Business context and reporting period
Sport Endurance, Inc. filed this unaudited Form 10-Q for the quarter and six months ended February 28, 2013; its fiscal year ends August 31. The filing identifies the registrant as a development-stage company intending to manufacture and distribute sports energy drinks, but production and distribution had not begun and the company reported no revenue. The request metadata names SRX Global Inc.; that name does not match the registrant identified in the filing.
Financial performance and position
- Revenue: $0 for both the three- and six-month periods, as well as the comparative 2012 periods.
- Losses: Quarterly net loss was $6,300, versus $5,042; six-month net loss was $12,009, versus $8,857. Six-month operating expenses were $10,140, including $2,594 general and administrative, $5,450 professional fees, and $2,096 depreciation. Interest expense was $1,869.
- Cash flow: Six-month operating cash use was $7,344; related-party financing provided $7,309. Cash declined from $38 to $3. No investing cash flow or interest paid was reported.
- Liquidity and balance sheet: At February 28, current assets were $3 and current liabilities $78,537, producing a $78,534 working-capital deficit. Total assets were $10,671 and stockholders’ equity was negative $67,866. Liabilities included $21,271 accounts payable, $50,846 due to related parties, and $6,420 accrued related-party interest.
- Related-party debt: Unsecured, on-demand loans bear 8% interest. The company received $7,309 in related-party loans during the six months; it reported an additional $1,100 loan from a major shareholder on March 6, 2013.
- Margins: Not meaningful because the company reported no revenue.
Material changes versus the prior comparable period
Quarterly net loss increased by $1,258, or approximately 25%, and six-month net loss increased by $3,152 based on the financial statements. Six-month general and administrative expense rose $1,480, professional fees rose $1,300, and interest expense rose $372. Related-party amounts due increased from $43,537 at August 31, 2012 to $50,846. Cash fell from $38 to $3. The company completed a 1,000-for-1 reverse stock split in November 2012 and reported 60,403 common shares outstanding at quarter-end.
Outlook, risks, contingencies, and unusual items
- Going concern: Recurring losses, an accumulated deficit of $248,386, a working-capital deficit, and minimal cash raise substantial doubt about the company’s ability to continue as a going concern. Management said it was seeking additional capital and pursuing new ventures; it anticipated operating losses over the next 12 months and did not expect forecast sales to cover working-capital needs. Financing is not assured.
- Operating plans: The company reported no employees other than its unpaid CEO, no significant near-term research and development spending, and no anticipated purchase or sale of significant equipment.
- Controls: Management concluded disclosure controls were ineffective, citing no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. It said improvements depended on obtaining additional resources.
- Other disclosures: The company reported no material pending legal proceedings, no off-balance-sheet arrangements, and no change in risk factors from its latest Form 10-K.
Important facts for investors to verify
- Confirm the registrant’s identity: the filing is for Sport Endurance, Inc., not the SRX Global Inc. named in the request metadata.
- Review the going-concern disclosure and whether the company obtained sufficient financing after the reporting date; related-party loans are due on demand.
- Reconcile the MD&A’s stated $3,153 increase in six-month net loss with the financial statements, which show an increase of $3,152.
- Check the MD&A explanation for the rise in six-month professional fees: it says the increase was primarily due to “decreased” accounting and legal fees, which appears inconsistent.
- Verify the reverse-split dates and related share disclosures; the filing describes the split as effective November 23, 2012 but also refers to a reverse split “noted above” as November 23, 2011.