Sport Endurance, Inc. — Form 10-Q Summary
Period: Three months ended November 30, 2015 (fiscal 2016 first quarter); comparative period ended November 30, 2014. The filing cover identifies the registrant as Sport Endurance, Inc., although the request metadata names SRX Global Inc.
Business context
The company reported no revenue and had not begun producing or distributing its planned products. Its notes describe an intent to manufacture and distribute liquid Gel Caps, while MD&A describes sports energy drinks; the filing does not clearly reconcile these descriptions.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $16,433 | $2,256 |
| Operating loss | $(16,433) | $(2,256) |
| Interest expense | $(2,253) | $(4,501) |
| Net loss | $(18,686) | $(6,757) |
| Net loss per share, basic and diluted | $(0.00) | $(0.00) |
| Cash used in operating activities | $(16,200) | $(4,170) |
With no revenue, revenue growth and profit margins are not meaningful. Cash and current assets were $0 at November 30, 2015. Current liabilities were $21,009, all reported as accounts payable; working capital deficit was $21,009, improved from $59,865 at August 31, 2015. Total assets were $1,644, consisting of net equipment. The company reported no interest or income taxes paid.
Convertible related-party debt declined from $38,543 at August 31 to $0 at November 30 after $40,244 of debt was converted to stock, partly offset by a new $1,700 demand loan. Financing cash inflows were $16,200: $14,500 from common-stock sales and $1,700 from related-party borrowing. Cash remained at $0. Accumulated deficit was $450,139.
Material changes and unusual items
- Net loss increased by $11,929 year over year, driven by higher general and administrative expense ($10,437 versus $1,708) and $5,450 of professional fees, partly offset by lower interest expense.
- Common shares outstanding rose from 37,581,903 at August 31 to 77,575,303 at November 30. Issuances included shares for debt conversion, a $14,500 cash sale, and 5,371,500 shares issued to a major shareholder against a $5,372 subscription receivable, which remained unpaid at quarter-end.
- Debt discount amortization of $1,700 and imputed interest of $553 contributed to quarterly interest expense. The new $1,700 related-party note was unsecured, non-interest-bearing, due on demand, and convertible at $0.002 per share.
Outlook, risks and controls
Management expected operating losses to continue over the next 12 months and said anticipated revenue would not be sufficient to meet working-capital needs. It planned to seek funding through product sales, equity, debt, third-party or bank financing, but stated there was no assurance funding would be available. The filing identifies substantial doubt about the company’s ability to continue as a going concern; the financial statements include no adjustments for a potential inability to continue.
Management cited an evolving business model, uncertain revenue sources, competition, and the need to develop customers and execute its business and marketing plans. It reported no material off-balance-sheet arrangements and no material pending legal proceedings. Disclosure controls were deemed ineffective, citing no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. Management said it planned improvements when resources permitted.
After quarter-end, Michael Morrow became CEO and chairman effective December 3, 2015, then resigned effective January 11, 2016; Gerald Ricks became interim CEO. No formal revenue or earnings guidance was provided. The company reported no significant planned R&D or equipment purchases and had no employees other than its unpaid CEO as of quarter-end.
Key facts for investors to verify
- Whether the intended product is liquid Gel Caps or sports energy drinks, and whether commercial launch or revenue generation has begun.
- Availability and terms of financing, the status of the unpaid $5,372 stock subscription, and the company’s ability to fund operations with no cash.
- Current share count, dilution from related-party conversions and issuances, and any further related-party funding or transactions.
- Progress on going-concern risks, leadership changes, and remediation of ineffective disclosure controls.
- Whether the company’s product plans and business model have changed since this November 30, 2015 reporting period.