Business Context and Reporting Period
The filing is Sport Endurance, Inc.’s audited Form 10-K for the fiscal year ended August 31, 2017, comparing results with fiscal 2016. The request metadata names SRX Global Inc.; the filing itself identifies the registrant as Sport Endurance, Inc. The company markets three dietary supplement and recovery products and reported only nominal sales while preparing to expand online marketing.
Financial Results and Liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Sales | $1,734 | $48 |
| Cost of goods sold | $334 | $5 |
| Net revenue after cost of goods sold | $1,400 | $43 |
| Operating loss | $524,038 | $459,682 |
| Net loss | $1,743,258 | $933,761 |
| Cash used in operating activities | $39,755 | $180,603 |
At August 31, 2017, cash was $1,442, current assets were $16,324, current liabilities were $1,199,198, and working capital deficit was $1,182,874. Stockholders’ deficit and accumulated deficit were each reported as $1,182,874 and $3,108,472, respectively. Current liabilities included $400,743 of convertible notes, net of debt discount; $233,011 of related-party notes and accrued interest; and a $312,878 derivative liability. As of November 27, 2017, the company reported cash of approximately $124,269 and approximately $536,458 of convertible-note principal due December 27, 2017.
Interest expense was $830,676, principally reflecting amortization of convertible-debt discounts. The $388,544 loss from revaluing embedded conversion derivatives was noncash. No cash interest or income taxes were reported as paid. The company recorded no income-tax provision.
Material Changes Versus the Prior Period
- Net loss increased by approximately $809,500, while net revenue rose from just $43 to $1,400.
- General and administrative expense increased to $427,341 from $132,248, primarily because of $272,895 in financing penalties.
- Interest expense rose by $418,708; derivative revaluation loss increased to $388,544 from $62,111.
- The prior-year $248,951 intangible-asset impairment did not recur.
- Working capital deficit widened from $574,323 to $1,182,874. Cash used in operations improved from $180,603 to $39,755, but the company remained dependent on financing and related-party loans.
Outlook, Risks, and Unusual Items
Management expected revenue to increase as online sales and marketing efforts ramped up, but anticipated that revenue would not cover working-capital needs. It estimated at least $200,000 was needed to launch sales and marketing, and stated that no other financing sources had been identified. Management warned that failure to raise capital or extend/repaid debt could force the company to suspend or cease operations. The independent auditor’s report included a going-concern emphasis, stating that insufficient working capital raised substantial doubt about the company’s ability to continue as a going concern.
In November 2017, the company borrowed $241,250 cash and issued a $250,000 senior secured convertible note bearing 10% interest, with a six-month maturity and conversion terms. The filing also describes repeated extensions of earlier convertible notes and dilution from conversion-price reset features. The CEO, who is also the sole director and majority shareholder, lent the company $231,000 during FY 2017; $120,000 of accrued salary was owed at year-end. The company reported one employee, no independent directors, no audit committee, and material weaknesses in disclosure and financial-reporting controls; management said its limited staffing constrained remediation.
Key risks include minimal sales, competition from substantially larger supplement businesses, reliance on the CEO, financing and refinancing risk, possible significant shareholder dilution, and limited liquidity in the OTCQB penny-stock market. Management reported no known legal proceedings believed likely to have a material adverse effect.
Most Important Facts for Investors to Verify
- Confirm the registrant’s identity: the supplied metadata says SRX Global Inc., while this 10-K is for Sport Endurance, Inc.
- Verify the status and repayment, extension, or conversion of the $536,458 of convertible principal reported due December 27, 2017, and reconcile it with the different note balance disclosed at August 31, 2017.
- Verify the November 2017 financing’s terms, any option exercise, subsequent debt repayments, and current cash and liquidity.
- Assess whether the company actually generated material sales and whether it obtained enough capital to fund its stated marketing plan and operations.
- Review the derivative and debt-discount accounting, dilution exposure, and remediation of the disclosed material weaknesses and governance limitations.