Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SURFACE COATINGS, INC. | Financial_Report.xls |
| EX-31.2 - CERTIFICATION - SURFACE COATINGS, INC. | ex31two.htm |
| EX-32.1 - CERTIFICATION - SURFACE COATINGS, INC. | ex32one.htm |
| EX-31.1 - CERTIFICATION - SURFACE COATINGS, INC. | ex31one.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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 333-145831
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)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 a check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 [ ].
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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 March 25, 2014, there were 3,939,000 shares of Common Stock of the issuer outstanding.
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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 |
Surface Coatings, Inc. (“Surface Coatings”, the “Company”) was the parent company of Surface Armor, LLC, (“Surface Armor”) a company incorporated under the laws of the State of Texas on July 19, 2005.
On June 30, 2012, due to an accumulated deficit of $154,182 at December 31, 2011 and a net loss of $50,979 through six months of 2012, the Registrant divested their wholly owned subsidiary Surface Armor, LLC to our President at the time of the transaction, 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. Accordingly the company has reported results from operations for six months ending June 30, 2012 (under discontinued operations) and have reported the balance sheet of only Surface Coatings, Inc. at December 31, 2013 and its expenses for the year ended December 31, 2013.
Business Strategy
Objective:
Our objective is to maximize shareholder return including but not limited to searching for a merger candidate.
| ITEM 2. | DESCRIPTION OF PROPERTY |
Our offices are at 1541 E. I30, Suite 140, Rockwall, Texas 75087.
| ITEM 3. | LEGAL PROCEEDINGS |
On September 14, 2012 the Company was issued a subpoena to produce documents to the SEC. The subpoena requested all documents and correspondence of the Company by and between its auditors, advisors and subsidiaries for the period January 1, 2007 through June 30, 2012. This is a non-public, fact-finding inquiry and the direction and scope of the SEC inquiry is undetermined at this point. Otherwise the Company is not involved in any legal proceedings as of December 31, 2013.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None. However, on November 16, 2012, the shareholders, by majority consent in lieu of a meeting, appointed Charles Smith to serve as a Director and as President, Chief Executive Officer, Secretary and Treasurer of Surface Coatings, Inc.
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS |
The common stock is currently quoted over the counter bulletin board (ITC BB) under the symbol SCTZ.OB.
At December 31, 2013, we had approximately 58 record holders of our common stock. This number excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.
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
On June 30, 2012, due to an accumulated deficit of $154,182 at December 31, 2011 and a net loss of $50,979 through six months of 2012, the Registrant divested our wholly owned subsidiary Surface Armor, LLC to our President (at the time of the transaction), 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.
The Company is currently evaluating business options which may include, but not be limited to, pursuing an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business.
RESULTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2013
REVENUE. There was no revenue from continuing operations for the years ended December 31, 2013 and 2012.
OPERATING EXPENSES. Total operating expenses for the years ended December 31, 2013 and 2012 were $81,956 and $62,370, respectively. The expenses relate to the continuing operations related audit fees and other services and $45,000 related to the issuance of common stock for services. There was no depreciation expense incurred.
DISCONTINUED OPERATIONS. The net income (loss) related to discontinued operations for the year ending December 31, 2013 and 2012 was a zero and a loss of $27,079, respectively.
NET INCOME (LOSS). The net income (loss) for the year ending December 31, 2013 and 2012 were losses of $81,956 and $89,449, respectively.
LIQUIDITY AND CAPITAL RESOURCES. Our cash balance was $0 at December 31, 2013. 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 shareholder advances, when necessary, to fund operations.
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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, 2012 to December 31, 2013 by $36,956, to negative $84,444. This reduction is due to the incurring of debt to pay ongoing regulatory fees and audit costs.
STOCKHOLDER’S EQUITY: Stockholder’s Equity decreased by $36,956, as a result of incurring expenses to maintain the company as described above.
Employees
At December 31, 2013, the Company had one employee.
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 audit. Yorkdale Capital, LLC or its principals are shareholders and have advanced the Company $65,186 and $47,788 as December 31, 2013 and December 31, 2012, respectively, for operating expenses.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required for a smaller reporting company.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements of the Company, together with the independent auditors' report thereon of The Hall Group, CPAs appear on pages F-1 through F-14 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, 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 to ensure that all material information required to be filed in the annual report on Form 10-K has been made known to them.
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, 2013, our Chief Executive and Chief Financial Officer as of December 31, 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 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, 2013. Based on its evaluation, our management concluded that, as of December 31, 2013, 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 rules of the SEC that permit the Company to provide only management’s report in this annual report.
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 |
| Name | Age | Position |
| Charles E. Smith | 56 | Director, President, Secretary and Treasurer |
Charles E. Smith:
Mr. Smith graduated from Boston University, Boston, Massachusetts in 1979 and since that time has been a Certified Public Accountant involved in all phases of business including audit and tax matters. He is a consultant to various companies. Some of Mr. Smith’s business affiliations the past five years include: Chief Financial Officer of DynaResource, Inc. – May 2005 to present. Chief Financial Officer of MedCareers Group, Inc. – September 2013 to present. Sole proprietor as a Certified Public Accountant - 1983 to the present. Principal in Yorkdale Capital, LLC, a financial consulting firm - 2005 to present.
| ITEM 11. | EXECUTIVE COMPENSATION |
Following is what our officers received in 2013 and 2012 as compensation.
| Name | Capacity Served | Aggregate Remuneration |
| Charles E. Smith | Director, President, Secretary and Treasurer |
2013: $0 2012: $0 |
| David McCune | Former Director, President, Secretary and Treasurer |
2013: $0 2012: $26,000 |
| ITEM 12. | SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERS |
As of December 31, 2013 the following persons are known to the Company to own 5% or more of the Company's Voting Stock:
| Title / Relationship to Issuer | Name of Beneficial Owner |
Number of Shares Owned |
Percent of Total |
| Chief Executive Officer, Chief Financial Officer, and Director | Charles Smith | 573,000 * | 14.55% |
| Shareholder | John Donahoe | 2,700,000 | 68.55% |
* 23,000 of these shares were purchased in the initial public offering of the Company.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION |
On June 30, 2012, due to an accumulated deficit of $154,182 at December 31, 2011 and a net loss of $50,979 through six months of 2012, the Registrant divested their wholly owned subsidiary Surface Armor, LLC to the President (at the time of the transaction), 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.
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 audit. Yorkdale Capital, LLC or its principals are shareholders and invoices the Company reasonable fees for professional services. Yorkdale Capital, LLC or its principals had advanced the Company $65,186 and $47,788 at December 31, 2013 and 2011, respectively, for operating expenses. In November 2013, a company owned by Charles Smith received shares valued at $45,000 as compensation for services, such shares are included in the amounts reported in the table above.
As of December 31, 2013 the Consultants are known to the Company to own or control the following Voting Stock of the Company:
| Title / Relationship to Issuer | Name of Beneficial Owner |
Number of Shares Owned |
Percent of Total |
| Consultant – Yorkdale Capital, LLC | Fund members - Charles Smith GP | 20,000 * | 0.53% |
| Consultant – Yorkdale Capital, LLC | Mark Smith | 6,500 * | 0.17% |
* All of these shares were purchased in the initial public offering of the Company.
Lynn Management, LLC, an affiliate of the President, was issued 150,000 for services in 2013.
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| 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 years 2013 and 2012 was $18,500 and $12,000, respectively.
(2) AUDIT-RELATED FEES
None.
(3) TAX FEES
NONE
(4) ALL OTHER FEES
None
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES
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.
(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.
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PART IV
| ITEM 15. | EXHIBITS, FINANCIAL 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, 2013 and 2012
Consolidated Statements of Operations for the Years Ended December 31, 2013 and December 31, 2012
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2013 and December 31, 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013 and December 31, 2012
Notes to the Consolidated Financial Statements
(b) The Company filed the following Form 8-K’s in 2013:
None
(c) 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. |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Management of
Surface Coatings, Inc.
Rockwall, Texas
We have audited the accompanying consolidated balance sheets of Surface Coatings, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, cash flows and stockholders’ equity for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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.
We were not engaged to examine management’s assertion about the effectiveness of Surface Coatings, Inc.’s internal control over financial reporting as of December 31, 2013 and 2012 and, accordingly, we do not express an opinion thereon.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Surface Coatings, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has suffered significant losses and will require additional capital to develop its business until the Company either (1) achieves a level of revenues adequate to generate sufficient cash flows from operations; or (2) obtains additional financing necessary to support its working capital requirements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ The Hall Group, CPAs
The Hall Group, CPAs
Dallas, Texas
March 25, 2014
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SURFACE COATINGS, INC. Consolidated Balance Sheets As of December 31, 2013 and 2012 |
| As of December 31, 2013 (Unaudited) | As of December 31, 2012 (Audited) | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | — | $ | 300 | ||||
| Total Assets | $ | — | $ | 300 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 19,258 | $ | — | ||||
| Accrued Expenses | — | — | ||||||
| Due to Related Parties | 65,186 | 47,788 | ||||||
| Liabilities Held For Sale | — | — | ||||||
| Total Current Liabilities | 84,444 | 47,788 | ||||||
| Total Liabilities | 84,444 | 47,788 | ||||||
| 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, 3,939,000 and 3,789,000 shares issued and outstanding, respectively | 3,939 | 3,789 | ||||||
| Additional Paid In Capital | 237,204 | 192,354 | ||||||
| Accumulated Deficit | (325,587 | ) | (243,631 | ) | ||||
| Total Stockholders’ Equity (Deficit) | (84,444 | ) | (47,488 | ) | ||||
| Total Liabilities and Stockholders’ Equity | $ | — | $ | 300 | ||||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
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SURFACE COATINGS, INC. Consolidated Statements of Operations For the Years Ended December 31, 2013 and 2012
|
| Year Ended | ||||||||
| December 31, 2013 | December 31, 2012 | |||||||
| Revenue | $ | — | $ | — | ||||
| Cost of Sales | — | — | ||||||
| Gross Profit | — | — | ||||||
| Operating Expenses: | ||||||||
| General and Administrative | 81,956 | 62,370 | ||||||
| Total Operating Expenses | 81,956 | 62,370 | ||||||
| Net Operating Income (Loss) | (81,956 | ) | (62,370 | ) | ||||
| Other (Expense) | ||||||||
| Interest Expense | — | — | ||||||
| Total Other (Expense) | — | — | ||||||
| Net Operating Income (Loss) from Continuing Operations | (81,956 | ) | (62,370 | ) | ||||
| Net Income (Loss) from Discontinued Operations | — | (27,079 | ) | |||||
| Net Income (Loss) | $ | (81,956 | ) | $ | (89,449 | ) | ||
| Basic and Diluted Earnings (Loss) per share from Continuing Operations | $ | (0.02 | ) | $ | (0.01 | ) | ||
| Basic and Diluted Earnings (Loss) per share from Discontinued Operations | $ | (0.00 | ) | $ | (0.01 | ) | ||
| Basic and Diluted Earnings (Loss) per share | $ | (0.02 | ) | $ | (0.02 | ) | ||
| Weighted Average Shares Outstanding: | ||||||||
| Basic and Diluted | 3,805,849 | 4,678,262 | ||||||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
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SURFACE COATINGS, INC. Consolidated Statement of Stockholders' Equity For the Years Ended December 31, 2013 and 2012 |
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Par Value | Capital | Deficit | Totals | ||||||||||||||||
| Stockholders’ Equity, December 31, 2011 | 5,579,000 | $ | 5,579 | $ | 287,913 | (154,182 | ) | $ | 139,310 | |||||||||||
| Shares Issued for Services | 10,000 | 10 | 25,990 | 26,000 | ||||||||||||||||
| 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 | 56,561 | 56,561 | ||||||||||||||||||
| Net Income | — | — | — | (89,449 | ) | (89,449 | ) | |||||||||||||
| Stockholders’ Equity, December 31, 2012 | 3,789,000 | $ | 3,789 | $ | 192,354 | (243,631 | ) | $ | (47,488 | ) | ||||||||||
| Shares Issued for Services | 150,000 | 150 | 44,850 | 45,000 | ||||||||||||||||
| Net Income | — | — | — | (81,956 | ) | (81,956 | ) | |||||||||||||
| Stockholders’ Equity, December 31, 2013 | 3,939,000 | $ | 3,939 | $ | 237,204 | (325,587 | ) | $ | (84,444 | ) | ||||||||||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
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SURFACE COATINGS, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 2013 and 2012
|
| Year Ended December 31, 2013 | Year Ended December 31, 2012 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | (81,956 | ) | $ | (89,449 | ) | ||
| Adjustments to reconcile net deficit to cash used by operating activities: | ||||||||
| Depreciation | — | 8,341 | ||||||
| Stock Issued for Services | 45,000 | 26,000 | ||||||
| Bad Debt Expense | — | 4,300 | ||||||
| Increase in Allowance for Sales Returns | — | — | ||||||
| Change in Assets and Liabilities: | ||||||||
| (Increase) in Accounts Receivable | — | (59,491 | ) | |||||
| (Increase) in Inventory | — | (6,787 | ) | |||||
| (Increase) in Other Assets | — | (16,539 | ) | |||||
| Increase in Accounts Payable | 19,258 | 14,871 | ||||||
| Increase in Related Party Accounts Payable | 17,398 | 29,858 | ||||||
| (Decrease) in Other Liabilities | — | — | ||||||
| Increase (Decrease) in Accrued Expenses | — | 3,410 | ||||||
| CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES | (300 | ) | (85,486 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Loss on sale of Fixed Assets | — | — | ||||||
| Transfer of Cash in Sale of Subsidiary | — | (22,272 | ) | |||||
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES | — | (22,272 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Advances on (Payments on) Line of Credit | — | 15,738 | ||||||
| Payments on Capital Leases | — | (1,112 | ) | |||||
| Payments on Notes to Related Parties | — | (23,019 | ) | |||||
| CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES | — | (8,393 | ) | |||||
| NET INCREASE (DECREASE) IN CASH | (300 | ) | (116,151 | ) | ||||
| Cash, beginning of period | 300 | 116,451 | ||||||
| Cash, end of period | $ | — | $ | 300 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Interest paid | $ | — | $ | 4,203 | ||||
| Income taxes paid | $ | — | $ | — | ||||
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
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SURFACE COATINGS, 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:
Surface Coatings, Inc. (“Surface Coatings”, the “Company”) was the parent company of Surface Armor, LLC, (“Surface Armor”) a company incorporated under the laws of the State of Texas on July 19, 2005.
On June 30, 2012, due to an accumulated deficit of $154,182 at December 31, 2011 and a net loss of $50,979 through six months of 2012, the Registrant divested their wholly owned subsidiary Surface Armor, LLC to our President at the time of the transaction, 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. Accordingly the Company has reported results from operations for six months ending June 30, 2012 (under discontinued operations) and have reported the balance sheet of only Surface Coatings, Inc. at December 31, 2012 and its expenses for the year ended December 31, 2012.
The Company operates on a calendar year-end. The Company is currently evaluating business options which may include, but not be limited to, pursuing an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business.
Emerging Growth Company Critical Accounting Policy Disclosure
The Company qualifies as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging grown company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company may elect to take advantage of the benefits of this extended transition period in the future.
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 accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements.
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.
Management believes that all adjustments necessary for a fair statement of the results for the years ended December 31, 2013 and 2012 have been made.
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.
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.
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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.
Fair Value of Financial Instruments:
Accounting Standards Codification (“ASC”) Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair value of financial instruments is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Corporation’s credit worthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
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. The carrying amount of the Company’s marketable securities and capital leases approximate fair value due to the stated interest rates approximating market rates.
Accounts Receivable:
Accounts receivable, when incurred, 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 and a provision is made for all accounts greater than 60 days from invoice date. Write-offs are recorded at a time when a customer receivable is deemed uncollectible. The Company has a large number of customers in various industries and geographies and establishes reasonable credit lines to limit credit risk.
Inventory Valuation:
Inventory, when present, 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.
Property and Equipment:
Property and equipment, when incurred, 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 five to seven years.
Revenue Recognition:
The Company’s policy on recognizing revenue from the sale of products is in accordance with ASC 605-15 “Revenue Recognition”. Revenue will be recognized only when all of the following criteria have been met:
| ● | Persuasive evidence of an arrangement exists; | |
| ● | Ownership and all risks of loss have been transferred to buyer, which is generally upon shipment; | |
| ● | The price is fixed and determinable; and | |
| ● | Collectability is reasonably assured |
All inventory is shipped to customers FOB shipping point. The risk of loss transfers to the customer at the time of shipment. Currently all revenue is generated from the sale of products and no revenue is earned from services rendered.
Revenue is recorded net of any sales taxes charged to customers.
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Cost of Goods Sold:
The types of costs included that would be in Cost of Goods Sold are:
| ● | Direct material costs | |
| ● | Purchasing, receiving and inspection | |
| ● | Ingoing and outgoing freight |
Income Taxes:
The Company has adopted ASC 740-10 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.
Comprehensive Income:
ASC 220 “establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. For the years ended December 31, 2013 and 2012, the Company had no items of other comprehensive income. Therefore, the net loss equals comprehensive loss for the periods then ended.
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).
NOTE 2 – DUE TO RELATED PARTIES
The Company had $65,186 and $47,788 due to a minority shareholder and affiliate of the President as of December 31, 2013 and December 31, 2012.
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 December 31, 2013 and December 31, 2012.
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 3,939,000 and 3,789,000 shares issued and outstanding as of December 31, 2013 and 2012, respectively. In conjunction with the disposition of the wholly owned subsidiary, Surface Armor, LLC, 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 issued 150,000 shares in November 2013 for services (value at $45,000) to the then President, now a former officer.
The company issued 26,000 shares in July 2012 for services (value at $26,000) to the then President, now a former officer.
The Company does not have any stock option plans or stock warrants.
NOTE 4 – INCOME TAXES
The Company has adopted ASC 740-10 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 December 31, 2012 and December 31, 2011 are as follows:
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Deferred tax asset related to:
| December 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Prior Year | $ | 82,058 | $ | 59,696 | ||||
| Utilization of NOL | — | — | ||||||
| Tax Benefit for Current Period | 20,489 | 22,362 | ||||||
| Net Operating Loss Carryforward | $ | 102,547 | $ | 82,058 | ||||
| Less: Valuation Allowance | (102,547 | ) | (82,058 | ) | ||||
| Net Deferred Tax Asset | $ | 0 | $ | 0 | ||||
The cumulative net operating loss carry-forward is $325,587 at December 31, 2013 and $243,631 at December 31, 2012, and will expire in the years 2025 through 2032. The realization of deferred tax benefits is contingent upon future earnings; therefore, the net deferred tax asset has been fully reserved at December 31, 2013.
NOTE 5 – SALE OF SUBSIDIARY TO RELATED PARTY
On June 30, 2012, due to an accumulated deficit of $154,182 at December 31, 2011 and a net loss of $50,979 through six months of 2012, the Registrant divested their wholly owned subsidiary Surface Armor, LLC to the President (at the time of the transaction), 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 December 31, 2013 of $325,587 and had negative working capital of $84,444. Because of this accumulated deficit, the Company will require additional working capital to develop its business operations.
The Company has experienced no loan defaults, labor stoppages, legal proceedings or any other operating interruption in 2013. 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.
The Company intends to raise additional working capital either through private placements, public offerings and/or bank financing, or additional loans from Management if there is need for liquidity. Management may also consider reducing administrative costs and suspending all bonus and incentive programs. 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. To the extent that funds generated from private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. 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 is not generated from operations, financing is not available, or the Management cannot loan sufficient funds, the Company may not be able to continue its operations.
Management believes that the efforts it has made to promote its operation will continue for the foreseeable future. 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 7 – LEGAL PROCEEDINGS
On September 14, 2012 the Company was issued a subpoena to produce documents to the SEC. The subpoena requested all documents and correspondence of the Company by and between its auditors, advisors and subsidiaries for the period January 1, 2007 through June 30, 2012. This is a non-public, fact-finding inquiry and the direction and scope of the SEC inquiry is undetermined at this point. Otherwise the Company is not involved in any legal proceedings as of December 31, 2013.
NOTE 8 – SUBSEQUENT EVENTS
ASC 855-10, establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The pronouncement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. In conjunction with the preparation of these financial statements, an evaluation of subsequent events was performed through March 25, 2014, which is the date the financial statements were issued. No reportable events were noted.
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| NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS |
Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 was effective for our financial assets and liabilities on January 1, 2008. The FASB delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008.
SFAS 157’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The Standard classifies these inputs into the following hierarchy:
Level 1 Inputs – Quoted prices for identical instruments in active markets.
Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs – Instruments with primarily unobservable value drivers.
As of December 31, 2013, the Company had no instruments with Level 1 or Level 2 inputs.
The Company had notes payable to shareholders and related parties totaling $65,186 at December 31, 2012, which are valued using Level 3 inputs. Due to the short maturity of these obligations (one less than one year, the other less than five years), the carrying value of these notes approximates the fair value in all material respects.
As of December 31, 2013, the Company did not have any other financial instruments.
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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.
SURFACE COATINGS, INC.
By: Charles E. Smith
Charles E. Smith
Chief Executive Officer & Chief Financial Officer
Dated: April 15, 2014
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PART III
| ITEM 13. | Exhibits and Reports on Form 8-K |
| (a) | 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. |
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