Business Context and Reporting Period
Company: SA Recovery Corp. (Ticker: SARY)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended February 28, 2010
Business Overview: SA Recovery Corp. is a development-stage company incorporated in Oklahoma in July 2008. The company is engaged in designing a mobile unit to remove contaminants from sand. As of the filing date, the company has not completed the development of its "Mobile Unit" and has generated no revenue. The company emerged from a reorganization of a former parent company, AMS Health Sciences, Inc., which sold its nutritional supplement operations in bankruptcy.
Key Financial Metrics
| Metric | Year Ended Feb 28, 2010 | Year Ended Feb 28, 2009 | Inception to Feb 28, 2010 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(54,947) | $(92,663) | $(147,610) |
| Cash and Cash Equivalents | $2,170 | $5,273 | N/A |
| Total Assets | $2,170 | $12,328 | N/A |
| Total Liabilities | $84,470 | $39,991 | N/A |
| Working Capital Deficit | $(82,300) | $(27,663) | N/A |
| Convertible Notes Payable | $70,129 | $37,917 | N/A |
Liquidity: The company had only $2,170 in cash as of February 28, 2010. Cash used in operating activities for the year was $12,253. The company estimates it requires approximately $160,000 to operate for the next twelve months.
Material Changes vs. Prior Period
- Asset Impairment: The company recorded an asset impairment of $2,055 in 2010, writing off the remaining carrying value of its intangible license agreement. The license agreement with CGJ Holding, LLC expired and was not renewed in August 2010 because the prototype unit failed to perform as anticipated.
- Debt Increase: Total liabilities increased from $39,991 in 2009 to $84,470 in 2010. This includes a new related-party note payable of $9,150 and the amortization of discounts on convertible notes.
- Intangible Assets: The intangible asset (license permit) was fully amortized and impaired to zero in 2010, compared to a net value of $7,055 in 2009.
- Operating Loss: The net loss for the year decreased to $(54,947) from $(92,663) in the prior year, primarily due to the absence of significant research and development expenses in 2010 compared to $46,500 in 2009.
Outlook, Risks, and Management Commentary
Going Concern: The company's auditors have expressed substantial doubt regarding its ability to continue as a going concern. The company has no current source of income and relies on raising additional funds to continue operations.
Development Status: The prototype unit faces technical issues, including leaking under pressure and clogging. The company failed to secure contracts for the 2010 Gulf of Mexico oil spill cleanup due to the lack of a completed product.
Capital Needs: Management anticipates raising funds through private equity offerings or debt financing. There are no assurances that financing will be available on acceptable terms.
Key Risks:
- Product Viability: No developed product exists for sale or lease; the prototype has not been tested for environmental compliance.
- Management: The company has no full-time employees. The sole officer and director, James Ditanna, devotes limited time to the company and has no experience in the environmental services sector.
- Control: A single shareholder, IACE Investments Two, Inc., owns approximately 80.45% of the common stock, controlling all matters submitted to a vote.
- Internal Controls: Management identified material weaknesses in internal controls, including a lack of segregation of duties and no independent audit committee.
Investor Verification Checklist
- Product Feasibility: Verify if the prototype unit has been successfully modified to meet the 4 cubic yards per hour target and if it complies with environmental regulations.
- Capital Availability: Confirm if the company has secured the estimated $160,000 required for the next 12 months of operations.
- Debt Obligations: Review the terms of the $70,129 in convertible notes and the $9,150 related-party note to understand repayment schedules and conversion risks.
- Management Commitment: Assess the time commitment and background of the sole officer, James Ditanna, given his lack of industry experience and other business interests.
- Intellectual Property: Confirm the status of the technology rights following the non-renewal of the license agreement with CGJ Holding, LLC.