Washington, D.C. 20549
SERVICE TEAM INC.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act.
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.
The aggregate market value of the registrant’s common stock held by non-affiliates as of February 29, 2012 was approximately $0 based upon the closing price of the common stock as quoted by the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”) On August 31, 2012 the registrants’ common stock was not listed on the Over-the-Counter Bulletin Board.
As of January 15, 2013, there were 7,707,500 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
Service Team Inc.
We have audited the accompanying balance sheets of Service Team Inc. (a development stage company) as of August 31, 2012 and 2011, and the related statements of operations, changes in shareholders' deficit, and cash flows for the year ended August 31, 2012 and the periods from June 6, 2011 (Inception) through August 31, 2012 and 2011. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Service Team Inc. as of August 31, 2012 and 2011, and the results of its operations, changes in shareholders' deficit and cash flows for the period described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
November 11, 2012, except for Notes 2, 3 and 7, as to which the date is January 25, 2013
SERVICE TEAM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2012
NOTE 1 - ORGANIZATION
Organization
Service Team Inc. (the “Company”) was incorporated pursuant to the laws of the State of Nevada on June 6, 2011. The Company intends to commence business operations by servicing and repairing electrical appliances to fulfill the warranty obligations of manufacturers and insurance companies. The Company is currently considered a development stage company. As a development stage enterprise, the Company discloses the deficit accumulated during the development stage and the cumulative Statements of Operation and Cash Flows from inception to the current Balance Sheet date. An entity remains in the development stage until such a time as among other factors revenues have been realized. To date, the development stage of the Company’s operations consist of developing the business model, marketing concepts and beginning sales efforts.
The Company has established a fiscal year end of August 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The financial statements present the Balance Sheet, Statements of Operations, Shareholders’ Deficit and Cash Flows of the Company. These financial statements are presented in United States dollars. The accompanying audited, financial statements have been prepared in accordance with the instructions to Form 10-K. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Going Concern
The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America, and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has maintained a negative equity balance since inception (June 6, 2011) through August 31, 2012, of $374,554. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in order to continue as a going concern. The Company is funding its initial operations by issuing common shares and debt. As of August 31, 2012, the Company had sold 6,000,000 shares to Hallmark Venture Group, Inc. at $0.001 per share for net funds to the Company of $6,000 and received capital contributions of $31,667. The Company has also sold 1,707,500 shares to various individuals and received net funds of $140,106 and subscription receivables of $28,700. Hallmark Venture Group, Inc. has also loaned the Company $106,764. The major shareholder, Hallmark Venture Group, Inc., has committed to advancing additional funds as may be required for the operation of the Company. We cannot be certain that capital will be provided when it is required.
Cash and Equivalents
Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. There were no cash equivalents at August 31, 2012 or August 31, 2011.
Concentration of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, are cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of FDIC insurance limits.
Accounts Receivable Policy
All accounts receivable are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days the customer is contacted to arrange payment. The Company uses the allowance method to account for uncollectable accounts receivable. All accounts were considered collectable at period end and no allowance for bad debts was considered necessary.
Inventory
The Company does not own inventory. Parts are supplied to the Company without charge by the manufacturers of the electrical appliance for use in making the warranty repairs as needed. Any unused parts are considered to be immaterial as of year-end.
Property and Equipment
The Company does not own any property or equipment. Service Team rents on a month to month basis 1,200 square feet of office space in a building at 18482 Park Villa Place, Villa Park California 92861. The building is furnished for no charge by Hallmark Venture Group, a related party. During the year ended August 31, 2012, for two months of rent expense, the Company imputed rent expense of $2,000 due to this related party transaction. The Company rents 550 square feet of shop space at 2986 Fletcher Parkway, Unit C, El Cajon, California 92020. The Company pays a total of $1,500 per month for these spaces. The Company rents warehouse space as needed for $6.00 per month per pallet in a Bonded Customs Warehouse. The Company leases office furniture, computer equipment, electronic testing equipment and other equipment used for the conduct of its business. The lease is with Hallmark Venture Group, Inc. at a rate of $100 per month starting August 1, 2011, and is in force until canceled by either party. Hallmark Venture Group, Inc. is a related party to Service Team Inc. Our principal executive offices are located at 18482 Park Villa Place, Villa Park, California 92861.
Fair Value of Financial Instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 on June 6, 2011. Under this FASB, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has various financial instruments that must be measured under the new fair value standard including: cash and debt. The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
Cash, accounts receivable, accounts payable, and accrued expenses reported on the balance sheet are estimated by management to approximate fair market value due to their short term nature.
The following table presents assets that were measured and recognized at fair value as of August 31, 2012 on a recurring basis:
| | | | | | | | | | | Total | |
| | | | | | | | | | | Realized | |
| Description | | Level 1 | | | Level 2 | | Level 3 | | | Loss | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The following table presents assets that were measured and recognized at fair value as of August 31, 2011 on a recurring basis:
| | | | | | | | | | | Total | |
| | | | | | | | | | | Realized | |
| Description | | Level 1 | | | Level 2 | | Level 3 | | | Loss | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Income Taxes
In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical operating results and the uncertainty of the economic conditions, the Company has recorded a full valuation allowance against its deferred tax assets at August 31, 2012 and 2011 where it cannot conclude that it is more likely than not that those assets will be realized.
Revenue Recognition
Service Team Inc.’s business is to repair or replace electrical appliances (mostly televisions), covered by warranties or insurance companies. The Company currently does business with one warranty insurance company and is soliciting business from several warranty insurance companies and Asian electronic manufacturers. The Company has a price list of its services that sets forth a menu of charges for various repairs or replacements. We do not do business with individual customers.
When an order is received to repair a television or other electrical appliance from the manufacturer or the warranty insurance company, the customer who owns the television or other electrical appliance is contacted and provided with a questionnaire in order to determine the part required for replacement. The part is then shipped to the customer’s residence from the Company’s office and the closest of 20,000 labor centers sends a technician to the residence with instructions from the Company on the specific problem requiring attention. At the completion of the repair, an invoice is prepared itemizing the parts used and fixed labor rate costs billed by the labor center to the Company. The invoice is entered into our accounting system and is recognized as revenue at that time. Our invoice is paid by the warranty insurance companies. We do not take title to the product at any point during this process.
As described above, in accordance with the requirements of ASC 605-10-599, the Company recognizes revenue when (1) persuasive evidence of an arrangement exists (contracts); (2) delivery has occurred; (3) the seller’s price is fixed or determinable (per the customer’s contract); and (4) collectability is reasonably assured (based upon our credit policy).
Concentrations
At the present time, Service Team Inc. has one customer, the Warrantech division of AmTrust Financial Services, Inc, represents all of our sales. Accounts receivable as of August 31, 2012 and 2011, were $0 and $6,450, respectively, all from AmTrust Financial Services, Inc. The Company anticipates obtaining additional business from its other customers that will reduce the Company’s dependency on Warrantech.
Lease Commitments
Company terminated its lease on the property on June 1, 2012, by paying a cancellation fee of $22,185. The Company currently receives office space free of charge, and without lease commitment, through its relationship with Hallmark Venture Groups; rent expense is imputed at a rate of $1,000 per month for this office space.
Share Based Expenses
The Company accounts for the issuance of equity instruments to acquire goods and/or services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more readily determinable. The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of standards issued by the FASB. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
Stock Based Compensation
In December of 2004, the FASB issued a standard which applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are based on the fair value of those equity instruments. For any unvested portion of previously issued and outstanding awards, compensation expense is required to be recorded based on the previously disclosed methodology and amounts. Prior periods presented are not required to be restated. We adopted the standard as of inception. The Company has not issued any stock options to its Board of Directors and officers as compensation for their services. If options are granted, they will be accounted for at a fair value as required by the FASB ASC 718.
Contingent Liability
The Company has a contingent liability associated with the rescission offer (as noted below) made to investors due to the sale of unregistered stock. The liability is equal to the number of shares of common stock sold of 541,000 times the selling price of $0.10 per share which equals $54,100. As of August 31, 2012 and 2011, the estimated dollar value of the contingent liability is $54,100 and $0, respectively.
During the period from November 29, 2011 until June 1, 2012, the Company sold 541,000 shares to various individuals for a total cash consideration of $54,100. The funds were used for operating capital of the Company including rent and payroll. These sales of our shares sold after the filing date of our S-1 Registration (November 29, 2011) may not be covered by a valid private placement exemption from the registration requirements due to possible integration with the public offering. To be certain of our position we have elected to offer rescission for all private sales made after November 29, 2011. Our rescission offer covers twenty-five shareholders (25) for a total of 541,000 shares originally sold for $54,100.
Development Stage Company
The Company is considered a development-stage company, with limited operating revenues during the periods presented, as defined by the FASB. The FASB requires companies to report their operations, shareholders deficit and cash flows since inception through the date that revenues are generated from management’s intended operations, among other things. Management has defined inception as June 6, 2011. Since inception, the Company has incurred losses of $374,554. The Company’s working capital has been primarily generated through the sales of common stock. Management has provided financial data since June 6, 2011, “Inception”, in the financial statements. An entity remains in the development stage until such a time as, among other factors, significant revenues have been realized. To date, the development stage of the Company’s operations consist of developing the business model, marketing concepts and beginning sales efforts.
Net Loss Per Share
The Company adopted the standard issued by the FASB, which requires presentation of basic earnings or loss per share and diluted earnings or loss per share. Basic income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) are similarly calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would occur if dilutive securities at the end of the applicable period were exercised. As of August 31, 2012 and 2011, because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.
Recent Accounting Pronouncements
In December 2011, FASB issued Accounting Standards Update (“ASU”) 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.
In September 2011, FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on October 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on October 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. The adoption of this ASU did not have a material impact on our financial statements.
NOTE 3 – CAPITAL STOCK
The Company’s authorized capital is 74,000,000 common shares with a par value of $0.001 per share and 100,000 preferred shares with a par value of $0.001 per share.
On June 6, 2011, the Company issued 6,000,000 shares of common stock in the Company at $0.001 per share to Hallmark Venture Group, Inc., a related party, in exchange for $6,000 cash.
On December 14, 2011, the Company issued 500,000 shares of common stock in the Company, at $0.001 per share to Carlos Arreola, President of the Company, a related party, in exchange for $500 cash. As a result of this transaction, $49,500 in additional stock based compensation expense was recognized as substantially all other sales of common stock were valued at $0.10 per share.
On December 14, 2011, the Company issued 100,000 shares of common stock in the Company, at $0.001 per share to Douglas Dungee, Assistant Vice President of the Company, a related party, in exchange for $100 cash. As a result of this transaction, $9,900 in additional stock based compensation expense was recognized as substantially all other sales of common stock were valued at $0.10 per share.
On August 22, 2012, the Company issued 50,000 shares of common stock in the Company, at $0.001 per share Gary Bryant, in exchange for $50 cash. As a result of this transaction, $4,950 in additional stock based compensation expense was recognized as substantially all other sales of common stock were valued at $0.10 per share.
During the 12 months ended August 31, 2012, the Company issued 380,000 shares of common stock in the Company, at $0.001 per share, to three accredited investors who were not related parties, in exchange for $380 cash. As a result of these transactions, $37,620 in additional stock based compensation expense was recognized as substantially all other sales of common stock were valued at $0.10 per share.
During the 12 months ended August 31, 2012, the Company issued 677,500 shares of common stock in the Company to various non-related party, accredited investors, in exchange for $139,075 cash and $28,700 in subscriptions receivable.
From June 6, 2011 through August 31, 2012, no preferred shares have been issued.
From June 6, 2011 through August 31, 2012, the Company has not granted any stock options.
During the period from November 29, 2011 until June 1, 2012, the Company sold 541,000 shares to various individuals for a total cash consideration of $54,100. The funds were used for operating capital of the Company including rent and payroll. These private sales of our shares sold after the filing date of our S-1 Registration (November 29, 2011) may not be covered by a valid private placement exemption from the registration requirements due to possible integration with the public offering. Our rescission offer covers twenty-five shareholders (25) for a total of 541,000 shares originally sold for $54,100.
NOTE 4 – RELATED PARTY TRANSACTIONS
On July 25, 2011, the Company entered into a lease agreement with Hallmark Venture Group, Inc. to lease furniture, office equipment, computers, work benches, test equipment, telephones and miscellaneous equipment and tools used to repair televisions and electrical appliances. The lease calls for a payment of $100 a month for three years payable to Hallmark Venture Group, Inc., effective August 1, 2011. Robert L. Cashman, Vice President and Secretary of the Company, is the beneficial owner of Hallmark Venture Group, Inc. This is considered to be an operating lease for reporting purposes.
During the period from June 6, 2011 to August 31, 2011, the Company received $31,667 in contributed capital from Hallmark Venture Group, Inc.
During the period from June 6, 2011 to August 31, 2012, $106,764, in non-interest bearing loans have been advanced to the Company from Hallmark Venture Group, Inc. The loans are non-interest bearing; therefore, the Company imputed interest of $7,409, charging interest expense with that amount and increasing Additional Paid in Capital. The loans from Hallmark Venture Group, Inc. are for general operating costs and are to be repaid as funds are available. Hallmark Venture Group, Inc. and its beneficial owner, Robert L. Cashman, is Secretary and Director and controlling shareholder of the Company.
On June 6, 2011, the Company issued 6,000,000 shares of common stock in the Company at $0.001 per share to Hallmark Venture Group, Inc., a related party, in exchange for $6,000 cash.
During the period from June 1, 2012 through August 31, 2012, the Company recorded imputed rent expense of $2,000 for the use of the building at 18482 Park Villa Place, Villa Park California 92861 furnished at no charge by Hallmark Venture Group, a related party.
On December 14, 2011, the Company issued 500,000 shares of common stock in the Company, at $0.001 per share to Carlos Arreola, President of the Company, a related party, in exchange for $500 cash. As a result of this transaction, $49,500 in additional stock based compensation expense was recognized as substantially all other sales of common stock were valued at $0.10 per share.
On December 14, 2011, the Company issued 100,000 shares of common stock in the Company, at $0.001 per share to Douglas Dungee, Assistant Vice President of the Company, a related party, in exchange for $100 cash. As a result of this transaction, $9,900 in additional stock based compensation expense was recognized as substantially all other sales of common stock were valued at $0.10 per share.
NOTE 5 – INCOME TAXES
The Company accounts for income taxes under standards issued by the FASB. Under those standards, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be realized through future operations.
No provision for federal income taxes has been recorded due to the net operating loss carry forwards totaling approximately $314,172 as of August 31, 2012 that will be offset against future taxable income. The available net operating loss carry forwards of approximately $314,172 will expire in various years through 2031. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the future tax loss carry forwards.
Deferred tax asset and the valuation account are as follows:
| | |
| | | August 31, 2012 | | | August 31, 2011 | |
| Deferred tax asset: | | | | | | |
| NOL carry forward | | $ | 106,818 | | | $ | 17,339 | |
| Valuation allowance | | | (106,818 | ) | | | (17,339 | ) |
| Total: | | | - | | | | - | |
The components of income tax expense are as follows:
| | |
| | | August 31, 2012 | | | August 31, 2011 | |
| Current federal tax | | $ | - | | | $ | - | |
| Current state tax | | | - | | | | - | |
| Change in NOL benefit | | | 106,818 | | | | 17,339 | |
| Change in valuation allowance | | | (106,818 | ) | | | (17,339 | ) |
| Total: | | $ | - | | | | - | |
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Orbital Enterprises, Inc. and Robert N. Meyer, an individual, vs. Robert L. Cashman, an individual, Carlos Arreola, an individual, Hallmark Venture Group, Inc., Service Team Inc., a California corporation, et. al. Superior Court, State of California, County of San Diego (Central), Case No. 37-2012-00101746-CU-BT-CTL.
The parties to this action were affiliated in business together doing business as Orbital Enterprises, Inc. Orbital Enterprises, Inc. became insolvent and discontinued business operations. Meyer, the controlling shareholder, retained Orbital Enterprises, Inc. and Cashman and Arreola started what is now Service Team Inc. Meyer does business as Orbital Enterprises, Inc. and Orbital Laboratories, Inc. and Cashman and Arreola do business as Service Team Inc. The parties separated amicably.
Approximately six months later the action referred to herein was filed against the defendants alleging: (a) breach of fiduciary duty, (b) claim and delivery, (c) interference with economic advantage and (d) two claims for indemnification.
The defendants filed a motion to dismiss as their initial pleading. The motion was heard and the court gave the parties until November 16, 2012, to correct the pleadings and for Orbital Enterprises, Inc. (whose authority to do business in California is suspended and its corporate charter in Nevada is revoked) to correct its corporate status in Nevada and California. The case has been abated until November 16, 2012. Counsel for the defendants believes that the action is frivolous and without merit, and that it will be dismissed.
On July 25, 2011, the Company entered into a lease agreement with Hallmark Venture Group, Inc. to lease furniture, office equipment, computers, work benches, test equipment, telephones and miscellaneous equipment and tools used to repair televisions and electrical appliances. The lease calls for a payment of $100 a month for three years payable to Hallmark Venture Group, Inc., effective August 1, 2011. Robert L. Cashman, Vice President and Secretary of the Company, is the beneficial owner of Hallmark Venture Group, Inc. This is considered to be an operating lease for reporting purposes.
The minimum lease payments required over the next five years is shown below.
| Minimum Lease Payments | |
| | | | |
| 2013 | | $ | 1,200 | |
| 2014 | | | 1,100 | |
| 2015 | | | - | |
| 2016 | | | - | |
| 2017 | | | - | |
| | | $ | 2,300 | |
The Company previously leased space at 7111 Engineer Road, San Diego, California. The Company terminated its lease on the property on June 1, 2012, by paying a cancellation fee of $22,185.
Contingent Liability
The Company has a contingent liability associated with the rescission offer (as noted below) made to investors due to the sale of unregistered stock. The liability is equal to the number of shares of common stock sold of 541,000 times the selling price of $0.10 per share which equals $54,100. As of August 31, 2012 and 2011, the estimated dollar value of the contingent liability is $54,100 and $0, respectively.
During the period from November 29, 2011 until June 1, 2012, the Company sold 541,000 shares to various individuals for a total cash consideration of $54,100. The funds were used for operating capital of the Company including rent and payroll. These sales of our shares sold after the filing date of our S-1 Registration (November 29, 2011) may not be covered by a valid private placement exemption from the registration requirements due to possible integration with the public offering. To be certain of our position we have elected to offer rescission for all private sales made after November 29, 2011. Our rescission offer covers twenty-five shareholders (25) for a total of 541,000 shares originally sold for $54,100.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
None.
* Filed herewith.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
