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 June 30, 2012

 

OR

 

[    ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period from ___________ to ____________.

 

Commission File Number 333-166057

 

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 August 10, 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	10
Item 2	Changes in Securities	10
Item 3	Default upon Senior Securities	10
Item 4	Submission of Matters to a Vote of Security Holders	10
Item 5	Other Information	10
Item 6	Exhibits	10

 

 

 

 

 

 

 

 

 

SPECIALTY CONTRACTORS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012 AND DECEMBER 31, 2011
ASSETS			June 30, 2012				December 31, 2011
Current assets			(Unaudited)
Cash		$	138,434			$	153,642
Accounts receivable, net			2,720				—
Prepaid expenses			—				6,400
Total current assets			141,154				160,042
Property and equipment, net			5,689				7,217
Deferred fees			—				5,202
TOTAL ASSETS		$	146,843			$	172,461
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	3,803			$	130
Accrued expenses			3,890				2,988
Amounts due to shareholder			4,215				2,915
Line of credit			—				38,908
Total current liabilities			11,908				44,941
Long term liabilities Line of Credit			39,894				—
Total long-term liabilities			39,894				—
TOTAL LIABILITIES			51,802				44,941
Commitments
Stockholders’ equity
Preferred stock, $0.001 par value, 20,000,000 authorized,
-0-  issued and outstanding at June 30, 2012 and December 31, 2011			—				—
Common stock, $0.001 par value, 50,000,000 authorized,
6,777,834 issued and outstanding at June 30, 2012 and December 31, 2011			6,778				6,778
Additional paid-in-capital			310,098				310,098
Accumulated deficit			(221,835	)			(189,356	)
Total stockholders’ equity			95,041				127,520
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	146,843			$	172,461
See accompanying summary of accounting policies and notes to consolidated financial statements.

 

 

 

 

 

 

SPECIALTY CONTRACTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)

 

		Three Months Ended								Six Months Ended
		June 30, 2012				June 30, 2011				June 30, 2012				June 30, 2011
Revenue		$	33,378			$	26,660			$	42,879			$	52,558
Cost of revenues			15,494				10,251				21,379				24,882
Gross Profit			17,884				16,409				21,500				27,676
Operating Expenses:
Depreciation and Amortization			2,840				3,890				6,730				7,779
General and Administrative			24,248				20,851				46,303				43,861
Total Operating Expenses			27,088				24,741				53,033				51,640
Operating Loss			(9,204	)			(8,332	)			(31,533	)			(23,964	)
Other Expense
Interest Expense, net			(481	)			(1,180	)			(946	)			(2,201	)
Total Expense			(481	)			(1,180	)			(946	)			(2,201	)
Net Loss		$	(9,685	)		$	(9,512	)		$	(32,479	)		$	(26,165	)
Basic and Diluted Loss per share		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted Average Shares Outstanding:
Basic and Diluted			6,777,834				6,672,823				6,777,834				6,562,027

 

 

See accompanying summary of accounting policies and notes to consolidated financial statements.

 

 

 

 

 

 

SPECIALTY CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 and 2011 (Unaudited)
		June 30, 2012				June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(32,479)			$	(26,165)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization expense			1,528				1,527
Amortization of deferred financing costs			5,202				6,252
Changes in operating assets and liabilities:
Accounts receivable			(2,720)				-
Prepaid expenses			6,400				-
Accounts payable			3,673				977
Accrued expenses			1,888				-
NET CASH USED IN OPERATING ACTIVITIES			(16,508)				(17,409)
CASH FLOWS FROM FINANCINS ACTIVITIES
Proceeds from line of credit			-				19,933
Proceeds from sale of  common stock			-				245,876
Proceeds from shareholder advances			1,300				-
NET CASH PROVIDED BY  FINANCING ACTIVITIES			1,300				265,809
NET CHANGE IN CASH AND CASH EQUIVALENTS			(15,208)				248,400
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			153,642				-
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	138,434			$	248,400
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period for Interest Expense		$	3,758			$	-
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

June 30, 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.

 

These financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company anticipates future losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern..

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

 

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 June 30, 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, 2014.  As of June 30, 2012, the amount outstanding under this line of credit was $39,894.

 

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 $6,085 and $1,600 for services and commissions during the periods ended June 30, 2012 and 2011, respectively.

 

The Company paid the President’s wife $0 and $800 for commissions during the periods ended June 30, 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		$	7,599				18	%
Customer B		$	6,000				14	%
Customer C		$	12,963				30	%

The Company performed work for the following customers that accounted for more than 10% of its revenues in 2011:

 

		Revenue				Percent of revenue
Customer A		$	22,244				42	%
Customer B		$	10,650				20	%
Customer C		$	5,991				11	%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.  However, we have changed our advertising methods and we are gaining more traction as time goes on. We are still acquiring new customers and we are starting to see some economies of scale from our improved efficiency and hence enable us to bid on larger jobs.

 

Result of our operations for the three and six months ended June 30, 2012 and 2011.

 

REVENUE:  Revenue for the three months ended June 30, 2012, was $33,378 compared with revenues for the three months ended June 30, 2011 of $26,660.   The increase is due to more contracts completed in the current quarter due to our increased marketing efforts.

 

Revenues for the six months ended June 30, 2012 was 42,879 compared with revenues for the six months ended June 30, 2011 of $52,558. The decrease is due to fewer contracts completed in the first three months in 2012.

 

COST OF REVENUE: Cost of revenues (COR) was $15,494 (or 46% of revenue) for the three months ended June 30, 2012 compared to $10,251 (or 38% of revenue) for the same period in 2011. The increase in percentage of COR is due to our allocated overhead being up while working fewer jobs.

 

Cost of revenues (COR) was $21,379 (or 50% of revenue) for the six months ended June 30, 2012 compared to $24,882 (or 47% of revenue) for the same period in 2011. The decrease in COR is due to increased efficiency on the job site.

 

OPERATING EXPENSES. Operating expenses, exclusive of depreciation and amortization expense of $6,730 and $7,779, were $46,303 and $43,861 for the six month periods ended June 30, 2012 and 2011, respectively.

 

NET LOSS. The net loss for the three months ended June 30, 2012 and 2011 was $9, 685 and $9,512, respectively.  The net loss for the six months ended June 30, 2012 and 2011 was $32,479 and $26,165 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 $39,894 and $38,908 as of June 30, 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 in Operating Activities for the six months ended June 30, 2012 was $16,508.  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 June 30, 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 June 30, 2012, our Chief Executive and Chief Financial Officer as of June 30, 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: August 13, 2012