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 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 September 30, 2013

 

OR

 

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

 

From the transition period from ___________ to ____________.

 

Commission File Number 333-166057

 

SPECIALTY CONTRACTORS, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada   27-1897718
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)

 

1541 E. I-30, Rockwall, Texas 75087

 (Address of principal executive offices)

 

  (214) 457-1227

(Issuer's telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:.  Yes [ X ]   No [     ].

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ]   No [X].

 

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 [ ].

 

As of November 15, 2013 there were 6,787,834 shares of Common Stock of the issuer outstanding.

 

 

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TABLE OF CONTENTS

 

 

  PART I FINANCIAL STATEMENTS  
     
Item 1 Consolidated Financial Statements 3
     
Item 2 Management’s Discussion and Analysis or Plan of Operation 8
     
  PART II OTHER INFORMATION  
     
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Default upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits 11

 

 

 

 

 

 

2
 

 

  

SPECIALTY CONTRACTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
ASSETS   September 30, 2013    February 28, 2013 
Current assets   

 

 

      
    Cash  $1,421   $—   
    Inventory   218,873    197,614 
Total current assets   220,294    197,614 
           
TOTAL ASSETS  $220,294   $197,614 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities          
    Accounts payable  $9,550   $1,239 
    Accounts payable - related party   9,000    —   
    Due to Shareholder   3,838    2,803 
    Line of credit   196,976    194,037 
        Total current liabilities   219,364    198,079 
           
TOTAL LIABILITIES   219,364    198,079 
           
           
           
Stockholders’ equity          
    Preferred stock, $0.001 par value, 20,000,000 authorized,          
            -0-  issued and outstanding at September 30, 2013 and February 28, 2013   —      —   
    Common stock, $0.001 par value, 50,000,000 authorized,          
            6,787,834 and 0 issued and outstanding at September 30, 2013 and February 28, 2013,  respectively   6,788    —   
   Additional paid-in-capital   73,454    30,000 
   Accumulated deficit   (79,312)   (30,465)
    Total stockholders’ equity   930    (465)
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $220,294   $197,614 
 
 
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements.

 

 

 

 

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SPECIALTY CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE  MONTHS ENDED SEPTEMBER 30, 2013 
(Unaudited)

 

   Three Months Ended  Nine Months Ended
   Sept 30,  Sept 30,  Sept 30,  Sept 30,
  2013  2012  2013  2012
             
             
  Revenue  $—     $—     $—     $—   
  Cost of revenues   —      —      —      —   
  Gross Profit   —      —      —      —   
                     
Operating Expenses:                    
   General and Administrative   17,429    —      48,849    30,365 
    Total Operating Expenses   17,429    —      48,849    30,365 
                     
Operating Loss   (17,429)   —      (48,849)   (30,365)
                     
Other Expense                    
    Interest Income   1    —      2    —   
    Total Expense   1    —      2    —   
                     
Net Loss  $(17,428)  $—     $(48,847)  $(30,365)
                     
                     
Basic and Diluted Loss per share  $(0.01)  $0.00   $(0.01)  $(0.00)
                     
Weighted Average Shares Outstanding:                    
Basic and Diluted   6,787,834    6,777,834    6,785,636    6,777,834 

 

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

 

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SPECIALTY CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED SEPTEMBER 30, 2013 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012
(Unaudited)
 
       
    Sept 30, 2013    Sept 30, 2012 
CASH FLOWS FROM OPERATING ACTIVITIES          
    Net loss  $(48,847)  $(30,365)
    Adjustments to reconcile net loss to net cash          
            used by operating activities:          
    Membership unites issued for services   —      30,000 
                    Stock Issued for Services   5,100    —   
        Changes in operating assets and liabilities:          
                Inventory   (21,259)   (141,405)
                Accounts payable   2,791    —   
                Accounts Payable – Related Party   9,000    —   
           
NET CASH USED BY OPERATING ACTIVITIES   (53,215)   (141,770)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Cash received from reverse merger    50,662    —   
NET CASH PROVIDED BY INVESTING ACTIVITIES   50,662    —   
           
CASH FLOWS FROM FINANCING ACTIVITIES          
                Borrowing on Building Line of Credit   2,939    138,672 
                Borrowing on shareholder advances   1,035    3,203 
NET CASH (USED) PROVIDE BY  FINANCING ACTIVITIES   3,974    141,875 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   1,421    105 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   —      —   
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $1,421   $105 
           
SUPPLEMENTAL DISCLOSURES          
   Cash Paid During the Period for Interest Expense  $—     $—   
   Cash Paid During the Period for Taxes  $—     $—   
           
Noncash investing and financing activities:          
Accounts payable assumed through reverse merger  $5,520   $—   
           
 
          
See accompanying summary of accounting policies and notes to the unaudited consolidated financial statements.

 

 

5
 

 

SPECIALTY CONTRACTORS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

 

NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Activities, History and Organization:

 

Specialty Contractors, Inc. (“Specialty”, the “Company”) was incorporated under the laws of the State of Nevada on November 18, 2009.  The Company operates as a home builder in the State of Texas and operates through its wholly owned subsidiary Alpha Wise Assets, LLC, formed in the State of Texas on February 23, 2012.

 

On February 28, 2013, Specialty Contractors, Inc. ("Specialty"), acquired 100% of the outstanding common stock of Alpha Wise Assets, LLC (“Alpha”).  On February 28, 2013, Specialty purchased 5,970,000 shares of its common stock from its President for $30,000 and simultaneously issued it in exchange for a 100% equity interest in Alpha. Alpha received cash of $50,562 and Accounts Payable of $5,520.  As a result of the transaction, Alpha became the wholly owned subsidiary of Specialty and the shareholders of Alpha owned a majority of the voting stock of Specialty.  The transaction was accounted for as a reverse recapitalization whereby Alpha was considered to be the accounting acquirer as its shareholders controlled of Specialty after the transaction, although Specialty is the legal parent company.  The share exchange was treated as a recapitalization of Specialty.  As such, Alpha (and its historical financial statements) is the continuing entity for financial reporting purposes. The financial statements have been prepared as if Alpha had always been the reporting company and, on the share transaction date, changed its name and reorganized its capital stock.

 

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 had one subsidiary, Alpha Wise Assets, LLC, which is consolidated. All intercompany balances and transactions are eliminated.  Investments in subsidiaries are reported using the consolidation method.

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable Securities and Exchange Commission (“SEC”) regulations for interim financial information. These consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to make the consolidated financial statements not misleading, and to present fairly the balance sheets, statements of operations and statements of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users of this interim consolidated financial information have read or have access to the audited consolidated financial statements and footnote disclosure for the preceding fiscal year. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year end as reported in form 8-K have been omitted.

 

Going Concern

 

At September 30, 2013, the Company has limited revenues and cash flows. As such, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company does not have sufficient working capital for its planned activities, which raises substantial doubt about its ability to continue as a going concern.

 

 

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Continuation of the company as a going concern is dependent upon obtaining additional working capital and the management of the Company will accomplish this objective through short-term loans from related parties and additional equity investments, if necessary, which will enable the Company to continue operations for the coming year.

  

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.

 

 

NOTE 2--INVENTORY

 

Real estate is recorded at cost. Costs related to the acquisition, development, construction and improvement of properties are capitalized.  Interest costs are capitalized until construction is substantially complete. When sold or otherwise disposed of, the related asset cost and accumulated depreciation are removed from the respective accounts and the net difference, less any amount realized from disposition, is reflected in income. Ordinary repairs and maintenance that do not extend the life of the asset are expensed as incurred. Inventory of real estate was $218,873 and $197,614 at September 30, 2013 and February 28, 2013, respectively.

 

 

NOTE 3 – LINE OF CREDIT

 

At September 30, 2013 and February 28, 2013, the Company has a line of credit (“LOC”) with Independent Bank.  The LOC has a $208,500 credit limit, and bears an interest rate of 5.25% per annum, due September 2, 2013. The Company is in process of extending the note until September 3, 2014. Our CFO has guaranteed the building loan for the home which is currently listed for sale.  As of September 30, 2013 and February 28, 2013, the amount outstanding under this line of credit was $196,976 and $194,037, respectively.

 

The Company has pledged 100% of the inventory 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 – RELATED PARTY TRANSACTIONS

 

In March 2013, the Company issued the President 10,000 common shares valued at $5,100 for his services as an officer.

 

During the nine months ended September 30, 2013, the company incurred $14,250 for services provided by Yorkdale Capital a related party entity, partly owned by Charles Smith, CFO, in which $5,250 was paid to Yorkdale Capital. As of September 30, 2013, $9,000 was due to Yorkdale Capital.

 

 

 

7
 

 

ITEM 2: Management’s Discussion and Analysis

 

EXECUTIVE OVERVIEW:

 

The national economy and the housing market saw strengthening and we saw an increase in sales in our area due to that. We anticipate that our home in inventory will sell in 2013.

 

At September 30, 2013, we have a home in inventory that is awaiting final inspection and is on the market. We expect to turn this property at a profit in 2013.

 

We are in the home building business and we believe that given the times we live in of low interest rates and the ability to get financing for construction, that the Company will be able to generate cash flow from operations by taking advantage of market conditions in the home building industry. Additionally, the current Administration and Congress are discussing rules to relax the lending standards which would provide greater access to home mortgage loans for people that would not qualify under current standards. Additionally, the Federal Reserve has indicated that it will continue to pursue a policy of ‘easy money’ which indicates that low interest rates will be around at least for the next year or two.

 

Result of our operations for the three months ended September 30, 2013 and 2012 and for the nine months ended September 30, 2013 and 2012.

 

REVENUE:  Revenue was $0 for both the three and nine months ended September 30, 2013 and September 30, 2012.

 

COST OF REVENUE: Cost of revenues was $0 for both the three and nine months ended September 30, 2013 and September 30, 2012.

 

OPERATING EXPENSES. Operating expenses for the three months ended September 30, 2013 and 2012 were $17,429 and $0 respectively. Operating expenses for the nine months ended September 30, 2013 and September 30, 2012 were $48,849 and $30,365 respectively.

 

OTHER INCOME AND EXPENSE. Other income and expense included interest income of $1 and $0 for the three months ended September 30, 2013 and 2012 respectively, and $2 and $0 for the nine months ended September 30, 2013 and September 30, 2012 respectively.

 

NET LOSS. Our net loss for the three months ended September 30, 2013 and 2012 were $17,428 and $0 respectively. Our net loss for the nine months ended September 30, 2013 and September 30, 2012 were $48,847 and $30,365 respectively.

 

LIQUIDITY AND CAPITAL RESOURCES.  The Company believes it will have to raise additional capital to fund its business operations for the next twelve months.

 

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 $196,976 and $194,037 as of September 30, 2013 and February 28, 2013, respectively, for working capital.  The line of credit accrues interest at 5.25%. We finance our inventory through the line of credit. We do not have any commitments for equity funding at this time. As such there is no assurance that we can raise additional capital from external sources, the failure of which could cause us to curtail operations.

 

Long Term Liquidity:

 

The long term liquidity needs of the Company are projected to be met primarily through the cash flow provided by operations. Cash flow used in Operating Activities for the three months ended September 30, 2013 was $53,215, of which $21,259 was financed inventory.  We anticipate cash flow from operating activities to improve. Future cash flow will be derived from line of credit advances to fund our expected loss.

 

GOING CONCERN: The Company has limited operations and has working capital of $930 and an accumulated deficit of $79,312 as of September 30, 2013. Because of this accumulated deficit and limited operations, the Company may require additional working capital to survive. The Company intends to raise additional working capital either through private placements or bank loans or loans from management if there is need for liquidity to alleviate the substantial doubt to continuing as a going concern. There are no assurances that the Company will be able to do any of these. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company.  If adequate working capital cannot be generated, the Company may not be able to continue its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

8
 

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 September 30, 2013.  This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are not effective.

 

Based upon an evaluation conducted for the period ended September 30, 2013, our Chief Executive Officer and Chief Financial Officer as of September 30, 2013 and as of the date of this report, has concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls:

 

•   Reliance upon third party financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transaction.

 

•   Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control.

 

In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

Items 1, 2, 3 and 4 Not Applicable

 

 

Item 5. Other information

 

(a)Reports on Form 8-K

 

A Form 8-K/A was filed on July 31, 2013 to file the audit of Alpha Wise Assets, LLC, the entity purchased by the Company on February 28, 2013, along with the related purchase documents.

 

 

(b)  None

 

 

Item No. 6 - Exhibits

 

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.

 

 

 

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Specialty Contractors, Inc.

 

 

By /s/ Michael Goode

      Michael Goode, Chief Executive Officer

 

Date: November 15, 2013

 

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