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EX-31.1 - CERTIFICATION - CIAO GROUP INC.ex31one.htm

 

CURRENT REPORT FOR ISSUERS SUBJECT TO THE

1934 ACT REPORTING REQUIREMENTS

 

FORM 10-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act

 

For the Fiscal Year Ended December 31, 2012

 

SPECIALTY CONTRACTORS, INC

(Exact name of registrant as specified in its charter)

 

Nevada 333-166057 27-1897718
(State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification)

 

1541 E. I-30, Rockwall, Texas 75087

 (Address of principal executive offices (zip code))

 

(214) 457-1227

 (Registrant’s telephone number, including area code)

 

(Former address)

 

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  Common Stock

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months and (2) has been  subject to such filing  requirement  for the past 90 days   Yes [X]   No [   ].

 

Indicate by check mark whether the registrant is a large accelerated  filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated  filer,"  "accelerated filer" and  smaller reporting company" in Rule 12b-2 of the Exchange Act:

 

           Large Accelerated Filer [  ]. Accelerated Filer  [  ].
     
           Non-Accelerated Filer   [  ]. Smaller Reporting Company [X]

 

Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act: 

Yes [X]   No [ ].

 

Aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2012: $0

 

Shares of common stock outstanding at March 29, 2013:    6,787,834

 

 

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PART I.

 

FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the headings “Risk Factors” and “Management Discussion and Analysis and Plan of Operation.”

 

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this annual report which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the date of this annual report or to conform these statements to actual results.

 

 

ITEM 1.                      DESCRIPTION OF BUSINESS

 

Specialty Contractors, Inc. ( the “Company” or “SPECIALTY” or “we”) was formed November 18, 2009 under the laws of the State of Nevada. Specialty’s wholly owned subsidiary Texas Deco Pierre, LLC (“TEXAS DECO”) was formed October 15th, 2009 and operates as a subsidiary to Specialty Contractors, Inc. TEXAS DECO began operations in November 2009. TEXAS DECO was divested on February 28, 2013 and simultaneously, the Company acquired Alpha Wise Assets LLC, a company in the home building and home remodeling business.

 

Business Model Overview:

 

TEXAS DECO performs specialty contracting services, specifically concentrating on outside construction and design relating to stone, brick, and wood structures such as facades, outdoor kitchens, grills, retaining walls, and garden structures. In general, they are referred to as specialty stone structures or creations.

 

The nature of our business is that we have very few if any repeat customers. We typically perform repair, updating or upgrading projects which are one-time projects.

 

Business Model:

 

Our product offering includes building facades, mailboxes, outdoor kitchens, outdoor grills, retaining walls, garden structures, and home remodeling. We use all types of materials such as stone, brick, and wood. Our designs can be custom tailored to the client’s preferences or selected from an inventory of pre-fabricated designs.

 

The Company offers design-build services including layout, materials to be used, and construction of the final project. The company specializes in outdoor projects, specifically patio and backyard improvements. The selection of specialty contractors for a design-build project and the process used in defining the role that each specialty will play on a project are some of the most critical decisions owners and design-builders make on a project. If selected carefully and allowed to bring their expertise to the table, specialty contractors can greatly benefit the outcome of a project, favorably impacting its budget, schedule and quality.

 

The role of the specialty contractor in design-build can take many forms, depending on the project, the owner, the primary design-builder and the contract arrangements.  Involvement in the early stages of the schematic design phase of a project enables the specialty contractor to contribute true value services that enhance the project’s design and positively affect the budget and schedule.

 

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Following is an overview of our current product offerings:

 

Outdoor Kitchen Design and Build:

Outdoor kitchens have become very popular, often including items that previously were considered in-home appliances. Large, stone or brick patio areas include accessories such as large open pit or traditional oven assemblies, outdoor refrigerators, cabinets, and seating areas. Design of these entertainment areas are essential for enhancing functionality and enjoyment of gatherings. Aesthetics are of key importance. As a package, we are able to design a layout based on customer need, preference, and purpose and then contract to have the plans built to order.

 

Outdoor Grill Patios and Accessories:

As with the outdoor kitchen concept, grills are becoming focus points for outdoor activities. Our ability to designF and build around a grill based activity pattern is one of our primary strengths. To complement our design and build concept, we also assist the client in purchasing the grill of their choice from a grill manufacturer.

 

Retaining Walls:

Retaining walls are built to restrain or to aesthetically enhance a garden. As such, walls can be comprised of brick, stone, masonry, or wood. Retaining walls are integral to a gardens overall ambiance. We offer not only electronic imagery in the design phase, but also work with the client on personal preference and desired aesthetics.

 

Garden Structures:

Garden structures include gazebos, decks, patios, arbors, and trellises. We have numerous styles which can be further custom modified to suit any client’s preference. These are sold in kits and can be shipped anywhere in the continental United States and Canada.

 

Our target market is home renovation and improvement. The Company anticipates increasing revenues by internet and local advertising as well as partnering with local home building and construction companies. We believe our product offering is a value-added approach to home renovation and improvement. Currently, home building and home improvement projects are dependent on national and local economic factors. The Company believes that there are healthy local and regional economies that will continue to experience home building and home improvement projects, and the Company believes Houston is one of them.

 

Specific to outdoor kitchens, which are more involved, expensive and intricate product offering, these projects can be considered a luxury item. However, as the Southeastern and southwestern states increase in population, the milder weather affords more outdoor activity. To that end, those that choose can upgrade a typical outdoor grill patio area to an outdoor kitchen design for a more comfortable living experience.  Population increases in coastal regions, especially the southeast and Gulf of Mexico, is driven by industry and retirees. Those representing retirees also represent an opportunity for our company as they generally have money saved to spend on quality of life products such as outdoor living centers. For example, due to the milder weather in the southern states, more lifestyle activities can take place outdoors. Our outdoor kitchen designs provide an alternative for those choosing to spend greater time outdoors.

 

We currently are generating revenue exclusively through construction and improvement work. We construct outdoor living centers concentrating on atheistically appealing patio designs that include stone, brick, or wood features. These may include decks, stone walkways, brick grills, and retaining walls.  Our design activity is expected to increase as we build a portfolio of completed projects. Our designs will be customized and tailored to customers’ desires and specifications; however features used may be similar to those used by the company in the past.  It is anticipated we will perform design work on a fee basis, however we may elect to perform design work on an all inclusive basis to secure the work to be performed. We do not anticipate design income to be a significant revenue stream; rather we anticipate construction income to generate the majority of revenues.

 

At present, our market territory is primarily local, soliciting business through word-of-mouth and advertising in the phone book and through print advertising. We continue to develop our local market and our contemplating strategies to go statewide.

 

Business Model Development & Growth Plans:

 

 

To date, our product work has been limited to exterior wall applications and exterior surface coating. However, we plan to develop strategic alliances with home builders to complement their home building business by offering the following primary construction platforms:

 

Marketing Strategy:

 

To this point, our marketing efforts have been primarily local through print advertising and word-of-mouth. This has provided for local contract work which doesn’t require a sophisticated delivery system. As we develop our web site, we will simultaneously develop a more sophisticated distribution process through direct shipment, design plan templates, and technical assistance. However, the money raised in this offering will be used to develop a product based web site as well as purchase industry best-in-class internet software to facilitate the build-out of our internet marketing, ordering, and delivery.

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The Company primarily markets its products from a rented unit at a trade market outlet. Through this point of delivery, the President of the company solicits opportunities, follows up on sales leads, and closes sales opportunities. This process has generated success, however, the Company believes by leveraging technology and marketing its unique design and build approach, increased revenues can be achieved

 

As previously mentioned, we are currently local in scope. However, through the leveraging of technology, specifically the internet and electronic communications, the main thrust of our business platform is to expand nationally through strategic alliances with other locally based contractors. This business expansion plan will necessitate a change in the sales and product delivery process, specifically sales will be internet driven and followed up by the Company. The Company will then work with locally based contractors.  The local contractors will perform the build out work following specific design and build blueprints unique to the company. Oversight of the work will be performed by the local contractor foreman with digital imagery of the work site electronically communicated to us for review and comment.

 

MARKETING ACTIVITIES

 

Marketing activities include direct target marketing in home design and remodel magazines, trade show outlet booths, word of mouth and print advertising.

 

GOVERNMENT REGULATION

 

The Company’s business and products are not subject to material regulation. The Company’s operations are not dependent on patents, copyrights, trade secrets, know-how or other proprietary information. We do not anticipate doing so in the future. We are not under any confidentiality agreements or covenants. At the present time there are no federal government regulations that are in effect that would impact our business operations.

 

OUR QUALIFICATIONS

 

Our qualifications are our reputation and experience in the specialty construction industry.

 

INDUSTRY AND COMPETITORS

 

The specialty construction industry is served by numerous local and regional independent contractors.  Historically, customers primarily contracted directly with local design and build contractors. With the broad reach of the internet, contractors have been able to offer designs and purchasing power to most any market in the United States. These contractors can then sell a design format along with specific outdoor equipment and then contract with a locally based contractor for the installation phase.

 

Numerous outdoor kitchen design and installation companies as well as home remodelers specializing in outdoor and indoor remodeling projects have leveraged the internet to display, market and push their products and specialties into the general public. As such, the marketplace is fragmented and marketing by word of mouth, unique designs, and state of the art equipment are ever increasingly important to a discerning consumer public. It is these aspects, namely quality, conversion of customer preferences and ideas into practical usage packages, and expert installation that gives Specialty a competitive advantage.

 

Because we do not have field sales people knocking on high-volume prospects’ doors, we don’t really compete on a head to head basis. Our competitive position is based on servicing the customer’s needs:

· Design and product offering
· High quality
· Speedy delivery and installation

 

Prospects find us from referrals or through print advertising and our method of competition is:

· Provide price quotes and design discussion upon visiting and inspection of the property
· Share design and equipment ideas/examples in person when visiting
· Few competitors have as complete an inventory of designs and pre-fabricated kits as we do, giving us a competitive edge

 

Due to our limited operating history and lack of year over year financial trend analysis we have not experienced any significant seasonality.  There is some seasonality in the construction market (usually slower during the winter and rainy months) as most of our product offerings are for outdoors improvements and beautification.

 

SOURCES AND AVAILABILITY OF RAW MATERIAL

 

Our raw materials are purchased from local market wholesalers of stone, brick, and lumber. Equipment installations are considered finished goods products and are ordered on a drop ship basis to the job site.

 

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COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS

 

We are not aware of nor do we anticipate any environmental laws with which we will have to comply.

 

NUMBER OF EMPLOYEES

 

The Company presently has one employee, Michael Goode, President and CEO. All other workers are subcontractors hired on a job by job basis.

 

MERGERS & ACQUISITIONS

 

The Company has not made nor is it subject to a merger or acquisition.

 

FUTURE INDEBTEDNESS & FINANCING

 

The Company does not anticipate having cash flow or liquidity problems within the next 12 months. The Company is not in violation of any note, loan, lease or other indebtedness or financing arrangement requiring the Company to make payments.

 

We believe that by having raised funds in the offering we have have sufficient funds to cash flow our growth plans for a minimum of twelve months.

 

PUBLIC INFORMATION

 

We do not have any information that has been made public or that will require an investment or material asset of ours.

 

Additional information:

We have made no public announcements to date and have no additional or new products or services. In addition, we don’t intend to spend funds in the field of research and development; no money has been spent or is contemplated to be spent on customer sponsored research activities relating to the development of new products, services or techniques; and we don’t anticipate spending funds on improvement of existing products, services or techniques.

 

 

 

ITEM 2.                      DESCRIPTION OF PROPERTY

 

Our facilities are in a 1,500 s.f. facility of which approximately half is warehouse space. It is leased on a month to month basis for $450 per month.

 

 

ITEM 3.                      LEGAL PROCEEDINGS

 

The Company is not involved in any legal proceedings.

 

 

ITEM 4.                      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

During the year ending December 31, 2012 no matters were submitted to security holders for a vote.

 

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS’ MATTERS

 

Our stock is currently quoted on the pink sheets under the symbol SPCN. The stock is thinly traded.

 

Dividends:

We have not paid cash dividends on any class of common equity since formation and we do not anticipate paying any dividends on our outstanding common stock in the foreseeable future.

 

Warrants:

The Company has no warrants outstanding.

 

ITEM 6.                      SELECTED FINANCIAL DATA

 

Not applicable for smaller reporting companies.

 

ITEM 7.                      MANAGEMENT DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION

 

SUMMARY OF 2012

 

GOING CONCERN:

 

The Company has minimal operations and has cash of $91,632 and working capital of approximately $82,574 as of December 31, 2012. The Company raised capital through sales of common stock in an offering under an S-1 registration statement filed with the US Securities & Exchange Commission. Since the Company has minimal operations, it is not known how long its capital will last if operations do not become more substantial. If adequate working capital cannot be generated, the Company may not be able to continue its operations.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company filed a Form S-1 with the U.S. Securities & Exchange Commission whereby the company registered shares to sell a minimum of 90,000 common shares or up to a maximum of 750,000 common shares at $0.75 per share. In February 10, 2011, the Form S-1 became effective. The Company raised $245,876 under the S-1 offering and is now traded on the OTCBB under the symbol SPCN. The stock is thinly traded.

 

EXECUTIVE OVERVIEW:

2012 was a much better year in sales and we believe gives us a reputation to build on in the future. We gained with new customers and expect our renewed focus and advertising will springboard us to greater results in 2013.

 

Fiscal years ended on December 31, 2012 and 2011.

 

REVENUE:  Revenue for the year ended December 31, 2012, was $105,581 compared with revenues for the year ended December 31, 2011 of $71,060.  We have historically acquired contracts through word-of-mouth and advertising in the phone book and through print advertising. We plan to improve our marketing and advertising efforts in order to acquire more contracts. Until then, our revenues will remain sporadic due to a lack of backlog of contracts.

 

COST OF REVENUES: Cost of revenues (COR) were $51,825 for the year ended December 31, 2012 compared to $35,182 for the same period in 2011. The increase in COR is due to more projects being started and finished in 2012. COR as a percentage of revenue was 49% in 2012 versus 50% in 2011, such decrease being better efficiency of work on our projects.

 

OPERATING EXPENSES. Operating expenses, exclusive of depreciation expense of $8,183 and $15,558, were $105,232 and $83,108 for the years ended December 31, 2012 and 2011, respectively.  The increase in costs was due to more jobs being performed.

 

NET LOSS. The net loss for the years ended December 31, 2012 and 2011 was $61,477 and $63,230 respectively.  The decrease in the net loss was because of the increase in revenue and more efficient cost of revenue as discussed above, offset in part by the increased operating expenses from year to year.

 

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LIQUIDITY AND CAPITAL RESOURCES.  The Company had $91,632 cash on hand at December 31, 2012 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 $20,767 and $38,908 as of December 31, 2012 and December 31, 2011, respectively, for working capital.  The line of credit accrues interest at 5%.

 

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 by Operating Activities for the year ended December 31, 2012 was $45,369.  This is some improvement compared to 2011 cash flows but we are looking for more improvement in 2013.

 

 

Material Changes in Financial Condition

 

WORKING CAPITAL: Working capital decreased from $115,101 at December 31, 2011 to $82,574 at December 31, 2012. 

 

Critical Accounting Policies

 

The Company’s critical accounting policies and estimates are depreciation expense, reserve for doubtful accounts and interest expense on line of credit.

 

UNUSUAL EVENTS: None.

 

FUTURE FINANCIAL CONDITION: The Company is optimistic about its future and the opportunities ahead.  Now that the sale of common stock is complete, our Plan of Operations is now in process.

 

Plan of Operations

 

The plan of operations for the coming 12 months will include the continued growth plan of the Company and will concentrate in three areas:

 

  1. Organic growth through existing channels (trade show booth),
  2. Customer Marketing (outdoor living areas: kitchens, patios, gardens)

  3. New markets (strategic alliances with builders)

 

Lead Generation: Participation at various trade market outlets. The President of the company is the sole representative for the company. He speaks with prospects, follows up on sales leads, and closes all sales opportunities. This process has generated limited success, and the Company believes by leveraging technology and marketing its unique design and build approach, increased revenues can be achieved.

 

Direct Marketing: We are currently designing an interactive web site that will feature our products offerings, designs developed and constructed, and samples of products and completed projects.  With our cost being less than stone we have a competitive advantage that we believe will enable us to gain traction with these product offerings.  Through increased marketing and advertising dollars we expect to build brand awareness and reach new customers that are not aware of our products, and gain new customers, both similar to what we currently service and expand our footprint to those mentioned below in new markets.

 

New Markets: To date, our product offering has been limited to exterior wall applications and exterior surface coating, however, we plan to develop strategic alliances with home builders focusing on our product offerings.  These alliances would have our product included in the builders specifications when planning a development.  This will be done through the President soliciting builders and presenting the inherent benefits of our products.

 

We focus on evaluating our financial condition and operating performance based on gross margin and cash flow. Gross margin management includes the management of our cost of sales, more specifically, labor and materials. Regarding material trends (raw materials), uncertainties or events that may reasonably occur affecting financial conditions or revenues include procurement and quality of product.

 

We expect earnings to grow as the costs associated with starting the business have been absorbed and as inefficiencies with training crews are now no longer an issue.

 

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We are not aware of any economic or industry factors relevant to the Company. We see material opportunities, challenges, and risks in the short and long term. These include the combination of film thickness, film color and adhesive coating is an additional product line, appealing to a broader base of prospects, as well as increased sales opportunities to existing customers. Specialty Contractors evaluates potential demand for additional film types and adds them to inventory when there is sufficient demand. While this boosts sales revenue and is profitable over a period of time, this growth in product inventory is a challenge to both cash flow and to warehouse space. Specialty Contractors is actively prospecting for a larger warehouse and operating facility, as well as additional operating capital.

 

Generating Sufficient Revenue:

Since inception, we have generated revenue through advertising, referrals, and word of mouth.  Over the next twelve months we plan to develop our web-based marketing and additional targeted print advertising. The web-based advertising will expose the Company to a different set of demographics and geographies.

 

Financing Needs:

Our cash flows since inception have not been adequate to support on-going operations.  As noted above, the Company's financing needs for the next twelve months can and will be met through the funds raised in our offering.

 

Management Advisors

Yorkdale Capital, LLC advises and assists the President with many aspects related to the regulatory filings including assistance with the consolidation of financial statements for the quarterly reviews and year-end audit.  Yorkdale Capital, LLC or its principals are also shareholders. Yorkdale Capital LLC was paid $3,250 and $1,500 for the years ended December 31, 2012 and 2011.

 

 

ITEM 7A.                   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable for smaller reporting companies.

 

ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements of the Company, together with the independent auditors' report thereon of LBB & Associates Ltd., LLP, appear on pages F-1 through F-12 of this report.

 

ITEM 9.                      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

ITEM 9A.                   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 December 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 to ensure that all material information required to be filed in the annual Form 10-K 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 December 31, 2012, our Chief Executive and Chief Financial Officer as of December 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 weaknesses in our internal controls:

 

·Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transaction.

 

 

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·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.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America.  Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework at December 31, 2012.   Based on its evaluation, our management concluded that, as of December 31, 2012, our internal control over financial reporting was not effective because of limited staff and a need for a full-time chief financial officer.  A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

Management’s Remediation Initiatives

 

As our resources allow, we will add financial personnel to our management team.  We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions.  We will also create an audit committee made up of our independent directors.

 

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-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART III

 

ITEM 10.                      DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

 

 

Michael Goode    60    Director, President; Secretary and Treasurer    

 

Background of Director and Executive Officer:

 

Mr Goode attended McLennan Community College in Waco, Texas studying Business Administration from 1974 to 1979 where he graduated with an Associate Degree in Applied Science Management Development.

Mr. Goode entered the U.S. Navy in 1971 to 1978 and then worked for the Veterans Administration Regional Office in Waco, Texas until 1981 when he worked for the State of Texas Veteran Affairs Commission from 1981 to 1985. Mr. Goode worked for A.L. Williams Insurance part time from 1984 until employing fulltime from 1985 to 1988 as a Divisional District Manager. Mr. Goode then worked for the Department of Labor in Dallas, Texas from 1988 until retirement in 2009 as a Senior Claims Examiner. Mr. Goode is owner of Goode Investments from 2010 to the present which is involved in real estate investments which includes home remodeling and construction of new homes.

Professional Affiliations of Mr. Goode include the American Legion, Masonic Lodge, and Professional Bowlers Association.

 

ITEM 11.                      EXECUTIVE COMPENSATION

 

Following is what our officers received in 2012 and 2011 as cash and non-cash compensation.

 

Name Capacity Served Aggregate Remuneration
Michael Goode Chief Executive Officer, Chief Financial Officer,  President, Secretary and Director

2012 $ -0-

2011 $ -0-

Charles Bartlett FORMER Chief Executive Officer, Chief Financial Officer,  President, Secretary and Director

2012 : $12,935

2011: $5,557

 

As of the date of this filing, our sole officer is our only employee. We have no employment agreements with any officer, director or employee.

 

 

ITEM 12. SECURITY OWNERSHIP OF MANANGEMENT AND BENEFICIAL OWNERS

 

As of December 31, 2012 the following person is known to the Company to own 5% or more of the Company's Voting Stock:

 

Title / Relationship to Issuer Name of Owner Number of Shares Owned Percent of Total

FORMER Director, President, Secretary and Director

 

         Charles Bartlett 6,000,000 88.52%
       

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION

 

There are no agreements or proposed transactions with related parties.

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

(1) AUDIT FEES

 

The aggregate fees billed for professional services rendered by our auditors, for the audit of the registrant's annual financial statements and review of the financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year 2012 was $16,185 and in 2011 was $13,565.

 

(2) AUDIT-RELATED FEES

 

The aggregate audit fees billed for professional services rendered by our auditors for the review of the quarterly unaudited financial statements included in the registrant’s Forms S-1 and S-1/A were approximately $-0- in 2012 and $6,651 in 2011.

 

10
 

  

(3) TAX FEES

 

NONE

 

(4) ALL OTHER FEES

 

NONE

 

(5) AUDIT COMMITTEE POLICIES AND PROCEDURES

 

Audit Committee Financial Expert

 

The Securities and Exchange Commission has adopted rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 requiring public companies to disclose information about “audit committee financial experts.”  As of the date of this Annual report, we do not have a standing Audit Committee.   The functions of the Audit Committee are currently assumed by our Board of Directors.  Additionally, we do not have a member of our Board of Directors that qualifies as an “audit committee financial expert.”  For that reason, we do not have an audit committee financial expert.

 

Policies and Procedures:

The Board of Directors policies and procedures for hiring Independent Principal Accountants are summarized as follows:

 

·The Board ensures that the accountants are qualified by reviewing their valid license information.
·The Board ensures that the firm is registered with the PCAOB.
·The Board ensures that the accountants are independent by reviewing Regulation S-X, section 210.2-01(b).

 

 

(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

 

Not applicable.

 

 

11
 

 

PART IV

 

 ITEM 15. EXHIBITS, FINANICAL STATEMENTS AND REPORTS ON FORM 8-K

 

(a) The following documents are filed as part of this report:  Included in Part II, Item 7 of this report:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets as of December 31, 2012 and 2011

 

Consolidated Statements of Operations for the Years Ended December 31, 2012 and 2011

 

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2012 and 2011

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011

 

Notes to the Consolidated Financial Statements

 

 

(b)           Exhibits

No. Description
31.1 Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

(c) Filing on Form 8-K

 

Subsequent to the date of the financial statements in this 10-K, an 8-K was filed on March 7, 2013 to disclose that on February 28, 2013, the Company entered into a Stock and Asset Transfer Agreement (the Agreement). Pursuant to the Agreement, the Company divested itself of its subsidiary Texas Deco Pierre, LLC due to continuing losses. Simultaneously with the divestiture of Texas Deco Pierre, LLC, the Company acquired Alpha Wise Assets, LLC, a company in the home building and remodeling business. Alpha Wise Assets, LLC is now a wholly owned subsidiary of Specialty Contractors, Inc. The Company acquired 100% of voting equity interest in Alpha Wise Assets, LLC.

Pursuant to the Agreement, Charles Bartlett resigned as an officer and director of the Company effective February 28, 2013.

On March 1, 2013, the Company’s board of directors appointed Michael Goode as President, CEO, Chief Accounting Officer, Treasurer and Secretary. Michael Goode was also elected as Director of the Company on February 28, 2013.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

SPECIALTY CONTRACTORS, INC.

 

By: /s/ Michael Goode

Michael Goode

Chief Executive Officer & Chief Financial Officer

 

 

Dated: March 29, 2013

 

 

 

 

12
 

 

SPECIALTY CONTRACTORS, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2012

 

CONTENTS

 

Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2012 and 2011 F-3
Consolidated Statements of Operations for the Years Ended December 31, 2012 and 2011 F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2012 and 2011 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011 F-6
Notes to the Consolidated Financial Statements F-7 to F-12

 

 

 

 

 

 

F-1
 

 

 

 LBB & ASSOCIATES LTD., LLP

10260 Westheimer Road, Suite 310

Houston, TX 77042

Phone: (713) 800-4343 Fax: (713) 456-2408

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of

Specialty Contractors, Inc.

Rockwall, Texas

 

 

We have audited the accompanying consolidated balance sheets of Specialty Contractors, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits 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 audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Specialty Contractors, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 9 to the consolidated financial statements, the Company's losses from operations, and its need for additional financing in order to fund its projected loss in 2013 raise substantial doubt about its ability to continue as a going concern. The 2012 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP

 

Houston, Texas

March 26, 2013

 

 

 

 

 

 

F-2
 

  

SPECIALTY CONTRACTORS, INC.

 Consolidated Balance Sheets

 As of December 31, 2012 and 2011

 

   2012  2011
Assets          
Current Assets          
Cash and cash equivalents  $91,632   $153,642 
Prepaid expenses   —      6,400 
Total Current Assets   91,632    160,042 
           
Property and equipment, net   4,236    7,217 
           
           
Deferred fees   —      5,202 
TOTAL ASSETS  $95,868   $172,461 
           
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts payable  $1,655   $130 
Accrued expenses   2,988    2,988 
Amounts due to shareholder   4,415    2,915 
Line of credit   —      38,908 
Total Current Liabilities   9,058    44,941 
           
Long-Term Liabilities          
Line of credit   20,767    —   
Total Long-Term Liabilities   20,767    —   
TOTAL LIABILITIES   29,825    44,941 
           
Commitments          
           
Stockholders’ Equity:          
Preferred Stock, $.001 par value, 20,000,000 shares
  authorized, -0- shares issued and outstanding
   —      —   
Common Stock, $.001 par value, 50,000,000 shares
  authorized, 6,777,834 and 6,777,834  shares issued
  and outstanding,  respectively
   6,778    6,778 
Paid in capital   310,098    310,098 
Accumulated deficit   (250,833)   (189,356)
  Total Stockholders’ Equity   66,043    127,520 
Total Liabilities and Stockholders’ Equity  $95,868   $172,461 

 

 

 

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

 

F-3
 

 

 

 

  

SPECIALTY CONTRACTORS, INC.

Consolidated Statements of Operations

For the Years Ended December 31, 2012 and 2011

 

 

 

    
    2012    2011 
Revenue  $105,581   $71,060 
Cost of revenue   51,825    35,182 
GROSS PROFIT   53,756    35,878 
OPERATING EXPENSES:          
   Depreciation and amortization   8,183    15,558 
   General and administrative   105,232    83,108 
   TOTAL OPERATING EXPENSES   113,415    98,666 
           
NET OPERATING LOSS   (59,659)   (62,788)
           
OTHER INCOME (EXPENSE)          
Interest expense, net   (1,862)   (3,757)
Other income   44    3,315 
TOTAL OTHER INCOME (EXPENSE)   (1,818)   (442)
           
Net loss  $(61,477)  $(63,230)
           
           
Earnings per share          
Weighted Average Shares Outstanding:          
Basic and Diluted   6,777,834    6,670,837 
Basic and Diluted Loss per share  $(0.01)  $(0.01)

 

 

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

 

 

 

F-4
 

 

 

SPECIALTY CONTRACTORS, INC.

Consolidated Statements of Stockholders' Equity (Deficit)

For the Years Ended December 31, 2012 and 2011

 

 

    

 

Common Stock

        
    

 

 

Shares

    

 

 

Par Value

    

Additional 

Paid-in

Capital

    

 

Accumulated

Deficit

    

 

Totals

 
 
December 31, 2010
   6,450,000   $6,450   $64,550   $(126,126)  $(55,126)
Issuance of Common Stock 
for Cash
   327,834    328    245,548    —      245,876 
Net loss   —      —      —      (63,230)   (63,230)
Balance,
December 31, 2011
   6,777,834    6,778    310,098    (189,356)   127,520 
                          
Net loss   —      —      —      (61,477)   (61,477)
Balance,
December 31, 2012
   6,777,834   $6,778   $310,098   $(250,833)  $66,043 
                          

 

 

 

 

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

 

 

F-5
 

 

   SPECIALTY CONTRACTORS, INC.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2012 and 2011

 

 

   2012  2011
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(61,477)  $(63,230)
           
Adjustments to reconcile net loss to cash used
by operating activities:
          
  Depreciation and amortization   8,183    15,558 
Change in Assets and Liabilities:          
  Change  in Prepaid Expenses   6,400    (6,400)
  Change  in Accounts Payable   1,525    (1,356)
  Change  in Accrued Expenses   —      (1,998)
Net Cash Used in Operating Activities   (45,369)   (57,426)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of fixed assets   —      —   
Net Cash Used in Investing Activities   —      —   
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Payments on line of credit   (18,141)   (37,723)
Proceeds from Sale of Stock   —      245,876 
Payments on Shareholder Loan   1,500    2,915 
Net Cash ( Used In) Provided by Financing Activities   (16,641)   211,068 
           
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
   (62,010)   153,642 
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
   153,642    —   
CASH AND CASH EQUIVALENTS AT END OF YEAR  $91,632   $153,642 
           
           
           
SUPPLEMENTAL DISCLOSURES          
Interest paid  $4,220   $3,757 
Income taxes paid  $—     $—   
           
           

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

 

F-6
 

 

 

SPECIALTY CONTRACTORS, INC.

Notes to the Consolidated Financial Statements

December 31, 2012

 

 

 

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, through its subsidiary Texas Deco Pierre, LLC., operates as a contractor and performing specialty construction projects primarily in the State of Texas.

 

TEXAS DECO was divested on February 28, 2013 and simultaneously, the Company acquired Alpha Wise Assets LLC, a company in the home building and home remodeling business.

 

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 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.

 

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.

 

Cash and Cash Equivalents:

 

Cash and cash equivalents include cash and all highly liquid financial instruments with original maturities of three months or less at the date of purchase 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.

 

 

 

F-7
 

 

SPECIALTY CONTRACTORS, INC.

Notes to the Consolidated Financial Statements

December 31, 2012

 

 

Fair Value of Financial Instruments:

 

In accordance with the reporting requirements of ASC 820, “Fair Value Measurements,  the Company  calculates the fair value of its assets and  liabilities which qualify as financial  instruments  under this statement and includes this additional information in the notes to the financial statements  when the fair value is different  than the  carrying  value of those financial instruments.  

 

The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and notes payable approximate  their fair values due to the short-term maturities of these instruments.  

 

Inventory:

 

Inventory is comprised of goods purchased for resale; therefore the Company has no raw materials or work in process.  The Company uses the specific identification and FIFO (“First In, First Out”) methods for inventory tracking and valuation.    Inventory is stated at the lower of cost or market value.

 

Accounts Receivable:

 

Accounts receivable are carried at their face amount, less an allowance for doubtful accounts.  On a periodic basis, the Company evaluates accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions, based on a history of write offs and collections. The Company’s policy is generally not to charge interest on trade receivables after the invoice becomes past due.  A receivable is considered past due if payments have not been received within agreed upon invoice terms.   Write-offs are recorded at a time when a customer receivable is deemed uncollectible.

 

Property and Equipment:

 

Property and equipment are stated at cost less accumulated depreciation. Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are charged to current operations.  Depreciation is calculated on a straight-line basis over three to seven years and is included in cost of goods sold.

 

Revenue Recognition:

 

The Company records revenues from its fixed-price, long-term contracts using the percentage-of-completion method. Revenues are recorded based on construction costs incurred to date as a percentage of estimated total cost at completion. The percentage-of-completion, determined by using total costs incurred to date as a percentage of estimated total costs at completion, reflects the actual physical completion of the project. If the current projected costs on a fixed fee contract exceed projected revenue, the entire amount of the loss is recognized in the period such loss is identified.

 

Pre-contract costs: All pre-contract costs are expensed in the period incurred.  Once a contract is signed then any costs associated with the project are included in the quote and accounted for under the completion of contract method as discussed above.

 

Change orders: Change orders are approved by the President and the project quote is updated in the same period so that the completion of contract calculation is up-to-date and accurately reflects current figures.  The timing of a change order to client approval is usually less than one week due to the hands on approach of the President, thus, there are no issues of revenue recognition from pending change orders.  If there was a delay at the end of an accounting period and there was no approval for a change order then the Company would not recognize any revenue related to that change order.

 

Claims: The Company has no claim history since inception (November 18, 2009).  The Company completes a walk through with the customer prior to final payment to ensure completeness. The Company does not offer any type of warranty, implied or explicit.

 

F-8
 

 

 

 

SPECIALTY CONTRACTORS, INC.

Notes to the Consolidated Financial Statements

December 31, 2012

 

 

 

Cost of Revenue:

 

The types of costs included in Cost of Revenue are:

 

   ● Direct material costs
   ● Purchasing, receiving and inspection
   ● Labor 
   ● Ingoing and outgoing freight 
   ● On site expenses
   ● Depreciation Expense (operating)

 

Shipping and Handling Costs:

 

All products are sold FOB destination so the Company does not charge additional fees for shipping and handling.

 

Advertising:

 

Advertising costs are expensed when incurred.  The Company’s advertising costs were in $24,529 and $10,889 in 2012 and 2011, respectively.

 

Income Taxes:

 

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

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 equal to earnings per share (basic).

 

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.

 

Stock Based Compensation

 

Stock based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.

 

Recent Accounting Pronouncements:

 

Management does not expect the future adoption of any recently issued accounting pronouncement to have a significant impact on its financial position, results of operations, or cash flows.

 

 

 

F-9
 

 

  

SPECIALTY CONTRACTORS, INC.

Notes to the Consolidated Financial Statements

December 31, 2012

 

 

 

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

Property and equipment at December 31, 2012 and 2011 are as follows:

 

   2012  2011
Trailers  $6,000   $6,000 
Construction Equipment   6,593    6,593 
Sub-Total   12,593    12,593 
Less:  Accumulated Depreciation   (8,357)   (5,376)
Total property and equipment  $4,236   $7,217 

 

 

The Company’s property and equipment are depreciated on a straight-line basis over the asset’s useful lives, ranging from three to seven years.   Depreciation expense was $2,981 and $3,054 for the periods ended December 31, 2012 and 2011, respectively.

 

NOTE 3 – 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 December 31, 2012, the amount outstanding under this line of credit was $20,767.

 

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 4 – EQUITY

 

The Company is authorized to issue 20,000,000 preferred shares at a par value of $.001 per share.  There were 0 shares issued and outstanding as of December 31, 2012 and 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 6,777,834 shares issued and outstanding as of December 31, 2012 and 2011.

 

In 2011, the Company filed a Form S-1 with the U.S. Securities & Exchange Commission whereby the company registered shares to sell a minimum of 90,000 common shares or up to a maximum of 750,000 common shares at $0.75 per share. On February 10, 2011, the Form S-1 became effective. In 2011, the Company raised $245,876 under the offering, selling 327,834 shares of common stock.

 

The Company does not have any stock option plans or stock warrants outstanding.

 

 

F-10
 

 

SPECIALTY CONTRACTORS, INC.

Notes to the Consolidated Financial Statements

December 31, 2011

 

 

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

The Company paid the former President $12,935 and $5,557 for services and commissions in 2012 and 2011, respectively.

 

 

NOTE 6 – COMMITMENTS

 

The Company leases warehouse space on a month-to-month basis for $450 per month. There are no future lease obligations.

 

NOTE 7 – INCOME TAXES

 

Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carryforward has been recognized, as it is not deemed likely to be realized.

 

The provision for refundable Federal income tax consists of the following as of December 31, 2012 and 2011:

 

   2012  2011
Current operations  $21,000   $23,000 
   Less: Change in valuation Allowance   (21,000)   (23,000)
     Net provision  $—     $—   

 

The cumulative tax effect at the expected tax rate of 34% of significant items comprising the Company’s net deferred tax amounts as of December 31, 2012 and 2011 are as follows:

 

Deferred Tax Asset Related to:

   2012  2011
Net operating loss carryover  $85,000   $64,000 
Valuation allowance   (85,000)   (64,000)
     Net Deferred Tax Asset  $—     $—   

 

The net deferred tax asset generated by the loss carryforward has been fully reserved. The cumulative net operating loss carry-forward is approximately $250,000 at December 31, 2012, and will expire beginning in 2029.

 

The realization of deferred tax benefits is contingent upon future earnings and is fully reserved at December 31, 2012.

 

 

 

 

F-11
 

SPECIALTY CONTRACTORS, INC.

Notes to the Consolidated Financial Statements

December 31, 2012

 

 

NOTE 8 – 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   $ 12,963       12 %
Customer B   $ 20,429       19 %

 

 

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   $ 10,650       15 %
Customer B   $ 22,244       31 %
Customer C   $ 16,902       24 %

 

 

NOTE 9 – FINANCIAL CONDITION AND GOING CONCERN

 

The Company has an accumulated deficit through December 31, 2012 totaling $250,833 and had working capital of $82,574. 

 

The Company has experienced no loan defaults, labor stoppages, legal proceedings or any other operating interruption in 2012.  Therefore, these items will not factor into whether the business continues as a going concern, and accordingly, management has not made any plans to dispose of assets or factor receivables to assist in generating working capital.

 

In 2011, the Company raised capital through a public offering and may need additional capital in the future. There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support the Company’s working capital requirements if its current capital reserve is depleted. 

 

Management believes that the efforts it has made to promote its operation will continue for the foreseeable future; however, the Company has incurred losses and has had limited revenue.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

NOTE 10 – SUBSEQUENT EVENTS

 

On February 28, 2013, the Company entered into and Stock and Asset Transfer Agreement (the Agreement). Pursuant to the Agreement, the Company divested itself of its only operating subsidiary, Texas Deco Pierre, LLC, due to continuing losses. Simultaneously with the divestiture of Texas Deco Pierre, LLC, the Company acquired Alpha Wise Assets, LLC, a company in the home building and remodeling business. Alpha Wise Assets, LLC is now a wholly owned subsidiary of Specialty Contractors, Inc. The Company acquired 100% of voting equity interest in Alpha Wise Assets, LLC.

Pursuant to the Agreement, Charles Bartlett resigned as an officer and director of the Company effective February 28, 2013.

On March 1, 2013, the Company’s board of directors appointed Michael Goode as President, CEO, Chief Accounting Officer, Treasurer and Secretary. Michael Goode was also elected as Director of the Company on February 28, 2013.

On March 1, 2013, the Company issued 10,000 shares of its common stock to Michael Goode in consideration for services rendered as an officer and director of the Company.

 

 

F-12