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 333-145831

 

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)

 

2007 Industrial Blvd., Suite A, Rockwall, Texas 75087

(972) 722-7351

(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:

 

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 [ ].

 

As of August 10, 2012, there were 3,779,000 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	13
Item 2.	Changes in Securities	13
Item 3.	Default upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	13
Item 6.	Exhibits and Reports on Form 8-K	13

 

 

 

 

 

 

 

 

 

SURFACE COATINGS, INC.  Consolidated Balance Sheets  As of June 30, 2012 and December 31, 2011

 

		As of June 30, 2012 (Unaudited)				As of December 31, 2011 (Audited)
Assets
Current Assets
Cash and Cash Equivalents		$	2,449			$	11,694
Assets Held For Sale			—				354,880
Total Current Assets			2,449				366,574
Total Assets		$	2,449			$	366,574
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable		$	263			$	265
Accrued Expenses			750				500
Due to Related Parties			36,454				22,047
Liabilities Held For Sale			—				204,452
Total Current Liabilities			37,467				227,264
Total Liabilities			37,467				227,264
Stockholders’ Equity:
Preferred stock, $.001 par value, 20,000,000 shares   authorized, -0- shares issued and outstanding			0				0
Common stock, $.001 par value, 50,000,000 shares   authorized, 3,779,000 and 5,579,000  shares issued   and outstanding,  respectively			3,779				5,579
Additional Paid In Capital			166,364				287,913
Accumulated Deficit			(205,161	)			(154,182	)
Total Stockholders’ Equity			(35,018	)			139,310
Total Liabilities and Stockholders’ Equity		$	2,449			$	366,574

 

 

 

The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.

 

 

 

 

SURFACE COATINGS, 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		$	—			$	—			$	—			$	—
Cost of Sales			—				—				—				—
Gross Profit			—				—				—				—
Operating Expenses:
General and Administrative			5,215				9,649				23,900				22,067
Total Operating Expenses			5,215				9,649				23,900				22,067
Net Operating Income (Loss) from Continuing Operations			(5,215	)			(9,649	)			(23,900	)			(22,067	)
Net Income (Loss) from Discontinued Operations			21,332				59,233				(27,079	)			101,082
Net Income (Loss)		$	16,117			$	49,584			$	(50,979	)		$	79,015
Basic and Diluted Earnings (Loss) per share from Continuing Operations		$	0.00			$	0.00			$	0.00			$	0.00
Basic and Diluted Earnings (Loss) per share from Discontinued Operations		$	0.00			$	0.01			$	0.00			$	0.02
Basic and Diluted Earnings (Loss) per share		$	0.01			$	0.01			$	0.00			$	0.01
Weighted Average Shares Outstanding:
Basic and Diluted			5,579,000				5,429,000				5,579,000				5,429,000

 

 

The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.

 

 

 

 

 

SURFACE COATINGS, INC. Consolidated Statement of Stockholders' Equity For the Six Months Ended June 30, 2012 (Unaudited) and the Year Ended December 31, 2011 (Audited)

  

			Common								Additional				Accumulated
			Shares				Par Value				Paid In Capital				Deficit				Totals
Stockholders’ Equity, December 31, 2010			5,429,000			$	5,429			$	265,563			$	(257,118	)		$	13,874
Shares Issued for Service			150,000				150				22,350								22,500
Net Income															102,936				102,936
Stockholders’ Equity, December 31, 2011			5,579,000			$	5,579			$	287,913			$	154,182			$	139,310
Shares Cancelled due to sale of Subsidiary to Related Party			(1,800,000	)			(1,800	)			(178,200	)							(180,000	)
Gain on Sale of Subsidiary to Related Party											56,651								56,651
Net Loss															(50,979	)			(50,979	)
Stockholders’ Equity, June 30, 2012			3,779,000			$	3,779			$	166,364			$	(205,161	)		$	(35,018	)

 

 

 

The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.

 

 

 

 

 

 

SURFACE COATINGS, INC. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2012 and June 30, 2011 (Unaudited)

 

		Six Months Ended June 30, 2012				Six Months Ended June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)		$	(50,979	)		$	79,015
Adjustments to reconcile net deficit to cash used by operating activities:
Depreciation			8,341				2,082
Bad Debt Expense			4,300				(13,414	)
Increase in Allowance for Sales Returns			0				(5,445	)
Change in Assets and Liabilities:
(Increase)  in Accounts Receivable			(59,491	)			(7,283	)
(Increase) in Inventory			(6,787	)			(14,325	)
(Increase) in Other Assets			(16,539	)			(6,285	)
Increase  in Accounts Payable			14,871				20,181
Increase  in Related Party Accounts Payable			19,037				0
(Decrease) in Other Liabilities			0				(33,462	)
Increase (Decrease)  in Accrued Expenses			3,910				(15,924	)
CASH FLOWS PROVIDED BY (USED IN)  OPERATING ACTIVITIES			(83,337	)			5,140
CASH FLOWS FROM INVESTING ACTIVITIES
Transfer of Cash in Sale of Subsidiary			(22,272	)			0
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES			(22,272	)			0
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Advances on (Payments on) Line of Credit			15,738				(9,997	)
Proceeds on Note Payable from Shareholder			0				20,000
Payments on Capital Leases			(1,112	)			(1,668	)
Payments on Notes to Related Parties			(23,019	)			(6,925	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES			(8,393	)			1,410
NET INCREASE (DECREASE) IN CASH			(114,002	)			6,550
Cash, beginning of period			116,451				121,044
Cash, end of period		$	2,449			$	95,188
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid		$	4,203			$	1,512
Income taxes paid		$	0			$	0

 

 

The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.

 

 

 

 

 

SURFACE COATINGS, 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:

 

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 as a converter and distributor of temporary surface protection tapes, mainly to the construction industry and for the past five years has been developing its business. The Company is located in Texas and sells its product locally as a distributor and throughout the U.S. over the internet.

 

On June 30, 2012, due to losses and continuing related expenses, the Registrant divested their wholly owned subsidiary Surface Armor, LLC to our President, who has since resigned and been replaced. A majority of shareholders other than the President approved the sale. In conjunction with the disposition, the 1,800,000 shares registered in the name of the President were cancelled. The Company recorded a gain of $56,651 on the transaction, which was recorded as additional paid in capital.

.

The Company operates on a calendar year-end.  Due to the nature of their operations, the Company operates in only one business segment.

 

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 March 30, 2012.   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 and should be read in conjunction with the Company’s Form 10-K filing for 2011.

 

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.

 

Reclassification:

 

Certain prior year amounts have been reclassified in the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows to conform to current period presentation.  These reclassifications were not material to the consolidated financial statements and had no effect on net earnings reported for any period.

 

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.

 

 

NOTE 2 – DUE TO RELATED PARTIES

 

The Company had $36,454 and $22,047 due to a minority shareholder, related to funding of operating expenses, as of June 30, 2012 and December 31, 2011, 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 June 30, 2012 and December 31, 2011.

 

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 3,779,000 and 5,579,000 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively. In conjunction with the disposition of the wholly owned subsidiary, Surface Armor, the 1,800,000 shares registered in the name of the President were cancelled at a value of $.10 per share or $180,000. The value of the cancelled shares was determined by the closing price of the stock on the day of the cancellation, discounted for a lack of marketability, as the stock was restricted and comprised of a block of approximately 32% of the outstanding shares.

 

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 June 30, 2012 and December 31, 2011 are as follows:

 

Deferred tax asset related to:

 

		June 30,				December 31,
		2012				2011
Prior Year		$	59,696				85,430
Tax Benefit for Current Period			12,745				0
Utilization of NOL			0				(25,734	)
Net Operating Loss Carryforward		$	72,441			$	59,696
Less: Valuation Allowance			(72,441	)			(59,696	)
Net Deferred Tax Asset		$	0			$	0

 

 

The cumulative net operating loss carry-forward is approximately $205,000 at June 30, 2012 and $154,000 at December 31, 2011, 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 – SALE OF SUBSIDIARY TO RELATED PARTY

 

On June 30, 2012, due to losses and continuing related expenses, the Registrant divested their wholly owned subsidiary Surface Armor, LLC to the President, who has since resigned and been replaced. A majority of shareholders other than the President approved the sale. In conjunction with the disposition, the 1,800,000 shares registered in the name of the President were cancelled. The shares were valued at $.10 per share or $180,000. The value of the cancelled shares was determined by the closing price of the stock on the day of the cancellation, discounted for a lack of marketability, as the stock was restricted and comprised of a block of approximately 32% of the outstanding shares. The Company recorded a gain of $56,651 on the transaction, which was recorded as additional paid in capital.

 

 

NOTE 6 – FINANCIAL CONDITION AND GOING CONCERN

 

The Company has an accumulated deficit through June 30, 2012 totaling $205,161 and had negative working capital of $35,018.  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’s 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 7 – SUBSEQUENT EVENTS

 

In conjunction with the preparation of these financial statements, an evaluation of subsequent events was performed through August 14, 2012, which is the date the financial statements were issued. On July 9, 2012, the Company appointed Mr. David McCune as Director, President, Secretary and Treasurer of Surface Coatings, Inc. On July 31, 2012, the Company issued 10,000 shares of stock to Mr. McCune for consideration for services performed.

 

 

 

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

 

On June 30, 2012, due to losses and continuing related expenses, the Registrant divested our wholly owned subsidiary Surface Armor, LLC to our President, who has since resigned and been replaced. A majority of shareholders other than the President approved the sale. In conjunction with the disposition, the 1,800,000 shares registered in the name of the President were cancelled. The shares were valued at $.10 per share or $180,000. The value of the cancelled shares was determined by the closing price of the stock on the day of the cancellation, discounted for a lack of marketability, as the stock was restricted and comprised of a block of approximately 32% of the outstanding shares. The Company recorded a gain of $56,651 on the transaction, which was recorded as additional paid in capital.

 

 

RESULTS FOR THE QUARTER ENDED JUNE 30, 2012

 

Our second quarter ended on June 30, 2012.  Any reference to the end of the fiscal quarter refers to the end of the second quarter for the period discussed herein.

 

REVENUE.  There was no revenue from continuing operations for the three and six months ended December 31, 2012 and 2011.

 

OPERATING EXPENSES. Total operating expenses for the three months ended June 30, 2012 and 2011 were $5,215 and $9,649, respectively.  Total operating expenses for the six months ended June 30, 2012 and 2011 were $23,900 and $22,067, respectively. The expenses relate to the continuing operations related audit fees and other services. There was no depreciation expense incurred.

 

DISCONTINUED OPERATIONS. The net income related to discontinued operations for the three months ending June 30, 2012 and 2011 was $21,332 and $59,233, respectively. The net income (loss) related to discontinued operations for the six months ending June 30, 2012 and 2011 was a loss of $27,079 and income of $101,082, respectively and income of $21,332 and $59,233 for the three months ended June 30, 2012 and 2011, respectively.

 

NET INCOME (LOSS). The net income for the three months ended June 30, 2012 and 2011 were $16,117 and $49,233, respectively. The net income (loss) for the six months ending June 30, 2012 and 2011 was a loss of $50,979 and income of $79,015, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES. Our cash balance was $2,449 at June 30, 2012. As discussed in Note 6 to the financial statements, the Company has recurring losses and an accumulated deficit. As discussed in Notes 1 and 5 to the financial statements, the Company sold its wholly owned subsidiary as of June 30, 2012. 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 vendors and also 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, 2011 to June 30, 2012 by about $174,000, to approximately negative $35,000. This reduction is due to the sale of its operating subsidiary.

 

STOCKHOLDER’S EQUITY: Stockholder’s Equity decreased by approximately $174,000, as a result of the loss for the period ($50,979) as well as the cancellation of shares ($180,000) and the gain on the sale of its subsidiary ($56,651).

 

Employees

 

At June 30, 2012, the Company had one employee.

 

 

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 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 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 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 has materially affected, or is 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 and Reports on Form 8-K

 

(a)

Three Form 8-K’s were filed since March 31, 2012:

 

July 9, 2012 announcing the resignation of Rick Pietrykowski and Jeannie Pietrykowski from their positions as officers and directors and announcing the appointment of David McCune as President and Director.

 

August 1, 2012 announcing the disposition of its wholly owned subsidiary, Surface Armor, LLC.

 

August 3, 2012 announcing the change of address.

 

(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/  David McCune

 

David McCune, President, Chief Executive Officer and Chief Financial Officer

 

Date: August 14, 2012