Business Context and Reporting Period
Company: SA Recovery Corp. (Ticker: SARY)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended August 31, 2009
Business Description: SA Recovery Corp. is a development-stage enterprise incorporated in July 2008 following the bankruptcy reorganization of its former parent, AMS Health Sciences, Inc. The company is engaged in designing and fabricating a mobile unit to remove contaminants from sand. As of the filing date, the company has generated no revenue and has not developed a final product available for sale.
Key Financial Metrics
| Metric | Six Months Ended 8/31/09 | Three Months Ended 8/31/09 | Inception to 8/31/09 |
|---|---|---|---|
| Revenues | $0 | $0 | $0 |
| Total Expenses | $41,743 | $14,058 | $134,406 |
| Net Loss | $(41,743) | $(14,058) | $(134,406) |
| Cash and Cash Equivalents (End of Period) | $50 | $50 | $50 |
| Total Assets | $4,633 | $4,633 | $4,633 |
| Total Liabilities | $74,039 | $74,039 | $74,039 |
| Shareholders' Deficit | $(69,406) | $(69,406) | $(69,406) |
| Working Capital Deficit | $(73,989) | $(73,989) | $(73,989) |
Debt Composition: Total liabilities include $65,000 in convertible notes payable, $1,900 in notes payable to related parties, $3,508 in interest payable, and $3,440 in accrued director salary.
Material Changes vs. Prior Period
- Cash Position: Cash decreased from $5,273 as of February 28, 2009, to $50 as of August 31, 2009, representing a burn rate of approximately $5,223 over the six-month period.
- Liabilities: Total liabilities increased from $39,991 to $74,039. This increase is primarily driven by the amortization of the discount on the convertible note payable (recognized as interest expense) and the accrual of director salaries and interest.
- Intangible Assets: The carrying value of the license permit decreased from $7,055 to $4,583 due to amortization.
- Revenue: No revenue was generated in the current period or since inception.
Outlook, Risks, and Management Commentary
Going Concern
Management has disclosed substantial doubt regarding the company's ability to continue as a going concern. The company has a working capital deficit of $73,989 and negative cash flows from operations of $56,850 since inception. The financial statements do not include adjustments that might be necessary if the company is unable to continue operations.
Liquidity and Capital Resources
The company has no identified sources of capital at this time. Operations have been funded primarily by advances from the majority shareholder, IACE Investments Two, Inc. Without additional financing or revenue generation, the company may be forced to curtail or terminate operations.
Product Development Risks
The company's primary asset is a license for a "Sand Extraction Prototype I." Subsequent events disclosed in the filing indicate the prototype suffered from operating problems (leaks, clogging, cumbersome design). The company is now focused on converting the prototype into a mobile unit. The license agreement with CGJ Holding, LLC, expired in July 2010 and was not renewed; the company is no longer obligated to pay royalties but would need a new license to sell the original prototype design.
Internal Controls
Management concluded that disclosure controls and procedures were not effective as of the end of the period due to resource constraints and inherent limitations in the control system.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance, as the filing reports only $50 remaining as of August 31, 2009.
- Debt Maturity: Confirm the status of the $65,000 convertible note (extended to February 28, 2011) and whether it has been converted or repaid.
- Product Viability: Assess the technical progress of the "Mobile Unit" conversion, given the reported failures of the original prototype.
- Financing Plans: Investigate any new financing agreements or shareholder advances made subsequent to this filing to address the going concern warning.
- Related Party Transactions: Review the terms of the $1,900 note payable to a related party and the accrued director salary.