Business context and reporting period
The supplied filing is Sport Endurance, Inc.’s unaudited Form 10-Q for the quarter ended May 31, 2015, with comparisons to the periods ended May 31, 2014. This differs from the request metadata naming SRX Global Inc. The company intends to manufacture and distribute sports energy drinks but says it had not produced or distributed any. Its fiscal year ends August 31.
Financial performance and condition
| Metric | Three months ended May 31, 2015 | Nine months ended May 31, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $5,817 | $19,069 | $5,923; $20,865 |
| Interest expense | $6,092 | $18,345 | $5,314; $18,597 |
| Net loss | $11,909 | $37,414 | $11,237; $39,462 |
| Operating cash flow | Not stated for the quarter | $(16,918) | $(17,696) for nine months |
At May 31, 2015, cash was $0 and total assets were $2,736, comprising net equipment. Current liabilities were $54,826, including $22,240 accounts payable and $32,586 related-party convertible debt; the working capital deficit was $54,826. Stockholders’ deficit was $52,090 and accumulated deficit was $419,198. No cash interest or income taxes were paid in the nine-month period. Profit margins are not meaningful because the company reported no revenue.
Changes versus prior comparable periods
Quarterly net loss increased by $672, while the nine-month net loss decreased by $2,048. Nine-month operating expenses declined by $1,796, primarily due to lower professional fees and depreciation, partly offset by higher general and administrative costs. Nine-month interest expense decreased by $252; quarterly interest expense increased by $778. Cash used in operations improved by $778 year over year, but was fully offset by $16,918 of related-party loan proceeds. The working capital deficit grew from $37,401 at August 31, 2014 to $54,826.
Outlook, risks and unusual items
- Management expects operating losses over the next 12 months and does not expect anticipated sales-generated income to cover working capital needs. It is seeking equity or debt financing and pursuing new ventures; there is no assurance financing will be available.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern. It reports recurring losses, no cash, and dependence on additional financing. Financial statements include no adjustments for the potential outcome of this uncertainty.
- During the nine months, the company received $16,918 in unsecured, non-interest-bearing, demand convertible loans from related parties, convertible at $0.002 per share. The filing says further related-party funding is not assured. A further $2,635 loan from a major shareholder was issued July 15, 2015, after quarter-end.
- Interest expense principally reflected amortization of beneficial-conversion-feature discounts and imputed interest, rather than cash interest. No common shares were issued during the nine months; 37,581,903 common shares were outstanding as of July 17, 2015.
- Management stated 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 planned improvements when resources permit.
- The company reported no material off-balance-sheet arrangements and no known material legal proceedings. It said risk factors were unchanged from its December 2014 Form 10-K.
Most important facts for investors to verify
- Confirm the issuer identity: the filing is for Sport Endurance, Inc., not the company named in the request metadata.
- Assess the company’s ability to obtain financing and meet near-term obligations given zero cash, demand debt, and the going-concern uncertainty.
- Verify progress toward launching the energy-drink business and any actual revenue generation; the filing reports none to date.
- Review related-party loan terms, future advances, conversion dilution, and the July 2015 subsequent loan.
- Monitor remediation of the disclosed ineffective controls and the company’s reporting capacity.