UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 2014
☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: ________________
SMACK SPORTSWEAR, INC.
(Exact name
of registrant as specified in its charter)
Nevada |
|
26-1665960 |
(State or other jurisdiction
of incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
20316 Gramercy Place
Torrance, CA 90501
(Address of principal executive offices,
Zip Code)
(310) 787-1222
(Registrant’s telephone number,
including area code)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
Yes ☒ No ☐
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 |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
number of shares of registrant’s common stock outstanding as of November 14, 2014 was 59,628,330. The registrant had no outstanding preferred stock as of that date.
FORM 10-Q
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
SEPTEMBER 30, 2014
TABLE OF CONTENTS
|
|
Page |
PART I - FINANCIAL INFORMATION |
|
|
|
Item 1. |
Financial Statements. |
3 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
13 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
17 |
Item 4. |
Controls and Procedures. |
18 |
|
|
|
Item 1. |
Legal Proceedings. |
20 |
Item 1A. |
Risk Factors. |
20 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
20 |
Item 3. |
Defaults Upon Senior Securities. |
20 |
Item 4. |
Mine Safety Disclosures |
20 |
Item 5. |
Other Information. |
20 |
Item 6. |
Exhibits. |
20 |
|
|
|
SIGNATURES |
21 |
ITEM I - FINANCIAL STATEMENTS
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
September
30, 2014 | | |
June 30,
2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 1,754 | | |
$ | 824 | |
Accounts receivable, net of allowance of $90,133 and $63,953 | |
| 15,752 | | |
| 31,078 | |
Inventories | |
| 23,579 | | |
| 25,072 | |
| |
| | | |
| | |
TOTAL CURRENT ASSETS | |
| 41,085 | | |
| 56,974 | |
| |
| | | |
| | |
Other assets | |
| 8,000 | | |
| 8,000 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 49,085 | | |
$ | 64,974 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 299,002 | | |
$ | 239,828 | |
Payroll and sales taxes payable | |
| 273,628 | | |
| 270,664 | |
Advances from officers | |
| 153,500 | | |
| 123,500 | |
Notes payable - related parties | |
| 19,508 | | |
| 23,308 | |
| |
| | | |
| | |
TOTAL CURRENT LIABILITIES | |
| 745,638 | | |
| 657,300 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Notes payable - related parties | |
| 300,000 | | |
| 280,000 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 1,045,638 | | |
| 937,300 | |
| |
| | | |
| | |
SHAREHOLDERS' DEFICIT | |
| | | |
| | |
Preferred stock, $0.001 par
value; 5,000,000 shares authorized Series A Voting Preferred stock , 2,000,000 shares authorized; No shares issued and
outstanding | |
| - | | |
| - | |
Common stock, $0.001 par value;
70,000,000 shares authorized; 56,828,330 and 55,878,330 shares issued and outstanding | |
| 56,828 | | |
| 55,878 | |
Additional paid in capital | |
| 966,076 | | |
| 948,026 | |
Accumulated deficit | |
| (2,019,457 | ) | |
| (1,876,230 | ) |
| |
| | | |
| | |
TOTAL SHAREHOLDERS' DEFICIT | |
| (996,553 | ) | |
| (872,326 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT | |
$ | 49,085 | | |
$ | 64,974 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
| |
Three Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
| | |
| |
Sales | |
$ | 54,034 | | |
$ | 60,188 | |
| |
| | | |
| | |
Cost of goods sold | |
| 27,363 | | |
| 60,774 | |
| |
| | | |
| | |
Gross profit (loss) | |
| 26,671 | | |
| (586 | ) |
| |
| | | |
| | |
Operating Expenses | |
| | | |
| | |
Selling, general and administrative expenses | |
| 162,375 | | |
| 83,560 | |
| |
| | | |
| | |
Loss from operations | |
| (135,704 | ) | |
| (84,146 | ) |
| |
| | | |
| | |
OTHER EXPENSES | |
| | | |
| | |
Interest expense | |
| 7,523 | | |
| 41,250 | |
| |
| | | |
| | |
NET LOSS | |
$ | (143,227 | ) | |
$ | (125,396 | ) |
| |
| | | |
| | |
BASIC AND DILUTED LOSS PER SHARE | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | |
BASIC AND DILUTED | |
| 56,367,460 | | |
| 40,000,000 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'
DEFICIT
(Unaudited)
| |
| | |
| | |
| | |
| | |
Additional | | |
| | |
| |
| |
Preferred stock | | |
Common stock | | |
Paid-in | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
Balance at June 30, 2014 | |
| - | | |
$ | - | | |
| 55,878,330 | | |
$ | 55,878 | | |
$ | 948,026 | | |
$ | (1,876,230 | ) | |
$ | (872,326 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| - | | |
| - | | |
| 950,000 | | |
| 950 | | |
| 18,050 | | |
| - | | |
| 19,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the three months ended September 30, 2014 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (143,227 | ) | |
| (143,227 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at September 30, 2014 | |
| - | | |
$ | - | | |
| 56,828,330 | | |
$ | 56,828 | | |
$ | 966,076 | | |
$ | (2,019,457 | ) | |
$ | (996,553 | ) |
The accompanying
notes are an integral part of these condensed consolidated financial statements
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
| |
Three Months Ended | |
| |
September
30,
2014 | | |
September
30, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss | |
$ | (143,227 | ) | |
$ | (125,396 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Debt discount and beneficial conversion feature recognized as interest expense | |
| - | | |
| 15,350 | |
Provision for bad debts | |
| 26,180 | | |
| - | |
Changes in Assets and Liabilities | |
| | | |
| | |
(Increase) Decrease in: | |
| | | |
| | |
Accounts receivable | |
| (10,854 | ) | |
| 4,723 | |
Inventories | |
| 1,493 | | |
| 10,316 | |
Due from related party | |
| - | | |
| 6,841 | |
Other assets | |
| - | | |
| (8,000 | ) |
Increase (Decrease) in: | |
| | | |
| | |
Accounts payable and accrued expenses | |
| 59,174 | | |
| 41,045 | |
Payroll and sales taxes payable | |
| 2,964 | | |
| (293 | ) |
Advances from officers | |
| 30,000 | | |
| - | |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (34,270 | ) | |
| (55,414 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from promissory notes payable – related party | |
| 20,000 | | |
| - | |
Repayment of notes payable – related party | |
| (3,800 | ) | |
| - | |
Proceeds from issuance of common stock | |
| 19,000 | | |
| - | |
Short-term loans | |
| - | | |
| 53,000 | |
| |
| | | |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 35,200 | | |
| 53,000 | |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH | |
| 930 | | |
| (2,414 | ) |
| |
| | | |
| | |
CASH BEGINNING OF PERIOD | |
| 824 | | |
| 2,414 | |
| |
| | | |
| | |
CASH END OF PERIOD | |
$ | 1,754 | | |
$ | - | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | | |
| | |
Interest paid | |
$ | - | | |
$ | - | |
Taxes paid | |
$ | - | | |
$ | - | |
The accompanying notes are an integral
part of these condensed consolidated financial statements
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2014 AND 2013
The
accompanying unaudited condensed consolidated financial statements of Smack Sportswear, Inc. and Subsidiary (the
“Company”) have been prepared in accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments
considered necessary for a fair presentation have been included. Operating results for the three months ended
September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30,
2015. For further information refer to the financial statements and footnotes thereto included in the Company's
Form 10-K for the year ended June 30, 2014.
History and Organization
SMACK
Sportswear, Inc. (“SMACK”) was originally incorporated in Nevada in October 2007 as Reshoot Production Company
(“Reshoot”), which was incorporated as a subsidiary of Reshoot & Edit, a Nevada corporation. In September 2011,
Reshoot entered into an Irrevocable Business Sales Agreement with Team Sports Superstore, Inc. (“TSS”) to buy 100 percent
of the outstanding shares of TSS (owned by one individual). On the same date, the majority owner of Reshoot entered into a Stock
Value Agreement in which he agreed to transfer 29 million of his personal shares to TSS in exchange for 100 percent of its outstanding
stock. At the time of the agreement, Reshoot had 40 million shares outstanding. The sale of the shares to TSS represented approximately
72 percent of the outstanding shares of Reshoot. In December 2011, Reshoot changed its corporate name from Reshoot Production Company
to SMACK Sportswear. In December 2012, SMACK closed the purchase of TSS (“TSS Closing”).
At
the TSS Closing, (i) TSS was merged with and into SMACK; (ii) TSS became SMACK’s wholly-owned subsidiary; (iii) all of TSS’s
shares outstanding prior to the TSS Merger were exchanged for comparable securities of SMACK; and (iv) 72 percent of SMACK’s
fully-diluted shares were owned by TSS’s former shareholder. At the TSS Closing, SMACK issued a total of 29 million shares
of its common stock to TSS’s former shareholder, in exchange for the 40 million shares of TSS’s common stock outstanding
prior to the TSS Merger. Upon the effectiveness of the TSS Merger, 11 million shares of SMACK’s common stock were maintained
by its existing stockholders.
Since
the former holder of TSS’s common stock owned, after the Merger, approximately 72% of SMACK’s shares of common stock,
and as a result of certain other factors, including that the former Chief Executive Officer (CEO) of TSS was the CEO of SMACK,
TSS is deemed to be the acquiring company for accounting purposes and the Merger was accounted for as a reverse merger and a recapitalization
in accordance with generally accepted accounting principles in the United States (“GAAP”). These consolidated
financial statements reflect the historical results of TSS prior to the merger and that of the combined company following the Merger,
and do not include the historical financial results of Reshoot prior to the completion of the merger.
Overview of Business
SMACK is a Southern California based manufacturer of
performance and lifestyle based indoor and sand volleyball apparel and accessories. The Smack brand was founded in 1994 on the
sands of Manhattan Beach, California. Throughout our history, Smack has worked with some of the leading professional beach players,
as well as a select group of elite indoor junior volleyball clubs. Our products have been featured in Volleyball Magazine, DiG
Magazine, Coaching Volleyball magazine, and featured in ABC’s hit show “The Bachelor”. Smack has also served
as the official apparel of the AVP, USA Beach Volleyball, and NVL.
Our core business is performance and lifestyle volleyball
Smack branded products. Volleyball continues to experience a sustained growth rate across all age groups, with high school participation
rates increasing for 24 consecutive years. Sand volleyball has maintained a steady growth rate across both core and casual participants,
and represents the fastest growing sport at the NCAA level, which will serve as an accelerant the growth of the sport at the youth
and high school levels.
SMACK SPORTSWEAR, INC. AND
SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
1. |
BASIS OF PRESENTATION (Continued) |
Going Concern
The accompanying condensed
consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated
financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. During
the three months ended September 30, 2014, the Company incurred a net loss of $143,227 and cash used in operating activities was
$34,270, and as of that date, is delinquent in payments of $273,628 for payroll and sales taxes. As of September 30, 2014,
the Company had a working capital deficiency of $704,553 and a shareholders’ deficit of $996,553. These factors, among
others, raise substantial doubt about the Company’s ability to continue as a going concern. Our independent auditor,
in their report on our audited financial statements for the year ended June 30, 2014, expressed substantial doubt about our ability
to continue as a going concern.
The ability of the Company
to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional
cash infusion. The Company has obtained $20,000 from its debt holders and $19,000 from the initiation of a Private Placement
Memorandum (PPM) during the three months ended September 30, 2014, and has obtained additional equity funding from the PPM in the
amount of $56,000 subsequent to September 30, 2014 (see Note 6). Management anticipates the Company will raise additional funding
from the PPM. Management believes this funding will continue from its current investors and has also will obtain funding from new
investors. Management believes the existing shareholders, the prospective new investors and future sales will provide the additional
cash needed to meet the Company’s obligations as they become due, and will allow the development of its core business operations.
No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory
to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations,
in the case of debt financing, or cause substantial dilution for our stock holders, in case of equity financing.
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES |
Basis
of Consolidation
The condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary, Team Sports Superstore. All
significant intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue upon shipment
of the Company’s products to its customers, provided that evidence of an arrangement exists, title and risk of loss have
passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. Title
to the Company’s products is transferred to the customer once the product is shipped from the Company’s warehouse.
Products are not shipped until there is a purchase agreement signed by the customer with a specified payment arrangement. The
Company’s sales are primarily customized, made to order apparel, where after a deposit is made there are no refunds after
the customer has committed to the sale through a signed contract. Therefore, the company has not recorded an allowance for returned
products.
Loss per Share Calculations
Basic earnings per share are computed by dividing
income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is
computed similar to basic earnings 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. The Company’s diluted loss per share is the same as the basic loss per share for the three and three months ended
September 30, 2014 and 2013, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company
generating a loss.
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2014 AND 2013
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued) |
Advertising Costs
The Company expenses all advertising costs
as incurred. Advertising costs included within selling, general and administrative expenses were approximately $561 and $1,461
for the three months ended September 30, 2014 and 2013, respectively.
Use of Estimates
The preparation of the condensed financial
statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement
date, and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in valuing our allowances
for doubtful accounts, inventory valuations and convertible notes, among others. Actual results could differ from these estimates.
Inventories
Inventories are stated at the lower of cost
or market. Cost is computed on a first-in, first-out basis. The Company’s inventories consist of finished goods as of September
30, 2014 and June 30, 2014.
Fair Value of Financial Instruments
The Fair Value of Financial Instruments requires
disclosure of fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that
value. As of September 30, 2014, the balances reported for cash, accounts receivable, inventory, accounts payable and accrued expenses
approximate their fair value because of their short maturities. Debt balances are stated at historical amounts less principal payments,
which approximate fair market value. The Company believes interest rates in its debt agreements are commensurate with lender risk
profiles for similar companies.
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2014 AND 2013
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued) |
Recently Issued Accounting Pronouncements
In April 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation
of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). This guidance amends the requirements for reporting
for discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals
representing a strategic shift in operations or that have a major effect on the Company’s operations and financial results
should be presented as discontinued operations. This guidance is effective for annual periods beginning after December 15, 2014.
The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial
statements.
In May 2014, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate
transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach
for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred
goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments
and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning
after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or
as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU
2014-09 and has not determined the effect of the standard on our ongoing financial reporting.
In August 2014, the FASB issued Accounting Standards
Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which
provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard
requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within
one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise
substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective
for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.
Other recent accounting pronouncements issued by
the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future
consolidated financial statements.
SMACK SPORTSWEAR, INC. AND
SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
3. |
NOTES PAYABLE AND OTHER DEBT TO RELATED PARTIES |
Notes payable and other debt to related parties consist of
the following as of September 30, 2014 and June 30, 2014:
| |
September
30,
2014 | | |
June
30,
2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Loan payable – related party (a) | |
$ | 19,508 | | |
$ | 19,508 | |
Note payable (b) | |
| - | | |
| 3,800 | |
Unsecured promissory note (c) | |
| 150,000 | | |
| 130,000 | |
Unsecured promissory note (d) | |
| 150,000 | | |
| 150,000 | |
| |
| | | |
| | |
| |
| 319,508 | | |
| 303,308 | |
| |
| | | |
| | |
Less: Current portion | |
| (19,508 | ) | |
| (23,308 | ) |
| |
| | | |
| | |
TOTAL | |
$ | 300,000 | | |
$ | 280,000 | |
| a. | As of June 30, 2014, the Company had a loan payable to family member of the
former CEO in the amount of $19,508. The loan is unsecured, non-interest bearing and due upon demand. As of September 30, 2014,
the balance of the loan remained at $19,508. |
| b. | As of June 30, 2013, the Company had advances from an individual which amounted to $14,000. In
February 2014, the advance amount, plus one time interest of $5,000, was converted into a short-term note payable. The note calls
for the Company to make five $3,800 payments beginning in March 2014 and ending in July 2014. At June 30, 2014, the outstanding
balance of the short-term note was $3,800. During the three month period ended September 30, 2014, the note was fully repaid and
no amounts were outstanding at September 30, 2014. |
| c. | In February 2014, the Company entered into an unsecured promissory note agreement
with a shareholder. The agreement allows for the Company to borrow up to $150,000 at an interest rate of 10 percent per year, of
which $80,000 was advanced at closing. A balance of $130,000 was owed under the agreement as of June 30, 2014. During the three
months ended September 30, 2014, the Company borrowed an additional $20,000 on the note. As of September 30, 2014, the outstanding
balance of the note was $150,000. The outstanding principal amount and all accrued and unpaid interest is due by December 2016. |
| d. | In February 2014, the Company entered into an unsecured promissory note
agreement with a shareholder. The agreement allows for the Company to borrow up to $150,000 at an interest rate of 10 percent per
year. The
outstanding balance under the agreement at September 30, 2014 and
June 30, 2014 was $150,000, respectively. The outstanding
principal amount and all accrued and unpaid interest is due by January 2016. |
SMACK SPORTSWEAR, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2014 AND 2013
4. |
RELATED PARTY TRANSACTIONS |
In September 2014 (the Effective Date), the Company entered
into a mutual release agreement with its former CEO under which the CEO agreed to resign his position and the Company agreed to
pay the former officer $3,000 per month commencing as of the Effective Date and ending on the close of business on February 28,
2015. The Parties agreed that the Company’s accrued and unpaid salary obligation owed to the former officer as of the Effective
Date was $130,000 and is net of any and all other offsetting obligations owed by the former officer to the Company. Fifty percent
of the accrued salary ($65,000) will be converted into the Company’s common stock (at the time such shares are available
to be issued by the Company). The conversion price shall be the lower of $0.02 or the same conversion price as the current note
holders (see Note 3). In the event that the former CEO is not able to exercise the above accrued salary conversation rights by
December 31, 2015, the amount of any such accrued salary obligation will be paid in cash in full by no later than January 15, 2016.
The remaining fifty percent of the accrued salary obligation
($65,000) will be paid by the Company through cash payment(s) to be made at the earlier of (i) the date of the Company’s
closing of the next round of financing (debt or equity) of at least $400,000, in which case the entire then-remaining unpaid portion
of $65,000 shall be repaid, or (ii) in the event that the financing does not occur by February 28, 2015 and to the extent that
the financing has not occurred subsequent to that date, through payments of $3000 per month commencing on March 1, 2015 and continuing
on a monthly basis thereafter until repayment is completed.
Per the mutual release agreement,
in addition to the salary obligation of $130,000, advances by the former officer to the Company, which total $21,000
as of the Effective Date, shall be repaid by the Company by January 31, 2015 or earlier based on the occurrence of
certain events.
As of June 30, 2014, the Company determined it owed $121,000
to the former officer under the mutual release agreement. The Company also owed $2,500 to another officer for personal loans to
the Company. The total amount owed of $123,500 is reflected as Advances from Officers on the accompanying June 30, 2014 condensed
consolidated Balance Sheet.
During the three month period
ended September 30, 2014, the Company accrued an additional $30,000 under the CEO’s mutual release agreement. As of
September 30, 2014, a total of $151,000 was owed under the agreement and is included in Advances from Officers on
the accompanying September 30, 2014 condensed consolidated Balance Sheet.
Concurrently to the mutual release agreement, the former
officer entered into an independent sales agent/team dealer agreement with the Company to sell the Company’s products.
During
the three months ended September 30, 2014, the Company sold 950,000 shares of its common stock at the price of $0.02 per share
through its private placement memorandum. Gross proceeds from the issuance were $19,000.
In October 2014, the Company
sold 2,800,000 shares of its common stock at the price of $0.02 per share through its private placement memorandum. Gross proceeds
from the issuance were $56,000.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
This Form 10-Q contains forward-looking
statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements
about our:
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business strategy; |
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financial strategy; |
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future operating results; and |
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plans, objectives, expectations and intentions contained in this report that are not historical. |
All statements, other than
statements of historical fact included in this report, regarding our strategy, intellectual property, future operations, financial
position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements.
When used in this report, the words “could,” “believe,” “anticipate,” “intend,”
“estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only
as of the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that
our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable,
we can give no assurance that these plans, intentions or expectations will be achieved. These statements may be found under
“Management's Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this report
generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result
of various factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur.
Organizational History
SMACK
Sportswear, Inc. (“SMACK”) was originally incorporated in Nevada in October 2007 as Reshoot Production Company
(“Reshoot”), which was incorporated as a subsidiary of Reshoot & Edit, a Nevada corporation. In September 2011,
Reshoot entered into an Irrevocable Business Sales Agreement with Team Sports Superstore, Inc. (“TSS”) to buy 100 percent
of the outstanding shares of TSS (owned by one individual). On the same date, the majority owner of Reshoot entered into a Stock
Value Agreement in which he agreed to transfer 29 million of his personal shares to TSS in exchange for 100 percent of its outstanding
stock. At the time of the agreement, Reshoot had 40 million shares outstanding. The sale of the shares to TSS represented approximately
72 percent of the outstanding shares of Reshoot. In December 2011, Reshoot changed its corporate name from Reshoot Production Company
to SMACK Sportswear. In December 2012, SMACK closed the purchase of TSS (“TSS Closing”).
At
the TSS Closing, (i) TSS was merged with and into SMACK; (ii) TSS became SMACK’s wholly-owned subsidiary; (iii) all of TSS’s
shares outstanding prior to the TSS Merger were exchanged for comparable securities of SMACK; and (iv) 72 percent of SMACK’s
fully-diluted shares were owned by TSS’s former shareholder. At the TSS Closing, SMACK issued a total of 29 million shares
of its common stock to TSS’s former shareholder, in exchange for the 40 million shares of TSS’s common stock outstanding
prior to the TSS Merger. Upon the effectiveness of the TSS Merger, 11 million shares of SMACK’s common stock were maintained
by its existing stockholders.
Since
the former holder of TSS’s common stock owned, after the Merger, approximately 72% of SMACK’s shares of common stock,
and as a result of certain other factors, including that the former Chief Executive Officer (CEO) of TSS was the CEO of SMACK,
TSS is deemed to be the acquiring company for accounting purposes and the Merger was accounted for as a reverse merger and a recapitalization
in accordance with generally accepted accounting principles in the United States (“GAAP”). These consolidated
financial statements reflect the historical results of TSS prior to the merger and that of the combined company following the Merger,
and do not include the historical financial results of Reshoot prior to the completion of the merger.
Overview of Business
SMACK is a Southern California based manufacturer
of performance and lifestyle based indoor and sand volleyball apparel and accessories. The Smack brand was founded in 1994 on the
sands of Manhattan Beach. Throughout our history, Smack has worked with some of the leading professional beach players, as well
as a select group of elite indoor junior volleyball clubs. Our products have been featured in Volleyball Magazine, DiG Magazine,
Coaching Volleyball magazine, and featured in ABC’s hit show “The Bachelor”. Smack has also served as the official
apparel of the AVP, USA Beach Volleyball, and NVL.
Our primary corporate objective is increasing
revenue and strengthening our financial performance, while serving the best interests of our employees and shareholders. Revenue
increases will be the result of an uncompromising discipline to drive the business through people, processes, and products.
Our core business is performance and lifestyle
volleyball Smack branded products. Volleyball continues to experience a sustained growth rate across all age groups, with high
school participation rates increasing for 24 consecutive years. Sand volleyball has maintained a steady growth rate across both
core and casual participants, and represents the fastest growing sport at the NCAA level, which will serve as an accelerant the
growth of the sport at the youth and high school levels.
Critical Accounting Policies
The Securities
and Exchange Commission ("SEC") defines "critical accounting policies" as those that require application of
management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management
to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical
within the SEC definition.
Revenue Recognition
The Company recognizes revenue
upon shipment of the Company’s products to its customers, provided that evidence of an arrangement exists, title and risk
of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. Title
to the Company’s products is transferred to the customer once the product is shipped from the Company’s warehouse.
Products are not shipped until there is a purchase agreement signed by the customer with a specified payment arrangement. The
Company’s sales are primarily customized, made to order apparel, where after a deposit is made there are no refunds after
the customer has committed to the sale through a signed contract. Therefore, the company has not recorded an allowance for returned
products.
Use of Estimates
The preparation of the condensed
financial statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at
the financial statement date, and reported amounts of revenue and expenses during the reporting period. Significant estimates are
used in valuing our allowances for doubtful accounts, inventory valuations and convertible notes, among others. Actual results
could differ from these estimates.
Fair Value of Financial Instruments
The Fair Value
of Financial Instruments requires disclosure of fair value information, whether or not recognized in the balance sheet, where it
is practicable to estimate that value. As of September 30, 2014, the balances reported for cash, accounts receivable, inventory,
accounts payable and accrued expenses approximate their fair value because of their short maturities. Debt balances are stated
at historical amounts less principal payments, which approximate fair market value. The Company believes interest rates in its
debt agreements are commensurate with lender risk profiles for similar companies.
Recently Issued Accounting Pronouncements
Management reviewed accounting pronouncements
issued during the three months ended September 30, 2014, and the following pronouncements were adopted during the period.
In April 2014, the FASB issued Accounting Standards
Update No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360).
ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued
operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on
the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is
effective for annual periods beginning after December 15, 2014.
In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will
eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle
based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value
of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes
in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting
periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either
retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the
adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.
In August 2014, the FASB issued Accounting
Standards Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.
The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going
concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions
or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities
and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.
Other accounting pronouncements did not or are not believed by management
to have a material impact on the Company's present or future consolidated financial statements.
Results of Operations
Results of Operations for the three months ended September
30, 2014 compared to the three months ended September 30, 2013.
Revenue and Cost of Goods Sold
Revenue
for the three months ended September 30, 2014 and 2013 was $54,034 and $60,188, respectively. The decrease of $6,154 was primarily
due to slightly less market penetration in both female high school and club teams during the first quarter of fiscal 2015.
Cost
of sales for the three months ended September 30, 2014 and 2013, was $27,363 and $60,774, respectively. Gross profit for the
three months ended September 30, 2014 was $26,671 and the gross loss for the three months ended September 30, 2013 was $586. The
gross profit increase of $27,257 for the three months ended September 30, 2014 was primarily due to the write down of inventory
items during the first quarter of fiscal 2014, which amounted to approximately $30,000. If not for these write downs, the gross
profit percentage in the first quarter of fiscal 2014 would have been reasonably comparable to the same period in fiscal 2015.
Selling, General and Administrative
Expenses
Selling,
general and administrative (“SG&A”) expenses for the three months ended September 30, 2014 and 2013 was $162,375
and $83,560, respectively. The increase in SG&A expenses of $78,815 was due primarily to the increase in bad debt expense of
$26,180, increase in labor costs of $52,106 and increase in professional fees of $8,250, offset by a decrease in other SG&A
expenses.
Other Income and Expenses
Interest
expense for the three months ended September 30, 2014 and 2013 was $7,523 and $41,250, respectively, a decrease of $33,727. The
interest expense incurred during the three months ended September 30, 2014 was related to the Company’s notes payable, while
the interest expense during the three months ended September 30, 2013 related to debt discount and beneficial conversion feature
recognized as interest expense during that period.
Net Loss
Our net
loss for the three months ended September 30, 2014 and 2013 was $143,227 and $125,396, respectively. The increase in net loss of
$17,831 was due to the increase in SG&A expenses of $78,815, offset by an increase in gross profit of $27,257 and a decrease
in other expenses of $33,727. As noted above, the increase in gross profit was due to the write down of inventory items during
the first quarter of fiscal 2014, which amounted to approximately $30,000.
Liquidity and Capital Resources
Liquidity is the ability of
a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable
and accounts payable and capital expenditures.
The accompanying
consolidated condensed financial statements have been prepared on a going concern basis of accounting, which contemplates continuity
of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying
consolidated condensed financial statements do not reflect any adjustments that might result if the Company is unable to continue
as a going concern. During the three months ended September 30, 2014, the Company incurred a net loss of $143,227 and cash
used in operating activities was $34,270, and as of that date, is delinquent in payments of $273,628 for payroll and sales taxes.
As of September 30, 2014, the Company had a working capital deficiency of $704,553 and a shareholders’ deficit of $996,553. These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Our
former independent auditors, in their reports on our audited financial statements for the years ended June 30, 2014 and 2013, expressed
substantial doubt about our ability to continue as a going concern.
The ability
of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other
things, additional cash infusion. The Company has obtained $20,000 from its debt holders and $19,000 from the initiation of
a Private Placement Memorandum (PPM) during the three months ended September 30, 2014, and has obtained additional equity funding
from the PPM in the amount of $56,000 subsequent to September 30, 2014 (see Note 6). Management also feels the Company will raise
additional funding from the PPM. Management believes this funding will continue from its current investors and has also will obtain
funding from new investors. Management believes the existing shareholders, the prospective new investors and future sales will
provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of
its core business operations. No assurance can be given that any future financing will be available or, if available, that it will
be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stock holders, in case of
equity financing.
At September 30, 2014 and
June 30, 2013, we had cash of $1,754 and $824, respectively and working capital deficit of $704,553 and $592,325 respectively.
The increase in working capital deficit was primarily due to the decrease in accounts receivable and the increase in accounts payable
and accrued expenses and advances from officers.
During the first quarter of
fiscal 2015, we raised an aggregate of $19,000 through our PPM and subsequent to September 30, 2014, we raised another $56,000
through the PPM (see note 5). The opinion of our former independent registered public accounting firm on our audited
financial statements as of and for the year ended June 30, 2014 contains an explanatory paragraph regarding substantial doubt about
our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from
financing transactions and future revenue.
Net cash used in operating
activities was $34,270 for the three months ended September 30, 2014, compared to $55,414 for the three months ended September
30, 2013. The decrease of $21,144 in cash used in operating activities was primarily due to the increase in accounts payable and
accrued expenses and the short-term advances from officers. The net loss for the three months ended September 30, 2014 includes
non-cash expenses for bad debt expense and the net loss for the three months ended September 30, 2014 includes non-cash expenses
for the amortization of debt discount as interest expense.
There were no cash flows used
in investing activities for the three months ended September 30, 2014 and September 30, 2013.
Net cash flows provided by
financing activities was $35,200 for the three months ended September 30, 2014, as compared to $53,000 for the three months ended
September 30, 2013. The decrease in cash provided by financing activities of $17,800 was due to the decrease in short-term
loans of $53,000, offset by the increase in proceeds received from our promissory notes payable of $20,000 and proceeds from our
PPM of $19,000. To date, we have principally financed our operations through the sale of our common stock and the issuance
of debt.
We do not have any material
commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of debt
and our offering of shares of common stock together with revenue from operations are currently sufficient to fund our operating
expenses, we will need to raise additional funds in the future so that we can expand our operations. Therefore,
our future operations are dependent on our ability to secure additional financing. Financing transactions may include
the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the
trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing
through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could
incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements
that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders
may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing
holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability
to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing
and development plans and possibly cease our operations.
We have estimated our current
average burn, and believe that we have assets to ensure that we can function without liquidation over the next twelve months,
due to our ability to raise money from our investor base and future expected revenue. Based on the aforesaid, we believe
we have the ability to continue our operations for the foreseeable future and will be able to realize assets and discharge liabilities
in the normal course of operations.
Off-Balance Sheet Arrangements
We do not have any off balance
sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results
of operations, liquidity or capital expenditures.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this
item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have adopted and maintain
disclosure controls and procedures (as such term is 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 Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Management, with the participation of the Chief
Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that our disclosure controls and procedures were not effective. Our disclosure controls and procedures were not
effective because of the "material weaknesses" described below under "Management's report on internal control over
financial reporting," which are in the process of being remediated as described below under "Management Plan to Remediate
Material Weaknesses."
Management's Report on
Internal Control over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules
promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief
Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Internal control over financial reporting includes those 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 financial statements in accordance with GAAP, and
that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors;
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. |
Because
of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute,
assurance that the objectives of the control system are met and may not prevent or detect misstatements. Internal control over
financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by
internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process,
and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Further, over time control
may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of
our internal control over financial reporting as of September 30, 2014. In making its assessment, management used the criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). Based on its assessment, management has concluded that we had certain control deficiencies described below
that constituted material weaknesses in our internal controls over financial reporting. As a result, our internal control over
financial reporting was not effective as of September 30, 2014.
A "material
weakness" is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial
statements will not be prevented or detected on a timely basis by the company's internal controls. As a result of management's
review of the investigation issues and results, and other internal reviews and evaluations that were completed after the end of
quarter related to the preparation of management's report on internal controls over financial reporting required for this quarterly
report on Form 10-Q, management concluded that we had material weaknesses in our control environment and financial reporting process
consisting of the following:
1) lack
of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors
on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls
and procedures; and
2) insufficient
written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP
and SEC disclosure requirements.
We do not believe the material weaknesses described
above caused any meaningful or significant misreporting of our financial condition and results of operations for the quarter ended
September 30, 2014. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside
directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls
and procedures, which could result in a material misstatement in our financial statements in future periods.
Management Plan to Remediate Material Weaknesses
Management is pursuing the implementation of
corrective measures to address the material weaknesses described below. In an effort to remediate the identified material weaknesses
and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We plan to appoint one or more outside directors
to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will
undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and
approving estimates and assumptions made by management when funds are available to us. And we plan to prepare written policies
and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure
requirements.
We believe the remediation measures described above will
remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed
to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting
controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may
determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances
not to complete, certain of the remediation measures described above.
Changes in Internal Controls
There have
been no changes in our internal control over financial reporting during the most recent fiscal quarter ended September 30, 2014
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
The
Company is, from time to time, involved in legal proceedings, regulatory actions, claims and litigation arising in the ordinary
course of business. These matters are not expected to have a material adverse effect upon the Company’s financial condition.
Item 1A. Risk Factors.
We are a smaller
reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information
under this item.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds.
None.
Item 3. Defaults Upon Senior
Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit
Number |
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Description of Exhibit |
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31.1 |
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Certification
by Interim Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
31.2 |
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
32.1 |
|
Certification
by Interim Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter
63 of Title 18 of the United States Code. |
32.2 |
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63
of Title 18 of the United States Code. |
SIGNATURES
In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
SMACK SPORTSWEAR, INC. AND SUBSIDIARY |
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By: |
/s/ Chris
Jenks |
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Chris Jenks |
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Interim Chief Executive Officer |
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November 14, 2014 |
21
EXHIBIT 31.1
CERTIFICATION
I, Chris Jenks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
SMACK SPORTSWEAR, INC. AND SUBSIDIARY, for the quarter ended September 30, 2014;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant is made known to us by others, particularly during the period in
which this report is being prepared;
(b) designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
(c) evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent function):
(a) all significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
November 14, 2014 |
/s/ Chris Jenks |
|
Chris Jenks |
|
Interim Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Douglas Samuelson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
SMACK SPORTSWEAR, INC. AND SUBSIDIARY, for the quarter ended September 30, 2013;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant is made known to us by others, particularly during the period in
which this report is being prepared;
(b) designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
(c) evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent function):
(a) all significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
November 14, 2014 |
/s/ Douglas Samuelson |
|
Douglas Samuelson |
|
Chief Financial Officer |
|
|
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection
with the Quarterly Report of SMACK SPORTSWEAR, INC. AND SUBSIDIARY (the “Company”) on Form 10-Q for the quarter ended
September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chris
Jenks, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities and Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
November 14, 2014 |
|
/s/ Chris Jenks |
|
|
Chris Jenks |
|
|
Interim Chief Executive Officer |
EXHIBIT
32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report of SMACK SPORTSWEAR,
INC. AND SUBSIDIARY (the “Company”) on Form 10-Q for the quarter ended September 30, 2014 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Douglas Samuelson, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations of the Company.
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
November 14, 2014 |
/s/ Douglas Samuelson |
|
Douglas Samuelson |
|
Chief Financial Officer |
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