UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-QSB
_________________________
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-32267
SPECIALIZED SERVICES, INC.
(Exact Name Of Registrant As Specified In Its Charter)
| Michigan | 38-2781857 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
| 23077 Greenfield Road, Suite 470, Southfield, MI | 48075 |
| (Address of Principal Executive Offices) | (ZIP Code) |
Registrant's Telephone Number, Including Area Code: (248) 557-1030
Securities Registered Pursuant to Section 12(g) of The Act: Common Stock, $0.0001
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x |
At June 30, 2007, the Registrant had 37,300,000 shares of common stock issued.
| Item | Description | Page | |||
|---|---|---|---|---|---|
PART I - FINANCIAL INFORMATION | |||||
ITEM 1. | 3 | ||||
ITEM 2. | 3 | ||||
ITEM 3. | 4 | ||||
PART II - OTHER INFORMATION | |||||
ITEM 1. | 5 | ||||
ITEM 2. | 5 | ||||
ITEM 3. | 5 | ||||
ITEM 4. | 5 | ||||
ITEM 5. | 5 | ||||
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K. | 5 | |||
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents
The Registrant's financial statements for the three-month periods ended June 30, 2007 and 2006 are attached to this quarterly report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION Back to Table of Contents
Forward-Looking Statements; Market Data
As used in this Quarterly Report, the terms "we", "us", "our" "Registrant", "SPSI" and the "Company" means Specialized Services, Inc., a Michigan corporation, and its subsidiaries. To the extent that we make any forward-looking statements in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report, we emphasize that forward-looking statements involve risks and uncertainties and our actual results may differ materially from those expressed or implied by our forward-looking statements. Our forward-looking statements in this Quarterly Report reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties. Generally, forward-looking statements include phrases with words such as "expect", "anticipate", "intend", "plan", "believe", "seek", "estimate" and similar expressions to identify forward-looking statements.
General
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. From August 2000 to October 2005, prior to the Agreement and Plan of Merger, the Registrant had only limited business operations.
Three Months Ended June 30, 2007 Compared to Three Months June 30, 2006.
Gross Billings and Net Revenues
Gross billings for the period ended June 30, 2007 were $5,274,180 compared to $5,469,118 during the same period in the prior year. Our direct costs during the three-month period ended June 30, 2007 were $5,122,649 compared to $5,444,708 during the three-months ended June 30, 2006. We had net revenues of $155,531 during the three months ended June 30, 2007 compared to $24,410 during the three-month period ended June 30, 2006.
General and administrative expenses
During the three-month period ended June 30, 2007, general and administrative expenses totaled $435,239 compared to $42,430 during the same period in the prior year. The significant increase in our general and administrative expenses during the period ended June 30, 2007 is mainly due to non-cash compensation of $182,020.
Operating Income (loss)
Our operating loss was $283,708 during the period ended June 30, 2007 compared to an operating loss of $18,020 during the three months ended June 30, 2006.
Net Loss
Our net loss during the three-month ended June 30, 2007 was $311,707 compared to a net loss of $9,795 during the period ended June 30, 2006.
Six Months Ended June 30, 2007 Compared to Six Months June 30, 2006.
Gross Billings and Net Revenues
Gross billings for the six-month period ended June 30, 2007 were $9,955,042 compared to $10,298,208 during the same period in the prior year. Our direct costs during the six-month period ended June 30, 2007 were $9,779,478 compared to $10,241,498 during the six-months ended June 30, 2006. We had net revenues of $175,564 during the six months ended June 30, 2007 compared to $56,710 during the six-month period ended June 30, 2006.
General and administrative expenses
During the six-month period ended June 30, 2007, general and administrative expenses totaled $513,610 compared to $122,339 during the same period in the prior year. The significant increase in our general and administrative expenses during the period ended June 30, 2007 is mainly due to non-cash compensation of $193,020.
Operating Income (loss)
Our operating loss was $338,046 during the period ended June 30, 2007 compared to an operating loss of $65,629 during the six-months ended June 30, 2006.
Net Loss
Our net loss during the six months ended June 30, 2007 was $347,296 compared to a net loss of $46,158 during the period ended June 30, 2006.
Liquidity and Capital Resources
Cash used in our operating activities during the six-months ended June 30, 2007 was $5,561 compared to cash used of $9,804 during the same period in the prior year. During the six months ended June 30, 2007, the Company received through its financing activities $9,303 under a line of credit and repaid $5,000 in loans payable.
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.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As of June 30, 2007, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the date of filing this annual report applicable for the period covered by this report.
Changes in internal controls. During the period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Back to Table of Contents
None.
ITEM 2. CHANGES IN SECURITIES Back to Table of Contents
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Back to Table of Contents
None.
ITEM 5. OTHER INFORMATION Back to Table of Contents
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Back to Table of Contents
(a) The following documents are filed as exhibits to this report on Form 10-QSB or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
| Exhibit No. | Description |
| 31.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8-K During the Period Covered by this Report:
The Registrant has not filed a Form 8-K during the period ended June 30, 2007.
SIGNATURES
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/ David E. Joseph, CEO, President | /s/ Michael B. Jackson, CFO |
| (Principal Executive Officer) | (Principal Financial Officer) |
| Dated: January 31, 2008 | Dated: January 31, 2008 |
Financial Statements Back to Table of Contents
BALANCE SHEET | ||
As of June 30, 2007 (Unaudited) | ||
ASSETS | ||
| Current Assets | ||
| Cash | $ | 3,265 |
| Accounts Receivable, Net | 9,695 | |
| Deferred Taxes | - | |
| Total Current Assets | 12,960 | |
| Other Assets | ||
| Deposits | 4,395 | |
| TOTAL ASSETS | $ | 17,355 |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||
| Current liabilities | ||
| Accrued expenses and taxes | 161,653 | |
| Loans payable - related party | 5,550 | |
| Note payable | 58,386 | |
| Total liabilities | 225,589 | |
| Stockholders’ Deficit: | ||
| Common Stock, $.0001 par value, 100,000,000 shares authorized, 37,300,000 shares issued and outstanding | 3,730 | |
| Additional Paid in Capital | 216,238 | |
| Accumulated Deficit | (428,202) | |
| Total Stockholders’ Deficit | (208,234) | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 17,355 |
The accompanying notes are an integral part of the financial statements. | ||
STATEMENTS OF OPERATIONS (Unaudited) | ||||||||
For the Three and Six Months ended June 30, 2007 and 2006 | ||||||||
| Three Months | Three Months | Six Months | Six Months | |||||
| Ended | Ended | Ended | Ended | |||||
| June 30, 2007 | June 30, 2006 | June 30, 2007 | June 30, 2006 | |||||
| Gross Billings | $ | 5,274,180 | $ | 5,469,118 | $ | 9,955,042 | $ | 10,298,208 |
| Direct Costs | 5,122,649 | 5,444,708 | 9,779,478 | 10,241,498 | ||||
| Gross Profit | 151,531 | 24,410 | 175,564 | 56,710 | ||||
| General and Administrative Expenses | 435,239 | 42,430 | 513,610 | 122,339 | ||||
| Loss from Operations | (283,708) | (18,020) | (338,046) | (65,629) | ||||
| Other Income (Expenses) | (7,499) | 8,225 | (2,950) | 19,473 | ||||
| Net (Loss) Before Taxes | (291,207) | (9,795) | (340,996) | (46,158) | ||||
| Corporate Income Tax Expense (Benefit) | 20,500 | - | 6,300 | - | ||||
| Net (Loss) | $ | (311,707) | $ | (9,795) | $ | (347,296) | $ | (46,158) |
| Net Income (Loss) Per Share | $ | (0.01) | $ | (0.00) | $ | (0.02) | $ | (0.00) |
| Weighted Average Shares Outstanding | 32,870,000 | 29,998,000 | 31,733,646 | 28,163,746 | ||||
| The accompanying notes are an integral part of the financial statements. | ||||||||
STATEMENTS OF CASH FLOWS (Unaudited) | ||||
Six Months Ended June 30, 2007 and 2006 | ||||
| Six Months | Six Months | |||
| Ended | Ended | |||
| June 30, 2007 | June 30, 2006 | |||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Net Loss | $ | (347,296) | $ | (46,156) |
| Adjustments to Reconcile Net Income to Cash Provided By (Used In) Operating Activities: | ||||
| Depreciation and Amortization | - | 163 | ||
| Stock issued for services | 193,020 | - | ||
| Change in operating assets and liabilities: | ||||
| Decrease in Accounts Receivable | 5,930 | 13,819 | ||
| Decrease in Deferred Taxes | 6,300 | - | ||
| Decrease in Accounts Payable | 0 | (11,756) | ||
| Increase in Accrued Expenses and Taxes | 136,485 | 34,126 | ||
| NET CASH USED IN OPERATING ACTIVITIES | (5,561) | (9,804) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | - | - | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | - | - | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Stockholder Contributions | - | 12,000 | ||
| Proceeds from Issuance of Common Shares | - | 800 | ||
| Repayment of Line of Credit | - | (2,535) | ||
| Borrowings on Line of Credit | 9,303 | - | ||
| Repayment of Loan Payable - Related Parties | (5,000) | - | ||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 4,303 | 10,265 | ||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (1,258) | 461 | ||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 4,523 | 5,287 | ||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 3,265 | $ | 5,748 |
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||
| Cash Paid for Interest | $ | 3,001 | $ | 916 |
| Cash Paid for Income Taxes | $ | - | $ | - |
| ||||
| The accompanying notes are an integral part of the financial statements. | ||||
SPECIALIZED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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 publicly-traded 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 gross billings figure represents the total amount of fuel and telecommunications products and services that were purchased from the Company during the year by its customers.
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 and accelerated 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. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes which requires the use of the liability method of accounting for income taxes. 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.
Income Per Share
Income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2007:
Machinery and equipment | $186,902 |
Furniture and fixtures | 25,793 |
Transportation equipment | 21,494 |
234,189 | |
Less: Accumulated depreciation | 234,189 |
$ 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 Franklin Bank, which is payable upon demand. The officers personally guarantee borrowings under this line of credit. At June 30, 2007, $58,386 was owed under this line of credit. Interest rates fluctuate based on the prime rate plus 3.25%. The rate in effect at June 30, 2007 was 11.5%.
NOTE 5 – INCOME TAXES
For the six months ended June 30, 2007, the Company has incurred a net loss and, therefore, has no tax liability. The cumulative net operating loss carry-forward, which includes 2006 losses, is approximately $702,000 at June 30, 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. Due to the uncertainty of future taxable income, the Company has recorded a valuation allowance for the full amount of the deferred tax benefit.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| Deferred tax asset attributable to: | |
| Net operating loss caryover | $238,000 |
| Valuation allowance | ($238,000) |
$0 |
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.
In June 2007, the Company issued 3,000,000 restricted common shares as a Performance Bonus Award to an officer of the Company at a value of $.05 per share, and 3,202,000 Common shares as Incentive Awards for services rendered to the Company at a value of $$.01 per share.
There were no preferred shares issued and outstanding at June 30, 2007.
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 June 30, 2007:
| December 31, 2007 | $ | 25,700 |
| December 31, 2008 | 39,552 |
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140, to simplify and make more consistent the accounting for certain financial instruments. SFAS No. 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to permit fair value re-measurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, Accounting for the Impairment or Disposal of Long-Lived Assets, to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, with earlier application allowed. This standard is not expected to have a significant effect on the Company's future reported financial position or results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year beginning after September 15, 2006. This adoption of this statement is not expected to have a significant effect on the Company’s future reported financial position or results of operations.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company's financial statements in accordance with FASB Statement No. 109“Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. FIN 48 is effective for the Company on January 1, 2007. Based on the Company's evaluation and analysis, FIN 48 is not expected to have a material impact on the Company's financial statements.
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements and impact of FAS 157 on the Company's consolidated financial statements, and will adopt the provisions on January 1, 2008. FAS 157 is not expected to have a material impact on the Company's financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin 108 (“SAB 108”), which expresses the Staff's views regarding the process of quantifying financial statement misstatements. The bulletin was effective at fiscal year-end 2006. The implementation of this bulletin had no impact on the Company's results of operations, cash flows or financial position.
The Company does not expect other recent accounting announcements to have a material effect on its financial statements.
