[July 20, 2011] SOUTHERN PRODUCTS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations Tweet (Edgar Glimpses Via Acquire Media NewsEdge) 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. The information contained in this Quarterly Report is intended to provide "current" updated information on our recent change of business plan. Company Overview We are a consumer electronics company incorporated in the state of Nevada and doing business under the brand name Sigmac. With a newly-engaged, exceptional management team in place, Sigmac intends to establish a globally recognized line of consumer electronic products. Our plan is to begin by entering into a series of large-scale distribution agreements for the sale of branded, mid-priced televisions, monitors and peripherals in the United States, and then expand internationally as brand recognition is developed and new markets become available. We believe that 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 in both countries. 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, service, and research and development operation which will work in concert with the emerging high quality manufacturing conducted by our suppliers in China. In addition to allowing us to develop immediate sales and brand growth in the U.S., our relationships with Chinese suppliers and manufacturers will allow us to gain future brand recognition and market share in the rapidly expanding Chinese consumer electronics market.The market for consumer electronics in the U.S. has been segmented into three market tiers: º 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 º 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. º The Third Tier consists of brands that are compared for features and benefits but are purchased by the consumer principally upon price comparisons. We believe that we have a unique opportunity to establish Sigmac branded products as a leading presence within the Second Tier as a result of the following developments: 1. The volume leader has, through pricing changes, recently repositioned itself into the First Tier. 2. Sony, the brand recognition leader, has announced its elimination of its manufacturing of consumer electronics and has become strictly a reseller of other companies' products with the Sony brand. 4 Table of Contents 3. During the recession, the Third Tier brands became unprofitable and left the market place. As a result of these developments, national retailers are commencing a search for stable, knowledgeable companies to provide products with Second Tier pricing together with excellent service and industrial designs. We believe Sigmac is poised to fill this demand through the efforts of our experienced management team and high quality Chinese manufacturing suppliers. It should be noted, however, that this process likely will take two years or more to accomplish. Our management has backgrounds in sales, service, design, and logistics. Our CFO has over 20 years in the consumer retail industry as well as audit experience with a Big 4 CPA firm. In addition, our director of sales has considerable experience selling to large major retail distribution chains. Products and Competition As our primary focus, we intend to design, market and sell Sigmac LCD and LED televisions in the US market. In addition to televisions, our planned product offerings will include DVD players, blue ray players, internet video connectivity products, and television accessories. Our goal is to provide a high quality connective solution early in the delivery phase with advanced multi-device video and conferencing solutions as well as 3D family entertainment. We plan to introduce products with one or all of the following features: LED, WIFI internet, internet camera, Skype video-audio, and blue ray players with internet connectivity. As reflected by the three market tiers discussed above, pricing of consumer electronics is generally divided in three price tiers as follows: (1) Tier one consists of the brands which have been long established and recognized for their quality and innovation for a long period of time, i.e., SONY and Sharp. (2) Tier 2 consists of the brands which are well recognized with good quality, but unlike Tier 1 brands, these products are not particularly recognized for innovation or quality, i.e., Vizio and Toshiba. (3) Tier 3 consists of introductory brands as well as brands that have been in the channels for an extended period of time without presenting innovation or marketing sufficient for the brand stand out for excellence. For our first two years, we expect to offer Tier 2 and Tier 3 pricing for our Sigmac televisions and other products. We expect Sigmac products will compare favorably with those offered by the Tier 2 competitors and we are working on the designs to compete with the Tier 1 brands, including SONY and Samsung. The significant features offered at these levels include WIFI, LED, 3D, large screen sizes, fast refresh rates, and high contrast ratios. We believe that Sigmac will be in an excellent position to compete feature-for-feature with other brands. 5 Table of Contents Our initial sales will consist primarily of the flat screen LED and LCD televisions, including the following product models: LE55ABD1 55" LED 3D 1080p 120Hz LE42AB 42" LED 1080p 60Hz NE42AB1 42" LCD 1080p 120Hz NE32AB1 32" LCD 1080p 120Hz NE15AB 15" LED 720p 60Hz We believe that a major change is currently taking place in consumer electronics, led by companies like SONY, Samsung and VIZIO. 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. We intend to develop and distribute devices which are connected through WIFI and Bluetooth to the internet, speaker systems, video and audio conferencing, and social and business networking.We believe the following will provide us with support in bringing our new brand of consumer electronics to the marketplace: 1. Our executives are experienced in creating product and industrial designs for electronic products that work for consumers. 2. We have an exclusive research contract with an R& D Company in Hong Kong which is experienced in designing leading-edge features and benefits for electronic products. 3. Our executives have sold to each of the national retail and internet providers and understand their respective channel cost and benefits. 4. Our executives have previously established top tier brands in their product niches. 5. Our executives have 24 years of experience in servicing Tier1 and Tier 2 brands and have established the procedures necessary to successfully handle these issues for Sigmac. 6 Table of Contents Suppliers and Inventory We have arranged for three Chinese factories to produce Sigmac product components. Each one of the factories will be able to provide 100% of our annual requirements for the first two years of our anticipated sales. These three companies have been supplying OEM customers of our COO, Edward Wang, for over a year. For our flat panels, we have vendor/supplier relationships with two of the largest LCD panel manufacturers and have an exclusive arrangement with Core ACH, Inc., a leading high-tech Hong Kong based R&D company. Core ACH has designed our moulds for producing slim and ultra-slim LED screens, as well as Blue Ray with WIFI for our new Internet TV features. Final assembly of the finished products is completed in our facility in City of Industry, California. 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 which will require us to decrease the price of a product and issue credits to customers when prices are dropped generally. This is designed to protect the customer from loses on their current inventory of our product, but also has the effect of creating a high risk of enhanced losses to us when prices are on the decline. For more information on the issues and risks involved with Price Protection provisions in our sales agreements, see Risk Factors. We are currently set up to buy product from our Chinese suppliers with short term financing on 85% of the cost of the product. With additional capital, we will be able to access more favorable supplier terms. In addition, if we are able to improve our equity position, we can seek an accounts receivable and inventory financing package on even better terms. Market for Our Products and Marketing Plan The current TV market worldwide is in excess of 72 million units. The U.S. market is in excess of 12 million units per year. The principal suppliers for end users are Best Buy, Walmart, Target, Costco, Sam's Club, Fry's Electronics, and Tiger Direct. The principal markets for our products will be these major internet and mass merchant channels of consumer electronic products. In addition, we will identify and sell to solution providers which target high value high cost solutions to the higher tier consumer home entertainment and social networking solutions markets. We currently have distributions agreements with Syx Distribution, Inc. (for sales through Tiger Direct) and with Wintec Industries, Inc. (for sales through Walmart.com). We anticipate executing additional distribution agreements in the near future. Due to new, innovative changes occurring with respect multiple uses and multiple connectivity for televisions, we believe the TV market will continue to maintain the current high volume of units sold for at least the upcoming three years and most likely for the next seven years. By offering connected home entertainment solutions, we will position Sigmac products to benefit from this continuing market strength over the next several years. Our initial customer base will include electronics distributors in the USA and Canada. Our targeted customer product location is the customer's home, including the family room, bedrooms, kitchen, recreation and garage. We expect that we will need to be very precise and timely in our promotional offerings and product releases in order to reach and sell to this base. We also believe that we will need to deliver the minimum quantity required to avoid future Price Protection losses on our higher priced products. We will need to be price competitive for commodity products early in our start up phase. Due to the quality of our R&D programs, however, we still expect to provide a high value product. In our first year of sales, we will target sales with primarily large retailers of our products. For our second and third years, our goal will be to acquire at least one ongoing customer account in each year. We intend to use program promotional pricing as the largest aspect of our marketing efforts. An example of this is the recent promotion we did with Tiger Direct. We expect to space these sorts of promotions out over time to allow for continuing brand promotion at a minimum cost to us. 7 Table of Contents We intend to use the reports generated by the "CEA" (Consumer Electronics Association) to monitor our market share and average sales price in relation to our competition. We plan to continuously adjust our efforts to maintain progress in achieving our sales goals and desired profits. Research & Development and Quality Assurance We have recently engaged Core ACH, Inc., an R&D research facility in Hong Kong, China that has committed to working exclusively with us on our TV and accessory products. Our goal is to be a leader in cutting-edge home entertainment technology, maintaining attractive margins and avoiding losses. Our future product offerings will be designed to enhance the home entertainment experience of the end user, with audio and video completely coordinated for television, internet, conferencing and social interaction. The focus of our Sigmac quality assurance efforts will be to offer real time responses to the Sigmac product user. With Edward Wang's 24 years of Tier 1 and Tier 2 brand service, we expect to be able to offer what competing Tier 3 and Tier 2 brands cannot offer - a Tier 1 level of service. Government Regulation Our current and planned business activities are subject to various governmental regulations in the U.S. and China, including regulations relating to trade affairs (customs, import and export controls), competition and antitrust, anti-bribery, advertising and promotion, intellectual property, broadcasting, consumer and business taxation, foreign exchange controls, product safety, labor, occupational health, and environmental and recycling requirements. Employees As of July 13, 2011, we had 16 employees. Properties Our operations are currently housed in a facility leased on a month-to-month basis on Valley Boulevard in City of Industry, California. Our marketing and assembly operations are based in this facility. Our monthly cost for the facility is currently $8,000 for the approximately 10,000 square feet we currently use at the facility. We have the ability to occupy up to a total of 11,000 square feet at our current location. As our sales expand over the coming months, we anticipate needing to relocate to a new facility with 20,000 to 30,000 square feet of space. Our management is considering logistics, assembly costs, tax and other factors to determine our best long term location. Executive Officers The following table contains information with respect to our current executive officers and directors: Name Age Principal Positions Edward Meadows 64 President, Chief Executive Officer, Chief Financial Officer, Treasurer, and Director Edward Wang 64 Chairman of the Board, Chief Operating Officer, Secretary and Director Edward Meadows was appointed President, Chief Executive Officer, Chief Financial Officer, Treasurer, and Director on June 1, 2011. Mr. Meadows graduated from The Ohio State University in 1969 with a major in accounting and a minor in marketing. He passed the CPA exam in 1970 on his first sitting for the national exam. For the past five years Mr. Meadows has provided financial consulting and sales management expertise to multiple companies in his own consulting practice. He was formerly the interim CFO of the television manufacturer Westinghouse Digital, LLC, 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 experience selling to the national accounts of Walmart, Costco, Fry's Electronics, Best Buy, Office Depot, Staples, Target, Tiger Direct, Sam's Club, and Radio Shack. Mr. Meadows oversees all aspects of the company, including Sales, Marketing, Finance and HR. 8 Table of Contents Edward Wang was appointed Chairman of the Board, Chief Operating Officer, Secretary and Director on June 1, 2011. He has an Electronics Engineering degree from National Taipei University of Technology in Taiwan. Following graduation, he gained manufacturing experience working in various capacities as an Electronics Engineer, Production Manager, Plant Manager, and General Manager for Transworld, RCA and other manufacturers in Taiwan. In 1982 Mr. Wang started Edward Electronics Co., to provide consumer electronics warranty and repair service, quality assurance, and engineering failure analysis. His major customers included: Pioneer, Toshiba, Samsung, JVC, Philips, RCA, GE, Mitsubishi, and Sanyo / Fisher. In 1997, Mr. Wang started a monitor OEM warranty service to provide customer service, technical support and refurbishing of CRT and LCD monitors for Viewsonic, Dell and Envision Peripherals, Inc. and scanner assemblies for HP. In 2005 he began his technical analysis of ongoing LCD television research and design and compiling market research information about the American LCD television market. The research objective of this technical analysis was to develop a plan to create a new, high quality, affordable American television and consumer electronics brand. Mr. Wang oversees all aspects of Production, R&D, and overseas procurement. Term of Office Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. Family Relationships There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers. 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. Committees of the Board Our company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our company have a written nominating, compensation or audit committee charter. Our directors believe that it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by the board of directors. Our company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment. A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our CEO and director, Edward Meadows. 9 Table of Contents Key Employees Our only current key employees are Mr. Meadows and Mr. Wang. Code of Ethics On July 19, 2011, we adopted a Code of Business Conduct and Ethics, which applies to, among other persons, our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our Code of Business Conduct and Ethics is attached hereto as Exhibit 14.1 Executive Compensation Compensation Discussion and Analysis We currently do not have formal employment agreements with our named executive officers and we have not established a system of executive compensation or any fixed policies regarding compensation of executive officers. Due to financial constraints typical of those faced by a development stage business, in the reported period, we did not pay any cash and/or stock compensation to our named executive officers. We have tentatively agreed to compensate both Mr. Wang and Mr. Meadows at salaries of $240,000 per year, with a portion or all of the salary being accrued and unpaid until such time as, in the determination of the board, we have sufficient capital or cash flow to pay the full salaries while paying our other expenses as they become due. In April of 2011, Mr. Meadows began receiving $10,000 per month as partial payment of his salary. The goal of these arrangements is to provide our executive officers with such reasonable compensation for their time as is feasible given the limited resources available to us at our current stage of development. In addition, our executive officers hold substantial ownership in the Company and are motivated by a strong entrepreneurial interest in developing our operations and potential revenue base to the best of their abilities. As our business and operations expand and mature, we expect to develop a formal system of compensation designed to attract, retain and motivate talented executives. The table below summarizes all compensation awarded to, earned by, or paid to our officers for all services rendered in all capacities to us for our fiscal years ended February 28, 2011 and 2010. 10 Table of Contents SUMMARY COMPENSATION TABLE Non-Equity Incentive Nonqualified Name and Stock Option Plan Deferred principal Awards Awards Compensation Compensation All Other position Year Salary ($) Bonus ($) ($) ($) ($) Earnings ($) Compensation ($) Total ($) Edward Meadows, President, Chief Executive 2011 n/a n/a n/a n/a n/a n/a n/a n/a Officer, 2010 n/a n/a n/a n/a n/a n/a n/a n/a Chief Financial Officer, Treasurer, and Director Edward Wang, Chairman of the Board, 2011 n/a n/a n/a n/a n/a n/a n/a n/a Chief 2010 n/a n/a n/a n/a n/a n/a n/a n/a Operating Officer, Secretary and Director Tyler Richard, former 2011 0 0 0 0 0 0 0 0 sole 2010 0 0 0 0 0 0 0 0 officer and director Narrative Disclosure to Summary Compensation Table Our named executive officers did not receive any compensation from the Company for their service as an officer of the Company during the last two fiscal years. 11 Table of Contents Outstanding Equity Awards at Fiscal Year-End The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of February 28, 2011. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END OPTION AWARDS STOCK AWARDS Equity Equity Incentive Market Incentive Plan Value Plan Awards: of Awards: Market or Equity Shares Number of Payout Incentive or Unearned Value of Plan Shares Shares, Unearned Awards: Number of of Shares or Shares, Number of Number of Number of Shares or Stock Other Shares or Securities Securities Securities Shares of That Rights Other Underlying Underlying Underlying Option Stock Have That Have Rights Unexercised Unexercised Unexercised Exercise Option That Have Not Not That Have Options Options Unearned Price Expiration Not Vested Vested Not Name (#)Exercisable (#)Unexercisable Options (#) ($) Date Vested(#) ($) (#) Vested(#) Edward n/a n/a n/a n/a n/a n/a n/a n/a n/a Meadows Edward n/a n/a n/a n/a n/a n/a n/a n/a n/a Wang Tyler - - - - - - - - - Richard, former officer 12 Table of Contents Director Compensation The table below summarizes all compensation of our directors as of February 28, 2011. DIRECTOR COMPENSATION Fees Earned or Non-Equity Non-Qualified Paid Incentive Deferred in Stock Option Plan Compensation Name Cash Awards Awards Compensation Earnings All Other Total ($) ($) ($) ($) ($) Compensation($) ($) Edward Meadows n/a n/a n/a n/a n/a n/a n/a Edward Wang n/a n/a n/a n/a n/a n/a n/a Tyler Richard, - - - - - - - former director Narrative Disclosure to the Director Compensation Table We do not currently provide any compensation to directors for their service as directors. 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. Disclosure of Commission Position on 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. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of July 13, 2011, certain information as to shares of our common stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group. Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of Common Stock, except to the extent authority is shared by spouses under applicable law. The percentage shown is based on 5,555,556 shares of Common Stock issued and outstanding 13 Table of Contents The number of shares beneficially owned by each stockholder is determined under rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner. Name and address Amount of Percent Title of class of beneficial owner beneficial ownership of class Common Edward Meadows 1,527,778 27.5% 13668-B Valley Blvd. City of Industry, CA 91746 Common Edward Wang 1,527,778 27.5% 13668-B Valley Blvd. City of Industry, CA 91746 All Officers and Directors as a Group 3,055,556 55% Other 5% owners none Certain Relationships and Related Party 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. On February 25, 2010, we entered into an Asset Purchase Agreement with our founder and sole officer and director, Tyler Richard. Under the agreement, we issued Mr. Richard 1,000,000 shares of common stock in exchange for certain equipment relating to our former business consisting of a hand hopper, and hawk, and trowels, supplies in the form of Styrofoam, and inventory valued at $1,000. 2. On June 1, 2011, we entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the "Agreement") with our former sole officer and director, Tyler Richard. Pursuant to the Agreement, we transferred all assets related to our former business of designing and marketing custom beer pong tables to Mr. Richard. In exchange for this assignment of assets, Mr. Richard agreed to assume all liabilities relating to our former business. In addition, Mr. Richard agreed to return to treasury and cancel 6,444,444 shares of our common stock. 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. 14 Table of Contents Description of Securities Our authorized capital stock consists of 90,000,000 shares of common stock, with a par value of $0.001 per share, and 10,000,000 shares of preferred stock, with a par value of $0.001 per share. As of June 15, 2011, there were 5,555,556 shares of our common stock issued and outstanding. Our shares are held by 32 stockholders of record. We have not issued any shares of preferred stock but have filed a certificate of designation for the Series A Convertible Preferred Shares offered herein. Common Stock Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors. Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefore. Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders. In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock. Preferred Stock Our board of directors is authorized by our articles of incorporation to divide the authorized shares of our preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. Our board of directors is authorized, within any limitations prescribed by law and our articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock including, but not limited to, the following: 1. The number of shares constituting that series and the distinctive designation of that series, which may be by distinguishing number, letter or title; 2. The dividend rate on the shares of that series, whether dividends will be cumulative, and if so, from which date(s), and the relative rights of priority, if any, of payment of dividends on shares of that series; 3. Whether that series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; 4. Whether that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; 5. Whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; 6. Whether that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; 7. The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; 8. Any other relative rights, preferences and limitations of that series 15 Table of Contents Provisions in Our Articles of Incorporation and By-Laws That Would Delay, Defer or Prevent a Change in Control Our articles of incorporation authorize our board of directors to issue a class of preferred stock commonly known as a "blank check" preferred stock. Specifically, the preferred stock may be issued from time to time by the board of directors as shares of one (1) or more classes or series. Our board of directors, subject to the provisions of our Articles of Incorporation and limitations imposed by law, is authorized to adopt resolutions; to issue the shares; to fix the number of shares; to change the number of shares constituting any series; and to provide for or change the following: the voting powers; designations; preferences; and relative, participating, optional or other special rights, qualifications, limitations or restrictions, including the following: dividend rights, including whether dividends are cumulative; dividend rates; terms of redemption, including sinking fund provisions; redemption prices; conversion rights and liquidation preferences of the shares constituting any class or series of the preferred stock. In each such case, we will not need any further action or vote by our shareholders. One of the effects of undesignated preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant to the board of director's authority described above may adversely affect the rights of holders of common stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the common stock at a premium or may otherwise adversely affect the marketprice of the common stock. Dividend Policy 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. Share Purchase Warrants We have not issued any warrants to purchase capital stock. Options We have not issued any options to purchase capital stock. 16 Table of Contents Nevada Anti-Takeover Laws Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company. Results of operations for the three months ended May 31, 2011 and 2010. We generated gross revenues of $536,433 during the three months ended May 31, 2011. Our costs of goods sold were $512,709, resulting in a gross profit of $23,724. Our total expenses during the three months ended May 31, 2011 were $62,966. Our net loss for the three months ended May 31, 2011 was therefore $39,242. Our expenses during the quarter consisted of professional fees in the amount of $30,000, advertising and promotional costs of $19,833, travel expenses of $6,027, sales commissions of $3,778, general and administrative expenses of $2,005, and office salaries of $1,323. By comparison, during the three months ended May 31, 2010, we generated no revenues and incurred total expenses and a net loss of $3,938. Our revenues, costs of goods sold, and expenses during the three months ended May 31, 2011 increased dramatically as compared to the same period last year because, commencing in April of 2011, we shifted our focus away from our original line of product sales and began to design, market, and sell our SIGMAC-branded flat screen televisions. During the quarter ended May 31, 2011, our products were sold primarily under promotional pricing in order to generate initial consumer interest in our products as they were first brought to market. As a result, our gross profit for the quarter was relatively nominal. As we move forward and begin to fill larger purchase orders from our distributors, we expect that our gross profit margin, as well as our total sales, will increase. Liquidity and Capital Resources As of May 31, 2011, we had current assets in the amount of $77,723, and cash in the amount of $5,843. Our current liabilities as of May 31, 2011 were $146,431, consisting accounts payable of $101,339, other accrued expenses of $36,314, accrued commissions of $3,778, and loans payable of $5,000. Our working capital deficit as of May 31, 2011 was therefore $68,708. Subsequent to the reporting period, On June 30, 2010, we received a $250,000 line of credit for use in facilitating purchase orders we have received for our televisions. The line of credit is documented by a Promissory Note and Security Agreement to CC Fund, LLC, a Nevada limited liability company (the "Note"). Under the terms of the Note, we will borrow up to $250,000 to be used solely for the purpose of procurement of necessary components for, and for the manufacture and delivery of, our SIGMAC-branded televisions and consumer electronics products. The Note bears interest at a rate of one percent (1%) per month and is due on or before the earliest of the following: · Our receipt of equity funding in a total, cumulative amount of not less than $1,500,000; or · Our receipt of gross revenues, less related Costs of Goods Sold, in an amount sufficient to pay the principal and interest then due and owing under the Note; or · September 30, 2011. 17 Table of Contents At the option of the holder, the final due date of the Note may be extended for one or more additional terms of ninety (90) days upon written notice. The Note may be pre-paid in whole or in part at any time without penalty. The Note is secured by all of our assets, including inventory and accounts receivable. On June 30, 2011, we withdrew the full $250,000 on this line of credit in order to process and fulfill our current and anticipated purchase orders. We are currently seeking additional funding in the form of equity capital in order to fully fund our planned business operations over the course of the next 12 months. We intend to fund operations through increasing sales and debt and/or equity financing arrangements, which may be insufficient to fund our planned expenditures or other cash requirements. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all. At this time, additional funding is required in order to secure production and delivery of product components sufficient to fill our current and anticipated purchase orders in the immediate future. In addition to the cost of producing and delivering product for sale, we anticipate incurring approximately $1,000,000 in general operating expenses over the course of the next year.Off Balance Sheet Arrangements As of May 31, 2011, there were no off balance sheet arrangements. 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. [ Back To TMCnet.com's Homepage ]