UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended February 28, 2013 | |
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
| For the transition period from _________ to ________ | |
| Commission file number: 333-165692 | |
| Southern Products, Inc. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 27-1963282 |
(State or other jurisdiction of incorporation or organization)
| (I.R.S. Employer Identification No.) |
115 East Wilson St., Unit B Costa Mesa, CA | 92627 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number:(626) 213-3266 |
Securities registered under Section 12(b) of the Exchange Act:
| |
| Title of each class | Name of each exchange on which registered |
| None | not applicable |
Securities registered under Section 12(g) of the Exchange Act:
| |
| Title of each class | |
| None | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes [ ] No [X]
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 (§ 229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405 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.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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: approximately $29,500,000.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 111,111,120 as of July 8, 2013.
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PART I
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Principal Place of Business
Our principal offices are located at 115 East Wilson Street, Unit B, Costa Mesa, CA 92627.
Description of Business
We are a consumer electronics company, incorporated in the state of Nevada and doing business under the brand name Sigmac. Our business consists of the design, assembly, import, marketing and sale of our models of Sigmac branded flat panel televisions into the US market.
We believe that if we can obtain necessary financing, we have the opportunity to make Sigmac a significant brand in the consumer electronics industry. Using strategic business partnerships with companies in China and the United States, we intend to develop brand recognition for Sigmac products in the consumer electronics markets. Our ultimate goal is to become the recognized China-U.S. brand in a manner similar to that of Sony and Samsung for Japan and Korea, respectively. We are developing a U.S. based sales, marketing, and service operation which will work in concert with the high quality manufacturing conducted by our suppliers in China and Korea. In addition to allowing us to develop immediate sales and brand growth in the U.S., we anticipate that our relationship with Chinese suppliers and manufacturers will ultimately provide us an opportunity to gain future brand recognition and market share in the rapidly expanding Chinese consumer electronics market.
We perceive that the market for consumer electronics in the U.S. has been segmented into three market tiers:
- The First Tier consists of brands so well established that the end user will pay a significant price premium for the branded product compared to products with identical features and benefits
- The Second Tier consists of brands that the consumer has become familiar with and generally trusts. The consumer will, however, shop amongst brands in the Second Tier based upon price.
- The Third Tier consists of brands that are compared for features and benefits but are purchased by the consumer principally upon price comparisons.
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We believe that we have a unique opportunity, given the necessary financing, to establish Sigmac branded televisions and other products, initially in the Third Tier and, subsequently, as a leading presence within the Second Tier as a result of the following developments in the flat panel television market:
1. The previous volume leader in the US market has, through pricing changes, recently repositioned itself into the First Tier.
2. Sony, the brand recognition leader, has announced the elimination of its manufacturing operations in consumer electronics and has become strictly a reseller of other companies’ products with the Sony brand.
3. During the recession, a number of Third Tier brands became unprofitable and left the market place.
As a result of these developments, national retailers are commencing a search for a stable, knowledgeable company that can provide products with Second Tier pricing together with excellent service and industrial designs. We believe Sigmac is poised to fill this demand. It should be noted, however, that this process likely will take two years or more to accomplish.
We believe that a major change is currently taking place in consumer electronics. Innovatively designed products will seek to offer a fuller home entertainment experience beyond simply television, and will be designed to work with multiple connected devices to provide connected family entertainment. Televisions and related devices will increasingly have multiple uses and offer multiple types of connectivity to enhance family enjoyment. Given new financing, we intend to develop and distribute devices which are connected to the internet, audio systems, video and audio conferencing, and social and business networking. In the event we are unable to obtain new equity financing in the very near future, we will most likely need to consider alternatives to our current business plan, such as taking the business private, changing our current business plan to save costs or obtain financing, arranging for new types of partnerships in the business to launch our products, ceasing operations altogether, or other modifications to our current plan. Investors should be aware that our current state of financing is such that our auditor has warned that there is “substantial doubt about our ability to continue as a going concern.” See section below on “Going Concern.” As a result, we have been reviewing and considering other product lines and business opportunities to determine the Company’s best opportunity for growth.
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Our Products
For at least the next fiscal year, we expect to offer mostly Tier 3 pricing for our Sigmac branded televisions and for any other related products we may develop and bring to market. Through the fiscal year ended February 28, 2013, we imported and sold multiple models of flat panel televisions into the market, ranging in size from 15” to 55”. We believe that the features, quality and price of our televisions compare favorably with those offered by our competitors.
The engineering and design work for our products has been performed by Core ACH, Inc., based in Hong Kong. All of our televisions feature high-brightness, high-contrast, high-definition LCD screens, multiple HDMI inputs, component and composite inputs, built in ATSC, Clear QAM and NTSC tuners, tri-lingual menus, convenient sleep timer and favorite channel features, and digital comb filters for fast and accurate color processing. We also sell models that include one or more premium features, such as WIFI connectivity, LED backlighting, 3D, large screen sizes, fast refresh rates, and higher contrast ratios.
Suppliers and Inventory
During the fiscal year ended February 28, 2013, substantially all of our product was imported as fully finished from our factory suppliers in China.
We have established a very compact supply chain from order date to delivery date to maintain minimal inventory exposure to difficult “Price Protection” requirements. In general, Price Protection refers to standard industry contract terms from large retailers which will require us to decrease the price of a product and issue credits to customers when prices are dropped generally. As designed, this protects our retailer customers from losses on their current inventory by shifting the high risk of loss from price reductions onto us.
Our ability to obtain product and component parts is presently severely constrained by our limited access to sufficient equity or other debt capital. At present, our Chinese suppliers have refused to provide us with additional credit, rendering us unable to order products to fill orders from our customers. We are presently negotiating with our suppliers to provide us with additional credit but there can be no assurance what we will be successful in obtaining that additional credit on acceptable terms, or at all. We are also seeking equity and debt capital from other sources. With additional capital, we would be able to purchase additional product necessary for our current and expected distribution opportunities as well as negotiate more favorable supplier terms. In addition, if we are able to increase our equity base, we expect that we will be able to obtain better terms on our current accounts receivable and inventory financing. If we are unable to obtain that additional credit or capital, however, we will be unable to fill our existing orders or to make any additional sales.
In the past, we were dependent on two suppliers for all of our products and product components. Anhui Technology Import & Export Co. and AHCOF International Development Co., Ltd., both of Anhui province in China, supplied 100% of our products and product components during the fiscal year ended February 28, 2013. Recently, we have worked an agreement for the settlement of past due debt with Anhui Technology, but at the current time, neither of these suppliers will provide us with any further products, and thus we are not shipping or selling any product to customers at this time. Consequently, we have been reviewing and developing other relationships and opportunities, and hope, with funding, to make the necessary adjustments to our business plan to allow for a renewed growth of the Company.
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During the fiscal year ended February 28, 2013, in order to reduce costs and streamline our operations until such time as we have sufficient working capital to be able to routinely perform final assembly of our products in the United States, we re-negotiated the amount of square footage necessary for our current operations resulting in an elimination of our warehouse and a significant portion of office space, thereby reducing our monthly expense from $7,000 to $1,500. The terms of this month to month lease otherwise remain the same.
As previously disclosed in prior reports, we have been in litigation with two of our suppliers, Anhui Technology Import and Export Co. (“Anhui”), and Zhuhai Yuehua Electronics Co., Ltd. (“Zhuhai”).
On April 15, 2013, we reached a settlement of all claims and disputes with Anhui. The terms of the settlement are embodied in a Settlement Term Sheet. Under the Settlement Term Sheet, our wholly owned subsidiary SigmacUSA, Inc. (“Sigmac”) has agreed to pay Anhui a percentage of all funds raise from privately-placed equity investments as follows:
| a) | 9.8% of the first $3 million |
| b) | 13.1% of the next $3 million |
| c) | 19.7% of the next $4 million |
In addition, Sigmac has agreed to pay Anhui 0.98% of its ongoing net collections on sales, to be paid on a monthly basis. Our payment obligations under the Settlement Term Sheet will continue until we have paid Anhui the total sum of $1,679,400. If a minimum of $1 million in new equity is not raised within 120 days from the date of the Settlement Term Sheet, however, the agreement will be null and avoid.
On May 20, 2013, we reached a settlement of all claims and disputes with Zhuhai. The terms of the settlement are embodied in a Settlement Agreement. Under the Settlement Agreement, Sigmac has again agreed to pay Zhuhai a percentage of all funds raised from privately-placed equity investments as follows:
| a) | 2.4% of the first $3 million |
| b) | 3.3% of the next $3 million |
| c) | 4.9% of the next $4 million |
In addition, Sigmac has agreed to pay Zhuhai 0.25% of its ongoing net collections on sales, to be paid on a monthly basis. The payment obligations under the Settlement Agreement will continue until Sigmac has paid Zhuhai a total sum of $425,000. If the sum of $425,000 is not paid to Zhuhai within 1 year from the date of the Settlement Agreement, the agreement will be deemed to be in default. The Settlement Agreement also provides for the dismissal of certain pending litigation and a mutual release and covenant not to sue. The parties to the litigation have already filed a request for dismissal with prejudice of the claims involving Southern Products, Sigmac and Ed Meadows, personally.
Other than as disclosed above, we are not a party to any other pending legal proceeding. Other than as disclosed above, we are not aware of any other pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Our agent for service of process in Nevada is Cane Clark Agency, LLP, 3273 East Warm Springs Rd., Las Vegas, NV 89120.
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Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Mattersand Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is sponsored by FINRA. The OTCBB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current "bids" and "asks", as well as volume information. Our shares are quoted on the OTCBB under the symbol “SNPD.OB.”
The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| Fiscal Year Ending February 28, 2013 | ||||
| Quarter Ended | High $ | Low $ | ||
| February 28, 2013 | $0.490 | $0.200 | ||
| November 30, 2012 | $0.550 | $0.470 | ||
| August 31, 2012 | $0.750 | $0.470 | ||
May 31, 2012
| $0.670 | $0.220 | ||
| Fiscal Year Ended February 29, 2012 | ||||
| Quarter Ended | High $ | Low $ | ||
| February 29, 2012 | $0.5625 | $0.5625 | ||
| November 30, 2011 | $0.5625 | $0.5625 | ||
| August 31, 2011 | n/a | n/a | ||
| May 31, 2011 | n/a | n/a | ||
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Holders of Our Common Stock
As of July 8, 2013, we had twenty-four (24) holders of record of our common stock.
Dividends
There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes (the “NRS”) provides that a corporation may pay dividends out of surplus, out the corporation's net profits for the preceding fiscal year, or both provided that there remains in the stated capital account an amount equal to the par value represented by all shares of the corporation's stock raving a distribution preference.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
To date, we have not adopted a stock option plan or other equity compensation plan and have not issued any stock, options, or other securities as compensation.
Recent Sales of Unregistered Securities
None.
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Item 6. Selected Financial Data
None.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations for the Years Ended February 28, 2013 and February 29, 2012.
We generated gross revenues of $826,939 during the fiscal year ended February 28, 2013. Our cost of goods sold was $1,034,200, resulting in a gross loss of $207,261. Our cost of goods exceeded our revenue due to a write down of our inventory in the amount of $136,681 and contractual sales discounts. Our total operating expenses during the fiscal year ended February 28, 2013 were $1,428,488. Our net loss from operations was therefore $1,635,749. We incurred net other expenses of $671,319 during the fiscal year ended February 28, 2013. Our net loss for the fiscal year ended February 28, 2013 was therefore $2,307,068. Our expenses during the fiscal year consisted of general and administrative expenses of $212,478, salaries and wages of $448,991, professional fees of $530,438, sales commissions of $17,385, rent expense of $35,721, promotional and marketing of $115,736, and consulting fees of $57,739. Additionally, we also recognized an impairment expense in the amount of $10,000 related to our HDMI license.
By comparison, during the fiscal year ended February 29, 2012, we generated revenues of $7,141,976 and our cost of goods sold was $7,037,070, resulting in a gross profit of $104,906.
Approximately 89% of our revenue earned during the year ended February 28, 2013 was generated from two customers, Fry’s Electronics and Costco, representing net sales of $558,489 and $176,451, respectively. During the fiscal year ended February 28, 2013, our products were sold primarily under promotional pricing in order to generate growing consumer interest in our products as they were brought to market. Various discounts, points and price reductions granted to retailers to market our product resulted in a reduction of our gross profit. As a result, we experienced a gross loss for the twelve months ended February 28, 2013 of $207,261. As we move forward and continue to establish our brand, we expect that we will have to rely less on promotional pricing to generate sales of our products and, therefore, we anticipate that our gross profit margin, as well as our total sales, will increase.
Our sales and operating expenses were substantially lower during the year ended February 28, 2013 compared to the same periods last year because our usual Chinese suppliers have refused to provide us with additional trade credit, rendering us unable to obtain products to fill orders from our customers. As a result, our total sales and overall level of business activity have declined significantly. We are presently seeking to establish relationships with additional manufacturers. There can be no assurance that such additional relationships will be established or that we will be able to obtain additional capital or trade credit on acceptable terms, or at all.
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Liquidity and Capital Resources
As of February 28, 2013, we had current assets in the amount of $26,481, consisting of cash in the amount of $2,361, accounts receivable of $9,120 and inventory of $15,000.
Our current liabilities as of February 28, 2013 were $3,134,865, consisting of accounts payable and accrued liabilities of $2,978,332, accrued interest of $58,196 and a convertible note payable of $98,337 net of discount in the amount of $385,122. Our working capital deficit as of February 28, 2013 was therefore $3,108,384. Our largest accounts payable as of February 28, 2013, were to our two primary Chinese suppliers, Anhui Technology Import & Export Co. in the amount of $1,690,831 and to AHCOF International Development Co., Ltd., in the amount of $500,000.
Our ability to obtain product and component parts are presently severely constrained by our limited access to sufficient equity or other debt capital. During the fiscal year ended February 28, 2013, we purchased our products on credit supplied by our Chinese suppliers, primarily Anhui Technology Import & Export Co. and AHCOF International Development Co., Ltd. Subsequent to the end of the reporting period, these suppliers ceased providing us with additional credit, thereby rendering us unable to obtain product and to fill our orders from our customers. We are presently negotiating with new suppliers to provide us with additional credit but there can be no assurance what we will be successful in obtaining that additional credit on acceptable terms, or at all. We are also seeking equity and debt capital from other sources. With additional capital, we would be able to purchase additional product necessary for our current and expected distribution opportunities as well as negotiate more favorable supplier terms. In addition, if we are able to increase our equity base, we expect that we will be able to obtain better terms on our current accounts receivable and inventory financing. If we are unable to obtain that additional credit or capital, however, we will be unable to fill our existing orders or to make any additional sales and in all likelihood we will need to change our business plan or cease our business operations altogether. Our board is currently considering alternative business plans in the event adequate funding or a credit facility is not obtained.
In addition to the cost of producing and delivering product for sale, if we continue with our current business plan, we anticipate incurring approximately $1,600,000 in general operating expenses over the course of the next year to support our growth.
Subsequent to our fiscal year end, on April 9, 2013, we received financing from Asher Enterprises, Inc. (“Asher”) under a Securities Purchase Agreement (the “SPA”) and a Convertible Promissory Note (the “Note”) in the amount of $42,500. The Note bears interest at an annual rate of 8%, with principal and interest coming due on January 15, 2014. The Note may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001, at any time following 180 days after the issuance dates of the Note. The conversion price under the Note is 55% of the Market Price of our common stock on the conversion date. For purposes of the Note, “Market Price” is defined as the average of the 3 lowest closing prices for our common stock on the 10 trading days immediately preceding the conversion dates. The number of shares issuable upon conversion is limited so that the Holder’s total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days notice.
Upon conversion of the Note in whole or in part, we will be obligated to deliver the conversion stock to the holder within 3 business days of our receipt of notice of conversion. Failure to timely deliver conversion stock will cause us to incur daily penalties. The conversion price will be subject to adjustment in the event of certain dilutive issuances of securities, distributions of stock or assets to shareholders, mergers, consolidations, and certain other events. Pre-payment of the Note will result in certain penalties depending on the time of pre-payment, and will not be allowed after 180 days. Our CEO, Ed Meadows, provided a limited guarantee to obtain this loan.
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Going Concern
We have negative working capital and have incurred losses since inception. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.
Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results or operations, liquidity, capital expenditures or capital resources that is deemed material.
Purchase or Sale of Equipment
We do not expect to purchase or sell any plant or significant equipment.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
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Silberstein Ungar, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Southern Products, Inc.
Costa Mesa, California
We have audited the accompanying balance sheets of Southern Products, Inc. (the “Company”) as of February 28, 2013 and February 29, 2012, and the related statements of operations, stockholders’ (deficit), and cash flows 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 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 financial statements referred to above present fairly, in all material respects, the financial position of Southern Products, Inc. as of February 28, 2013 and February 29, 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 3 to the financial statements, the Company has negative working capital, and has incurred losses from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 3. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Silberstein Ungar, PLLC
Bingham Farms, Michigan
July 9, 2013
| F-1 |
Balance Sheets
| February 28, 2013 | February 29, 2012 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash | $ | 2,361 | $ | 493,759 | |||
| Accounts receivable | 9,120 | 1,047,023 | |||||
| Inventory | 15,000 | 494,076 | |||||
| Prepaid expenses | — | 37,457 | |||||
| Total current assets | 26,481 | 2,072,315 | |||||
| Fixed assets: net of accumulated depreciation of $243 and $71, respectively | 957 | 1,129 | |||||
| Other assets: | |||||||
| Intellectual property | — | 10,000 | |||||
| Total other assets | — | 10,000 | |||||
| Total assets | $ | 27,438 | $ | 2,083,444 | |||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 2,978,332 | $ | 3,334,383 | |||
| Accrued interest | 58,196 | — | |||||
| Accrued compensation - related party | — | 246,500 | |||||
| Customer deposits | — | 3,510 | |||||
| Convertible note payable, net of discount of $385,122 and $0 | 98,337 | — | |||||
| Total current liabilities | 3,134,865 | 3,584,393 | |||||
| Total liabilities | 3,134,865 | 3,584,393 | |||||
| Contingent liabilities | — | — | |||||
| Stockholders' (deficit) | |||||||
| Preferred stock; $0.001 par value; 10,000,000 shares authorized; No shares authorized and issued at No shares authorized and issued at February 28, 2013 and February 28, 2012, respectively | — | — | |||||
| Common stock; $0.001 par value; 450,000,000 shares authorized; 111,111,112 authorized and issued at February 28, 2013 and February 28, 2012, respectively | 111,112 | 22,223 | |||||
| Additional paid-in capital | 700,590 | — | |||||
| Accumulated (deficit) | (3,919,129 | ) | (1,523,172 | ) | |||
| Total stockholders' (deficit) | (3,107,427 | ) | (1,500,949 | ) | |||
| Total liabilities and stockholders' (deficit) | $ | 27,438 | $ | 2,083,444 | |||
See accompanying notes to financial statements.
| F-2 |
Statements of Operations
| For the Years Ended | |||||||
| February 28, | February 29, | ||||||
| 2013 | 2012 | ||||||
| Sales revenue | $ | 826,939 | $ | 7,141,976 | |||
| Cost of goods sold | 1,034,200 | 7,037,070 | |||||
| Gross profit (loss) | (207,261 | ) | 104,906 | ||||
| Operating expenses | |||||||
| Commissions | 17,385 | 89,173 | |||||
| Consulting services | 57,739 | 1,000 | |||||
| General and administrative | 212,478 | 223,697 | |||||
| Professional fees | 530,438 | 386,996 | |||||
| Promotional and marketing | 115,736 | 248,052 | |||||
| Rent expense | 35,721 | 74,202 | |||||
| Salaries and wages | 448,991 | 497,308 | |||||
| Impairment expense | 10,000 | — | |||||
| Total operating expenses | 1,428,488 | 1,520,428 | |||||
| Net loss from operations | (1,635,749 | ) | (1,415,522 | ) | |||
| Other income (expense) | |||||||
| Finance costs | (96,295 | ) | (30,243 | ) | |||
| Amortization of debt discount | (103,367 | ) | — | ||||
| Interest expense, net | (61,585 | ) | (18,793 | ) | |||
| Gain (loss) on debt settlement | (402,517 | ) | — | ||||
| Gain (loss) on asset sale | (7,555 | ) | (6,925 | ) | |||
| Total other income (expense) | (671,319 | ) | (55,961 | ) | |||
| Net loss | $ | (2,307,068 | ) | $ | (1,471,483 | ) | |
| Basic and fully diluted loss per common share | $ | (0.02 | ) | $ | (0.02 | ) | |
| Basic and fully diluted - weighted average common shares outstanding | 111,111,120 | 74,356,410 | |||||
See accompanying notes to financial statements.
| F-3 |
Statement of Stockholders' (Deficit)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Deficit) | (Deficit) | |||||||||||||||||||||
| Balance February 28, 2010 | — | $ | — | 190,000,000 | $ | 9,500 | $ | — | $ | (3,500 | ) | $ | 6,000 | ||||||||||||||
| Shares issued for cash | — | — | 50,000,000 | 2,500 | 10,000 | — | 12,500 | ||||||||||||||||||||
| Net (loss) | — | — | — | — | — | (47,966 | ) | (47,966 | ) | ||||||||||||||||||
| Balance, February 28, 2011 | — | — | 240,000,000 | 12,000 | 10,000 | (51,466 | ) | (29,466 | ) | ||||||||||||||||||
| Shares cancelled per Agreement of | |||||||||||||||||||||||||||
| Conveyance - related party | — | — | (128,888,880 | ) | (6,444 | ) | 6,444 | — | — | ||||||||||||||||||
| Stock dividend - | |||||||||||||||||||||||||||
| 4:1 forward split | — | — | — | 16,667 | (16,444 | ) | (223 | ) | — | ||||||||||||||||||
| Net (loss) | — | — | — | — | — | (1,471,483 | ) | (1,471,483 | ) | ||||||||||||||||||
| Balance, February 29, 2012 | — | — | 111,111,120 | 22,223 | — | (1,523,172 | ) | (1,500,949 | ) | ||||||||||||||||||
| Discount on convertible promissory note | — | — | — | — | 488,488 | — | 488,488 | ||||||||||||||||||||
| Stock dividend - | |||||||||||||||||||||||||||
| 5:1 forward split | — | — | — | 88,889 | — | (88,889 | ) | — | |||||||||||||||||||
| Forgiveness of related party debt | — | — | — | — | 212,102 | — | 212,102 | ||||||||||||||||||||
| Net (loss) | — | — | — | — | — | (2,307,068 | ) | (2,307,068 | ) | ||||||||||||||||||
| Balance, February 28, 2013 | — | $ | — | 111,111,120 | $ | 111,112 | $ | 700,590 | $ | (3,919,129 | ) | $ | (3,107,427 | ) | |||||||||||||
See accompanying notes to financial statements.
| F-4 |
Statements of Cash Flows
| For the Years Ended | |||||||
| February 28, 2013 | February 29, 2012 | ||||||
| Cash flows from operating activities: | |||||||
| Net (loss) | $ | (2,307,068 | ) | $ | (1,471,483 | ) | |
| Adjustments to reconcile net loss to net | |||||||
| cash used by operating activities: | |||||||
| Depreciation and amortization | 172 | 71 | |||||
| Loss on settlement of debt | 402,517 | — | |||||
| Amortization of debt discount | 103,367 | — | |||||
| Loss on sale of an asset | 7,555 | — | |||||
| Loss on impairment of operating assets | 10,000 | — | |||||
| Decrease (increase) in assets: | |||||||
| Accounts receivable | 758,470 | (1,047,023 | ) | ||||
| Inventory | 479,076 | (493,076 | ) | ||||
| Prepaid expenses | 37,457 | (37,457 | ) | ||||
| Increase (decrease) in liabilities: | |||||||
| Accounts payable and accrued liabilities | (32,600 | ) | 3,290,319 | ||||
| Accrued interest | 58,196 | — | |||||
| Accrued compensation - related party | — | 246,500 | |||||
| Customer deposits | (3,510 | ) | 3,510 | ||||
| Net cash provided (used ) by operating activities | (486,368 | ) | 491,361 | ||||
| Cash flows from investing activities: | |||||||
| Purchase of fixed assets | — | (1,200 | ) | ||||
| Purchase of licensing agreement | — | (10,000 | ) | ||||
| Net cash (used) by investing activities | — | (11,200 | ) | ||||
| Cash flows from financing activities: | |||||||
| Proceeds from convertible note payable | 54,970 | — | |||||
| Payments on convertible note payable | (60,000 | ) | — | ||||
| Net cash (used) by financing activities | (5,030 | ) | — | ||||
| Net increase (decrease) in cash | (491,398 | ) | 480,161 | ||||
| Cash, beginning of period | 493,759 | 13,598 | |||||
| Cash, end of period | $ | 2,361 | $ | 493,759 | |||
| Supplemental disclosure of cash flow information: | |||||||
| Cash paid for income taxes | $ | — | $ | — | |||
| Cash paid for interest | $ | — | $ | 20,393 | |||
| Supplemental non-cash disclosures: | |||||||
| Accounts payable converted to convertible note payable | $ | 488,488 | $ | — | |||
| Accounts receivable reclass as accrued liability | $ | 91,392 | $ | — | |||
| Settlement of accrued compensation - related party | $ | 212,102 | $ | — | |||
See accompanying notes to financial statements.
| F-5 |
Notes to Financial Statements
NOTE 1 – Organization, History and Business
Organization
Southern Products, Inc. (the “Company” and “Sigmac”) was incorporated in Nevada on February 23, 2010 and is doing business as SIGMAC USA. The Company is a consumer electronics company utilizing its d.b.a., SIGMAC USA to develop and brand its products. The Company began its plan of operations by entering into agreements for the sale of branded, low-priced televisions in the United States. The business consists of the design, assembly, import, marketing and sale of our models of Sigmac branded flat panel televisions into the US market. Upon establishment of the SIGMAC brand, management intends to expand its market to international consumers.
NOTE 2 – Significant Accounting Policies and Procedures
Cash and cash equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At February 28, 2013 and February 29, 2012, the Company had no cash equivalents.
Concentration of Credit and Business Risk
The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company’s financial instruments that are exposed to concentration of credit risks consist primarily of cash. The Company maintains its cash in bank accounts which, may at times, exceed federally-insured limits.
Of the Company’s revenue earned during the year ended February 28, 2013, approximately 89% was generated through vendor agreements with two customers, Fry’s Electronics and COSTCO representing net sales of $558,489 and $176,451, respectively.
Accounts receivable
Accounts receivable is reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of February 28, 2013, management has deemed all receivables to be collectible, and has not historically recorded bad debt expenses; therefore no allowance has been recorded.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. As of February 28, 2013 and February 29, 2012, finished goods inventory was $15,000 and $494,076 respectively.
Fixed Assets
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:
Equipment 3-5 years
Furniture 7 years
| F-6 |
The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there were no impairments needed as of February 28, 2013 or 2012. Depreciation expense for the years ended February 28, 2013 and February 29, 2012, was $172 and $71, respectively.
Revenue recognition
The Company recognizes revenue in accordance with ASC subtopic 605-10 (formerly SEC Staff Accounting Bulletin No. 104 and 13A, “Revenue Recognition”) net of expected cancellations and allowances. As of February 28, 2013 and February 29, 2012, the Company evaluated evidence of cancellation in order to make a reliable estimate and determined there were no material cancellations during the years and therefore no allowances has been made.
The Company's revenues, which do not require any significant production, modification or customization for the Company's targeted customers and do not have multiple elements, are recognized when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the Company's fee is fixed and determinable; and (iv) collectability is probable.
Substantially all of the Company's revenues are derived from the sales ofLCD and LED televisions.The Company's customers are charged for these products on a per transaction basis. Pricing varies depending on the product sold. Revenue is recognized in the period in which the products are sold net of any discounts or allowances.
Loss per share
The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise or conversion of stock options, warrants, and debt to purchase common shares, would have an anti-dilutive effect. At February 28, 2013 and February 29, 2012, the Company had no potential common shares that have been excluded from the computation of diluted net loss per share.
| F-7 |
Income taxes
The Company follows ASC subtopic 740-10 for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Fair Value of Financial Instruments
The Company has financial instruments whereby the fair value of the financial instruments could be different from that recorded on a historical basis in the accompanying balance sheets. The Company's financial instruments consist of cash, receivables, accounts payable, accrued liabilities, and notes payable. The carrying amounts of the Company's financial instruments approximate their fair values as of February 28, 2013 and February 29, 2012 due to their short-term nature.
Long-lived assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. As of February 28, 2013, the Company fully impaired a license agreement in the amount of $10,000.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affects the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising
The Company expenses advertising costs as incurred. Pursuant to its vendor agreement with Fry’s electronics, the Company contributes 5% of each sale to a co-operative advertising, promotional and marketing campaign. The Company’s advertising expenses were $115,736 for the year ended February 28, 2013, and $248,052 for the year ended February 29, 2012.
| F-8 |
Research and development
Research and development costs are expensed as incurred. During the year ended February 28, 2013, and February 29, 2012, the Company did not incur any research and development costs.
Share-Based Compensation
The Company accounts for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees include grants of stock, grants of stock options and issuance of warrants that are recognized in the consolidated statement of operations based on their fair values at the date of grant.
The Company accounts for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the consolidated statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date. The Company calculates the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns.
The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the requisite service period of the award.
For the year ended February 28, 2013 and February 29, 2012, the Company has not incurred share-based compensation expense.
Recent accounting pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments result in common fair value measurement and disclosure requirements in U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs), and do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices. The amendments in this update are effective during interim and annual periods beginning after December 15, 2011. Adoption of the new requirement is not expected to have an effect on the Company’s financial position, results of operations or cash flow.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. In this update, FASB eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all non-owner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective for fiscal years, and interim periods within these years, beginning after December 15, 2011. Adoption of the new requirement is not expected to have an effect on the Company’s financial position, results of operations or cash flow.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements
Year-end
The Company has adopted February 28 as its fiscal year end.
| F-9 |
NOTE 3 - Going concern
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company has not yet achieved profitable operations and since its inception (February 23, 2010) through February 28, 2013 the Company had accumulated losses of $3,919,129 and a working capital deficit of $3,108,384. Management expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
The Company expects to continue to incur substantial losses as it executes its business plan and does not expect to attain profitability in the near future. Since its inception, the Company has funded operations through short-term borrowings and equity investments in order to meet its strategic objectives. The Company's future operations are dependent upon external funding and its ability to execute its business plan, realize sales and control expenses. Management believes that sufficient funding will be available from additional borrowings and private placements to meet its business objectives, including anticipated cash needs for working capital, for a reasonable period of time. However, there can be no assurance that the Company will be able to obtain sufficient funds to continue the development of its business operation, or if obtained, upon terms favorable to the Company.
NOTE 4- Accounts receivable
During the year ended February 29, 2012, the Company entered into two agreements to sell the Company’s accounts receivable in accordance with factoring agreements.
On December 21, 2011, the Company entered into a Sale and Assignment Agreement with Associated Receivables Funding, Inc. (“A/R Funding”) to purchase certain of its outstanding trade accounts receivable for a period of one year. Pursuant to this agreement, A/R Funding agreed to purchase up to a maximum of $4,000,000 of the Company’s trade receivables with a minimum quarterly factoring of an amount of not less than $300,000. Additionally, the terms of the agreement require a monthly factoring fee equal to 1.5% per month calculated based on the unpaid balance of purchased invoices outstanding. In accordance with the terms of the agreement, A/R Funding has agreed to advance a minimum of 40% of the face value of trade receivables purchased and a maximum of 60% to be held in reserve as protection against possible returns and allowances. All amounts held in reserve are required to be paid to the Company within two days of receiving payment on the sold receivable, less any mutually agreed deductions. In December 2011, the Company cancelled its agreement with A/R Funding. During the period of effectiveness, A/R Funding purchased trade receivables with a face value of $2,092,248. The Company received all proceeds net of discounts and allowances upon termination of the agreement. In addition, the Company paid a cancellation fee of $4,500 and factoring fees totaling $16,382.
On January 11, 2012, the Company entered into an Accounts Receivable Purchase & Security Agreement with Pacific Business Capital Corporation (“PBCC”), subsequently approved by the board of directors on February 27, 2012. Pursuant to the agreement, PBCC has the option to purchase various trade receivables presented by the Company at a minimum discount of 0.813% of the face value of each account purchased. PBCC has the option to reserve and withhold a minimum of 20% of the gross face amount of all accounts purchased. The reserve account may be held by PBCC and applied against charge-backs or any obligations of the Company to PBCC. In addition, in the event a purchased account remains unpaid more than 15 days from the date of purchase, an additional service discount of 0.54 % per day will be charged to the Company until paid-in full. The agreement with PBCC is secured by all of the Company’s assets, and has been personally guaranteed by the Company’s executive officers. During the year ended February 29, 2012, the Company has sold trade receivables with a face value of $851,829 at a discount of $6,925 to PBCC for proceeds of $596,280, net of reserves. As of February 28, 2013 and February 29, 2019, the Company has recorded a loss on the sale of assets totaling $7,555 and $6,925.
| F-10 |
On November 18, 2011, the Company agreed to a payment holdback in the amount of $10,000 as a provision to its agreement with Costco. The holdback is to be utilized to cover any future costs attributable to potential returns and or allowances. Per the verbal agreement, Costco calculates the retained amount at their discretion at a rate equal to approximately 5% of each total order and can be held for a period up to six-months. Any amount remaining after the six-month period has expired is fully payable to the Company. On March 29, 2012, Costco returned the initial $10,000 and withheld a new $50,000 retainer for products purchased in April 2012.
Accounts receivable consist of the following:
| February 28, | February 29, | ||||||
| 2013 | 2012 | ||||||
| Trade accounts receivable | $ | 9,120 | $ | 789,188 | |||
| Due from factoring | — | 247,835 | |||||
| Customer hold-back | — | 10,000 | |||||
| Less: Allowance for doubtful accounts | — | — | |||||
| $ | 9,120 | $ | 1,047,023 | ||||
As of February 28, 2013 and February 29, 2012, respectively, the Company had not established an allowance for doubtful accounts.
NOTE 5 - Property and equipment
The following is a summary of property and equipment:
| February 28, | February 29, | ||||||
| 2013 | 2012 | ||||||
| Furniture and fixtures | $ | 1,200 | $ | 1,200 | |||
| Less: accumulated depreciation | 243 | 71 | |||||
| $ | 957 | $ | 1,129 | ||||
Depreciation for the years ended February 28, 2013 and February 29, 2012 was $172 and $71, respectively.
NOTE 6 - Related party transactions
Employment/Consulting commitments
One June 1, 2011, the Company agreed to pay its two executive officers annual salaries of $240,000 each with 50% to be paid in cash and the remaining $120,000 to accrue until such time the Company has sufficient operating capital to pay the accrued compensation. During the year ended February 28, 2013, the Company paid $69,900 and $60,062 in cash to its chief executive officer and former chief operating officer, respectively. In addition, the Company paid additional non-cash compensation benefits of $425,000 to its CEO.
On June 11, 2012, the Company terminated its chief operating officer.As a result of the terms of termination, the former executive agreed to release the Company from all obligations owed to him which included accrued compensation in the amount of $139,438 and accrued expenses of $72,664. As of February 28, 2013, the Company recorded additional paid-in capital of $212,102 representing the total amount released by the former executive.
Agreements
On June 1, 2011, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations with the previous sole officer and director. Pursuant to the Agreement, the Company transferred all assets related to the business of designing and marketing custom beer pong tables to the former officer in exchange for the assumption of all liabilities relating to the former business. In addition, the previous officer agreed to return to treasury and cancel 128,888,880 shares of the Company’s common stock (Note 10).
| F-11 |
NOTE 7 – Short-term note and line of credit
Line of credit
On March 15, 2012, the Company signed an addendum to their factoring agreement dated January 11, 2012 with Pacific Business Capital Corporation (“PBCC”). The addendum provides for a short-term line of credit with a limit of $1,000,000 to be advanced based on specific purchase orders presented by the Company. Pursuant to the terms of the agreement, interest will be charged at a rate of 1.5% per month on the unpaid balance. Additionally, any amounts outstanding in excess of thirty-days will have an additional interest charge of 0.05% per day until paid in full. All advances are collateralized with the inventory of the Company. During the year ended February 28, 2013, the Company was advanced and repaid a total of $400,000. As of the balance sheet date the Company has recorded interest expense of $3,200 in connection with the advance.
Convertible note payable
On June 29, 2012, the Company issued a $488,488 Convertible Promissory Note and Security Interest in favor of a trade creditor representing the past due invoices of the creditor for professional fees. As of February 28, 2013, the creditor advanced a total of $50,970 for payment of the Company’s operating expenses whereby increasing the principal balance of the note to $543,459. The note is collateralized through the granting of a Security Interest in all the current and future assets of the Company until such time the note is fully satisfied. The Security Interest was subsequently perfected by the holder through filing. The note bears interest at a rate of 12% per annum and requires monthly installments of $15,000 per month until paid in full commencing on July 10, 2012. Further, at the sole option of the holder, demand for payment can be made with a thirty-day written notice of such demand. In the event of default, the unpaid balance will accrue interest at a default rate of 18% per annum. The Company has not paid in accordance with the terms of the note, and is currently in default and accruing interest at the default rate of 18%. Interest charged to operations relating to this note amounted to $58,195 for the year ended February 28, 2013.
Pursuant to the terms of the note, it is convertible into shares of the Company’s common stock at the option of the holder at any time in whole or in part at a conversion rate of $0.10. On the commitment date, management evaluated the conversion feature with respect to the benefit of the holder and determined the value of the conversion feature to be equal to the face value of the note, $488,488. This amount has been recorded as a discount against the outstanding balance of the note. The discount is amortized to interest expense over the estimated life of the debt using the effective interest method. Interest charged to operations relating to the amortization of the debt discount as of February 28, 2013 amounted to $103,367.
NOTE 8 – Commitments
Lease agreements
In April 2011, the Company entered into a month to month sub-lease agreement for office and warehouse space commencing April 1, 2011. Pursuant to the terms of the agreement, the monthly lease amount is $7,000. In August 2011, the Company amended there agreement to acquire additional square footage for conference and office space for an additional $1,000 per month. In addition, from time to time the Company utilizes various storage facilities as needed.
During the year ended February 28, 2013, the Company re-negotiated the amount of square footage necessary for its current operations resulting in an elimination of its warehouse and a significant portion of office space whereby reducing its monthly expense from $8,000 to $1,500. As of February 28, 2013, the Company has recorded rent expense of $35,721.
| F-12 |
Proposed Settlement of accounts payable
During the year ended February 28, 2013, the Company negotiated settlements in re-payment terms with two of its vendors. On April 15, 2013, the Company finalized its settlement of all claims and disputes with Anhui. Pursuant to the terms of the settlement the Company has agreed to pay Anhui a percentage of all funds raise from privately-placed equity investments as follows:
| a) | 9.8% of the first $3 million |
| b) | 13.1% of the next $3 million |
| c) | 19.7% of the next $4 million |
In addition, the Company has agreed to pay Anhui 0.98% of its ongoing net collections on sales, to be paid on a monthly basis. Our payment obligations under the Settlement Term Sheet will continue until we have paid Anhui the total sum of $1,679,400. If a minimum of $1 million in new equity is not raised within 120 days from the date of the Settlement Term Sheet, however, the agreement will be null and void.
On May 20, 2013, we reached a settlement of all claims and disputes with Zhuhai. The Company has again agreed to pay Zhuhai a percentage of all funds raised from privately-placed equity investments as follows:
| a) | 2.4% of the first $3 million |
| b) | 3.3% of the next $3 million |
| c) | 4.9% of the next $4 million |
In addition, the Company has agreed to pay Zhuhai 0.25% of its ongoing net collections on sales, to be paid on a monthly basis. The payment obligations under the Settlement Agreement will continue until Sigmac has paid Zhuhai a total sum of $425,000. If the sum of $425,000 is not paid to Zhuhai within 1 year from the date of the Settlement Agreement, the agreement will be deemed to be in default. The Settlement Agreement also provides for the dismissal of certain pending litigation and a mutual release and covenant not to sue.
NOTE 9 - Fair value measurement
The Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact the Company’s financial condition or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:
Level I – Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level II – Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
| F-13 |
Level III – Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of February 28, 2013:
| Level I | Level II | Level III | Fair Value | |||||||||||||
| February 28, 2013 | ||||||||||||||||
| Convertible note payable | — | 98,337 | — | 98,337 | ||||||||||||
| $ | — | $ | 98,337 | $ | — | $ | 98,337 | |||||||||
NOTE 10 – Stockholders’ deficit
The Company is authorized to issue up to 450,000,000 shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock. The Preferred Stock may be issued in one or more series, with all rights and preferences being determined by the board of directors.
Preferred Stock
The voting rights, rate of dividends preference in relation to other classes or series, and rights in the event of liquidation related to shares of Preferred Stock of any series are determined by the board of directors and may vary from time to time.
Common Stock
Holders of common stock have voting rights equal to one vote for each share of Common Stock held and are entitled to receive dividends when, and if declared by the board of directors subject to the rights of any Preferred Stock having preference as to dividends. In the event of liquidation or dissolution, subject to the rights of Preferred Stock Holders’ are entitled to share ratably in the Corporations assets. Holders of Common Stock do not have conversion, redemption or preemptive rights.
Recapitalization
During the year ended February 28, 2013 the Company effectuated a 5-for-1 forward stock split in the form of a stock dividend. All share and per share data has been retroactively restated to reflect the split.
NOTE 11 - Subsequent events
On April 10, 2013, the Company entered into convertible note agreement with Asher Enterprises for $42,500. The note bears interest at a rate of 8% per annum, matures on December 10, 2013 and is convertible into shares of the Company‘s common stock at a rate equal to a 45% discount to the ten day average market price on the date of election.
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to February 28, 2013 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events discussed above.
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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A(T). Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and treasurer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and chief financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2013. Based on his evaluation, he concluded that our disclosure controls and procedures were ineffective. The ineffectiveness of our disclosure controls and procedures were due to a lack of segregation of duties.
Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation under the criteria established in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was ineffective as of February 28, 2013. Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of theDodd-Frank Wall Street Reform and Consumer Protection Act.
During the most recently completed fiscal year, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth information regarding the members of our board of directors and our executive officers and other significant employees as of February 28, 2013. All of our directors hold office until the next annual meeting of stockholders and their successors are duly elected and qualify. Executive officers serve at the request of the board of directors.
| Name | Age | Office(s) held |
| Edward Meadows | 66 | President, CEO, CFO3, Treasurer, Director |
Set forth below is a brief description of the background and business experience of each of our executive officers and directors as of February 28, 2013.
Edward Meadows, our President, Chief Executive Officer, Chief Financial Officer, Treasurer, and Director, has over 20 years experience in the consumer retail industry. Mr. Meadows joined us in April, 2011. Previously, for the past five years, Mr. Meadows has provided financial consulting and sales management expertise to multiple companies including Westinghouse Digital and various other large entities in his own consulting practice. He was formerly the interim CFO of the television manufacturer Westinghouse Digital, LLC, from February 2007 to September 2007, and prior to this period he also worked as an auditor with PricewaterhouseCoopers. In addition to his financial experience, Mr. Meadows has over 20 years extensive experience selling to the national accounts of Wal-Mart, Costco, Fry's Electronics, Best Buy, Office Depot, Staples, Target, Tiger Direct, Sam's Club, and Radio Shack which are current and or long term goals for SIGMAC USA. Mr. Meadows graduated from Ohio State University in 1969 with a major in accounting and a minor in marketing.
There are no family relationships among any of our current or former directors or executive officers.
Directors
Our bylaws authorize no less than one (1) and no more than twelve (12) directors. We currently have one director.
All directors hold office for one-year terms until the election and qualification of their successors. Officers are elected by the board of directors and serve at the discretion of the board.
Committees of the Board
We do not currently have a compensation committee, executive committee, or stock plan committee.
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K.
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Nomination Committee
Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.
When evaluating director nominees, our directors consider the following factors:
| The appropriate size of our Board of Directors; | |
| Our needs with respect to the particular talents and experience of our directors; | |
| The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board; | |
| Experience in political affairs; | |
| Experience with accounting rules and practices; and | |
| The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members. |
Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.
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Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and board members, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Item 11. Executive Compensation
Compensation Discussion and Analysis
At this time, we do not have any written employment agreements with our named executive officers. On June 1, 2011, we agreed to pay our President and CEO, Edward Meadows, an annual salary of $240,000 with 50% to be paid in cash and the remaining $120,000 to accrue until such time as we have sufficient operating capital to pay the accrued compensation. The goal of this arrangement was to provide such compensation as is feasible in our current state of development to those executive officers providing ongoing management of our operations.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.
| SUMMARY COMPENSATION TABLE | |||||||||
Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| Edward Meadows, President, CEO and Director | 2013 2012 | 69,900 73,000 | - - | - - | - - | - - | - - | 425,000 | 494,900 73,000 |
| Edward Wang, former Director and former COO | 2013 2012 | 60,062 40,500 | - - | - - | - - | - - | - - | 170,957 |
231,019 40,500 |
Narrative Disclosure to the Summary Compensation Table
During the fiscal year ended February 28, 2013, we paid Messer’s Meadows and Wang cash salary of $69,900 and $60,062 and other compensation of $425,000 and $170,957, respectively. Other compensation to our officers included payment of previously accrued salaries in the amount of $546,500 and non-reimbursable travel expenses of $49,457 for a total executive compensation of $725,919 . There were no unpaid balances due at February 28, 2013.
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Stock Option Grants
We have not granted any stock options to the executive officers or directors since our inception.
Outstanding Equity Awards At Fiscal Year-end Table
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | |||||||||
| OPTION AWARDS | STOCK AWARDS | ||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date
| Number of Shares or Shares of Stock That Have Not Vested (#) | Market Value of Shares or Shares of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
| Edward Meadows | - | - | - | - | - | - | - | - | - |
| Edward Wang, former officer | - | - | - | - | - | - | - | - | - |
Compensation of Directors Table
The table below summarizes all compensation paid to our directors for our last completed fiscal year.
| DIRECTOR COMPENSATION | |||||||
| Name | Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
| Edward Meadows | 0 | -0 | -0 | -0 | -0 | -0 | -0 |
| Edward Wang, former director | 0 | -0 | -0 | -0 | -0 | -0 | -0 |
Narrative Disclosure to the Director Compensation Table
We do not currently provide any compensation to directors for their service as directors.
Employment Agreements with Current Management
We do not currently have any employment agreements in place with any of our executive officers.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to beneficially own more than 5% of any class of stock and by the executive officers and directors as a group. Except as otherwise indicated, all Shares are owned directly and the percentage shown is based on 111,111,120 shares common stock issued and outstanding as of July 8, 2013.
Title of class
| Name and address of beneficial owner | Amount of beneficial ownership | Percent of class |
| Common | Edward Meadows 977 Carnation Dr. Costa Mesa, CA 92626 | 30,555,560 | 27.5% |
| All Officers and Directors as a Group | 30,555.560 | 27.5% | |
| Other 5% owners | |||
| Common | MCKEA Holdings, LLC(1) P.O. Box 8036 Huntington Beach, CA 92615 | 26,555,560 | 23.9% |
(1) Kristine L. Ault is the Managing Member of MCKEA Holdings, LLC and, in that capacity, has the authority to make voting and investment decisions regarding its common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
To date, we have not adopted a stock option plan or other equity compensation plan and have not issued any stock, options, or other securities as compensation.
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Disclosure of Commission Position of Indemnification for Securities Act Liabilities
In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us:
1. During the fiscal year ended February 29, 2012, we operated out of approximately 10,000 square feet of office and warehouse space which we subleased from an entity controlled by our former COO and director, Edward Wang, on a month-to-month basis on Valley Boulevard in City of Industry, California, at a rate of $7,000 per month. As of February 28, 2013 we re-negotiated the amount of square footage necessary for our current operations resulting in an elimination of our warehouse and a significant portion of office space, thereby reducing our monthly expense from $7,000 to $1,500. The terms of this month to month lease otherwise remain the same.
2. NIVS USA Corp. provided us with product inventory through June of 2011 and is affiliated with our former director and COO, Edward Wang. As of Febraury 28, 2013 and February 29, 2012, owed an account payable to NIVS USA Corp. of $0 and $243,621, respectively.
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not have any independent directors.
Item 14. Principal Accounting Fees and Services
Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual and quarterly financial statements for the years ended:
| Financial Statements for the Year Ended February 28 | Audit Services | Audit Related Fees | Tax Fees | Other Fees |
| 2013 | $14,000 | $7,500 | $0 | $0 |
| 2012 | $18,000 | $5,500 | $0 | $0 |
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PART IV
Item 15. Exhibits, Financial Statements Schedules
| (a) | Financial Statements and Schedules |
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
| (b) | Exhibits |
(1) Incorporated by reference to Registration Statement on Form S-1/A filed June 10, 2010.
(2) Incorporated by reference to Current Report on Form 8-K filed April 29, 2013.
(3)Incorporated by reference to Current Report on Form 8-K filed June 7, 2013.
(4) Incorporated by reference to Quarterly Report on Form 10-Q filed July 20, 2011.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Southern Products, Inc.
| By: | /s/ Edward Meadows |
Edward Meadows President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
| |
| July 10, 2013 |
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| By: | /s/ Edward Meadows |
Edward Meadows President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
| |
| July 10, 2013 |
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