Business context and reporting period
The filing is Sport Endurance, Inc.’s unaudited Form 10-Q for the quarter and six months ended February 29, 2012; the fiscal year ends August 31. The company is a development-stage business that intends to manufacture and distribute sports energy drinks, but production and distribution had not begun and it had generated no revenue. The filing names Sport Endurance, Inc., which differs from the request metadata identifying SRX Global Inc.
Financial results and position
| Metric | Three months ended Feb. 29, 2012 | Six months ended Feb. 29, 2012 | Comparison / balance date |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in comparable 2011 periods |
| Operating expenses | $4,192 | $7,360 | Six-month 2011: $18,395 |
| Interest expense | $850 | $1,497 | Six-month 2011: $516 |
| Net loss | $5,042 | $8,857 | Six-month 2011: $18,911 |
| Operating cash flow | Not separately provided | $(10,077) | Six-month 2011: $(8,999) |
| Cash | $65 | Aug. 31, 2011: $37 | |
| Current liabilities | $63,730 | Aug. 31, 2011: $56,941 | |
| Related-party amounts due | $35,904 | Aug. 31, 2011: $25,799 | |
| Accumulated deficit | $229,325 | At Feb. 29, 2012 |
Total assets were $14,925, including equipment, net, of $14,860. Stockholders’ deficit was $48,805. The $35,904 due to related parties consists of unsecured demand loans bearing 10% interest; accrued related-party interest of $3,356 is reported separately. Working-capital deficit was $63,665. No cash interest or income taxes were paid in the six-month period. Profit margins are not meaningful because revenue was zero.
Changes versus prior comparable periods
- Quarterly net loss narrowed to $5,042 from $12,223; six-month net loss narrowed to $8,857 from $18,911. Management attributed lower losses mainly to reduced stock-servicing, accounting, and legal costs.
- Six-month operating expenses decreased to $7,360 from $18,395, while interest expense increased to $1,497 from $516 due to related-party borrowing.
- Operating cash use increased to $10,077 from $8,999. The company received $10,105 of related-party loans in the six months, versus $9,145 in the prior-year period; it received no private-placement proceeds in the current period.
- Working-capital deficit widened from $56,904 at Aug. 31, 2011 to $63,665 at Feb. 29, 2012. Cash remained extremely limited at $65.
Outlook, risks, and other notable items
- Management anticipates operating losses over the next 12 months and expects sales income, but does not expect revenue to cover working-capital needs. It plans to seek equity, debt, credit facilities, or other financing; success is not assured.
- The filing states that recurring losses, a $229,325 accumulated deficit, a $63,665 working-capital deficit, and inadequate cash raise substantial doubt about the company’s ability to continue as a going concern. Without financing, operations may need to be slowed, suspended, or reduced.
- 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.
- 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. Management planned to address weaknesses when resources permit.
- No material legal proceedings, changes to previously disclosed risk factors, unregistered equity sales, or subsequent events were reported.
Important facts for investors to verify
- Confirm the issuer and security actually under review: this filing is for Sport Endurance, Inc., not SRX Global Inc.
- Assess whether the company secured financing after the filing; it reported only $65 cash and substantial doubt about continuing as a going concern.
- Review the terms, balances, and repayment status of demand loans and accrued interest owed to the CEO, former CEO, and major shareholder.
- Verify whether the planned sports-drink business ever commenced operations or generated revenue, and whether management’s outlook was achieved.
- Check whether the disclosed control weaknesses were remediated and whether subsequent filings clarify the company’s financial condition.