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SUR VENTURES, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operation.(Edgar Glimpses Via Acquire Media NewsEdge) Critical Accounting Policy and Estimates. Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, our accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in this Annual Report on Form 10-K for the year ended September 30, 2012. Overview. Sur Ventures, Inc. ("We" or the "Company") was incorporated in the State of Nevada on December 4, 2007. We were formed to be a provider of lead generation services for event planners in various locations and began to offer event planning services in 2009. In July 2010, we began distributing and selling computer memory modules, flash memory cards and solid state storage products under the trade name Sur Technologies. In September 2011, we discontinued our event planning, management and lead generation division to devote all of our business efforts to our computer memory modules division. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the year ended September 30, 2012, together with notes thereto as included in this Annual Report on Form 10-K. For the year ended September 30, 2012, as compared to the year ended September 30, 2011. Results of Operations. Revenues. We generated revenues of $1,610,344 for the year ended September 30, 2012 from the sale of our computer memory modules, as compared to revenues of $116,732 for the year ended September 30, 2011. The increase in revenues between the comparable periods is primarily due to additional sales of our computer memory products to our two (2) largest customers, sales to new customers and an increase in our product offerings. We hope to generate more significant revenues as we continue to grow our operations and increase our product offerings. 12 --------------------------------------------------------------------------------Cost of Revenues. Our cost of revenues for the year ended September 30, 2012 was $1,318,520, as compared to cost of revenues of $72,714 for the year ended September 30, 2011. Gross Profit. Our gross profit for the year ended September 30, 2012 was $291,824, as compared to a gross profit of $44,018 for the year ended September 30, 2011. Operating Expenses. For the year ended September 30, 2012, our total operating expenses were $266,761, as compared to operating expenses of $88,243 for the year ended September 30, 2011. Our operating expenses for the year ended September 30, 2012 were comprised of officer compensation of $24,000 and general and administrative expenses of $242,761. In comparison, our operating expenses for the year ended September 30, 2011 were comprised of officer compensation of $18,000 and general and administrative expenses of $70,243. The increase in operating expenses between the comparable periods is primarily related to sales commissions that were paid by us during the year ended September 30, 2012. Other Expense. Interest expense increased $14,451 from $3,109 for the year ended September 30, 2011 to $17,560 for the year ended September 30, 2012. The increase in interest expense was due to an increase in funds borrowed to finance purchase orders during the year ended September 30, 2012. Net Income (Loss). For the year ended September 30, 2012, our net income was $7,503, which consisted solely of income from continuing operations. In comparison, for the year ended September 30, 2011, our net loss was $107,829, which consisted of loss from continuing operations of $47,334 and a loss from discontinued operations of $60,495. The shift from net loss to net income between the comparable periods is primarily due to an increase in sales orders we received from our two (2) largest customers, an increase in the number of our customers and an increase in our product offerings. Liquidity and Capital Resources. As of September 30, 2012, we have cash of $91,388 and accounts receivable of $141,672, which comprises our current assets. Our current assets and property and equipment worth $1,231 represent our total assets of $234,291 as of September 30, 2012. As of September 30, 2012, we had total current liabilities of $239,218, which were represented by accounts payable and accrued expenses of $181,535 and loans from stockholder of $57,683. The accounts payable and accrued expenses are comprised primarily of accounts payable to suppliers and legal fees payable. At September 30, 2012, Ms. Fischer agreed to write off accrued compensation of $116,000 as additional paid-in capital. The loans from stockholder are loans payable to Linda Fischer, our officer, director and principal stockholder. Per the terms of the notes, the loans are due upon demand and accrue interest at the rate of 10% per annum. During the year ended September 30, 2012, we borrowed approximately $364,327 from Ms. Fischer and we repaid approximately $334,424 of those loans during the year ended September 30, 2012. The loan funds were used for working capital purposes and to finance purchase orders that we received from our customers. On May 9, 2012, we executed a senior secured promissory note in the amount of $290,000 and a security agreement with Linda Fischer, our officer, director, and principal stockholder. The note was payable on July 16, 2012 and bears interest of 10% per annum. The note was secured by the security agreement between the company and Ms. Fischer. The loan funds were used to finance a large purchase order that we received from a customer. The note was repaid in full on July 19, 2012. On May 29, 2012, we executed a second senior secured promissory note in the amount of $169,000 with Ms. Fischer. The note is also payable on July 16, 2012 and bears interest of 10% per annum. The note is secured by the security agreement dated May 9, 2012 between the company and Ms. Fischer. The loan funds were used to finance a large purchase order that we received from a customer. The note was repaid in full on July 19, 2012. We had no other long term liabilities, commitments or contingencies as of September 30, 2012. During 2013, we expect to incur significant legal and accounting costs as a result of being a public company. We also expect to generate significant revenues from the sale of our computer memory modules in the next twelve months. Those anticipated increases in sales will require additional funds to pay for the costs of the goods sold and finance purchase orders we receive. Our legal and accounting costs and the costs of goods sold will be higher as our business volume and activity increases. Other than the anticipated increases in legal and accounting costs due to the reporting requirements of being a reporting company and increases in costs of goods sold and the amount of funds needed to finance purchase orders we receive, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity. 13 --------------------------------------------------------------------------------We have cash of $91,388 as of September 30, 2012. In the opinion of management, available funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. Linda Fischer, our officer and director, has provided loans to us to finance purchase orders that we receive from our customers and we expect Ms. Fischer will continue to do so, although she is not obligated to provide those loans. We also believe that we can finance purchase orders that we receive from our customers with other parties as well, although we cannot guarantee that we can finance those purchase orders on favorable terms. In addition to generating revenues from our current operations, we may need to raise additional capital to expand our operations to the point at which we are able to operate profitably. We intend to work toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows. We are not currently conducting any research and development activities. We do not anticipate conducting such activities in the near future. In the event that we expand our customer base, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment. Our management believes that we do not require the services of independent contractors to operate at our current level of activity. Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements. |