FY2016 / Aug. 31, 2016 | FY2015 / Aug. 31, 2015 |
|---|---|---|
| Revenue / net revenue | $48 / $43 | $0 / $0 |
| Net loss | $933,761 | $49,669 |
| Operating cash flow | $(180,603) | $(22,875) |
| Cash and cash equivalents | $10,197 | $0 |
| Current assets | $16,640 | $0 |
| Current liabilities | $590,963 | $59,865 |
| Working capital | $(574,323) | $(59,865) |
| Accumulated deficit | $1,365,214 | $431,453 |
Gross profit was $43 on $48 of sales, but revenue was immaterial. The net loss widened by $884,092. Major FY2016 costs included $248,951 in intangible-asset impairment, $411,968 in interest expense, and a $62,111 loss from revaluing the convertible-note derivative. The filing reports no income-tax provision.
Cash used in investing activities was $250,000, principally for the asset purchase; financing activities provided $440,800, largely from convertible notes. At year-end, liabilities included $267,265 of convertible notes net of discounts and a $254,952 derivative liability. The company also reported $68,746 in accounts payable and accrued liabilities.
Material changes and unusual items
- Net loss increased substantially from FY2015, alongside higher general and administrative expenses ($130,058 versus $7,168) and professional fees ($78,526 versus $15,296).
- The company allocated $248,951 of the $250,000 asset purchase price to intangible assets, then impaired the entire amount in FY2016. Inventory was reported at $6,398 at year-end.
- Common shares outstanding increased from 37,581,903 at August 31, 2015 to 77,775,303 at August 31, 2016, through cash issuance, debt conversions, and commitment shares.
- Shareholders validly appointed David Lelong as sole director in April 2016; he became CEO, President, CFO, and controlling shareholder. The filing says the earlier February shareholder action was invalid under Nevada law.
Outlook, risks, and contingencies
Management expected continued operating losses and said it needed at least $200,000 to advance sales and marketing. It planned to seek equity or debt financing but disclosed no committed source and gave no quantified revenue guidance. It did not expect revenue over the next 12 months to cover working-capital needs. As of December 2, 2016, cash was approximately $964.
The auditor’s report was unqualified but included a going-concern emphasis: recurring losses, a $574,323 working-capital deficit, and insufficient funds raise substantial doubt about the company’s ability to continue. The May 2016 senior secured convertible notes had $440,000 face value, 10% annual interest, a six-month maturity, conversion at $0.50 per share subject to a full reset feature, and security over all company assets. Investors agreed to forbear until December 16, 2016; the filing does not establish subsequent repayment.
Other material risks include dependence on financing, dilution, competition, minimal operating history, and reliance on the sole executive. Management concluded disclosure controls and internal control over financial reporting were ineffective and identified material weaknesses; it said its single-employee capacity limited remediation. There was no independent board member or audit committee. The company reported no known legal proceeding expected to have a material adverse effect.
Important facts for investors to verify
- Confirm the registrant identity: the supplied 10-K names Sport Endurance, Inc., while the request metadata names SRX Global Inc.
- Check whether the secured convertible notes were repaid, further extended, converted, or otherwise resolved after the December 16, 2016 forbearance deadline.
- Verify current cash, financing availability, and the company’s ability to meet near-term obligations; reported cash was approximately $964 on December 2, 2016.
- Reconcile the asset purchase and inventory disclosures: the filing describes approximately 450 containers acquired, approximately 357 containers held, and year-end inventory of $6,398, while the acquired inventory was initially valued at $1,049.
- Review subsequent filings for actual product sales, impairment or inventory developments, share dilution, and remediation of the reported material control weaknesses.