SRX Global Inc. quarterly report, Q1 FY2013

Business context and reporting period

Sport Endurance, Inc. (the registrant named in the filing; the request metadata identifies SRX Global Inc.) filed this Form 10-Q for its fiscal first quarter, the three months ended November 30, 2012. It is a development-stage company that intends to manufacture and distribute sports energy drinks; production and distribution had not commenced.

Financial performance and position

Operating expenses included $272 of general and administrative costs, $3,500 of professional fees, and $1,048 of depreciation. Interest expense was $889. With no revenue, a revenue-based margin is not meaningful. Financing cash flow was $2,135, entirely from related-party loans; investing cash flow was zero. No interest or income taxes were paid.

Changes versus the prior period

Quarterly net loss increased $1,894, about 50%, year over year. Professional fees rose $1,500, general and administrative expense rose $152, and interest expense increased $242; depreciation was unchanged. Cash fell from $38 to $1 during the quarter, while current liabilities increased by $4,624. The company received no private-placement proceeds in the quarter.

On November 23, 2012, the company effected a 1,000-for-1 reverse stock split. Reported share counts for all periods are retroactively adjusted. On October 31, shareholders approved increasing authorized common shares from 480 million to 580 million. At November 30, 60,200 common shares and 1,000 preferred shares were outstanding on a post-split basis.

Outlook, risks and notable matters

Management expects operating losses over the next 12 months and does not expect anticipated sales revenue to cover working-capital needs. It plans to seek funding through sales, equity, third-party or bank financing, but provides no quantified revenue or financing guidance. The filing says there is no assurance that funding will be available; failure to obtain it could require reduced or suspended operations.

The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, an accumulated deficit of $242,086 in the financial statements, a $73,282 working-capital deficit, and insufficient cash for operating commitments. The statements include no adjustments for a possible failure to continue as a going concern. The company’s unsecured, demand related-party loans bear 8% interest: $45,672 principal and $5,440 accrued interest at quarter end. Subsequent to quarter end, it disclosed $3,955 of additional related-party loans during December 2012 and a further $12 loan on January 7, 2013.

Management concluded disclosure controls were not effective, citing no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. Management said it planned to address these weaknesses when resources permit. The filing reports no material pending legal proceedings and no material off-balance-sheet arrangements.

Important facts for investors to verify

• Confirm the issuer identity: the filing is for Sport Endurance, Inc., while the request metadata names SRX Global Inc.
• Reconcile the accumulated-deficit figure: the financial statements and going-concern note report $242,086, while MD&A once states $242,068.
• Assess the company’s ability to fund operations, including reliance on related-party, demand loans and the availability of additional financing.
• Track whether the planned energy-drink business launches and generates revenue; none had been recorded through November 30, 2012.
• Consider the ineffective disclosure controls and the risks associated with the reverse split and increased authorized common shares.