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, 2012
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
From the transition period from ___________ to ____________.
Commission File Number333-166057
SPECIALTY CONTRACTORS, INC.
(Exact name of small business issuer as specified in its charter)
| Nevada | | 27-1897718 |
| (State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
1541 E. I-30, Rockwall, Texas 75087
(Address of principal executive offices)
(469) 766-7629
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 [ ] No [ X ].
As of May 8, 2012, there were 6,777,834 shares of Common Stock of the issuer outstanding.
TABLE OF CONTENTS
| | PART I FINANCIAL STATEMENTS | |
| | | |
| Item 1 | Consolidated Financial Statements | 3 |
| | | |
| Item 2 | Management’s Discussion and Analysis or Plan of Operation | 8 |
| | | |
| | 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 | 12 |
| SPECIALTY CONTRACTORS, INC. |
| CONSOLIDATED BALANCE SHEETS |
| MARCH 31, 2012 AND DECEMBER 31, 2011 |
| |
| ASSETS | | | March 31, 2012 | | | | December 31, 2011 | |
| Current assets | | | (Unaudited) | | | | | |
| Cash | | $ | 144,893 | | | $ | 153,642 | |
| Prepaid expenses | | | 1,600 | | | | 6,400 | |
| Total current assets | | | 146,493 | | | | 160,042 | |
| | | | | | | | | |
| Property and equipment, net | | | 6,453 | | | | 7,217 | |
| | | | | | | | | |
| Other assets | | | | | | | | |
| Deferred fees | | | 2,076 | | | | 5,202 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 155,022 | | | $ | 172,461 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | | $ | 5,895 | | | $ | 130 | |
| Accrued expenses | | | 2,990 | | | | 2,988 | |
| Amounts due to shareholder | | | 2,015 | | | | 2,915 | |
| Line of credit | | | 39,396 | | | | 38,908 | |
| Total current liabilities | | | 50,296 | | | | 44,941 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 50,296 | | | | 44,941 | |
| | | | | | | | | |
| Commitments | | | | | | | | |
| | | | | | | | | |
| Stockholders’ equity | | | | | | | | |
| Preferred stock, $0.001 par value, 20,000,000 authorized, | | | | | | | | |
| -0- issued and outstanding at March 31, 2012 and December 31, 2011 | | | — | | | | — | |
| Common stock, $0.001 par value, 50,000,000 authorized, | | | | | | | | |
| 6,777,834 issued and outstanding at March 31, 2012 and December 31, 2011, respectively | | | 6,778 | | | | 6,778 | |
| Additional paid-in-capital | | | 310,098 | | | | 310,098 | |
| Accumulated deficit | | | (212,150 | ) | | | (189,356 | ) |
| Total stockholders’ equity | | | 104,726 | | | | 127,520 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 155,022 | | | $ | 172,461 | |
| | | | | | | | | |
See accompanying summary of accounting policies and notes to consolidated financial statements.
SPECIALTY CONTRACTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Unaudited) |
| | | |
| | | | 2012 | | | | 2011 | |
| | | | | | | | | |
| | | | | | | | | |
| Revenue | | $ | 9,501 | | | $ | 25,898 | |
| Cost of revenues | | | 5,885 | | | | 14,631 | |
| Gross profit | | | 3,616 | | | | 11,267 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Depreciation and amortization | | | 3,890 | | | | 3,889 | |
| General and administrative | | | 22,055 | | | | 23,010 | |
| Total operating expenses | | | 25,945 | | | | 26,899 | |
| | | | | | | | | |
| Operating loss | | | (22,329 | ) | | | (15,632 | ) |
| | | | | | | | | |
| Other (expense) | | | | | | | | |
| Interest expense, net | | | (465 | ) | | | (1,021 | ) |
| Total other (expense) | | | (465 | ) | | | (1,021 | ) |
| | | | | | | | | |
| Net loss | | $ | (22,794 | ) | | $ | (16,653 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.00 | ) | | $ | (0.00 | ) |
| | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | |
| Basic and diluted | | | 6,777,834 | | | | 6,450,000 | |
See accompanying summary of accounting policies and notes to consolidated financial statements.
| SPECIALTY CONTRACTORS, INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE THREE MONTHS ENDED MARCH 31, 2012 and 2011
(Unaudited) |
| |
| | | | | |
| | | | 2012 | | | | 2011 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | |
| Net loss | | $ | (22,794 | ) | | $ | (16,653 | ) |
| Adjustments to reconcile net loss to net cash | | | | | | | | |
| used by operating activities: | | | | | | | | |
| Depreciation expense | | | 764 | | | | 763 | |
| Amortization of deferred financing costs | | | 3,126 | | | | 3,126 | |
| | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Prepaid expenses | | | 4,800 | | | | — | |
| Accounts payable | | | 2,860 | | | | — | |
| Accrued expenses | | | 3,395 | | | | 574 | |
| NET CASH USED IN OPERATING ACTIVITIES | | | (7,849 | ) | | | (12,190 | ) |
| | | | | | | | | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCINS ACTIVITIES | | | | | | | | |
| Proceeds from line of credit | | | — | | | | 12,190 | |
| Payments on shareholder advances | | | (900 | ) | | | — | |
| NET CASH USED (PROVIDED) BY FINANCING ACTIVITIES | | | (900 | ) | | | 12,190 | |
| | | | | | | | | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | | | (8,749 | ) | | | — | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 153,642 | | | | — | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 144,893 | | | $ | — | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES | | | | | | | | |
| Cash Paid During the Period for Interest Expense | | $ | 1,021 | | | $ | — | |
| Cash Paid During the Period for Taxes | | $ | — | | | $ | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| See accompanying summary of accounting policies and notes to consolidated financial statements. |
| | | | | | | | | |
SPECIALTY CONTRACTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History and Organization:
SPECIALTY CONTRACTORS, Inc. (“SPECIALTY”, the “Company”) was incorporated under the laws of the State of Nevada on November 18, 2009. The Company operates as a contractor and performing specialty construction projects primarily in the State of Texas.
The Company operates on a calendar year-end. The Company operates in only one business segment.
Basis of Accounting and Consolidation:
The Company prepares its financial statements on the accrual basis of accounting. It has one subsidiary, Texas Deco Pierre, LLC. All intercompany balances and transactions are eliminated. Investments in subsidiaries are reported using the consolidation method.
The accompanying unaudited interim consolidated 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 consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to make the consolidated financial statements not misleading, and 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 consolidated financial information have read or have access to the audited consolidated financial statements and footnote disclosure for the preceding fiscal year. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year ended December 31, 2011 as reported in form 10-K have been omitted.
Reclassifications
For comparability, certain prior period amounts have been reclassified, where appropriate, to conform to the financial statement presentation used in 2012. These reclassifications have no effect on net loss.
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.
SPECIALTY CONTRACTORS, INC. Notes to the Consolidated Financial Statements March 31, 2012 (Unaudited) |
NOTE 2 – LINE OF CREDIT
The Company has a line of credit (“LOC”) with GCG Ventures. The LOC has a $100,000 credit limit, and bears an interest rate of 5% per annum, due May 31, 2012. As of March 31, 2012, the amount outstanding under this line of credit was $39,396.
The Company has pledged 100% of the receivables owned by Specialty Contractors, Inc. or its affiliates as collateral against this line of credit. The line of credit has no financial covenants.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company paid the President $1,918 and $1,600 for services and commissions in the quarters ended March 31, 2012 and 2011, respectively.
The Company paid the President’s wife $0 and $800 for commissions in the quarters ended March 31, 2012 and 2011, respectively.
NOTE 4 – MAJOR CUSTOMERS
The Company performed work for the following customers that accounted for more than 10% of its revenues in 2012:
| | | $ Revenue | | | Percent of revenue | |
| | | | | | | |
| Customer A | | $ | 3,900 | | | | 41 | % |
| Customer B | | $ | 3,381 | | | | 36 | % |
| Customer C | | $ | 2,220 | | | | 23 | % |
| | | | | | | | | |
ITEM 2: Management’s Discussion and Analysis
EXECUTIVE OVERVIEW:
2012 continues to present challenges in our industry. The national economy, and in particular the poor housing market, has contributed to poor sales growth. We are still acquiring new customers and we have been able to buy machinery that has greatly improved our efficiency and hence enable us to bid on larger jobs.
Result of our operations for the period ended March 31, 2012 and 2011.
REVENUE: Revenue for the quarter ended March 31, 2012, was $9,501 compared with revenues for the three months ended March 31, 2011 of $25,898. The decrease is due to fewer jobs from our limited marketing & Company resources.
COST OF REVENUE: Cost of revenues (COR) were $5,885 (or 62% of revenue) for the three months ended March 31, 2012 compared to $14,631 (or 56% of revenue) for the same period in 2011. The increase in percentage of COR is due to our overhead being up while working less jobs.
OPERATING EXPENSES. Operating expenses, exclusive of depreciation and amortization expense of $3,890 and $3,889, were $22,055 and $23,010 for the three month periods ended March 31, 2012 and 2011, respectively.
NET LOSS. The net loss for the quarter ended March 31, 2012 and 2011 was $22,794 and $16,653 respectively.
LIQUIDITY AND CAPITAL RESOURCES. In 2011, the Company’s Form S-1 registration statement became effective with the U.S. Securities & Exchange Commission (“SEC”) in order to raise funds to expand its business and execute its business plan. The Company raised $245,876 under this offering and has sufficient funds to support its business for the next twelve months, although if we have significant growth we could need additional cash.
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 relies on one primary funding source for short term liquidity needs: advances from the line of credit. The Company has borrowed $39,396 and $38,908 as of March 31, 2012 and December 31, 2011, respectively, for working capital. The line of credit accrues interest at 5%. We have historically financed our operations through the line of credit.We do not have any commitments for equity funding at this time. As such there is no assurance that we can raise additional capital from external sources, the failure of which could cause us to curtail operations.
Long Term Liquidity:
The long term liquidity needs of the Company are projected to be met primarily through the cash flow provided by operations. Cash flow used inOperating Activities for the quarter ended March 31, 2012 were $7,849. We anticipate cash flow from operating activities to improve. Future cash flow will be derived from line of credit advances to fund our expected loss.
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, 2012. 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.
Based upon an evaluation conducted for the period ended March 31, 2012, our Chief Executive and Chief Financial Officer as of March 31, 2012 and as of the date of this report, has 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 third party 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
There were no 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, 2, 3, 4, 5 - Not Applicable.
Item No. 6 - Exhibits
(a) None
(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.
Specialty Contractors, Inc.
By/s/ Charles Bartlett
Charles Bartlett, Chief Executive Officer and Chief Financial Officer
Date: May 11, 2012
