10-Q: Pacific Sports Exchange Faces Going Concern Doubt Amid Rising Losses

Pacific Sports Exchange Inc. reported increased net losses and zero cash, raising substantial doubt about its ability to continue as a going concern.

Summary

• Pacific Sports Exchange Inc. reported a net loss of $10,081 for the three months ended November 30, 2025, an increase from a $7,817 net loss in the prior year period.
• The company generated its first revenue of $2,200 for the quarter ended November 30, 2025, compared to $0 in the same period of 2024.
• Cash balance was $0 as of November 30, 2025, down from $1,476 as of August 31, 2025.
• Working capital deficiency worsened to $(52,158) as of November 30, 2025, from $(42,077) as of August 31, 2025.
• The company owes $55,322 to a related party (current shareholder) as of November 30, 2025, an increase from $40,323 as of August 31, 2025.
• Management concluded that disclosure controls and procedures were not effective as of November 30, 2025, citing a lack of sufficient accounting expertise and inadequate segregation of duties.
• The company's ability to obtain profitability is dependent on securing additional financing, and there is no assurance of success in these endeavors.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including zero cash, increasing losses, significant related-party debt, and explicit going concern doubt. While it generated its first revenue, the amount is nominal and overshadowed by operational challenges and internal control weaknesses.

Positives

• Generated first revenue of $2,200 for the three months ended November 30, 2025, compared to no revenue in the prior year period.
• General and administrative expenses decreased to $32 for the three months ended November 30, 2025, from $226 in the prior year period.

Negatives

• Net loss increased to $10,081 for the three months ended November 30, 2025, from $7,817 in the prior year.
• Cash balance was depleted to $0 as of November 30, 2025.
• Working capital deficiency worsened to $(52,158) as of November 30, 2025, from $(42,077) as of August 31, 2025.
• Net cash used in operating activities increased to $(1,476) for the three months ended November 30, 2025, from $(975) in the prior year.
• Debt to related parties increased to $55,322 as of November 30, 2025, indicating continued reliance on shareholder advances.
• Management identified material weaknesses in disclosure controls and internal control over financial reporting.
• The company's financial statements are prepared assuming it will continue as a going concern, but factors raise substantial doubt about this ability.

Risks

• The ability to obtain profitability is dependent upon obtaining additional financing to continue operations and developing its business plan.
• There is no assurance that management will be successful in raising additional operating funds through equity and/or debt financing.
• No assurance that the company will achieve a level of revenues adequate to generate sufficient cash flow or obtain necessary financing.
• If adequate working capital is not available, the company may be required to curtail or cease its operations.
• Reliance on third-party platforms like eBay for sales carries risks, including potential violation of terms, loss of selling privileges, or platform technical issues/failure.
• Material weaknesses in disclosure controls and internal control over financial reporting could lead to errors in financial statements and potential restatement.
• The company is materially dependent upon a third party for accounting consulting services for the foreseeable future.
• High customer concentration, with one customer representing 100% of revenue for the three months ended November 30, 2025.
• High supplier concentration, with one supplier representing 100% of purchases for the three months ended November 30, 2024.

Future Outlook

Management intends to raise additional operating funds through equity and/or debt financing to support operations and business plan development. The company plans to optimize its own website for global search terms and internal vending equipment through an expanding referral network, aiming to improve marketing and functionality to reduce reliance on third-party partners. The strategic goal is to create a unique supply chain targeting niche, valued products and their buyers, fostering relationships with serious golfers and tennis players to become their ongoing equipment supplier via social media and electronic outreach.

Management Comments

• Management intends to raise additional operating funds through equity and/or debt financing.
• The Company will always strive to abide by the policies of any third-party platform and will endeavor to provide superior customer service.
• The Company will also look to improve the marketing and functionality of its own website, to act as a hedge against the risk of relying on third-party partners.
• The goal is to create a unique supply chain that targets niche, valued products and their buyers.
• Serious golfers and tennis players are very particular about their equipment and will go to considerable lengths to secure what they are looking for in a quest to improve their game; this customer is our prime target market, and our marketing approach will be to create a relationship (wherever possible) with this customer and become their ongoing equipment supplier through social media and electronic outreach.
• Our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
• The specific material weakness identified by our management was ineffective controls over certain aspects of the financial reporting process because of a lack of a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements and inadequate segregation of duties.

Industry Context

Operating as an online-only retailer specializing in new and used sports equipment (tennis, golf, golf carts), the company faces intense competition from established e-commerce giants and specialized sports retailers. Its strategy of sourcing high-value, in-demand equipment and targeting avid customers aims to carve out a niche. However, heavy reliance on a single platform like eBay for sales exposes it to significant platform-specific risks, a common challenge for smaller online businesses. The regional sourcing strategy in Florida and California suggests a localized approach to inventory acquisition within a broader online sales model.

Comparison to Industry Standards

• The company's financial performance, characterized by nominal revenue ($2,200), increasing net losses ($10,081), zero cash, and a worsening working capital deficiency ($(52,158)), falls significantly below industry standards for a healthy, growing retail business.
• A typical e-commerce sports equipment retailer, even a smaller one, would demonstrate consistent revenue growth, positive gross margins, controlled operating expenses, and a more robust balance sheet to sustain operations.
• The explicit 'going concern' doubt and heavy reliance on related-party funding ($55,322 owed) are critical indicators of financial instability, which are not typical for publicly traded companies in the retail sector.
• The identified material weaknesses in internal controls, specifically the lack of accounting expertise and inadequate segregation of duties, represent fundamental governance failures that would be unacceptable for most publicly traded entities, regardless of their size, and are a stark contrast to the robust financial controls expected in the industry.
• The extreme customer concentration (100% of revenue from one customer) and supplier concentration (100% of purchases from one supplier in the prior year) present severe business risks that are not aligned with diversified and resilient retail operations seen in comparable companies like DICK'S Sporting Goods or even smaller, successful online niche retailers.

Management Changes

Corporate Governance

Legal Proceedings

• Not involved in any pending legal proceeding or litigation.
• No governmental authority is contemplating any proceeding likely to have a material adverse effect on the company.

Related Party Transactions

• During the three months ended November 30, 2025, the current shareholder advanced $14,999 to the company by paying operating expenses.
• As of November 30, 2025, the company was obligated to the current shareholder for a balance of $55,322, which is unsecured, non-interest-bearing, and due on demand.
• During the three months ended November 30, 2024, the company's former CEO and Director advanced $56,423 by paying operating expenses.
• During the three months ended November 30, 2024, the company's former CEO and Director forgave an outstanding balance of $73,823, which was recorded in additional paid-in capital.

Stakeholder Impact

• Shareholders face significant risk of value erosion due to increasing losses, zero cash, explicit going concern doubt, and internal control weaknesses. Potential for dilution from future equity financing.
• Creditors face increased risk due to the company's precarious financial position and heavy reliance on related party funding.
• Customers may face potential service disruption if the company's operations are curtailed or cease due to financial instability.
• Suppliers face risk of delayed or non-payment if the company's financial condition deteriorates further.

Next Steps

• Raise additional operating funds through equity and/or debt financing.
• Develop its business plan to achieve profitability.
• Optimize its own website for global search terms and internal vending equipment.
• Improve marketing and functionality of its own website to reduce reliance on third-party partners.
• Address material weaknesses in disclosure controls and internal control over financial reporting.

Key Dates

Recommendation

The company exhibits severe financial distress with zero cash, increasing net losses, a worsening working capital deficiency, and explicit going concern doubt. The reliance on related-party funding is unsustainable, and the identified material weaknesses in internal controls indicate fundamental governance failures. While the company generated its first revenue, the amount is negligible and does not offset the overwhelming financial and operational risks. There is a high probability of further value destruction or cessation of operations without substantial, uncertain external financing.

Keywords

Sports equipment, online retail, tennis, golf, golf carts, SEC filing, 10-Q, going concern, financial reporting, internal controls, related party transactions, working capital, net loss, revenue