Business Context and Reporting Period
Company: SA Recovery Corp. (Ticker: SARY)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended May 31, 2010
Business Status: Development Stage Enterprise. The company is engaged in designing a mobile unit to remove contaminants from sand. It has generated no revenue since its inception on July 28, 2008. The company emerged from a reorganization of its former parent, AMS Health Sciences, Inc., following a Chapter 11 bankruptcy.
Key Financial Metrics
| Metric | Three Months Ended May 31, 2010 | As of May 31, 2010 |
|---|---|---|
| Revenue | $0 | N/A |
| Net Loss | $(5,965) | N/A |
| Cash and Cash Equivalents | N/A | $458 |
| Total Assets | N/A | $458 |
| Total Liabilities | N/A | $88,533 |
| Shareholders' Deficit | N/A | $(88,075) |
| Working Capital | N/A | $(88,075) |
| Loss Per Share (Basic & Diluted) | $0.00 | N/A |
Debt Composition: Total liabilities consist primarily of convertible notes and interest payable ($70,942), notes payable to related parties ($11,150), and accrued director salary ($6,250).
Material Changes vs. Prior Period
- Expense Reduction: Total expenses decreased significantly to $5,965 for the quarter ended May 31, 2010, compared to $27,685 for the same period in 2009.
- Interest Expense: The reduction in expenses is primarily attributed to a decrease in interest expense. The discount on a $65,000 convertible note was fully amortized and expensed during the fiscal year ended February 28, 2010, resulting in minimal interest expense in the current quarter ($1,003) compared to the prior year ($18,941).
- Cash Position: Cash decreased from $2,170 at February 28, 2010, to $458 at May 31, 2010, due to a net cash outflow from operating activities of $3,712.
Outlook, Risks, and Management Commentary
- Going Concern: The filing includes a "Going Concern" note. The company has a working capital deficit of $88,075 and negative cash flows from operations since inception ($65,692). Management states there is substantial doubt about the company's ability to continue as a going concern without additional financing.
- Capital Needs: The company requires additional capital to fund the development of its mobile unit. It currently has no identified sources of capital. If funding is not secured, the company may have to curtail or terminate operations.
- Product Development: The company is attempting to convert a "Sand Extraction Prototype I" into a mobile unit. The prototype has suffered from operating problems (leaks, clogging). A license agreement with CGJ Holding, LLC expired in July 2010 and was not renewed; the company is no longer obligated to pay royalties unless it elects to fabricate the original prototype design.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of the end of the period.
- Legal Proceedings: No current legal proceedings are pending.
Investor Verification Checklist
- Verify the company's ability to secure the additional financing required to continue operations, given the $458 cash balance and $88,533 in liabilities.
- Confirm the technical viability of the mobile unit prototype, noting the reported operational failures of the previous prototype.
- Review the terms of the $65,000 convertible note (maturing Feb 28, 2011) and the potential dilution of 2 million shares upon conversion.
- Assess the impact of the ineffective internal controls on the reliability of future financial reporting.
- Monitor the status of the license agreement with CGJ Holding, LLC, specifically regarding the need to re-license technology if the original prototype design is pursued.