10-K: Pacific Sports Exchange Reports FY25 Loss, Governance Changes

Pacific Sports Exchange Inc. reported a net loss of $36,745 for fiscal year 2025, alongside significant management and ownership changes, and identified material weaknesses in internal controls.

Summary

• Reported a net loss of $36,745 for the fiscal year ended August 31, 2025, a significant decrease from a net income of $9,928 in the prior year.
• Revenue decreased to $4,600 in FY2025 from $5,400 in FY2024, primarily from sales of golf carts.
• Gross profit increased to $1,700 in FY2025 from $1,130 in FY2024, despite lower revenue, due to a larger decrease in cost of goods sold.
• Operating expenses rose to $38,445 in FY2025 from $32,159 in FY2024, mainly driven by professional fees.
• The company's working capital deficiency improved to $(42,077) as of August 31, 2025, from $(79,155) in the previous year.
• A change in control occurred on September 23, 2024, with Alpine Elite Holdings Ltd. acquiring approximately 70% of the common stock, and Huang Hua Shang appointed as Chief Executive Officer, Chief Financial Officer, Secretary, and sole Director.
• Management concluded that disclosure controls and procedures and internal control over financial reporting were not effective as of August 31, 2025, due to identified material weaknesses and significant deficiencies.
• The financial statements are prepared on a going concern basis, but the company has an accumulated deficit of $192,966 and relies on additional financing to continue operations.

Sentiment

Score: 2

Explanation: The company reported a substantial net loss, declining revenue, and identified material weaknesses in internal controls, raising significant going concern doubts. While working capital deficiency improved and a related party loan was forgiven, the overall financial health and operational stability are highly concerning.

Positives

• Gross profit increased by $570 to $1,700 in FY2025, indicating improved cost management relative to sales despite a revenue decrease.
• Working capital deficiency significantly improved to $(42,077) as of August 31, 2025, from $(79,155) in FY2024, primarily due to a decrease in accounts payable and accrued liabilities.
• Cash balance increased to $1,476 in FY2025 from $995 in FY2024.
• The former CEO and Director forgave an outstanding balance of $73,823 in related party loans, reducing the company's liabilities.

Negatives

• Reported a net loss of $36,745 in FY2025, a substantial decline from a net income of $9,928 in FY2024.
• Revenue decreased by $800 to $4,600 in FY2025.
• Operating expenses increased by $6,286 to $38,445 in FY2025, primarily due to higher professional fees.
• Accumulated deficit grew to $192,966 as of August 31, 2025.
• Identified material weaknesses and significant deficiencies in internal control over financial reporting.
• Heavy reliance on a single third-party platform (eBay) for revenue generation, posing inherent risks.
• Significant customer concentration (three customers represented 100% of revenue in FY2025) and supplier concentration (three suppliers represented 75% of purchases in FY2025).
• The company's ability to continue as a going concern is in substantial doubt due to recurring losses, minimal operations, and the need for additional capital.

Risks

• Going Concern Uncertainty: The company has an accumulated deficit of $192,966, recurring losses, and minimal operations, raising substantial doubt about its ability to continue as a going concern without obtaining additional financing.
• Reliance on Third-Party Platforms: Heavy reliance on eBay for sales means the company could violate terms of service, lose selling privileges, or face technical issues/failure of the platform.
• Inability to Generate Sufficient Cash Flow: There are no assurances that the company will achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing necessary to support its working capital requirements.
• Material Weaknesses in Internal Controls: Identified material weaknesses and significant deficiencies in internal control over financial reporting, which could lead to errors in financial statements and potential restatements.
• Customer and Supplier Concentration: High dependence on a few customers (3 customers for 100% of FY2025 revenue) and suppliers (3 suppliers for 75% of FY2025 purchases) creates vulnerability to changes in these relationships.
• Lack of Formal Code of Ethics/Committees: The company has not adopted a formal Code of Ethics and lacks nominating, compensation, or audit committees, which could impact governance and oversight.
• Limited Management Expertise: The company expects to be materially dependent on third parties for accounting consulting services for the foreseeable future due to the lack of a chief financial officer with requisite U.S. GAAP expertise.
• Website Optimization Challenges: Developing a robust website and achieving global keyword ranking will take time and resources, and eBay remains the key marketing channel in the interim, posing a risk to direct sales growth.

Future Outlook

The company intends to raise additional operating funds through equity and/or debt financing to address its going concern issues and support working capital requirements. Its longer-term strategy involves developing a robust proprietary website and optimizing it for global search terms to reduce reliance on third-party platforms like eBay, though this will require significant time and resources. The company believes its specialized sourcing strategy can be replicated in other warm weather states. It does not foresee hiring employees in the near future, opting instead to engage independent contractors for website development and marketing. The Board reserves the right to implement executive compensation, including salaries, stock awards, and incentive bonuses, and may adopt a formal Code of Ethics if the company expands.

Management Comments

• "The concept is to source top-quality, in-demand equipment, and resell it to both domestic and international customers."
• "The Company has identified popular brands and models that retain value, in new and used condition, across the various markets in which we plan to sell."
• "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."
• "Our Company believes this sourcing strategy can be duplicated on the East Coast of Florida and in other warm weather states such as California and Arizona."
• "Our officer and director furnish his time to the development of our Company at no cost. We do not foresee hiring any employees in the near future."
• "Management intends to raise additional operating funds through equity and/or debt financing."
• "Our management, including our principal executive officer and principal accounting officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud."

Industry Context

The company operates in the highly competitive sports equipment resale market, facing competition from a wide range of vendors including small local shops, large established retailers like Dick's Sporting Goods and Amazon, and specialized online vendors such as Tennis Warehouse and Midwest Sports. Its strategy focuses on a niche market by targeting specialized international demand for specific brands and models, sourcing equipment from a network of local Florida sports retailers. This approach aims to differentiate itself by leveraging regional supply for global demand, but it must contend with the significant scale and resources of larger industry players.

Comparison to Industry Standards

• The company's revenue of $4,600 and net loss of $36,745 are extremely low and indicate a very early-stage or struggling operation, far below the scale of established sports retailers. For context, Dick's Sporting Goods reported net sales of $12.9 billion in fiscal year 2023.
• Reliance on a single third-party platform like eBay for primary sales, while common for startups, is not a sustainable long-term strategy for a public company aiming for significant growth, unlike larger online retailers that operate robust proprietary e-commerce platforms.
• The identified material weaknesses in internal controls and the lack of an audit committee or independent financial expert on the board fall significantly short of corporate governance standards expected for public companies, even smaller reporting companies.
• The company's business model, while niche, operates in a market dominated by players with vastly superior capital, marketing reach, and supply chain efficiencies, making direct comparison of operational results challenging due to the immense disparity in scale.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition, or results of operations.

Related Party Transactions

• The company uses office space provided by its President/CEO free of charge.
• During FY2025, the company's former CEO and Director advanced $56,423 by paying operating expenses on behalf of the company.
• During FY2025, the current shareholder advanced $39,323 by paying operating expenses and $1,000 in cash advances.
• Pursuant to the change in control on September 23, 2024, the former CEO and Director forgave an outstanding balance of $73,823.
• As of August 31, 2025, the company was obligated to the current shareholder for a balance of $40,323, which is unsecured, non-interest-bearing, due on demand, and has not been formalized by a promissory note.

Stakeholder Impact

• Shareholders: Face significant dilution risk if new equity financing occurs; potential for further value erosion due to ongoing losses and going concern issues; control is concentrated with Alpine Elite Holdings Ltd. (70% ownership).
• Employees: Currently no employees, only an officer/director furnishing time at no cost; no immediate plans to hire, relying on independent contractors, limiting employment opportunities.
• Customers: Potential impact if reliance on eBay leads to service disruptions or if the company's financial instability affects its ability to source and deliver products reliably.
• Suppliers: High concentration of purchases from a few suppliers (3 suppliers for 75% of FY2025 purchases) could lead to supply chain risks if relationships deteriorate or suppliers face issues.
• Creditors: Existing related party debt, though some was forgiven; future debt financing would introduce new creditor relationships and risks, particularly given the going concern uncertainty.

Next Steps

• Raise additional operating funds through equity and/or debt financing to support working capital and address going concern issues.
• Improve the marketing and functionality of its own website to reduce reliance on third-party platforms and create direct customer relationships.
• Undertake a keyword optimization effort to globally rank its website for tennis and golf related keywords.
• Potentially duplicate its sourcing strategy in other warm weather states such as California and Arizona.
• Engage independent contractors to help design and develop its website and marketing efforts.
• Consider adopting a formal Code of Ethics if operations, employees, and/or directors expand in the future.
• Establish an audit committee and implement internal controls and procedures to mitigate identified material weaknesses in financial reporting.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a substantial net loss, declining revenue, and an accumulated deficit. The 'going concern' warning from auditors, coupled with identified material weaknesses in internal controls, signals significant operational and financial risks. The high concentration of customers and suppliers, along with heavy reliance on a single third-party platform (eBay), further exacerbates its precarious position. While a related party loan was forgiven, the overall outlook is highly negative, making it a high-risk investment with substantial downside potential.

Keywords

Sports equipment, tennis, golf, resale, e-commerce, eBay, 10-K, SEC filing, financial results, corporate governance, internal controls, going concern, smaller reporting company, Portland OR, Alpine Elite Holdings