| · | Grow Related Services: Develop a network of diesel fuel distribution to 160 major markets in the US utilizing our established Fuel Services network and programs; Establish an in-transit service of providing truck tire, wheel and battery repairs across the US and Canada; Offer truck freight brokerage services for freight; and Offer pre-paid fuel cards for major suppliers of truck fuel nationally. |
| · | Continue to Improve Working Capital Management and Reduce Costs: We intend to improve our working capital management primarily by improving our turnover rates. To do this, we will continue to improve procurement management practices, further develop our central procurement operations, improve ad forecasting with our customers, effectively manage alternative channels of fuel product sourcing, invest in systems enhancements and invest in expanding our tanker truck fleet. In addition, to strengthen our position as a low-cost distributor of fuel products, we have instituted a "culture of thrift" among our employees and developed initiatives to reduce our expenses through our low cost pursuit program. |
| · | Look for partners with larger facilities within the same sector as a growth strategy. |
Competition
The markets in which we operate are highly competitive. We compete in our Fuel Service business and several of other services against many companies in fragmented, highly competitive markets and we have fewer resources than some of those companies. Our business competes in the area of fuel distribution principally on the basis of the following factors: service quality, reputation, technical expertise and reliable service. Competitive pressure and other factors could cause us additional difficulties in acquiring market share or could result in decreases in our margins, either of which could have a material adverse effect on our financial position and results of operations.
The Company believes it has the following competitive strength:
Low-Cost, High-Volume Distribution System:
We have established our Fuel Services program as a service capable of providing truck fleets with cost savings based upon high volume nationally, together with the means to track costs, savings and usage, through our third party billing card. With high volume comes the opportunity to operate more efficiently by leveraging costs. Our efficient and productive operations have enhanced our ability to provide customers with competitive pricing of their fuel product needs which advantage improves customer acquisition and retention.
Efficient Centralized Purchasing:
Management decisions and vendor negotiations provide customers with cost savings for their fuel products, which services are from our centralized location dealing with the Company for a fee. We believe our customer support center is one of the largest volume-buying locations of fuel products in tour markets. Centralized purchasing generates economies of scale because it enables us in one location to contract for the purchase of fuel products more efficiently by eliminating redundancy involved in purchasing through multiple locations, which we believe increases our leverage with wholesale fuel providers. We believe that our centralized purchasing capabilities are valuable to our customers, the truck fleets which operate nationally.
Diverse Distribution Base:
We have arrangements with fuel distributors at approximately 3,000 fuel stations under a wide variety of formats across the United States. Further, we provide our Fuel Services program to approximately 3 truck fleet customers.
Successful Price Strategy: We negotiate with fuel providers, typically truck stocks, to keep fleet prices for fuel products low by leveraging our existing distribution and wholesale purchasing capabilities and maintaining a lower cost structure associated with operating these distribution networks. We believe this strategy will become increasingly profitable because we focus on high-turnover, employ flow-through distribution methods that eliminate product storage operating costs and handling expense.
Many of our competitors have achieved significant national brand name recognition as fuel distributors and have extensive promotional programs. Our Fuel Services program uses equipment and technology that is widely available. Accordingly, barriers to entry, apart from capital availability, are low in our business, and the entrance of new competitors into the fuel distribution market may reduce our ability to capture improving profit margins. However, we believe that our comprehensive Fuel Services program, which includes pre-negotiated fuel discounts from wholesalers/retailers based upon volume commitments and pre-negotiated customer base with fleet truck operators nationally, provides advantages to both the supplier and the customer at reasonable costs. The Company's ability to compete successfully will depend on our success at retaining current customers and penetrating new targeted markets. There can be no assurance that the Company will be able to compete successfully, that its services will continue to meet with customer approval, that competitors will not develop and market their distribution services that are similar or superior to our services or that the Company will be able to successfully enhance its services.
Principal Suppliers
The Company has contractual arrangements with over 8 fuel distribution centers, many of which operate multiple truck stops and other similar facilities nationally. The Company does not believe that it is dependent upon any single fuel distributor.
Dependence on Major Customers
The Company does not depend on any major customers other than Churchill of Detroit, B & W Interstate and Cimarron Transportation, which accounted for 22%, 23% and 7% of our revenues during the fiscal year ending Dec. 31, 2007. Because of changes in the financial markets in 2008, and 2009, and the customer base of our trucking companies being automotive, we have seen a decrease in revenues. As of Dec. 31, 2009 our major customer is Churchill of Detroit which accounts for approximately 10% of revenues.
Employees
As of September 8, 2010, the Company had 5 full time employees including its executive officers. No employees are covered by a collective bargaining agreement. The Company's management considers relations with its employees to be satisfactory.
Not applicable.
ITEM 3. LEGAL PROCEEDING
The Registrant's officers and directors are not aware of any threatened or pending litigation to which the Registrant is a party or which any of its property is the subject and which would have any material, adverse effect on the Registrant.
ITEM 4. REMOVED AND RESERVED
PART II
(a) Market Price Information
The Registrant's common stock became subject to quotation on the Pink OTC Markets under the symbol “SSPV” in February 2007. It currently trades under the symbol “SSRV”. To the best knowledge of the Registrant, there has been a trading market for the Registrant’s common stock for approximately the past three years. The following table shows the high and low bid prices for the Registrant's common stock during the last three fiscal years as reported by the National Quotation Bureau Incorporated.
| | | Fiscal 2009 | | | Fiscal 2008 | | | Fiscal 2007 | |
| | | High | | | Low | | | High | | | Low | | | High | | | Low | |
| Fourth Quarter ended December 31 | | $ | 0.24 | | | $ | 0.18 | | | $ | 0.90 | | | $ | 0.175 | | | $ | 0.06 | | | $ | 0.009 | |
| Third Quarter ended September 30 | | $ | 0.24 | | | $ | 0.20 | | | $ | 1.25 | | | $ | 0.20 | | | $ | 0.07 | | | $ | 0.02 | |
| Second Quarter ended June 30 | | $ | 0.41 | | | $ | 0.02 | | | $ | 7.00 | | | $ | 0.35 | | | $ | 0.10 | | | $ | 0.05 | |
| First Quarter ended March 31 | | $ | 0.70 | | | $ | 0.40 | | | $ | 3.50 | | | $ | 0.50 | | | $ | 2.00 | | | $ | 0.05 | |
On September 8, 2010, the closing bid price of the Company’s Common Stock as reported by the OTC.BB was $0.18 and there were approximately 48 shareholders of record.
Dividend Policy
Holders of our common stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefore. We have not paid any cash dividends on our common stock and do not anticipate paying any such cash dividends in the foreseeable future. Earnings, if any, will be retained to finance future growth. We may issue shares of our common stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. Issuance and or sales of substantial amounts of common stock could adversely affect prevailing market prices in our common stock.
There are no restrictions in our articles of incorporation or by-laws that restrict us from declaring dividends.
Equity Compensation Plans
In June 2005, the Company's board of directors approved an employee incentive plan and issued 900,000 shares under such plan. Since that time, no additional shares have been issued under the plan.
Common Stock
During the fiscal years ending December 31, 2007, 2008 and 2009 respectfully, there were no modifications of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
During Fiscal year ending 2007, the Company issued 8,569,000 shares of common stock for services and in connection with the sale-leaseback of equipment. The total value of the shares issued for services was $193,045 and for the sale-leaseback of the equipment at $168,500.
During Fiscal year ending 2009, the Company issued 20,040,000 shares of common stock for services valued at $20,326.
On December 20, 2008, the company executed a 1 to 50 stock split.
During Fiscal year ending 2008, the Company did not issue any additional shares of its common stock.
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted- average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
| Equity compensation plans not approved by security holders 2005 Incentive Plan | | | N/A | | | | N/A | | | | N/A | |
The Company’s 2005 Incentive Plan (the “2005 Plan”) authorizes up to 900,000 shares of common stock to any person employed by the Company either as an employee, officer, director or independent consultant or other person employed by the Company, provided that no person can be granted shares under the 2005 Plan for services related to capital raising or promotional activities. As of December 31, 2009, 900,000 shares have been issued pursuant to the 2005 Plan. There are no restrictions on resale upon the purchases of the stock from the employees or the consultants, unless contained in the written award approved by the Board of Directors.
ITEM 6. N/A
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
GROSS BILLINGS AND NET REVENUES
Gross billings, Direct Costs and Gross Revenues for the years ending December 31, 2009, 2008, 2007 and 2006 respectively are reflected below:
| Fiscal Year Ending | | Gross Billings | | | Direct Costs | | | Gross Revenue | |
| 2009 | | $ | 2,751,666 | | | $ | 2,683,172 | | | $ | 68,494 | |
| 2008 | | $ | 10,547,202 | | | $ | 10,401,482 | | | $ | 145,720 | |
| 2007 | | $ | 15,104,770 | | | $ | $15,069,476 | | | $ | 35,294 | |
| 2006 | | $ | 20,092,577 | | | $ | 19,975,606 | | | $ | 116,971 | |
*The Economic conditions referred to within this section generally refer to the overall economic condition of the country as a whole and in particular for purposes of understanding the impact on the Company’s financials, the resulting decrease in Gross Billings and overall company financial picture, over the reported period was principally a result of changes in the general economic environment and specifically the higher costs of fuel because of lower refinery production. In addition, many of our trucking customers were tied to the automotive industry and with the downturn in the general economic condition and the financial collapse within the automotive industry, services and gross billings declined drastically. Additional information is provided where applicable.
Our direct costs during each of the four fiscal years decreased annually year over year principally as a result of *economic conditions, as the company streamlined its operations to adjust to decreased demand.
Gross Revenues for the Fiscal Year Ending December 31, 2009 decreased $77,226 from $145,720 for the Fiscal year ending December 31, 2008 to $68,494 for the Fiscal Year ending December 31, 2009 due primarily to *economic conditions.
Gross Revenues for the Fiscal Year Ending December 31, 2008 increased $110,426 from $35,294 for the Fiscal year ending December 31, 2007 to $145,720 for the Fiscal Year ending December 31, 2008 due primarily to *economic conditions.
Gross Revenues for the Fiscal Year Ending December 31, 2007 decreased $81,677 from $116,971for the Fiscal year ending December 31, 2006 to $35,294 for the Fiscal Year ending December 31, 2007 due primarily to* economic conditions.
OPERATING EXPENSES
Operating Expense for the fiscal years ending December 31, 2009, 2008, 2007 and 2006 respectively are reflected below:
| Fiscal Year Ending | | Operating Expenses | |
| 2009 | | $ | 122,570 | |
| 2008 | | $ | 277,988 | |
| 2007 | | $ | 608,550 | |
| 2006 | | $ | 167,016 | |
Operating Expenses for the Fiscal Year Ending December 31, 2009 decreased $155,418 from $277,988 for the Fiscal year ending December 31, 2008 to $122,570 for the Fiscal Year ending December 31, 2009 due primarily to *economic conditions, as the company streamlined its operations to adjust to decreased demand.
Operating Expenses for the Fiscal Year Ending December 31, 2008 decreased $330,562 from $608,550 for the Fiscal year ending December 31, 2007 to $277,988 for the Fiscal Year ending December 31, 2008 due primarily to *economic conditions, as the company streamlined its operations to adjust to decreased demand.
Operating Expenses for the Fiscal Year Ending December 31, 2007 increased $441,534 from $167,016 for the Fiscal year ending December 31, 2006 to $608,550 for the Fiscal Year ending December 31, 2007 due primarily to the Company’s increased expenses related to compliance costs associated with their publicly traded status.
NET INCOME (LOSS)
Net Income (Loss) for the fiscal years ending December 31, 2009, 2008, 2007 and 2006 respectively are reflected below:
| Fiscal Year Ending | | Net Income (Loss) | |
| 2009 | | $ | (54,041 | ) |
| 2008 | | $ | (121,248 | ) |
| 2007 | | $ | (497,229 | ) |
| 2006 | | $ | (12,371 | ) |
The Company’s Net Loss for the Fiscal Year Ending December 31, 2009 decreased $67,207 from ($121,248) for the Fiscal year ending December 31, 2008 to ($54,041) for the Fiscal Year ending December 31, 2009 due primarily to economic conditions.
The Company’s Net Loss for the Fiscal Year Ending December 31, 2008 decreased $375,981 from ($497,229) for the Fiscal year ending December 31, 2007 to $($121,248) for the Fiscal Year ending December 31, 2008 due primarily to economic conditions.
The Company’s Net Loss for the Fiscal Year Ending December 31, 2007 increased $484,858 from ($12,371) for the Fiscal year ending December 31, 2006 to ($497,229) for the Fiscal Year ending December 31, 2007 due primarily to the significant increase in the Company’s Operating expenses related to compliance costs associated with their publicly traded status.
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative working capital as of December 31, 2009 and limited cash. The Company plans to continue to pursue its business model to try and increase its revenue and may also seek a partner within its sector or seek additional funding through debt or equity financing, as needed.
Cash used in operating activities and cash flows from financing activities for the years ending December 31, 2009, 2008, 2007 and 2006 respectively are reflected below:
| Fiscal Year Ending | | Cash Used In Operating Activities | | | Cash Flows From Financing Activities | |
| 2009 | | $ | 9,934 | | | $ | (6,281 | ) |
| 2008 | | $ | (3,880 | ) | | $ | (138 | ) |
| 2007 | | $ | (129,264 | ) | | $ | 132,420 | |
| 2006 | | $ | (15,025 | ) | | $ | 14,261 | |
2009
The Company’s Cash Used in Operating Activities for the Fiscal Year Ending December 31, 2009 increased $13,814 from ($3,880) for the Fiscal year ending December 31, 2008 to $9,934 for the Fiscal Year ending December 31, 2009 due primarily to economic conditions. The Company’s Net Cash from Financing Activities for the Fiscal Year Ending December 31, 2009 decreased $6,143 from ($138) for the Fiscal year ending December 31, 2008 to ($6,281) for the Fiscal Year ending December 31, 2009 due primarily to *economic conditions.
2008
The Company’s Cash Used in Operating Activities for the Fiscal Year Ending December 31, 2008 decreased $125,384 from ($129,264) for the Fiscal year ending December 31, 2007 to ($3,880) for the Fiscal Year ending December 31, 2008 due primarily to *economic conditions. The Company’s Net Cash from Financing Activities for the Fiscal Year Ending December 31, 2008 decreased $132,282 from $132,420 for the Fiscal year ending December 31, 2007 to ($138) for the Fiscal Year ending December 31, 2008 due primarily to *economic conditions.
2007
The Company’s Cash Used in Operating Activities for the Fiscal Year Ending December 31, 2007 decreased $114,239 from ($15,025) for the Fiscal year ending December 31, 2006 to ($129,264) for the Fiscal Year ending December 31, 2007 due primarily to *economic conditions. The Company’s Net Cash from Financing Activities for the Fiscal Year Ending December 31, 2007 increased $118,159 from $14,261for the Fiscal year ending December 31, 2006 to $132,420 for the Fiscal Year ending December 31, 2007 due primarily to *economic conditions.
There are no limitations in the Company's articles of incorporation on the Company's ability to borrow funds or raise funds through the issuance of restricted common stock. The Company's limited resources and lack of having cash-generating business operations may make it difficult to borrow funds or raise capital. The Company's limitations to borrow funds or raise funds through the issuance of restricted capital stock may have a material adverse effect on the Company's financial condition and future prospects, including the ability to execute its business plan. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest.
OFF-BALANCE SHEET ARRANGEMENTS
During the Fiscal Years ending December 31, 2007, 2008 and 2009 respectively, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Contractual Obligations and Commitments
As of the each of the Fiscal Years ending December 31, 2007, 2008 and 2009 respectively, we did not have any Contractual Obligations and Commitments.
The Company may receive proceeds in the future from the exercise of warrants and options outstanding as of December 31, 2009 in accordance with the following schedule:
| | | Approximate Number of Shares | | | Approximate Proceeds | |
| 2006 Non-Plan Options and Warrants | | | 2,007,413 | | | $ | 981,783 | |
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.
Furniture and equipment are recorded at cost and depreciated on a declining balance and straight-line basis over their estimated useful lives, principally two to seven years. Accelerated methods are used for tax depreciation. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When furniture and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
The Company has incurred deferred offering costs in connection with raising additional capital through the sale of its common stock. These costs are capitalized and charged against additional paid-in capital when common stock is issued. If there is no issuance of common stock, the costs incurred are charged to operations.
Research and development costs are charged to operations when incurred and are included in operating expenses.
New Accounting Pronouncements
For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Significant Accounting Polices: Recent Accounting Standards” in Part II, Item 8 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's audited financial statements for the fiscal years ended December 31, 2007, December 31, 2008 and December 31, 2009 are attached to this annual report.
Not applicable.
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management conducted its evaluation based on the framework in Internal Control – Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at December 31, 2009, such disclosure controls and procedures were effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our management assessed our internal control over financial reporting based on the Internal Control – Integrated Framework issued by the COSO. Based on the results of this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2009 based on such criteria.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on their evaluation as of the end of the period covered by this report, management concluded that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarters ending December 31, 2009, 2008 and 2007 respectively, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Auditor’s Report on Internal Control over Financial Reporting
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
PART III
| Name | | Age | | Title | | Date Became Executive Officer |
| David E. Joseph | | 63 | | Chairman | | 10/2005 |
| Michael B. Jackson | | 57 | | Chief Financial Officer, Vice President and Director | | 10/2005 |
| Christopher Aldridge | | 47 | | President, CEO, and Director | | 05/2008 |
| Dennis Davenport, Esq. | | 63 | | Corporate Counsel and Director | | 08/2006 |
All of the officers have held these positions and/or directorships with us since April 2005. Officers are not elected for a fixed term of office but hold office until their successors have been elected.
David E. Joseph, Chairman - Mr. Joseph was one of the three founders of SSI in 2000. Prior to the organization of SSI, Mr. Joseph was employed by Ford Motor Company, Dearborn, MI where he had positions of increasing responsibility including supervisory and management positions. Mr. Joseph holds an MBA degree in management from the University of Detroit and a B.A.A. degree in accounting from the Detroit Institute of Technology. Mr. Joseph is a Board Member of the Mitchell Ross Foundation and the Larry Doss Foundation and is Secretary of the Board of Don Bosco Hall. Mr. Joseph was co-owner of the Hawthorn Suites Hotel in Southfield , Mi from 2002 to 2006.
Michael B. Jackson, CFO, Vice President and Director - Mr. Jackson is also one of the three founders of SSI in 2000. Prior to the organization of SSI, Mr. Jackson served as manager of credit for Meadowdale Foods, Inc., Detroit, MI, where he implemented a program for improvement of internal financial reporting systems and managed an inventory loan portfolio of $16 million, among other duties. From 1982 to 1985, Mr. Jackson was an independent auditor for Commercial Services, Inc., Madison Heights, MI, where he was responsible for insurance audits and risk assessment. Mr. Jackson holds a B.A. in economics from Morehouse College, Atlanta, GA and attended Dartmouth College, Tuck School of Business, Hanover, NH in 1995-96.
Christopher B. Aldridge, President, CEO, and Director - Mr. Aldridge became the COO and a director of the Company in August 2006. In May, 2008 he was elected President and CEO. Since May 2006, Mr. Aldridge was the CEO of Good Faith Homes. From April 2004 to May 2005 Mr. Aldridge was an Executive Vice President for FIMCO, a national mortgage company. Form October 2002 to April 2003, Mr. Aldridge was the president of the Charter One Community Development Ban in Cleveland. Mr. Aldridge graduated from Harvard College, Cambridge, MA with a B.A. in Economics and graduated with a Juris Doctor from Wayne State University in 1993.
Dennis Davenport, Esq., Corporate Counsel and Director - Prior to joining the Company as counsel in 2006, Mr. Davenport owned and managed the Hawthorn Suites Hotel in Southfield, MI from 2002 to 2006. Mr. Davenport also owned and operated two McDonald franchises from 1988 to 2001 in Michigan. Prior to owning and operating two businesses he worked as staff attorney for General Motors from 1983 to 1988. Mr. Davenport holds a Juris Doctor from the University of Michigan and holds a Master of Arts from the Michigan State University.
The following table contains the executive compensation to the chief executive officers of the Company for the periods set forth below.
Summary Compensation Table
| | | | | | | | | | | Long Term | | |
| | | | | Annual Compensation | | Compensation Awards | | |
| | | | | | | | | Other | | Restricted | | Securities | | |
| | | | | | | | | Annual | | Stock | | Underlying | | All Other |
| | | | | Salary | | Bonus | | Compensation | | Award(s) | | Options | | Compensation |
| Name and Principal Position | | Year | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) |
David E. Joseph, CEO, President | | 2007 | | none--- | | none--- | | none--- | | none--- | | none--- | | none--- |
| | | 2008 | | none--- | | none--- | | none--- | | none--- | | none--- | | none--- |
| | | 2009 | | none--- | | none--- | | none--- | | none--- | | none--- | | none--- |
| | | | | | | | | | | | | | | |
Michael B. Jackson, CFO, Vice President | | 2007 | | none--- | | none--- | | none--- | | none--- | | none--- | | none--- |
| | | 2008 | | none--- | | none--- | | none--- | | none--- | | none--- | | none--- |
| | | 2009 | | none--- | | none--- | | none--- | | none--- | | none--- | | none--- |
The Company has no employment agreement with any of its officers and directors.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009
| | | Option Awards | | Stock Awards |
| | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($ | | Option Expiration Date | | Number of Shares of Stock That Have Not Vested (#) | | Market Value of Shares of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or Other Rights That Have Note Vested ($) |
| N/A | | | | | | | | | | | | | | | | | | |
DIRECTOR COMPENSATION
Directors receive no compensation for serving on the Board.
The following table summarizes compensation paid to all of our non-employee directors:
| | Fees Earned or Paid in Cash ($) | | Stock Awards ($) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) |
| N/A | | | | | | | | | | | | | | |
The table below discloses any person (including any "group") who is known to the Registrant to be the beneficial owner of more than five (5%) percent of the Registrant's voting securities. As of September 20, 2010, the Registrant had 473,341 shares of common stock issued.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class |
| Common Stock | David E. Joseph, Chairman 23077 Greenfield Road, Suite 470 Southfield, MI 48075 | 131,800 shares | 28.263% |
| Common Stock | Michael B. Jackson, CFO, Vice President and Director 900 Bunche Street Dothan, AL | 58,000 shares | 12.437% |
| Common Stock | Charles D. Davenport, Esq. Director 23077 Greenfield Road, Suite 470 Southfield, MI 48075 | 84,000 shares | 18.013% |
| Common Stock | Christopher B. Aldridge, President, CEO and Director 23077 Greenfield Road, Suite 470 Southfield, MI 48075 | 43,400 shares | 9.307% |
| Common Stock | William, Gregory, Smith and Associates 4248 Merck Road Wilson, NC 27893 | 43,400 shares | 9.307% |
| Common Stock | All officers and directors as a group (4 people) | 317,200 shares | 68.02% |
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Public Accountants
The Registrant's Board of Directors has appointed Silberstein Ungar, PLLC as independent public accountant for the fiscal years ending December 31, 2009, 2008 and 2007.
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by Silberstein Ungar, PLLC for the audit of the Registrant's annual financial statements for the years ended December 31, 2009, 2008 and 2007, and fees billed for other services rendered by Silberstein Ungar, PLLC, respectively during those periods.
| | | Year Ended | |
| | | December 31, 2009 | | | December 31, 2008 | | | December 31, 2007 | |
| Audit fees (1) | | $ | 8,000 | | | $ | 7,900 | | | $ | 7,800 | |
| Audit-related fees (2) | | | N/A | | | | N/A | | | | N/A | |
| Tax fees (3) | | | N/A | | | | N/A | | | | N/A | |
| All other fees | | | N/A | | | | N/A | | | | 4,500 | |
| (1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC. |
| (2) Audit-related fees consist of assistance and discussion concerning financial accounting and reporting standards and other accounting issues. |
| (3) Tax fees consist of preparation of federal and state tax returns, review of quarterly estimated tax payments, and consultation concerning tax compliance issues. |
Index
| Report of Independent Registered Public Accounting Firm | | | | |
| | | | | |
| Fiscal Year Ending 12/31/09 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| Quarter Ending 9/30/09 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| Quarter Ending 6/30/09 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| Quarter Ending 3/031/09 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| | | | | |
| Fiscal Year Ending 12/31/08 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| Quarter Ending 9/30/08 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| Quarter Ending 6/30/08 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| Quarter Ending 3/031/08 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
| Notes to the financial statements | | | | |
| | | | | |
| | | | | |
| Fiscal Year Ending 12/31/07 | | | | |
| Balance sheet | | | | |
| Statements of operations | | | | |
| Statements of changes in stockholders' deficit | | | | |
| Statements of cash flows | | | | |
Notes to the financial statements | | | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Specialized Services, Inc.
Southfield, Michigan
Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Board of Directors. Our principal auditors have informed our Board of Directors of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Board of Directors prior to commencing such services.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Regulation | | Exhibit |
| | | |
| | | |
| 3.1 | | Certificate of Incorporation, as amended (1) |
| | |
| 3.2 | | Certificate of Amendment (2) |
| | |
| 3.3 | | Bylaws (1) |
| | | |
| 23.1 | | Consent of Silberstein Ungar, PLLC |
| | |
| 31.1 | | Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer |
| | |
| 32.1 | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer and Chief Financial Officer |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | SPECIALIZED SERVICES, INC. |
| | | |
| Dated: October 7, 2010 | | By: | | /s/ Christopher B. Aldridge |
| | | | | Chief Executive Officer and Chairman of the Board (Principal Executive Officer and Principal Financial Officer) |
| | | |
| Dated: October 7, 2010 | | By: | | /s/ Michael B. Jackson, CFO |
| | | | | Principal Accounting Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| /s/ Christopher B. Aldridge, CEO, President | | /s/ Michael B. Jackson, CFO |
| (Principal Executive Officer) | | (Principal Financial Officer) |
| Dated: October 7, 2010 | | Dated: October ___, 2010 |
SPECIALIZED SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2007
SPECIALIZED SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2007
TABLE OF CONTENTS
| Report of Independent Registered Public Accounting Firm | F-1 |
| | |
| Balance Sheets at December 31, 2007 and 2006 | F-2 |
| | |
| Statements of Operations for the Years Ended | |
| December 31, 2007 and 2006 | F-3 |
| | |
| Statement of Stockholders’ Deficit as of December 31, 2007 | F-4 |
| | |
| Statements of Cash Flows for the Years Ended | |
| December 31, 2007 and 2006 | F-5 |
| | |
| Notes to the Financial Statements | F-6 – F-9 |
Silberstein Ungar, PLLC CPAs and Business Advisors | |
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Specialized Services, Inc.
Southfield, Michigan
We have audited the accompanying balance sheets of Specialized Services, Inc., as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Specialized Services, Inc., as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
| /s/ Silberstein Ungar, PLLC |
| Silberstein Ungar, PLLC |
Bingham Farms, Michigan
October 18, 2010
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006
| | | 2007 | | | 2006 | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 7,679 | | | $ | 4,523 | |
| Accounts receivable | | | 10,811 | | | | 21,925 | |
| Prepaid interest | | | 107,256 | | | | 0 | |
| Total Current Assets | | | 125,746 | | | | 26,448 | |
| | | | | | | | | |
| PROPERTY AND EQUIPMENT, net | | | 163,948 | | | | 0 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Deposits | | | 5,709 | | | | 4,395 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 295,403 | | | $ | 30,843 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 5,919 | | | $ | 0 | |
| Accrued expenses and taxes | | | 147,692 | | | | 25,068 | |
| Leases payable – current portion | | | 57,921 | | | | 0 | |
| Loan payable – related party | | | 5,550 | | | | 10,550 | |
| Line of credit | | | 54,803 | | | | 49,083 | |
| Total Current Liabilities | | | 271,885 | | | | 84,701 | |
| | | | | | | | | |
| Long-Term Liabilities | | | | | | | | |
| Leases payable | | | 213,060 | | | | 0 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 484,945 | | | | 84,701 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Capital stock, $0.0001 par value, 100,000,000 shares authorized, 3,856,700 and 2,999,800 shares issued and outstanding | | | 386 | | | | 3,000 | |
| Additional paid in capital | | | 388,207 | | | | 24,048 | |
| Accumulated deficit | | | (578,135 | ) | | | (80,906 | ) |
| Total Stockholders’ Deficit | | | (189,542 | ) | | | (53,858 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 295,403 | | | $ | 30,843 | |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006
| | | 2007 | | | 2006 (Restated) | |
| | | | | | | |
| NET REVENUE | | $ | 35,294 | | | $ | 116,971 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | 608,550 | | | | 167,016 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (573,256 | ) | | | (50,045 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 69,727 | | | | 31,374 | |
| | | | | | | | | |
| LOSS PRIOR TO PROVISION FOR INCOME TAXES | | | (503,529 | ) | | | (18,671 | ) |
| | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | | | 6,300 | | | | (6,300 | ) |
| | | | | | | | | |
| NET LOSS | | $ | (497,229 | ) | | $ | (12,371 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBERS OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 3,082,978 | | | | 2,908,841 | |
| | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (0.16 | ) | | $ | (0.00 | ) |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
AS OF DECEMBER 31, 2007
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 900,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | - | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 1,299,800 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 2,199,800 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 800,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 2,999,800 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 856,900 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 10 | | | - | | | | (3,471 | ) | | | 3,471 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 3,856,700 | | | $ | 386 | | | $ | 388,207 | | | $ | (578,135 | ) | | $ | (189,542 | ) |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006
| | | 2007 | | | 2006 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss for the year | | $ | (497,229 | ) | | $ | (12,371 | ) |
| Adjustments to reconcile net (loss) to cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 30,277 | | | | 163 | |
| Common stock issued for services | | | 193,045 | | | | | |
| Changes in assets and liabilities: | | | | | | | | |
| Decrease in accounts receivable | | | 11,114 | | | | 9,484 | |
| (Increase) decrease in deferred taxes | | | 6,300 | | | | (6,300 | ) |
| (Increase) in security deposits | | | (1,314 | ) | | | 0 | |
| Increase in account payable | | | 5,919 | | | | 0 | |
| Increase (decrease) in accrued expenses and taxes | | | 122,624 | | | | (6,001 | ) |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | | | (129,264 | ) | | | (15,025 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from issuance of common stock | | | 0 | | | | 800 | |
| Borrowings from line of credit | | | 5,000 | | | | 13,461 | |
| Repayment of loan payable – related party | | | (5,000 | ) | | | 0 | |
| Net proceeds received on sale – leaseback of equipment | | | 149,180 | | | | 0 | |
| Payments on leases payable | | | (16,760 | ) | | | 0 | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 132,420 | | | | 14,261 | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 3,156 | | | | (764 | ) |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS – BEGINNING | | | 4,523 | | | | 5,287 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS – ENDING | | $ | 7,679 | | | $ | 4,523 | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid for interest | | $ | 12,417 | | | $ | 4,526 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
| SUPPLEMENTAL NON-CASH TRANSACTIONS: | | | | | | | | |
| Property and equipment acquired with capital leases | | $ | 178,500 | | | $ | 0 | |
| Stock issued in connection with sale – leaseback of equipment | | $ | 168,500 | | | $ | 0 | |
| Leases payable recorded in connection with sale – leaseback of equipment | | $ | 289,607 | | | $ | 0 | |
| Prepaid interest recorded in connection with sale – leaseback of equipment | | $ | 122,981 | | | $ | 0 | |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the year by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 10.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Per Share
Income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2007 and 2006:
| | | 2007 | | | 2006 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 186,902 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 234,189 | |
| Less: Accumulated depreciation | | | (248,741 | ) | | | (234,189 | ) |
| Property and equipment, net | | $ | 163,948 | | | $ | 0 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand.
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At December 31, 2007 and 2006, $54,083 and $49,083, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at December 31, 2007 and 2006 were 10.5% and 11.5%, respectively.
NOTE 5 – INCOME TAXES
For the period ended December 31, 2007, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $196,500 at December 31, 2007, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2027.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | December 31, 2007 | |
| Deferred tax asset attributable to: | | | |
| Net operating loss carryover | | $ | 196,500 | |
| Less: valuation allowance | | | (196,500 | ) |
| Net deferred tax asset | | $ | - | |
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 6 – CAPITAL STOCK
In May 2005, the Company changed its corporate bylaws to authorize 100,000,000 shares of common stock at a par value of $.0001 and 10,000,000 shares of preferred stock at a par value of $.001. The Company also approved a 3000:1 split for existing common shareholders.
In June 2005, the Company created an employee incentive plan and issued 900,000 common shares to the plan. The Company also issued 9,000,000 shares to a company that will be providing services to it.
In August 2005, the Company issued 2,000,000 common shares to three entities that provide services to the Company.
In October 2005, the Company entered into a merger agreement with Fifth Avenue Acquisition II, Inc. and issued 366,000 common shares to each of the three principals of that entity.
In January 2006, the Company issued 4,000,000 common shares to an individual for services to be rendered.
In February 2006, the Company issued 4,000,000 common shares to an entity for services to be rendered.
During the year ended December 31, 2007, the Company issued 8,569,000 shares of common stock for services and in connection with the sale-leaseback of equipment. The total value of the shares issued for the services was $193,045. The value of the shares issued in connection with the sale-leaseback of equipment was $168,500.
On October 8, 2007, the Company approved a 1 to 10 reverse stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
There were 3,856,700 shares of common stock outstanding as December 31, 2007.
There were no preferred shares issued and outstanding at December 31, 2007 and 2006.
NOTE 7 – OPERATING LEASE
The company rents its operating facilities under a 5 year operating lease dated October 1, 2003. The future minimum rental payments due under this lease were as follows at December 31, 2007:
| December 31, 2008 | | $ | 39,552 | |
| Total | | $ | 39,552 | |
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at December 31, 2007:
| December 31, 2008 | | $ | 57,921 | |
| 2009 | | | 57,921 | |
| 2010 | | | 57,921 | |
| 2011 | | | 57,921 | |
| 2012 | | | 38,615 | |
| Total | | $ | 270,299 | |
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
NOTE 10 – RESTATEMENT
In its 2006 Statement of Operations, the Company presented its gross revenues and direct costs, rather than presenting them on a net basis as required by EITF 99-19 (ASC 605-45). The Company has restated its 2006 revenues in these financial statements to present them on a net basis, as follows:
| | | As Previously Stated | | | As Restated | | | Effect of Restatement | |
| | | | | | | | | | |
| Gross Billings | | $ | 20,092,577 | | | | - | | | $ | (20,092,577 | ) |
| Direct Costs | | $ | 19,975,606 | | | | - | | | $ | (19,975,606 | ) |
| Net Revenues | | $ | 116,971 | | | $ | 116,971 | | | $ | 0 | |
NOTE 11 – NET REVENUE
Net Revenue for 2007 of $35,294 was comprised of gross billings of $15,104,770 less direct costs of $15,069,476. Net revenue for 2006 of $116,971 was comprised of gross billings of $20,092,577 less direct costs of $19,975,606.
NOTE 12 – SUBSEQUENT EVENTS
On January 16, 2010, the Company and certain of its controlling shareholders entered into an Agreement and Plan of Merger with Joule Energy, LLC. The Merger is expected to close during the first quarter of 2011.
The Company has analyzed its operations subsequent to December 31, 2007 to October 18, 2010, the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
SPECIALIZED SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2008
SPECIALIZED SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2008
TABLE OF CONTENTS
| Report of Independent Registered Public Accounting Firm | F-1 |
| | |
| Balance Sheets at December 31, 2008 and 2007 | F-2 |
| | |
| Statements of Operations for the Years Ended | |
| December 31, 2008 and 2007 | F-3 |
| | |
| Statement of Stockholders’ Deficit as of December 31, 2008 | F-4 |
| | |
| Statements of Cash Flows for the Years Ended | |
| December 31, 2008 and 2007 | F-5 |
| | |
| Notes to the Financial Statements | F-6 – F-9 |
Silberstein Ungar, PLLC CPAs and Business Advisors | |
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Specialized Services, Inc.
Southfield, Michigan
We have audited the accompanying balance sheets of Specialized Services, Inc., as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Specialized Services, Inc., as of December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
| /s/ Silberstein Ungar, PLLC |
| Silberstein Ungar, PLLC |
| |
| Bingham Farms, Michigan |
| October 18, 2010 |
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 3,661 | | | $ | 7,679 | |
| Accounts receivable | | | 76,835 | | | | 10,811 | |
| Prepaid interest | | | 66,531 | | | | 107,256 | |
| Total Current Assets | | | 147,027 | | | | 125,746 | |
| | | | | | | | | |
| PROPERTY AND EQUIPMENT, net | | | 128,248 | | | | 163,948 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Deposits | | | 0 | | | | 5,709 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 275,275 | | | $ | 295,403 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 28,486 | | | $ | 5,919 | |
| Accrued expenses and taxes | | | 206,057 | | | | 147,692 | |
| Leases payable – current portion | | | 102,060 | | | | 57,921 | |
| Loan payable – related party | | | 5,550 | | | | 5,550 | |
| Line of credit | | | 58,793 | | | | 54,803 | |
| Total Current Liabilities | | | 400,946 | | | | 271,885 | |
| | | | | | | | | |
| Long-Term Liabilities | | | | | | | | |
| Leases payable | | | 164,793 | | | | 213,060 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 565,739 | | | | 484,945 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Capital stock, $0.005 par value, 100,000,000 shares authorized, 473,341 and 77,134 shares issued and outstanding as of December 31, 2009 and 2008, respectively | | | 47 | | | | 386 | |
| Additional paid in capital | | | 408,872 | | | | 388,207 | |
| Accumulated deficit | | | (699,383 | ) | | | (578,135 | ) |
| Total Stockholders’ Deficit | | | (290,464 | ) | | | (189,542 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 275,275 | | | $ | 295,403 | |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
| | | 2008 | | | 2007 | |
| | | | | | | |
| NET REVENUE | | $ | 145,720 | | | $ | 35,294 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | 277,988 | | | | 608,550 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (132,268 | ) | | | (573,256 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 11,020 | | | | 69,727 | |
| | | | | | | | | |
| LOSS PRIOR TO PROVISION FOR INCOME TAXES | | | (121,248 | ) | | | (503,529 | ) |
| | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | | | 0 | | | | 6,300 | |
| | | | | | | | | |
| NET LOSS | | $ | (121,248 | ) | | $ | (497,229 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 108,564 | | | | 61,660 | |
| | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (1.12 | ) | | $ | (8.06 | ) |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
AS OF DECEMBER 31, 2008
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 18,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | - | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 25,996 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 43,996 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 16,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 59,996 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 17,138 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split 1 to 10 | | | - | | | | (3,471 | ) | | | 3,471 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 77,134 | | | | 386 | | | | 388,207 | | | | (578,135 | ) | | | (189,542 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 400,800 | | | | 2,004 | | | | 18,322 | | | | - | | | | 20,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 50 | | | - | | | | (2,342 | ) | | | 2,342 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Outstanding share correction | | | (4,593 | ) | | | (1 | ) | | | 1 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2008 | | | - | | | | - | | | | - | | | | (121,248 | ) | | | (121,248 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 | | | 473,341 | | | $ | 47 | | | $ | 408,872 | | | $ | (699,383 | ) | | $ | (290,464 | ) |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
| | | 2008 | | | 2007 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss for the year | | $ | (121,248 | ) | | $ | (497,229 | ) |
| Adjustments to reconcile net (loss) to cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 76,425 | | | | 30,277 | |
| Common stock issued for services | | | 20,326 | | | | 193,045 | |
| Changes in assets and liabilities: | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (66,024 | ) | | | 11,114 | |
| (Increase) decrease in deferred taxes | | | 0 | | | | 6,300 | |
| (Increase) decrease in security deposits | | | 5,709 | | | | (1,314 | ) |
| Increase in account payable | | | 22,567 | | | | 5,919 | |
| Increase (decrease) in accrued expenses and taxes | | | 58,365 | | | | 122,624 | |
| NET CASH USED IN OPERATING ACTIVITIES | | | (3,880 | ) | | | (129,264 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Borrowings from line of credit | | | 8,883 | | | | 5,000 | |
| Payment on line of credit | | | (4,893 | ) | | | 0 | |
| Repayment of loan payable – related party | | | 0 | | | | (5,000 | ) |
| Net proceeds received on sale – leaseback of equipment | | | 0 | | | | 149,180 | |
| Payments on leases payable | | | (4,128 | ) | | | (16,760 | ) |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | | | (138 | ) | | | 132,420 | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (4,018 | ) | | | 3,156 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS – BEGINNING | | | 7,679 | | | | 4,523 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS – ENDING | | $ | 3,661 | | | $ | 7,679 | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid for interest | | $ | 5,438 | | | $ | 12,417 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
| SUPPLEMENTAL NON-CASH TRANSACTIONS: | | | | | | | | |
| Property and equipment acquired with capital leases | | $ | 0 | | | $ | 178,500 | |
| Stock issued in connection with sale – leaseback of equipment | | $ | 0 | | | $ | 168,500 | |
| Leases payable recorded in connection with sale – leaseback of equipment | | $ | 0 | | | $ | 289,607 | |
| Prepaid interest recorded in connection with sale – leaseback of equipment | | $ | 0 | | | $ | 122,981 | |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the year by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 9.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loss Per Share
Loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. See Note 6.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2008 and 2007:
| | | 2008 | | | 2007 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 365,402 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 412,689 | |
| Less: Accumulated depreciation | | | (284,441 | ) | | | (248,741 | ) |
| Property and equipment, net | | $ | 128,248 | | | $ | 163,948 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At December 31, 2008 and 2007, $58,793 and $54,083, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at December 31, 2008 and 2007 were 6.5% and 10.5%, respectively.
NOTE 5 – INCOME TAXES
For the period ended December 31, 2008, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $700,000 at December 31, 2008, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2028.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | December 31, 2008 | |
| Deferred tax asset attributable to: | | | |
| Net operating loss carryover | | $ | 238,000 | |
| Less: valuation allowance | | | (238,000 | ) |
| Net deferred tax asset | | $ | - | |
NOTE 6 – CAPITAL STOCK
During the year ended December 31, 2007, the Company issued 8,569,000 shares of common stock for services and in connection with the sale-leaseback of equipment. The total value of the shares issued for the services was $193,045. The value of the shares issued in connection with the sale-leaseback of equipment was $168,500.
On October 8, 2007, the Company approved a 1 to 10 reverse stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
During the year ended December 31, 2008, there were 20,040,000 shares of common stock issued for services valued at $20,326.
On December 20, 2008 the Company executed a 1 to 50 stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
There were 473,341 shares of common stock outstanding as December 31, 2008.
There were no preferred shares issued and outstanding at December 31, 2008.
NOTE 7 – OPERATING LEASE
The company rented its operating facilities under a 5 year operating lease dated October 1, 2003. The Company moved out of the facility as of October 2008. Subsequently, the Company neither owns nor leases any real property as of December 31, 2008. An officer has provided office services without charge. There is no obligation for the officer to continue this arrangement. Such costs are immaterial to the financial statements and accordingly are not reflected herein. The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at December 31, 2008:
| December 31, 2009 | | $ | 102,060 | |
| 2010 | | | 57,921 | |
| 2011 | | | 57,921 | |
| 2012 | | | 48,951 | |
| Total | | $ | 266,853 | |
NOTE 9 – NET REVENUE
Net Revenue for 2008 of $145,720 was comprised of gross billings of $10,547,202 less direct costs of $10,401,482. Net Revenue for 2007 of $35,294 was comprised of gross billings of $15,104,770 less direct costs of $15,069,476.
NOTE 10 – SUBSEQUENT EVENTS
On January 16, 2010, the Company and certain of its controlling shareholders entered into an Agreement and Plan of Merger with Joule Energy, LLC. The Merger is expected to close during the first quarter of 2011.
The Company has analyzed its operations subsequent to December 31, 2008 to October 18, 2010, the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007 (AUDITED)
| | | March 31, 2008 (Unaudited) | | | December 31, 2007 (Audited) | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 4,839 | | | $ | 7,679 | |
| Accounts receivable, net | | | 71,783 | | | | 10,811 | |
| Prepaid interest | | | 96,167 | | | | 107,256 | |
| Total Current Assets | | | 172,789 | | | | 125,746 | |
| | | | | | | | | |
| Property and Equipment, Net | | | 155,023 | | | | 163,948 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Deposits | | | 5,709 | | | | 5,709 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 333,521 | | | $ | 295,403 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 7,651 | | | $ | 5,919 | |
| Accrued expenses and taxes | | | 184,816 | | | | 147,692 | |
| Leases payable – current portion | | | 59,652 | | | | 57,921 | |
| Loans payable – related party | | | 5,550 | | | | 5,550 | |
| Line of credit | | | 63,660 | | | | 54,803 | |
| Total Current Liabilities | | | 321,329 | | | | 271,885 | |
| | | | | | | | | |
| Long – Term Liabilities | | | | | | | | |
| Leases payable | | | 208,233 | | | | 213,060 | |
| | | | | | | | | |
| Total Liabilities | | | 529,562 | | | | 484,945 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Common Stock – $.0001 par value, 100,000,000 shares authorized; 23,896,700 and 3,856,700 shares issued and outstanding | | | 2,390 | | | | 386 | |
| Additional paid-in capital | | | 406,529 | | | | 388,207 | |
| Accumulated deficit | | | (604,960 | ) | | | (578,135 | ) |
| Total Stockholders’ Deficit | | | (196,041 | ) | | | (189,542 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 333,521 | | | $ | 295,403 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
| | | Three months ended March 31, 2008 | | | Three months ended March 31, 2007 (Restated) | |
| NET REVENUES | | $ | 76,285 | | | $ | 24,033 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | 114,125 | | | | 78,371 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (37,840 | ) | | | (54,338 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 11,015 | | | | 4,549 | |
| | | | | | | | | |
| NET LOSS BEFORE INCOME TAXES | | | (26,825 | ) | | | (49,789 | ) |
| | | | | | | | | |
| PROVISION FOR INCOME TAXES (BENEFIT) | | | 0 | | | | (14,200 | ) |
| | | | | | | | | |
| NET LOSS | | $ | (26,825 | ) | | $ | (35,589 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 6,499,337 | | | | 3,058,467 | |
| | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (0.00 | ) | | $ | (0.01 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)
AS OF MARCH 31, 2008
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 900,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | - | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 1,299,800 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 2,199,800 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 800,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 2,999,800 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 856,900 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 10 | | | - | | | | (3,471 | ) | | | 3,471 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 3,856,700 | | | | 386 | | | | 388,207 | | | | (578,135 | ) | | | (189,542 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 20,040,000 | | | | 2,004 | | | | 18,322 | | | | - | | | | 20,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the three months ended March 31, 2008 | | | - | | | | - | | | | - | | | | (26,825 | ) | | | (26,835 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2008 | | | 23,896,700 | | | $ | 2,390 | | | $ | 406,529 | | | $ | (604,960 | ) | | $ | (196,041 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
| | | Three months ended March 31, 2008 | | | Three months ended March 31, 2007 | |
| Cash Flows from Operating Activities: | | | | | | |
| Net loss for the period | | | (26,825 | ) | | | (35,589 | ) |
| | | | | | | | | |
| Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: | | | | | | | | |
| Depreciation and amortization | | | 20,014 | | | | 0 | |
| Stock issued for services | | | 20,326 | | | | 11,000 | |
| Changes in Assets and Liabilities | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (60,972 | ) | | | 586 | |
| (Increase) in deferred taxes | | | 0 | | | | (14,200 | ) |
| Increase in accounts payable | | | 1,732 | | | | 0 | |
| Increase in accrued expenses and taxes | | | 37,124 | | | | 44,141 | |
| Net Cash Provided by (Used in) Operating Activities | | | (8,601 | ) | | | 5,938 | |
| | | | | | | | | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Repayment of line of credit | | | 0 | | | | (6,474 | ) |
| Borrowings on line of credit | | | 8,857 | | | | 4,998 | |
| Payments on leases payable | | | (3,096 | ) | | | 0 | |
| Net Cash (Used in) Financing Activities | | | 5,761 | | | | (1,476 | ) |
| | | | | | | | | |
| Net Increase in Cash and Cash Equivalents | | | (2,840 | ) | | | 4,462 | |
| | | | | | | | | |
| Cash and Cash Equivalents – Beginning | | | 7,679 | | | | 4,523 | |
| | | | | | | | | |
| Cash and Cash Equivalents – Ending | | $ | 4,839 | | | $ | 8,985 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Cash paid for interest | | $ | 1,546 | | | $ | 1,384 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the period by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 10.
Basic of Presentation
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the disclosures are adequate to make the financial information presented not misleading. These condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2007. All adjustments were of a normal recurring nature unless otherwise disclosed. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim period have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Per Share
Income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at March 31, 2008 and December 31, 2007:
| | | March 31, 2008 | | | December 31, 2007 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 365,402 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 412,689 | |
| Less: Accumulated depreciation | | | (257,666 | ) | | | (248,741 | ) |
| Property and equipment, net | | $ | 155,023 | | | $ | 163,948 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand. There was $5,550 due to a related party as of March 31, 2008 and December 31, 2007.
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At March 31, 2008 and December 31, 2007, $63,660 and $54,803, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at March 31, 2008 and December 31, 2007 were 10.5% and 10.5%, respectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2008
NOTE 5 – INCOME TAXES
For the period ended March 31, 2008, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $205,700 at March 31,2008, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2027.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | March 31, 2008 | | | December 31, 2007 | |
| Deferred tax asset attributable to: | | | | | | |
| Net operating loss carryover | | $ | 205,700 | | | $ | 196,500 | |
| Less: valuation allowance | | | (205,700 | ) | | | (196,500 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
NOTE 6 – CAPITAL STOCK
During the year ended December 31, 2007, the Company issued 8,569,000 shares of common stock for services and in connection with the sale-leaseback of equipment. The total value of the shares issued for the services was $193,045. The value of the shares issued in connection with the sale-leaseback of equipment was $168,500.
On October 8, 2007, the Company approved a 1 to 10 reverse stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
During the three months ended March 31, 2008, there were 20,040,000 shares of common stock issued for services valued at $20,326.
There were 23,896,700 shares of common stock outstanding as March 31, 2008.
There were no preferred shares issued and outstanding at March 31, 2008.
NOTE 7 – OPERATING LEASE
The company rents its operating facilities under a 5 year operating lease dated October 1, 2003. The future minimum rental payments due under this lease were as follows at December 31, 2007:
| December 31, 2009 | | $ | 39,235 | |
| Total | | $ | 39,235 | |
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2008
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at March 31, 2008:
| March 31, 2009 | | $ | 59,652 | |
| 2010 | | | 57,921 | |
| 2011 | | | 57,921 | |
| 2012 | | | 57,921 | |
| 2013 | | | 34,470 | |
| Total | | $ | 267,885 | |
NOTE 9 – RESTATEMENT
In its March 31, 2007 Statement of Operations, the Company presented its gross revenues and direct costs, rather than presenting them on a net basis as required by EITF 99-19 (ASC 605-45). The Company has restated its March 31, 2007 revenues in these financial statements to present them on a net basis, as follows:
| | | As Previously Stated | | | As Restated | | | Effect of Restatement | |
| | | | | | | | | | |
| Gross Billings | | $ | 4,680,862 | | | | - | | | $ | (4,680,862 | ) |
| Direct Costs | | $ | 4,656,829 | | | | - | | | $ | (4,656,829 | ) |
| Net Revenues | | $ | 24,033 | | | $ | 24,033 | | | $ | 0 | |
NOTE 10 – NET REVENUE
Net Revenue for the three months ended March 31, 2008 of $76,285 was comprised of gross billings of $2,630,631 less direct costs of $2,554,346. Net revenue for the three months ended March 31, 2007 of $24,033 was comprised of gross billings of $4,680,865 less direct costs of $4,656,829.
NOTE 11 – SUBSEQUENT EVENTS
On January 16, 2010, the Company and certain of its controlling shareholders entered into an Agreement and Plan of Merger with Joule Energy, LLC. The Merger is expected to close during the first quarter of 2011.
The Company has analyzed its operations subsequent to March 31, 2008 to October 18, 2010, the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF JUNE 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007 (AUDITED)
| | | June 30, 2008 (Unaudited) | | | December 31, 2007 (Audited) | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 2,583 | | | $ | 7,679 | |
| Accounts receivable, net | | | 74,647 | | | | 10,811 | |
| Prepaid interest | | | 85,684 | | | | 107,256 | |
| Total Current Assets | | | 162,914 | | | | 125,746 | |
| | | | | | | | | |
| Property and Equipment, Net | | | 146,098 | | | | 163,948 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Deposits | | | 5,709 | | | | 5,709 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 314,721 | | | $ | 295,403 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 10,424 | | | $ | 5,919 | |
| Accrued expenses and taxes | | | 198,882 | | | | 147,692 | |
| Leases payable – current portion | | | 73,100 | | | | 57,921 | |
| Loans payable – related party | | | 5,550 | | | | 5,550 | |
| Line of credit | | | 63,686 | | | | 54,803 | |
| Total Current Liabilities | | | 351,642 | | | | 271,885 | |
| | | | | | | | | |
| Long – Term Liabilities | | | | | | | | |
| Leases payable | | | 193,753 | | | | 213,060 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 545,395 | | | | 484,945 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Common Stock – $.0001 par value, 100,000,000 shares authorized; 23,896,700 and 3,856,700 shares issued and outstanding | | | 2,390 | | | | 386 | |
| Additional paid-in capital | | | 406,529 | | | | 388,207 | |
| Accumulated deficit | | | (639,593 | ) | | | (578,135 | ) |
| TOTAL STOCKHOLDERS’ DEFICIT | | | (230,674 | ) | | | (189,542 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 314,721 | | | $ | 295,403 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2008 AND 2007
| | | Six months ended June 30, 2008 (Unaudited) | | | Six months ended June 30, 2007 (Unaudited) | | | Three months ended June 30, 2008 (Unaudited) | | | Three months ended June 30, 2007 (Unaudited) | |
| | | | | | | | | | | | | |
| NET REVENUES | | $ | 102,588 | | | $ | 175,564 | | | $ | 26,302 | | | $ | 151,531 | |
| | | | | | | | | | | | | | | | | |
| OPERATING EXPENSES | | | 175,061 | | | | 513,610 | | | | 60,936 | | | | 435,239 | |
| | | | | | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (72,473 | ) | | | (338,046 | ) | | | (34,634 | ) | | | (283,708 | ) |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 11,015 | | | | (2,950 | ) | | | 0 | | | | (7,499 | ) |
| | | | | | | | | | | | | | | | | |
| NET LOSS BEFORE INCOME TAXES | | | (61,458 | ) | | | (340,996 | ) | | | (34,634 | ) | | | (291,207 | ) |
| | | | | | | | | | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | 0 | | | | 6,300 | | | | 0 | | | | 20,500 | |
| | | | | | | | | | | | | | | | | |
| NET LOSS | | $ | (61,458 | ) | | $ | (347,296 | ) | | $ | (34,634 | ) | | $ | (311,707 | ) |
| | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 15,198,019 | | | | 3,173,364 | | | | 23,896,700 | | | | 3,287,000 | |
| | | | | | | | | | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (0.00 | ) | | $ | (0.11 | ) | | $ | (0.00 | ) | | $ | (0.09 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
AS OF JUNE 30, 2008
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 900,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | - | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 1,299,800 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 2,199,800 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 800,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 2,999,800 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 856,900 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 10 | | | - | | | | (3,471 | ) | | | 3,471 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 3,856,700 | | | | 386 | | | | 388,207 | | | | (578,135 | ) | | | (189,542 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 20,040,000 | | | | 2,004 | | | | 18,322 | | | | - | | | | 20,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the six months ended June 30, 2008 | | | - | | | | - | | | | - | | | | (61,458 | ) | | | (61,458 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2008 | | | 23,896,700 | | | $ | 2,390 | | | $ | 406,529 | | | $ | (639,593 | ) | | $ | (230,674 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
| | | Six months ended June 30, 2008 (Unaudited) | | | Six months ended June 30, 2007 (Unaudited) | |
| Cash Flows from Operating Activities | | | | | | |
| Net loss for the period | | $ | (61,458 | ) | | $ | (347,296 | ) |
| | | | | | | | | |
| Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: | | | | | | | | |
| Depreciation and amortization | | | 39,422 | | | | 0 | |
| Stock issued for services | | | 20,326 | | | | 193,020 | |
| Changes in Assets and Liabilities | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (63,836 | ) | | | 5,930 | |
| (Increase) in deferred taxes | | | 0 | | | | 6,300 | |
| Increase in accounts payable | | | 4,505 | | | | 0 | |
| Increase in accrued expenses and taxes | | | 51,190 | | | | 136,485 | |
| Net Cash Used in Operating Activities | | | (9,851 | ) | | | (5,561 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Repayment of line of credit | | | 0 | | | | 0 | |
| Borrowings on line of credit | | | 8,883 | | | | 9,303 | |
| Payments on leases payable | | | (4,128 | ) | | | (5,000 | ) |
| Net Cash Provided by Financing Activities | | | 4,755 | | | | 4,303 | |
| | | | | | | | | |
| Net Increase in Cash and Cash Equivalents | | | (5,096 | ) | | | (1,258 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents – Beginning | | | 7,679 | | | | 4,523 | |
| | | | | | | | | |
| Cash and Cash Equivalents – Ending | | $ | 2,583 | | | $ | 3,265 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Cash paid for interest | | $ | 2,934 | | | $ | 3,001 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the period by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 10.
Basic of Presentation
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the disclosures are adequate to make the financial information presented not misleading. These condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2007. All adjustments were of a normal recurring nature unless otherwise disclosed. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim period have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Per Share
Income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2008 and December 31, 2007:
| | | June 30, 2008 | | | December 31, 2007 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 365,402 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 412,689 | |
| Less: Accumulated depreciation | | | (266,591 | ) | | | (248,741 | ) |
| Property and equipment, net | | $ | 146,098 | | | $ | 163,948 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand. There was $5,550 due to a related party as of June 30, 2008 and December 31, 2007.
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At June 30, 2008 and December 31, 2007, $63,686 and $54,083, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at June 30, 2008 and December 31, 2007 were 8.5% and 10.5%, respectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 5 – INCOME TAXES
For the period ended June 30, 2008, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $217,500 at June 30, 2008, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2027.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | June 30, 2008 | | | December 31, 2007 | |
| Deferred tax asset attributable to: | | | | | | |
| Net operating loss carryover | | $ | 217,500 | | | $ | 196,500 | |
| Less: valuation allowance | | | (217,500 | ) | | | (196,500 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
NOTE 6 – CAPITAL STOCK
During the year ended December 31, 2007, the Company issued 8,569,000 shares of common stock for services and in connection with the sale-leaseback of equipment. The total value of the shares issued for the services was $193,045. The value of the shares issued in connection with the sale-leaseback of equipment was $168,500.
On October 8, 2007, the Company approved a 1 to 10 reverse stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
During the six months ended June 30, 2008, there were 20,040,000 shares of common stock issued for services valued at $20,326.
There were 23,896,700 shares of common stock outstanding as June 30, 2008.
There were no preferred shares issued and outstanding at June 30, 2008.
NOTE 7 – OPERATING LEASE
The company rents its operating facilities under a 5 year operating lease dated October 1, 2003. The future minimum rental payments due under this lease were as follows at December 31, 2007:
| December 31, 2009 | | $ | 20,417 | |
| Total | | $ | 20,417 | |
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at June 30, 2008:
| June 30, 2009 | | $ | 73,100 | |
| 2010 | | | 57,921 | |
| 2011 | | | 57,921 | |
| 2012 | | | 57,921 | |
| 2013 | | | 19,990 | |
| Total | | $ | 266,853 | |
NOTE 9 – RESTATEMENT
In its June 30, 2007 Statement of Operations, the Company presented its gross revenues and direct costs, rather than presenting them on a net basis as required by EITF 99-19 (ASC 605-45). The Company has restated its June 30, 2007 revenues in these financial statements to present them on a net basis, as follows:
| | | As Previously Stated | | | As Restated | | | Effect of Restatement | |
| Six Months | | | | | | | | | |
| Gross Billings | | $ | 9,955,042 | | | | - | | | $ | (9,955,042 | ) |
| Direct Costs | | $ | 9,779,478 | | | | - | | | $ | (9,779,478 | ) |
| Net Revenues | | $ | 175,564 | | | $ | 175,564 | | | $ | 0 | |
| | | | | | | | | | | | | |
| Three Months | | | | | | | | | | | | |
| Gross Billings | | $ | 5,274,180 | | | | - | | | $ | (5,274,180 | ) |
| Direct Costs | | $ | 5,122,649 | | | | - | | | $ | (5,122,649 | ) |
| Net Revenues | | $ | 151,531 | | | $ | 151,531 | | | $ | 0 | |
NOTE 10 – NET REVENUE
Net Revenue for the six months ended June 30, 2008 of $102,588 was comprised of gross billings of $5,825,369 less direct costs of $5,722,781. Net revenue for the six months ended June 30, 2007 of $175,564 was comprised of gross billings of $9,955,042 less direct costs of $9,779,478.
Net Revenue for the three months ended June 30, 2008 of $26,302 was comprised of gross billings of $3,194,738 less direct costs of $3,168,436. Net revenue for the three months ended June 30, 2007 of $151,531 was comprised of gross billings of $5,274,180 less direct costs of $5,122,649.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 11 – SUBSEQUENT EVENTS
On January 16, 2010, the Company and certain of its controlling shareholders entered into an Agreement and Plan of Merger with Joule Energy, LLC. The Merger is expected to close during the first quarter of 2011.
The Company has analyzed its operations subsequent to June 30, 2008 to October 18, 2010, the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007 (AUDITED)
| | | September 30, 2008 (Unaudited) | | | December 31, 2007 (Audited) | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 1,998 | | | $ | 7,679 | |
| Accounts receivable, net | | | 72,204 | | | | 10,811 | |
| Prepaid interest | | | 75,805 | | | | 107,256 | |
| Total Current Assets | | | 150,007 | | | | 125,746 | |
| | | | | | | | | |
| Property and Equipment, Net | | | 137,173 | | | | 163,948 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Deposits | | | 5,709 | | | | 5,709 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 292,889 | | | $ | 295,403 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 12,018 | | | $ | 5,919 | |
| Accrued expenses and taxes | | | 200,322 | | | | 147,692 | |
| Leases payable – current portion | | | 87,580 | | | | 57,921 | |
| Loans payable – related party | | | 5,550 | | | | 5,550 | |
| Line of credit | | | 61,240 | | | | 54,803 | |
| Total Current Liabilities | | | 366,710 | | | | 271,885 | |
| | | | | | | | | |
| Long – Term Liabilities | | | | | | | | |
| Leases payable | | | 179,273 | | | | 213,060 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 545,983 | | | | 484,945 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Common Stock – $.0001 par value, 100,000,000 shares authorized; 23,896,700 and 3,856,700 shares issued and outstanding | | | 2,390 | | | | 386 | |
| Additional paid-in capital | | | 406,529 | | | | 388,207 | |
| Accumulated deficit | | | (662,013 | ) | | | (578,135 | ) |
| Total STOCKHOLDERS’ DEFICIT | | | (253,094 | ) | | | (189,542 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 292,889 | | | $ | 295,403 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
| | | Nine months ended September 30, 2008 (Unaudited) | | | Nine months ended September 30, 2007 (Unaudited) | | | Three months ended September 30, 2008 (Unaudited) | | | Three months ended September 30, 2007 (Unaudited) | |
| | | | | | | | | | | | | |
| NET REVENUES | | $ | 123,768 | | | $ | 189,480 | | | $ | 21,180 | | | $ | 13,916 | |
| | | | | | | | | | | | | | | | | |
| OPERATING EXPENSES | | | 218,661 | | | | 614,621 | | | | 43,600 | | | | 101,011 | |
| | | | | | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (94,893 | ) | | | (425,141 | ) | | | (22,420 | ) | | | (87,095 | ) |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 11,015 | | | | 43,752 | | | | 0 | | | | 46,702 | |
| | | | | | | | | | | | | | | | | |
| NET LOSS BEFORE INCOME TAXES | | | (83,878 | ) | | | (381,389 | ) | | | (22,420 | ) | | | (40,393 | ) |
| | | | | | | | | | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | 0 | | | | 6,300 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| NET LOSS | | $ | (83,878 | ) | | $ | (387,689 | ) | | $ | (22,420 | ) | | $ | (40,393 | ) |
| | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 18,118,744 | | | | 3,368,810 | | | | 23,896,700 | | | | 3,287,000 | |
| | | | | | | | | | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (0.00 | ) | | $ | (0.11 | ) | | $ | (0.00 | ) | | $ | (0.01 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
AS OF SEPTEMBER 30, 2008
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 900,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | - | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 1,299,800 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 2,199,800 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 800,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 2,999,800 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 856,900 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 10 | | | - | | | | (3,471 | ) | | | 3,471 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 3,856,700 | | | | 386 | | | | 388,207 | | | | (578,135 | ) | | | (189,542 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 20,040,000 | | | | 2,004 | | | | 18,322 | | | | - | | | | 20,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the nine months ended September 30, 2008 | | | - | | | | - | | | | - | | | | (83,878 | ) | | | (83,878 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2008 | | | 23,896,700 | | | $ | 2,390 | | | $ | 406,529 | | | $ | (662,013 | ) | | $ | (253,094 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
| | | Nine months ended September 30, 2008 (Unaudited) | | | Nine months ended September 30, 2007 (Unaudited) | |
| Cash Flows from Operating Activities | | | | | | |
| Net loss for the period | | $ | (83,878 | ) | | $ | (387,689 | ) |
| | | | | | | | | |
| Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: | | | | | | | | |
| Depreciation and amortization | | | 58,226 | | | | 5,627 | |
| Stock issued for services | | | 20,326 | | | | 193,020 | |
| Changes in Assets and Liabilities | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (61,393 | ) | | | (55,672 | ) |
| (Increase) in deferred taxes | | | 0 | | | | 6,300 | |
| (Increase) in security deposit | | | 0 | | | | (1,314 | ) |
| Increase in accounts payable | | | 6,099 | | | | 0 | |
| Increase in accrued expenses and taxes | | | 52,630 | | | | 118,101 | |
| Net Cash Used in Operating Activities | | | (7,990 | ) | | | (121,627 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | |
| Cash paid to acquire equipment | | | 0 | | | | (15,000 | ) |
| Net Cash (Used in) Financing Activities | | | 0 | | | | (15,000 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Repayment of line of credit | | | (2,446 | ) | | | (1,770 | ) |
| Borrowings on line of credit | | | 8,883 | | | | 9,303 | |
| Capital leases payable | | | 0 | | | | 158,763 | |
| Payments on leases payable | | | (4,128 | ) | | | (5,000 | ) |
| Net Cash Provided by Financing Activities | | | 2,309 | | | | 161,296 | |
| | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | (5,681 | ) | | | 24,669 | |
| | | | | | | | | |
| Cash and Cash Equivalents – Beginning | | | 7,679 | | | | 4,523 | |
| | | | | | | | | |
| Cash and Cash Equivalents – Ending | | $ | 1,998 | | | $ | 29,192 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Cash paid for interest | | $ | 4,259 | | | $ | 4,699 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the period by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 10.
Basic of Presentation
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the disclosures are adequate to make the financial information presented not misleading. These condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2007. All adjustments were of a normal recurring nature unless otherwise disclosed. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim period have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Per Share
Income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2008 and December 31, 2007:
| | | September 30, 2008 | | | December 31, 2007 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 365,402 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 412,689 | |
| Less: Accumulated depreciation | | | (275,516 | ) | | | (248,741 | ) |
| Property and equipment, net | | $ | 137,173 | | | $ | 163,948 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand. There was $5,550 due to a related party as of September 30, 2008 and December 31, 2007.
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At September 30, 2008 and December 31, 2007, $61,240 and $54,083, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at September 30, 2008 and December 31, 2007 were 8.5% and 10.5%, respectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
NOTE 5 – INCOME TAXES
For the period ended September 30, 2008, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $225,000 at September 30, 2008, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2027.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | September 30, 2008 | | | December 31, 2007 | |
| Deferred tax asset attributable to: | | | | | | |
| Net operating loss carryover | | $ | 225,000 | | | $ | 196,500 | |
| Less: valuation allowance | | | (225,000 | ) | | | (196,500 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
NOTE 6 – CAPITAL STOCK
During the year ended December 31, 2007, the Company issued 8,569,000 shares of common stock for services and in connection with the sale-leaseback of equipment. The total value of the shares issued for the services was $193,045. The value of the shares issued in connection with the sale-leaseback of equipment was $168,500.
On October 8, 2007, the Company approved a 1 to 10 reverse stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
During the nine months ended September 30, 2008, there were 20,040,000 shares of common stock issued for services valued at $20,326.
There were 23,896,700 shares of common stock outstanding as September 30, 2008.
There were no preferred shares issued and outstanding at September 30, 2008.
NOTE 7 – OPERATING LEASE
The company rents its operating facilities under a 5 year operating lease dated October 1, 2003. The future minimum rental payments due under this lease were as follows at September 30, 2008:
| December 31, 2009 | | $ | 20,417 | |
| Total | | $ | 20,417 | |
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at June 30, 2008:
| September 30, 2009 | | $ | 87,580 | |
| 2010 | | | 57,921 | |
| 2011 | | | 57,921 | |
| 2012 | | | 57,921 | |
| 2013 | | | 5,510 | |
| Total | | $ | 266,853 | |
NOTE 9 – RESTATEMENT
In its September 30, 2007 Statement of Operations, the Company presented its gross revenues and direct costs, rather than presenting them on a net basis as required by EITF 99-19 (ASC 605-45). The Company has restated its September 30, 2007 revenues in these financial statements to present them on a net basis, as follows:
| | | As Previously Stated | | | As Restated | | | Effect of Restatement | |
| Nine Months | | | | | | | | | |
| Gross Billings | | $ | 12,296,488 | | | | - | | | $ | (12,296,488 | ) |
| Direct Costs | | $ | 12,107,008 | | | | - | | | $ | (12,107,008 | ) |
| Net Revenues | | $ | 189,480 | | | $ | 189,480 | | | $ | 0 | |
| | | | | | | | | | | | | |
| Three Months | | | | | | | | | | | | |
| Gross Billings | | $ | 2,341,446 | | | | - | | | $ | (2,341,446 | ) |
| Direct Costs | | $ | 2,327,530 | | | | - | | | $ | (2,327,530 | ) |
| Net Revenues | | $ | 13,916 | | | $ | 13,916 | | | $ | 0 | |
NOTE 10 – NET REVENUE
Net Revenue for the nine months ended September 30, 2008 of $123,768 was comprised of gross billings of $8,396,288 less direct costs of $8,272,520. Net revenue for the nine months ended September 30, 2007 of $189,480 was comprised of gross billings of $12,296,488 less direct costs of $12,107,008.
Net Revenue for the three months ended September 30, 2008 of $21,180 was comprised of gross billings of $2,570,918 less direct costs of $2,549,738. Net revenue for the three months ended September 30, 2007 of $13,916 was comprised of gross billings of $2,341,446 less direct costs of $2,327,530.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008
NOTE 11 – SUBSEQUENT EVENTS
On January 16, 2010, the Company and certain of its controlling shareholders entered into an Agreement and Plan of Merger with Joule Energy, LLC. The Merger is expected to close during the first quarter of 2011.
The Company has analyzed its operations subsequent to September 30, 2008 to October 18, 2010, the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
SPECIALIZED SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2009
SPECIALIZED SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2009
TABLE OF CONTENTS
| Report of Independent Registered Public Accounting Firm | F-1 |
| | |
| Balance Sheets at December 31, 2009 and 2008 | F-2 |
| | |
| Statements of Operations for the Years Ended | |
| December 31, 2009 and 2008 | F-3 |
| | |
| Statement of Stockholders’ Deficit as of December 31, 2009 | F-4 |
| | |
| Statements of Cash Flows for the Years Ended | |
| December 31, 2009 and 2008 | F-5 |
| | |
| Notes to the Financial Statements | F-6 – F-10 |
Silberstein Ungar, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Specialized Services, Inc.
Southfield, Michigan
We have audited the accompanying balance sheets of Specialized Services, Inc., as of December 31, 2009 and 2008, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Specialized Services, Inc., as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Silberstein Ungar, PLLC
Silberstein Ungar, PLLC
Bingham Farms, Michigan
May 25, 2010
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
| ASSETS | | 2009 | | | 2008 | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 7,314 | | | $ | 3,661 | |
| Accounts receivable | | | 77,440 | | | | 76,835 | |
| Prepaid interest | | | 35,483 | | | | 66,531 | |
| Total Current Assets | | | 120,237 | | | | 147,027 | |
| | | | | | | | | |
| PROPERTY AND EQUIPMENT, net | | | 92,548 | | | | 128,248 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 212,785 | | | $ | 275,275 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 27,818 | | | $ | 28,486 | |
| Accrued expenses and taxes | | | 202,357 | | | | 206,057 | |
| Due to shareholders | | | 2,200 | | | | 0 | |
| Leases payable – current portion | | | 160,300 | | | | 102,060 | |
| Loan payable – related party | | | 5,768 | | | | 5,550 | |
| Line of credit | | | 52,294 | | | | 58,793 | |
| Total Current Liabilities | | | 450,737 | | | | 400,946 | |
| | | | | | | | | |
| Long-Term Liabilities | | | | | | | | |
| Leases payable | | | 106,553 | | | | 164,793 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 557,290 | | | | 565,739 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Capital stock, $0.005 par value, 100,000,000 shares authorized, 1,172,140 and 1,172,140 shares issued and outstanding as of December 31, 2009 and 2008, respectively | | | 5,861 | | | | 5,861 | |
| Additional paid in capital | | | 403,058 | | | | 403,058 | |
| Accumulated deficit | | | (753,424 | ) | | | (699,383 | ) |
| Total Stockholders’ Deficit | | | (344,505 | ) | | | (290,464 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 212,785 | | | $ | 275,275 | |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
| | | 2009 | | | 2008 | |
| | | | | | | |
| NET REVENUE | | $ | 68,494 | | | $ | 145,720 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | 122,570 | | | | 277,988 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (54,076 | ) | | | (132,268 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 35 | | | | 11,020 | |
| | | | | | | | | |
| LOSS PRIOR TO PROVISION FOR INCOME TAXES | | | (54,041 | ) | | | (121,248 | ) |
| | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | | | 0 | | | | 0 | |
| | | | | | | | | |
| NET LOSS | | $ | (54,041 | ) | | $ | (121,248 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 1,172,140 | | | | 1,085,629 | |
| | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (0.05 | ) | | $ | (0.11 | ) |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
AS OF DECEMBER 31, 2009
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 3,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | 8,997,000 | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 12,998,000 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 21,998,000 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 8,000,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 29,998,000 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 8,569,000 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 38,567,000 | | | | 3,857 | | | | 384,736 | | | | (578,135 | ) | | | (189,542 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 20,040,000 | | | | 2,004 | | | | 18,322 | | | | - | | | | 20,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 50 | | | (57,434,860 | ) | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2008 | | | - | | | | - | | | | - | | | | (121,248 | ) | | | (121,248 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 | | | 1,172,140 | | | | 5,861 | | | | 403,058 | | | | (699,383 | ) | | | (290,464 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2009 | | | - | | | | - | | | | - | | | | (54,041 | ) | | | (54,041 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2009 | | | 1,172,140 | | | $ | 5,861 | | | $ | 403,058 | | | $ | (753,424 | ) | | $ | (344,505 | ) |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
| | | 2009 | | | 2008 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss for the year | | $ | (54,041 | ) | | $ | (121,248 | ) |
| Adjustments to reconcile net (loss) to cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 66,748 | | | | 76,425 | |
| Common stock issued for services | | | 0 | | | | 20,326 | |
| Changes in assets and liabilities: | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (605 | ) | | | (66,024 | ) |
| (Increase) decrease in security deposits | | | 0 | | | | 5,709 | |
| Increase (decrease) in account payable | | | (668 | ) | | | 22,567 | |
| Increase (decrease) in accrued expenses and taxes | | | (3,700 | ) | | | 58,365 | |
| Increase in due to shareholder | | | 2,200 | | | | 0 | |
| Net Cash Provided by (Used in) Operating Activities | | | 9,934 | | | | (3,880 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Borrowings from line of credit | | | 0 | | | | 8,883 | |
| Payment on line of credit | | | (6,499 | ) | | | (4,893 | ) |
| Repayment of loan payable – related party | | | (1,000 | ) | | | 0 | |
| Borrowings from loan payable – related party | | | 1,218 | | | | 0 | |
| Payments on leases payable | | | 0 | | | | (4,128 | ) |
| Net Cash Used in Financing Activities | | | (6,281 | ) | | | (138 | ) |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 3,653 | | | | (4,018 | ) |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS – BEGINNING | | | 3,661 | | | | 7,679 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS – ENDING | | $ | 7,314 | | | $ | 3,661 | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid for interest | | $ | 2,477 | | | $ | 5,438 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
The accompanying notes are an integral part of the financial statements
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the year by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 9.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Loss Per Share
Loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. See Note 6.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2009 and 2008:
| | | 2009 | | | 2008 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 365,402 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 412,689 | |
| Less: Accumulated depreciation | | | (310,141 | ) | | | (284,441 | ) |
| Property and equipment, net | | $ | 92,548 | | | $ | 128,248 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand.
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At December 31, 2009 and 2008, $52,294 and $58,793, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at December 31, 2009 and 2008 were 6.5% and 6.5%, respectively.
NOTE 5 – INCOME TAXES
For the period ended December 31, 2009, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $753,000 at December 31, 2009, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2029.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | December 31, 2009 | | | December 31, 2008 | |
| Deferred tax asset attributable to: | | | | | | |
| Net operating loss carryover | | $ | 256,000 | | | $ | 238,000 | |
| Less: valuation allowance | | | (256,000 | ) | | | (238,000 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 6 – CAPITAL STOCK
During the year ended December 31, 2008, there were 20,040,000 shares of common stock issued for services valued at $20,326. On December 20, 2008 the Company executed a 1 to 50 stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
There were no additional shares issued during the year ended December 31, 2009.
There were 1,172,140 shares of common stock outstanding as December 31, 2009. There were no preferred shares issued and outstanding at December 31, 2009.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
The Company neither owns nor leases any real property as of December 31, 2009. An officer has provided office services without charge. There is no obligation for the officer to continue this arrangement. Such costs are immaterial to the financial statements and accordingly are not reflected herein. The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at December 31, 2009:
| December 31, 2010 | | $ | 160,300 | |
| 2011 | | | 57,921 | |
| 2012 | | | 48,632 | |
| 2013 | | | 0 | |
| Total | | $ | 266,853 | |
NOTE 9 – NET REVENUE
Net Revenue for 2009 of $68,494 was comprised of gross billings of $2,751,666 less direct costs of $2,683,172. Net Revenue for 2008 of $145,720 was comprised of gross billings of $10,547,202 less direct costs of $10,401,482.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 10 – SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2008 and has determined that it does not have any other material subsequent events to disclose in these financial statements.
SPECIALIZED SERVICES, INC.
BALANCE SHEETS
AS OF MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
| | | March 31, 2009 (Unaudited) | | | December 31, 2008 (Audited) | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 5,042 | | | $ | 3,661 | |
| Accounts receivable, net | | | 73,190 | | | | 76,835 | |
| Prepaid interest | | | 57,862 | | | | 66,531 | |
| Total Current Assets | | | 136,094 | | | | 147,027 | |
| | | | | | | | | |
| Property and Equipment, Net | | | 119,323 | | | | 128,248 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 255,417 | | | $ | 275,275 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 28,319 | | | $ | 28,486 | |
| Accrued expenses and taxes | | | 206,057 | | | | 206,057 | |
| Leases payable – current portion | | | 116,540 | | | | 102,060 | |
| Loans payable – related party | | | 5,550 | | | | 5,550 | |
| Line of credit | | | 56,275 | | | | 58,793 | |
| Total Current Liabilities | | | 412,741 | | | | 400,946 | |
| | | | | | | | | |
| Long – Term Liabilities | | | | | | | | |
| Leases payable | | | 150,313 | | | | 164,793 | |
| | | | | | | | | |
| Total Liabilities | | | 563,054 | | | | 565,739 | |
| | | | | | | | | |
| STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Common Stock – $.0001 par value, 100,000,000 shares authorized; 473,341 and 473,341 shares issued and outstanding | | | 47 | | | | 47 | |
| Additional paid-in capital | | | 408,872 | | | | 408,872 | |
| Accumulated deficit | | | (716,556 | ) | | | (699,383 | ) |
| Total Stockholders’ Deficit | | | (307,637 | ) | | | (290,464 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 255,417 | | | $ | 275,275 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
| | | Three months ended March 31, 2009 | | | Three months ended March 31, 2008 | |
| NET REVENUES | | $ | 15,681 | | | $ | 76,285 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | 32,854 | | | | 114,125 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (17,173 | ) | | | (37,840 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | 0 | | | | 11,015 | |
| | | | | | | | | |
| NET LOSS BEFORE INCOME TAXES | | | (17,173 | ) | | | (26,825 | ) |
| | | | | | | | | |
| PROVISION FOR INCOME TAXES (BENEFIT) | | | 0 | | | | 0 | |
| | | | | | | | | |
| NET LOSS | | $ | (17,173 | ) | | $ | (26,825 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | | | 473,341 | | | | 129,987 | |
| | | | | | | | | |
| NET LOSS PER SHARE: BASIC AND DILUTED | | $ | (0.04 | ) | | $ | (0.21 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)
AS OF MARCH 31, 2009
| | | Common Stock | | | Additional Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| Beginning balance, January 1, 2005 | | | 18,000 | | | $ | 3,000 | | | $ | 21,948 | | | $ | (72,879 | ) | | $ | (45,931 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustment for stock split | | | - | | | | (2,100 | ) | | | 2,100 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 25,996 | | | | 1,300 | | | | - | | | | - | | | | 1,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distribution to shareholders | | | - | | | | - | | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | 6,344 | | | | 6,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 43,996 | | | | 2,200 | | | | 24,048 | | | | (68,535 | ) | | | (42,287 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 16,000 | | | | 800 | | | | - | | | | - | | | | 800 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (12,371 | ) | | | (12,371 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 59,996 | | | | 3,000 | | | | 24,048 | | | | (80,906 | ) | | | (53,858 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 17,138 | | | | 857 | | | | 360,688 | | | | - | | | | 361,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 10 | | | - | | | | (3,471 | ) | | | 3,471 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (497,229 | ) | | | (497,229 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 77,134 | | | | 386 | | | | 388,207 | | | | (578,135 | ) | | | (189,542 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 400,800 | | | | 2,004 | | | | 18,322 | | | | - | | | | 20,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock split, 1 to 50 | | | - | | | | (2,342 | ) | | | 2,342 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Outstanding share correction | | | (4,593 | ) | | | (1 | ) | | | 1 | | | | - | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2008 | | | - | | | | - | | | | - | | | | (121,248 | ) | | | (121,248 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 | | | 473,341 | | | | 47 | | | | 408,872 | | | | (699,383 | ) | | | (290,464 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the three months ended March 31, 2009 | | | - | | | | - | | | | - | | | | (17,173 | ) | | | (17,173 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2009 | | | 473,341 | | | $ | 47 | | | $ | 408,872 | | | $ | (716,556 | ) | | $ | (307,637 | ) |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
| | | Three months ended March 31, 2009 | | | Three months ended March 31, 2008 | |
| Cash Flows from Operating Activities: | | | | | | |
| Net loss for the period | | $ | (17,173 | ) | | $ | (26,825 | ) |
| | | | | | | | | |
| Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: | | | | | | | | |
| Depreciation and amortization | | | 17,594 | | | | 20,014 | |
| Stock issued for services | | | 0 | | | | 20,326 | |
| Changes in Assets and Liabilities | | | | | | | | |
| (Increase) decrease in accounts receivable | | | 3,645 | | | | (60,972 | ) |
| Increase (decrease) in accounts payable | | | (167 | ) | | | 1,732 | |
| Increase in accrued expenses and taxes | | | 0 | | | | 37,124 | |
| Net Cash Provided by (Used in) Operating Activities | | | 3,899 | | | | (8,601 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Repayment of line of credit | | | (2,518 | ) | | | 0 | |
| Borrowings on line of credit | | | 0 | | | | 8,857 | |
| Payments on leases payable | | | 0 | | | | (3,096 | ) |
| Net Cash Provided by (Used in) Financing Activities | | | (2,518 | ) | | | 5,761 | |
| | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | 1,381 | | | | (2,840 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents – Beginning | | | 3,661 | | | | 7,679 | |
| | | | | | | | | |
| Cash and Cash Equivalents – Ending | | $ | 5,042 | | | $ | 4,839 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Cash paid for interest | | $ | 959 | | | $ | 1,546 | |
| Cash paid for income taxes | | $ | 0 | | | $ | 0 | |
The accompanying notes are an integral part of the financial statements.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Specialized Services, Inc. (“the Company”) was incorporated in Michigan in January, 1988. The Company aggregates (bundles) fuel products and services, and delivers these products and services to customers in a way that reduces the customers’ costs. In addition the Company has a competitive local exchange carrier license to provide telecommunications services to companies.
On October 5, 2005, the Company entered into an Agreement and Plan of Merger with and into Fifth Avenue Acquisition II Corp., a public shell company, with an effective date of October 6, 2005. The Company is the successor reporting company.
Basis of Accounting
The Company uses the accrual basis of accounting for financial statement reporting. Accordingly, revenues are recognized when products are delivered and services are rendered, and expenses are recognized when the obligation is incurred. The reported net revenues figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the period by its customers, net of the Company’s cost of sales, as required under EITF 99-19 (ASC 605-45). See Note 9.
Basic of Presentation
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the disclosures are adequate to make the financial information presented not misleading. These condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2008. All adjustments were of a normal recurring nature unless otherwise disclosed. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim period have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
Cash and Cash Equivalents
The Company considers certificates of deposit and other highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful life of each asset. See Note 2.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Loss Per Share
Loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. See Note 6.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company, with the consent of its stockholders, had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code for periods prior to 2005. Instead of paying federal corporate income taxes, the stockholders of an S Corporation are taxed individually on their proportionate share of the Company’s taxable income.
In 2005, the Company revoked its S-election and began paying tax as a C-corporation. Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note 5.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
In addition, the Company extends credit to customers in the normal course of business. The Company monitors the account receivable balances and does not expect significant collection problems.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at March 31, 2009 and December 31, 2008:
| | | March 31, 2009 | | | December 31, 2008 | |
| Machinery and equipment | | $ | 365,402 | | | $ | 365,402 | |
| Furniture and fixtures | | | 25,793 | | | | 25,793 | |
| Transportation equipment | | | 21,494 | | | | 21,494 | |
| Subtotal | | | 412,689 | | | | 412,689 | |
| Less: Accumulated depreciation | | | (293,366 | ) | | | (284,441 | ) |
| Property and equipment, net | | $ | 119,323 | | | $ | 128,248 | |
NOTE 3 – LOANS PAYABLE – RELATED PARTIES
Loans payable to related parties are due to officers for funds advanced to the Company for working capital and are non-interest bearing and due upon demand. There was $5,550 due to a related party as of March 31, 2009 and December 31, 2008.
NOTE 4 – LINE OF CREDIT PAYABLE
The Company has a $100,000 unsecured line of credit available with First Place Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At March 31, 2009 and December 31, 2008, $56,275 and $58,793, respectively, was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rates in effect at March 31, 2009 and December 31, 2008 were 6.5% and 6.5%, respectively.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 5 – INCOME TAXES
For the period ended March 31, 2009, the Company has incurred net losses and, therefore, has no tax liability. The net operating loss carry-forward is approximately $717,000 at March 31,2009, can be carried forward and applied against future taxable income and used to reduce income taxes owed, and will expire in various amounts through the year 2027.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | | March 31, 2009 | | | December 31, 2008 | |
| Deferred tax asset attributable to: | | | | | | |
| Net operating loss carryover | | $ | 244,000 | | | $ | 238,000 | |
| Less: valuation allowance | | | (244,000 | ) | | | (238,000 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
NOTE 6 – CAPITAL STOCK
The Company has 100,000,000 shares of $0.0001 par value common stock authorized.
On October 8, 2007, the Company approved a 1 to 10 reverse stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
During the year ended December 31, 2008, there were 20,040,000 shares of common stock issued for services valued at $20,326.
On December 20, 2008 the Company executed a 1 to 50 stock split. Shares outstanding, average weighted shares outstanding, and loss per share have been adjusted to reflect this split.
There were no shares issued during the three months ended March 31, 2009.
There were 473,341 shares of common stock outstanding as March 31, 2009.
There were no preferred shares issued and outstanding at March 31, 2009.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
The Company neither owns nor leases any real property as of March 31, 2009. An officer has provided office services without charge. There is no obligation for the officer to continue this arrangement. Such costs are immaterial to the financial statements and accordingly are not reflected herein. The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.
SPECIALIZED SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 8 – CAPITAL LEASES
The Company sold and leased back equipment during the year ended December 31, 2007. The Company entered into five capital lease agreements. All of the leases are for a term of 60 months with varying interest rates. The entire amount of interest due over the term of the leases has been capitalized as prepaid interest and is being amortized over the lease term. The future minimum rental payments due under this lease were as follows at March 31, 2009:
| March 31, 2010 | | $ | 116,540 | |
| 2011 | | | 57,921 | |
| 2012 | | | 57,921 | |
| 2013 | | | 34,471 | |
| 2014 | | | 0 | |
| Total | | $ | 266,853 | |
NOTE 9 – NET REVENUE
Net Revenue for the three months ended March 31, 2009 of $15,681 was comprised of gross billings of $481,505 less direct costs of $465,824. Net Revenue for the three months ended March 31, 2008 of $76,285 was comprised of gross billings of $2,630,631 less direct costs of $2,554,346.
NOTE 10 – SUBSEQUENT EVENTS
On January 16, 2010, the Company and certain of its controlling shareholders entered into an Agreement and Plan of Merger with Joule Energy, LLC. The Merger is expected to close during the first quarter of 2011.
The Company has analyzed its operations subsequent to March 31, 2009 to October 18, 2010, the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
