UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

 

FORM 10-Q

_________________________________

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended OCTOBER 31, 2014

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________ to ___________________ .

 

Commission File Number: 000-55044

  

(Exact name of registrant as specified in its charter)

 

Delaware		46-5429720
(State of Incorporation)		(I.R.S. Employer Identification No.)
520 Broadway, Suite 350, Santa Monica, California		90401
(Address of principal executive offices)		(Zip Code)

 

(949) 461-1471 

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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	¨	Non-accelerated filer	¨
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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Title of Each Class		Outstanding as of December 22, 2014,
Common stock, par value $0.0001 per share		249,057,315
Class C Preferred Stock, par value $0.001 per share		23,000,000

 

 

 

 

 

SOUTHCORP CAPITAL, INC. 

FORM 10-Q 

October 31, 2014

 

TABLE OF CONTENTS

 

 

PART I -- FINANCIAL INFORMATION
Item 1.	Financial Statements			1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			15
Item 4.	Control and Procedures			15
PART II -- OTHER INFORMATION
Item 1.	Legal Proceedings			18
Item 1A.	Risk Factors			18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			18
Item 3.	Defaults Upon Senior Securities			18
Item 4.	Mine Safety Disclosures			18
Item 5.	Other Information			18
Item 6.	Exhibits			19

 

2

  

PART I -- FINANCIAL INFORMATION

 

 ITEM 1 –FINANCIAL STATEMENTS

 

SouthCorp Capital, Inc. 

Balance Sheets

(Unaudited)

 

		October 31, 2014				April 30, 2014
ASSETS
Current assets:
Cash or cash equivalents		$	9,347			$	200
Loan receivable			3,000				-
Note receivable from sale of property			4,917				-
Total current assets			17,264				200
Fixed assets:
Real estate		$	64,390			$	68,000
Renovations			24,690				-
Total assets		$	106,344			$	68,200
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable		$	824			$	-
Convertible Notes payable			42,500				-
Loans payable- mortgage			12,642				13,692
Accrued interest			339				-
Accrued dividend			18,519				-
Loans payable- related party			89,144				54,938
Total liabilities			163,938				68,630
Shareholders’ equity:
Class C Preferred Stock, Par Value $.0001, 50,000,000 authorized, 23,000,000 issued and outstanding			2,300				2,300
Class D Preferred Stock, Par Value $.0001, 25,000,000 authorized, none issued and outstanding			-				-
Common stock, par value $0.0001, 750,000,000 authorized, 249,057,315 and 224,057,315 issued and outstanding, respectively			24,906				22,406
Additional paid in capital			224,794				(22,706	)
Accumulated deficit			(309,624	)			(2,430	)
Total shareholders' deficit			(57,694	)			(430	)
Total liabilities and shareholders' deficit		$	106,344			$	68,200

  

The accompanying notes are an integral part of these unaudited financial statements

 

3

 

 Southcorp Capital, Inc.
Statement of Operations 

(Unaudited)

 

		Three months ended				Six months ended
		October 31, 2014				October 31, 2014
Sales, net		$	5,500			$	5,500
Cost of properties sold			5,500				5,500
Gross Profit			-				-
Operating Expenses
SG&A			34,601				287,270
Total operating expenses			34,601				287,270
Net Loss		$	(34,601	)		$	(287,270	)
Dividends declared			19,924				19,924
Net loss attributable to common shareholders’		$	(54,525	)		$	(307,194	)
Net loss per share, basic and diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding			249,057,315				237,780,141

  

The accompanying notes are an integral part of these unaudited financial statements

 

4

  

Southcorp Capital, Inc. 

Statements of Cash Flows 

(Unaudited)

 

	Six months ended
	October 31, 2014
Cash flows from operating activities
Net loss		$	(287,270	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation			250,000
Change in operating assets and liabilities:
Accounts payable			(824	)
Accrued interest			(339	)
Net cash used in operating activities			(36,107	)
Cash flows from investing activities
Loan to third party			(3,000	)
Proceeds received for note receivable from sale of properties			583
Real estate purchased			(1,890	)
Renovations to properties			(12,940	)
Net cash provided by investing activities			(17,247	)
Cash flows from financing activities
Proceeds from Convertible Note payable			42,500
Repayment of mortgage			(1,050	)
Dividend payment			(1,405	)
Payment of related party advances			(19,062	)
Proceeds from related party advances			41,482
Net cash provided by financing activities			62,501
Net change in cash			9,147
Cash balance, beginning of period			200
Cash balance, end of period		$	9,347
Supplemental disclosures:
Cash paid for interest		$	-
Cash paid for income taxes		$	-
Noncash investing and financing activities:
Payments for real estate renovations by related party		$	11,750
Accrued dividend			18,520

 

The accompanying notes are an integral part of these unaudited financial statements

 

5

  

SOUTHCORP CAPITAL, INC. 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

Note 1 – Basis of Presentation

 

The accompanying unaudited financial statements of SouthCorp Capital, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's registration statement filed with the SEC on Form 10. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2014 as reported in Form 10-K, have been omitted.

 

Sale of the Company’s real estate property will occur through the use of a sales contract where revenues from renovated real estate property sales will be recognized upon closing of the sale. In accordance with FASB ASC 360-20, the Company will use the accrual method and recognize revenue on the sale of its properties when the earnings process is complete and the collectability of the sales price and additional proceeds is reasonably assured, which is typically when the sale of the property closes. At the time of sale the Company will determine it the transaction will be recognized under the full accrual method, installment method, cost recovery method, deposit method or reduced profit method. Rental Income is recognized at the time the Company deposits the monies.

  

Note 2 – Going Concern

 

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

 

In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

 

Historically, it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

Note 3 – Related Party Transaction

 

During the quarter October 31, 2014, the Company borrowed $40,556 from Joseph Wade, our CEO, related to the purchase and/or renovation of the Company’s properties and working capital. Of this amount, $11,750 was paid directly to vendors for the renovation of real estate property. The Company has repaid $16,562. The total amount owed is $78,968 as of October 31, 2014. The loan is at 0% interest and is to be repaid by December 31, 2015.

 

During the quarter October 31, 2014, the Company borrowed $12,676 from Matt Billington, our COO, related to the purchase and/or renovation of the Company’s properties and working capital. The Company has repaid $2,500. The total amount owed is $10,176 as of October 31, 2014. The loan is at 0% interest and is to be repaid by December 31, 2015.

 

6

 

Note 4 – Real Estate

 

The following table provides an overview of our properties:

 

Property		City, State		Acquisition Date		Type		Purchase Price
808 N. Franklin Street		Portland, Indiana		April-14		Single Family		$1,500
465 Fulton		Berne, Indiana		April-14		Single Family		$1,500
Jefferson Street		Berne, Indiana		April-14		Vacant Industrial		$2,500
356 Franklin Street		Berne, Indiana		April-14		Single Family		$16,000
163 Behring Street		Berne, Indiana		April-14		Commercial		$35,000
7003 Balsam Lane		Fort Wayne, Indiana		May-14		Single Family		$6,000
1063 Winchester		Decatur, Indiana		August-14		Single Family		$1,890

 

Renovations: During the Six Months Ending October 31, 2014, the Company spent $12,940 in renovations related to its properties. 

 

Acquisitions: The Company acquired a property in Decatur, Indiana for $1,890.

  

Note 5 – Equity

 

On July 21, 2014, we issued 12,500,000 shares to our CEO under the Company’s S-8 and stock compensation plan. The company expensed $125,000 related to this transaction.

 

On July 21, 2014, we issued 12,500,000 shares to our COO under the Company’s S-8 and stock compensation plan. The company expensed $125,000 related to this transaction.

 

During quarter ended October 31, 2014, the Company declared $19,924 in dividends. As of October 31, 2014, the company paid $1,405 and has accrued $18,520 in dividends

 

Note 6 – Mortgage Notes Payable

 

In April 2014, in conjunction with the purchase of one of the properties, the Company entered into a noninterest bearing installment promissory note for a mortgage on the property of $13,600. The amount is repayable in monthly installments of $350 and the remaining balance due on maturity date of April 1, 2015. During the quarter October 31, 2014, the Company repaid $1,050. As of October 31, 2014, $12,642 was due.

 

7

 

Note 7 – Note receivable

 

In August 2014, the Company agreed to sell 3 of its properties for $105,000. The closing occurred on September 15, 2014 and the Company provided financing to the buyer. The Company will receive $291.66 per month with a balloon payment on March 15, 2017 of $99,750. The Company has accounted for the sale of the properties under the cost recovery method in accordance with ASC 360-20 and as such no profit is recognized until cash payments by the buyer, including principal and interest on debt due to the seller and on existing debt assumed by the buyer, exceed the seller's cost of the property sold. As of October 31, 2014, the payments have not exceeded the cost and therefore there is no recognized gross profit.

 

The below table summarizes the activity for the quarter ended October 31, 2014:

 

Sales – Properties		$	105,000
Cost of the sales of properties			5,500
Gross Profit			99,500
Less: Note receivable			105,000
Recognized gross profit			-
Payments			583
Unrecognized Gross profit			99,500
Total note receivable		$	4,917

  

Note 8 – Convertible Notes Payable

 

KBM Worldwide September 5, 2014 convertible note.

 

On September 5, 2014 the Company received a note in the amount of $42,500 from KBM Worldwide, Inc. The note bears a simple interest of 8% per annum from the date hereof (the “Issue Date”) until it becomes due and payable, whether at maturity date on June 5, 2015. The note is convertible into shares of Common Stock, $0.0001 par value per share. 

 

Note 9 – Subsequent Events

 

In November 2014, the company acquired two properties for $10,727 each.

 

8

 

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained herein involve risks and uncertainties, including statements as to:

 

	·	our future operating results;
	·	our business prospects;
	·	our contractual arrangements and relationships with third parties;
	·	the dependence of our future success on the general economy;
	·	our possible financings; and
	·	the adequacy of our cash resources and working capital.

 

These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto, included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this report, particularly in the “Risk Factors” section.

 

Critical Accounting Policies and Estimates. 

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.

 

9

 

Business Of The Registrant

 

Southcorp Capital, Inc. is a Delaware corporation. The Company focus is on the acquisition and renovation of single-family and multi-family properties in the U.S with the intent of reselling or renting the property after renovations have occurred; however, the Company will all look to sale houses prior to renovations. Our real estate investments are expected to focus properties undervalued and/or in need of some repairs.

 

We intend to seek potential property acquisitions meeting the above criteria and which are located throughout the United States. We believe the most important criteria for evaluating the markets in which we intend to purchase properties include:

 

	·	historic and projected population growth;
	·	historically high levels of tenant demand and lower historic investment volatility for the type of property being acquired;
	·	markets with historic and growing numbers of a qualified and affordable workforce;
	·	high historic and projected employment growth;
	·	markets with high levels of insured populations;
	·	stable household income and general economic stability; and
	·	sound real estate fundamentals, such as high occupancy rates and strong rent rate potential.

  

The markets in which we invest may not meet all of these criteria and the relative importance that we assign to any one or more of these criteria may differ from market to market or change as general economic and real estate market conditions evolve. We may also consider additional important criteria in the future. In order to diversify our portfolio, we may acquire a portion of our real estate investments through joint ventures with affiliates and third parties, such as institutional investors. 

 

 Our Portfolio

 

The following table provides an overview of our properties:

 

Property		City, State		Acquisition Date		Type		Purchase Price
808 N. Franklin Street		Portland, Indiana		April-14		Single Family		$	1,500
465 Fulton		Berne, Indiana		April-14		Single Family		$	1,500
Jefferson Street		Berne, Indiana		April-14		Vacant Industrial		$	2,500
356 Franklin Street		Berne, Indiana		April-14		Single Family		$	16,000
163 Behring Street		Berne, Indiana		April-14		Commercial		$	35,000
7003 Balsam Lane		Fort Wayne, Indiana		May-14		Single Family		$	6,000
1063 Winchester		Decatur, Indiana		August-14		Single Family		$	1,890

 

10

 

In the opinion of management, available funds will not satisfy our growth requirements for the next twelve months. The Company previously expected to expand outside of Indiana. However, the Company how determined that its return on investment will be higher in Indiana than Las Vegas. The Company’s corporate plan is to initially acquire houses to renovate and flip. The Company wants to use the cash generated from the sale of these houses to acquire properties such as apartment complexes, senior living facilitates and/or and mobile home parks. The goal is that these properties will provide a steady and predicable income that can be distributed to our shareholders. Our goal is to be able to increase our dividends to $150,000 - $200,000 per month without any major change to our current share structure. Then we want to begin to increase that from the income generated from the apartment complexes, senior living facilitates and/or and mobile home parks.

 

The Company plans on flipping one house a month to build up our cash position. Then we want to increase it to 2-3 houses a month within the next 90 days. We expect the average profit per house to be between $35,000 and $70,000.

 

The Company recently sold its property located at 602 Wagner Street in Fort Wayne, Indiana for $35,000. The Company’s costs related to the property where approximately $10,000. This equates to a 250% ROI. The Company does not expect its ROI to continue to be that high but we look at properties where we can obtain an ROI of 40-60%. The company decided to begin in Indiana for a few of reasons: (1) we believe we can achieve the targeted ROI, (2) our officers have previously bought and sold properties in Indiana, and (3) the capital outlay is lower than other areas.

 

Flip Model: The Company estimates that the average flip generates a profit of approximately $100,000 and typically have an average purchase price of around $210,000. But those numbers never reflect renovation costs and are based on the purchase price of house and the sales price. As a result, the actual profit is usually much less. In Indiana, the Company expects its total expenses per flip to be between $35,000 and $70,000 with expected profits of $30,000 to $45,000. So with the $210,000 to purchase one house, the Company can purchase and renovate between 4-6 houses and have expected profits of $150,000 - $200,000. This, in management’s opinion, provides a better model and is expected to provide higher dividends to our shareholders.

 

RESULTS OF OPERATIONS

 

The Company generates revenue the sale of houses it renovates.

 

Operating Expenses

 

Revenue

 

The Company received payments for the properties sold of $583. The payments do not exceed the cost and as such the gross profit from the sales of properties is $0.

 

Cost of Goods Sold

 

The Company has $5,500 in costs of goods sold.

 

11

 

Operating Expenses

 

For the three months ending October 31, 2014, the Company had $34,601 in Operating Expenses. The Company’s total expense for the period ending October 31, 2014 was $34,601.

 

For the six months ending October 31, 2014, the Company had $37,270 in Operating Expenses and booked a one-time $250,000 in expenses related stock issuance to its CEO and COO. The Company’s total expense for the period ending October 31, 2014 was $287,270.

 

Net Profit (Loss)

 

For the three months ending October 31, 2014, the Company had Net Loss of $(39,517). This was derived as follows:

 

Sales:		$	5,500
COGS:		$	5,500
Gross Profit		$	-
Expenses:		$	34,601
Accrued Taxes:		$	-
Net loss:		$	(34,601	)

 

For the nine months ending October 31, 2014, the Company had Net Loss of ($287,270). This was derived as follows:

 

Sales:		$	5,500
COGS:		$	5,500
Gross Profit		$	-
Expenses:		$	287,270
Accrued Taxes:		$	-
Net loss:		$	(287,270	)

 

Dividends

 

During quarter ended October 31, 2014, the Company declared $19,924 in dividends. As of October 31, 2014, the company paid $1,405 and has accrued $18,520 in dividends.

 

12

 

Liquidity and Capital Resources

 

As of October 31, 2014 the Company had $9,347 in cash, $4,917 receivables, $3,000 in loan receivable, and $89,080 in real estate for a total of $106,344 in assets. In management’s opinion, the Company’s cash position is insufficient to maintain its operations at the current level for the next 12 months. Any expansion may cause the Company to require additional capital until such expansion began generating revenue. It is anticipated that the raise of additional funds will principally be through the sales of our securities. As of the date of this report, additional funding has not been secured and no assurance may be given that we will be able to raise additional funds. 

 

As of October 31, 2014, our total liabilities were $163,968, which consists of $42,500 in third party loans, $89,144 in loans from our shareholder, $18,519 in accrued dividend and $12,642 in a mortgage payable related to the purchase of one of the properties, and $1,163 in accounts payable and accrued expense.

 

Critical Accounting Policies

 

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the notes to our audited financial statements included in this registration statement. We have consistently applied these policies in all material respects. Below are some of the critical accounting policies:

 

Real Estate Revenue Recognition

 

The company pursues opportunities to realize revenues from two principal activities: sale of houses it renovates and rental income. It is the company’s policy that revenues and gains will be recognized in accordance with ASC Topic 360.

 

Sale of the Company’s real estate property will occur through the use of a sales contract where revenues from renovated real estate property sales will be recognized upon closing of the sale. In accordance with FASB ASC 360-20, the Company will use the accrual method and recognize revenue on the sale of its properties when the earnings process is complete and the collectability of the sales price and additional proceeds is reasonably assured, which is typically when the sale of the property closes. At the time of sale the Company will determine it the transaction will be recognized under the full accrual method, installment method, cost recovery method, deposit method or reduced profit method. Rental Income is recognized at the time the Company deposits the monies.

 

Depreciation schedule

 

The Company depreciates houses that it acquires a 50% or greater position in. The Company depreciates the house via straight-line depreciation over its useful life of 27.5 years.

 

13

 

Emerging Growth Company Status

 

We are an “emerging growth company” as defined under the Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act. We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

As an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

•

not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act (we also will not be subject to the auditor attestation requirements of Section 404(b) as long as we are a “smaller reporting company,” which includes issuers that had a public float of less than $ 75 million as of the last business day of their most recently completed second fiscal quarter);

 

•

reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

 

•

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Under this provision, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. In other words, an “emerging growth company” can delay the adoption of such accounting standards until those standards would otherwise apply to private companies until the first to occur of the date the subject company (i) is no longer an “emerging growth company” or (ii) affirmatively and irrevocably opts out of the extended transition period provided in Securities Act Section 7(a) (2) (B). The Company has elected to take advantage of this extended transition period and, as a result, our financial statements may not be comparable to the financial statements of other public companies. Accordingly, until the date that we are no longer an “emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Securities Act Section 7(a) (2) (B), upon the issuance of a new or revised accounting standard that applies to your financial statements and has a different effective date for public and private companies, clarify that we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.

 

Accounting and Audit Plan

 

In the next twelve months, we anticipate spending approximately $15,000 - $20,000 to pay for our accounting and audit requirements.

 

Off-balance sheet arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

14

 

Our Website. 

 

Our website can be found at www.southcorpcapital.com.

 

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company, as a smaller reporting company, as defined by Rule 229.10(f)(1), is not required to provide the information required by this Item.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

The reason we believe our disclosure controls and procedures are not effective is because:

 

	1.	No independent directors;
	2.	No segregation of duties;
	3.	No audit committee; and
	4.	Ineffective controls over financial reporting.

 

As of October 31, 2014, the Company has not taken any remediation actions to address these weaknesses in our controls even though they were identified in April 2014. The Company’s management expects, once it is in the financial position to do so, to hire additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $60,000 per year which would allow the Company to hire 2 new staff members.

 

This 10-Q does not include an attestation report of the Company’s independent 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 Rule 308(b) of Regulation S-K.

 

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Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

1.

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

3.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

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

 

Management assessed the effectiveness of our internal control over financial reporting as of August 30, 2013. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

 

Identified Material Weakness

 

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

 

Management identified the following material weakness during its assessment of internal controls over financial reporting as of April 30, 2014:

 

Independent Directors: The Company intends to obtain at least 2 independent directors at its 2014 annual shareholder meeting. The cost associated to the addition in minimal and not deemed material.

 

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No Segregation of Duties: Ineffective controls over financial reporting: The company intends to hire additional staff members, either as employees or consultants, prior to December 31, 2014. These additional staff members will be responsible for making sure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required and will the staff members will have segregated responsibilities with regard to these responsibilities. The costs associated with the hiring the additional staff members will increase the Company's Sales, General and Administration (SG&A) Expense. It is anticipated the cost of the new staff members will be approximately $60,000 per year.

 

No audit committee: After the election of the independent directors at the 2014 annual shareholder meeting, the Company expects that an Audit Committee will be established. The cost associated to the addition an audit committee are minimal and not deemed material.

 

Resources: As of April 30, 2014, we have no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.

 

Written Policies & Procedures: We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.

 

Management’s Remediation Initiatives

 

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

 

As of October 31, 2014, the Company has not taken any remediation actions to address these weaknesses in our controls even though they were identified during the year ending August 30, 2013. The Company’s management expects, once it is in the financial position to do so, to hire additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $60,000 per year which would allow the Company to hire 2 new staff members.

 

(b) Changes In Internal Control Over Financial Reporting

 

We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner

 

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PART II -- OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

The above statement notwithstanding, shareholders and prospective investors should be aware that certain risks exist with respect to the Company and its business, including those risk factors contained in our most recent Registration Statements on Form S-1 and Form 10, as amended. These risks include, among others: limited assets, lack of significant revenues and only losses since inception, industry risks, dependence on third party manufacturers/suppliers and the need for additional capital. The Company’s management is aware of these risks and has established the minimum controls and procedures to insure adequate risk assessment and execution to reduce loss exposure.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

 

No unregistered securities where issued during the three months ending October 31, 2014.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. Mine Safety Disclosures.

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

There was no other information during the quarter ended October 31, 2014, that was not previously disclosed in our filings during that period.

 

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ITEM 6. EXHIBITS

 

31.1		Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.2		Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1		Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
32.2		Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

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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, there unto duly authorized.

 

		SOUTHCORP CAPITAL INC.
Date: December 22, 2014	By:	/s/ Joseph Wade
		Joseph Wade
		Chief Executive and Financial Officer

 

Date: December 22, 2014	By:	/s/ Matt Billington
		Matt Billington
		Director, Chief Operating Officer

 

 

 

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