Filing summary
Important identity check: The supplied filing is for Sport Endurance, Inc., not SRX Global Inc. The summary below reflects the filing itself.
Business context and reporting period
This Form 10-Q covers the three months ended November 30, 2013, the company’s first fiscal quarter of 2014 (fiscal year-end August 31). Sport Endurance described itself as a development-stage company intending to manufacture and distribute sports energy drinks; production and distribution had not begun.
Financial results and liquidity
| Metric | Quarter ended Nov. 30, 2013 | Comparable 2012 quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $8,969 | $4,820 |
| Interest expense | $5,424 | $889 |
| Net loss | $14,393 | $5,709 |
| Cash used in operations | $5,248 | $2,172 |
- Gross and operating margins are not meaningful because the company had no revenue.
- At November 30, cash was $2, equipment net of depreciation was $7,525, and total assets were $7,527.
- Current liabilities were $34,688, including $23,945 of accounts payable and $10,743 of related-party convertible debt. Working capital was negative $34,686; stockholders’ equity was negative $27,161.
- Quarter-end cash was supported by $5,250 of net financing cash flow, including $5,272 of related-party convertible loans, partly offset by a $22 repayment of bank overdrafts.
- Accumulated deficit was $344,940. The filing reports basic and diluted loss per share of $(0.00) for the quarter, versus $(0.09) in 2012; weighted-average shares increased to 31,358,903 from 60,200.
Material changes and unusual items
- Net loss increased $8,684, or about 152%, year over year. General and administrative expense rose to $1,877 from $272, professional fees to $6,044 from $3,500, and depreciation remained $1,048.
- Interest expense increased mainly because the company recorded and amortized a $5,272 beneficial-conversion-feature debt discount.
- During the quarter, $62,597 of related-party debt was converted into 31,298,500 common shares at $0.002 per share. Common shares outstanding rose from 60,403 at August 31 to 31,358,903 at November 30. The filing reports 31,358,903 shares outstanding as of January 13, 2014.
- Subsequent to quarter-end, the company disclosed additional convertible loans of $2,495 on December 3, 2013 and $1,829 on January 1, 2014, each from a major shareholder 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 equity or debt financing, credit facilities, and sales revenue, but gave no quantified revenue or earnings guidance.
- The filing states that recurring losses, negative working capital, and inadequate cash resources raise substantial doubt about the company’s ability to continue as a going concern. Continuation depends on raising capital and/or generating sufficient operating cash; there is no assurance financing will be available.
- The company had no employees other than its unpaid CEO, anticipated no significant near-term research and development or equipment purchases, and reported no material off-balance-sheet arrangements or material pending legal proceedings.
- Management concluded disclosure controls and procedures were ineffective, citing no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. No material change in internal control was reported during the quarter.
Key facts for investors to verify
- Confirm the issuer: this filing names Sport Endurance, Inc., not SRX Global Inc.
- Review the status and feasibility of the sports-energy-drink business, which had not commenced production or sales.
- Assess near-term funding needs, access to financing, demand terms on related-party loans, and the going-concern warning.
- Verify the debt conversions, related-party balances, and resulting share count and dilution.
- Consider the ineffective disclosure controls and whether the stated plans to address control weaknesses were implemented.