SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
From the transition period from ___________ to ____________.
Commission File Number 333-145831
SURFACE COATINGS, INC.
(Exact name of small business issuer as specified in its charter)
| Nevada | | 20-8611799 |
| (State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
1541 E. I30, Suite 140, Rockwall, Texas 75087
(Address of principal executive offices)
(972) 722-4411
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ X ] No [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
| | Large Accelerated Filer [ ] | Accelerated Filer [ ] | |
| | | | |
| | Non-Accelerated Filer [ ] | Smaller Reporting Company [X] | |
Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act): Yes [X ] No [ ].
Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS325.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files), Yes [ ] No [X ]
As of May 10, 2014, there were 3,939,000 shares of Common Stock of the issuer outstanding.
TABLE OF CONTENTS
| | PART I FINANCIAL STATEMENTS | |
| | | |
| Item 1. | Financial Statements | 3 |
| Item 2. | Management's Discussion and Analysis or Plan of Operation | 10 |
| | | |
| | PART II OTHER INFORMATION | |
| | | |
| Item 1. | Legal Proceedings | 12 |
| Item 2. | Changes in Securities | 12 |
| Item 3. | Default upon Senior Securities | 12 |
| Item 4. | Submission of Matters to a Vote of Security Holders | 12 |
| Item 5. | Other Information | 12 |
| Item 6. | Exhibits and Reports on Form 8-K | 12 |
SURFACE COATINGS, INC. Consolidated Balance Sheets As of March 31, 2014 and December 31, 2013 |
| | | As of
March 31, 2014
(Unaudited) | | As of
December 31, 2013
(Audited) |
| Assets | | |
| Current Assets | | | | | | | | |
| Cash and Cash Equivalents | | $ | 0 | | | $ | 0 | |
| | | | | | | | | |
| Total Assets | | $ | 0 | | | $ | 0 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity | | |
| Current Liabilities | | | | | | | | |
| Accounts Payable | | $ | 4,814 | | | $ | 19,258 | |
| Due to Related Parties | | | 85,542 | | | | 65,186 | |
| Total Current Liabilities | | | 90,356 | | | | 84,444 | |
| | | | | | | | | |
| Total Liabilities | | | 90,356 | | | | 84,444 | |
| | | | | | | | | |
| Stockholders’ Equity: | | | | | | | | |
Preferred stock, $.001 par value, 20,000,000 shares
authorized, -0- shares issued and outstanding | | | — | | | | — | |
Common stock, $.001 par value, 50,000,000 shares
authorized, 3,939,000 and 3,939,000 shares issued
and outstanding, respectively | | | 3,939 | | | | 3,939 | |
| Additional Paid In Capital | | | 237,204 | | | | 237,204 | |
| Accumulated Deficit | | | (331,499 | ) | | | (325,587 | ) |
| Total Stockholders’ Equity (Deficit) | | | (90,356 | ) | | | (84,444 | ) |
| Total Liabilities and Stockholders’ Equity | | $ | 0 | | | $ | 0 | |
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
SURFACE COATINGS, INC. Consolidated Statements of Operations For the Three Months Ended March 31, 2014 and 2013 (Unaudited) |
| | | Three Months Ended |
| | | March 31, 2014 | | March 31, 2013 |
| Revenue | | $ | — | | | $ | — | |
| Cost of Sales | | | — | | | | — | |
| Gross Profit | | | — | | | | — | |
| Operating Expenses: | | | | | | | | |
| General and Administrative | | | 5,912 | | | | 6,295 | |
| Total Operating Expenses | | | 5,912 | | | | 6,295 | |
| | | | | | | | | |
| | | | | | | | | |
| Net Income (Loss) | | $ | (5,912 | ) | | $ | (6,295 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Basic and Diluted Earnings (Loss) per share from Continuing Operations | | $ | 0.00 | | | $ | 0.00 | |
| Basic and Diluted Earnings (Loss) per share from Discontinued Operations | | $ | 0.00 | | | $ | 0.00 | |
| Basic and Diluted Earnings (Loss) per share | | $ | 0.00 | | | $ | 0.00 | |
| | | | | | | | | |
| | | | | | | | | |
| Weighted Average Shares Outstanding: | | | | | | | | |
| Basic and Diluted | | | 3,939,000 | | | | 3,789,000 | |
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
SURFACE COATINGS, INC. Consolidated Statement of Stockholders' Equity For the Three Months Ended March 31, 2014 (Unaudited) and the Year Ended December 31, 2013 (Audited) |
| | | | Common Stock | | | | Additional Paid-in | | | | Accumulated | | | | | |
| | | | Shares | | | | Par Value | | | | Capital | | | | Deficit | | | | Totals | |
| | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity,
December 31, 2012 | | | 3,789,000 | | | $ | 3,789 | | | $ | 192,354 | | | | (243,631 | ) | | | (47,488 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares Issued for Services | | | 150,000 | | | | 150 | | | | 44,850 | | | | | | | | 45,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | | | | | | | | | | | | | | (81,956 | ) | | | (81,956 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity,
December 31, 2013 | | | 3,939,000 | | | $ | 3,939 | | | $ | 237,204 | | | | (325,587 | ) | | $ | (84,444 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | | | | | | | | | | | | | | (5,912 | ) | | | (5,912 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity,
March 31, 2014 | | | 3,939,000 | | | $ | 3,939 | | | $ | 237,204 | | | | (331,499 | ) | | $ | (90,356 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
SURFACE COATINGS, INC. Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2014 and March 31, 2013 (Unaudited) |
| | | Three Months Ended March 31, 2014 | | Three Months Ended March 31, 2013 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | |
| Net Income (Loss) | | $ | (5,912 | ) | | $ | (6,295 | ) |
| | | | | | | | | |
Adjustments to reconcile net deficit to cash used
by operating activities: | | | | | | | | |
| Decrease in Accounts Payable | | | (14,444 | ) | | | — | |
| Increase in Related Party Accounts Payable | | | 20,356 | | | | 6,250 | |
| CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES | | | — | | | | (45 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | — | | | | — | |
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES | | | — | | | | — | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | — | | | | — | |
| CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES | | | — | | | | — | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH | | | — | | | | (45 | ) |
| | | | | | | | | |
| Cash, beginning of period | | | — | | | | 300 | |
| Cash, end of period | | $ | — | | | $ | 255 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | |
| Interest paid | | $ | — | | | $ | — | |
| Income taxes paid | | $ | — | | | $ | — | |
| | | | | | | | | |
| | | | | | | | | |
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
SURFACE COATINGS, INC. Notes to the Consolidated Financial Statements March 31, 2014 (Unaudited) |
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History and Organization:
Surface Coatings, Inc. (“Surface Coatings”, the “Company”) is the parent company of Surface Armor, LLC, (“Surface Armor”) a company incorporated under the laws of the State of Texas on July 19, 2005.
The Company operates on a calendar year-end. The Company is currently evaluating business options which may include, but not be limited to, pursuing an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business.
Unaudited Interim Financial Statements:
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable Securities and Exchange Commission (“SEC”) regulations for interim financial information. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to present fairly the balance sheets, statements of operations and statements of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users of this interim financial information have read or have access to the audited financial statements and footnote disclosure for the preceding fiscal year contained in the Form 10-K filed on April 15, 2014. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 and should be read in conjunction with the Company’s Form 10-K filing for 2013.
Significant Accounting Policies:
The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenue and expense.
The financial statements and notes are representations of the Company’s management which is responsible for their integrity and objectivity. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
Basis of Presentation:
The Company prepares its financial statements on the accrual basis of accounting. All intercompany balances and transactions are eliminated. Investments in subsidiaries are reported using the equity method.
Cash and Cash Equivalents:
Cash and cash equivalents includes cash in banks with original maturities of three months or less and are stated at cost which approximates market value, which in the opinion of management, are subject to an insignificant risk of loss in value.
Income Taxes:
The Company has adopted ASC 740-10 “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable. There are no provisions for current taxes due to net available operating losses.
Earnings per Share:
Earnings per share (basic) is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period covered. As the Company has no potentially dilutive securities, fully diluted earnings per share is identical to earnings per share (basic).
Recently Issued Accounting Pronouncements:
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Emerging Growth Company Critical Accounting Policy Disclosure
The Company qualifies as an “emerging growth company” under the 2013 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging grown company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company may elect to take advantage of the benefits of this extended transition period in the future.
NOTE 2 – DUE TO RELATED PARTIES
The Company had $85,542 and $65,186 due to a minority shareholder and affiliate of the President, related to funding of operating expenses, as of March 31, 2014 and December 31, 2013, respectively.
NOTE 3 – EQUITY
The Company is authorized to issue 20,000,000 preferred shares at a par value of $.001 per share. There were no preferred shares outstanding as of March 31, 2014 and December 31, 2013.
The Company is authorized to issue 50,000,000 common shares at a par value of $.001 per share. These shares have full voting rights. There were 3,939,000 and 3,939,000 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively.
The Company does not have any stock option plans or stock warrants.
NOTE 4 – INCOME TAXES
The Company has adopted ASC 740-10 “Income Taxes” (which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset)). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The cumulative tax effect at the expected tax rate of 25% of significant items comprising the Company’s net deferred tax amounts as of March 31, 2014 and December 31, 2013 are as follows:
Deferred tax asset related to:
| | | March 31, | | December 31, |
| | | 2014 | | 2013 |
| Prior Year | | $ | 102,547 | | | | 82,058 | |
| Tax Benefit for Current Period | | | 1,478 | | | | 20,489 | |
| Utilization of NOL | | | 0 | | | | 0 | |
| Net Operating Loss Carry-forward | | $ | 104,025 | | | $ | 102,547 | |
| Less: Valuation Allowance | | | (104,025 | ) | | | (102,547 | ) |
| Net Deferred Tax Asset | | $ | 0 | | | $ | 0 | |
The cumulative net operating loss carry-forward is $331,449 at March 31, 2014 and $325,587 at December 31, 2013, and will expire in the years 2026 through 2032. The realization of deferred tax benefits is contingent upon future earnings; therefore, the net deferred tax asset has been fully reserved.
NOTE 5 – FINANCIAL CONDITION AND GOING CONCERN
The Company has an accumulated deficit through March 31, 2014 totaling $331,499 and had negative working capital of $90,356. Surface Coatings’ consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Surface Coatings has suffered losses since inception and has no operations to generate revenue or cash flows. These conditions raise substantial doubt as to Surface Coatings’ ability to continue as a going concern.
The Company will rely on shareholder advances or will seek alternate capital funding to fund the Company’s activities while the Company takes steps to locate and negotiate with a business entity through acquisition, or merger with, an existing company; however, there can be no assurance these activities will be successful.
NOTE 6 – SUBSEQUENT EVENTS
In conjunction with the preparation of these financial statements, an evaluation of subsequent events was performed through May 10, 2014, which is the date the financial statements were issued. No reportable events were noted.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.
General
The Company has no operations and is currently evaluating business options which may include, but not be limited to, pursuing an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business.
RESULTS FOR THE QUARTER ENDED MARCH 31, 2014
Our first quarter ended on March 31, 2014. Any reference to the end of the fiscal quarter refers to the end of the first quarter for the period discussed herein.
REVENUE. There was no revenue from continuing operations for the three months ended March 31, 2014 and 2013.
OPERATING EXPENSES. Total operating expenses for the three months ended March 31, 2014 and 2013 were $5,912 and $6,295, respectively. The expenses relate to the continuing operations related audit fees and other services. There was no depreciation expense incurred.
NET INCOME (LOSS). The net income (loss) for the three months ended March 31, 2014 and 2013 was a loss of $5,912 and $6,295, respectively.
LIQUIDITY AND CAPITAL RESOURCES. Our cash balance was zero at March 31, 2014. As discussed in Note 5 to the financial statements, the Company has recurring losses and an accumulated deficit. We now have minimal cash flow requirements as we have to cover the costs of public company requirements, while we search for a suitable acquisition candidate.
In addition to the preceding, the Company plans for liquidity needs on a short term and long term basis as follows:
Short Term Liquidity:
The company currently relies on short-term financing of working capital from shareholder advances, when necessary, to fund operations.
Long Term Liquidity:
The company has no long term liquidity plans as it is searching for a suitable acquisition partner.
Capital Resources
We do not expect any significant change to our debt structure and do not anticipate entering into any off-balance sheet arrangements.
Material Changes in Financial Condition
WORKING CAPITAL: Working Capital decreased from December 31, 2013 to March 31, 2014 by $5,912, to negative $90,356. This reduction is due to the net loss discussed above.
STOCKHOLDER’S EQUITY: Stockholder’s Equity decreased by $5,912, as a result of the loss for the period.
Employees
At March 31, 2014, the Company had one employee, unpaid.
Management Advisors
Yorkdale Capital, LLC advises and assists the President with many aspects related to the regulatory filings including assistance with the consolidation of financial statements for audit. Yorkdale Capital, LLC or its principals are shareholders and are owed $85,542 and $65,186 as March 31, 2014 and December 31, 2013, respectively, for operating expenses.
Item 3:Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2014. This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are not effective to ensure that all material information required to be filed in the quarterly Form 10-Q has been made known to them.
For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seg.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure, controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon an evaluation conducted for the period ended March 31, 2014, our Chief Executive and Chief Financial Officer as of March 31, 2014 and as of the date of this Report, have concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls:
| ● | Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transaction. |
| ● | Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control. |
In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.
Changes in Internal Controls over Financial Reporting
We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Items No. 1, 1A, 2, 3, 4, 5 - Not Applicable.
Item No. 6 - Exhibits and Reports on Form 8-K
| (a) | No Form 8-Ks were filed during the three months ended March 31, 2014: |
(b) Exhibits
| Exhibit Number | | Name of Exhibit |
| | |
| 31.1 | Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
In accordance with the requirements 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.
Surface Coatings, Inc.
By/s/ Charles Smith
President, Chief Executive Officer and Chief Financial Officer
Date: May 14, 2014
