ITEM 1. DESCRIPTION OF BUSINESS
History and Organization
We were formed by the filing of Articles of Incorporation with the Secretary of State of the State of Nevada on December 20, 2010, originally as Accend Media. On or about May 22, 2012, Accend Media, and Cloud Star Corporation (“Cloud Star”), a privately-held Nevada corporation headquartered in California, entered into an Acquisition Agreement and Plan of Merger (“Merger”). Prior to the Merger, Accend Media effectuated a five-for-one forward stock split on May 7, 2012. We changed our corporate name to Cloud Star Corporation upon consummation of the Merger on May 23, 2012. On May 28, 2013, we changed our corporate name to Cloud Security Corporation (“Cloud Security” or “Company”). The Merger was accounted for as a reverse acquisition with Cloud Star being treated as the acquirer for accounting purposes. Accordingly, for all periods presented in this Annual Report on Form 10-K (“Form 10-K”), the financial statements of Cloud Star have been adopted as the historical financial statements of the Company known as a change in reporting entity. Accordingly, Cloud Star’s October 17, 2011 formation date is considered the date of “Inception” in the financial statements.
On December 8, 2014, we entered into a Stock Purchase Agreement (the “SPA”) with Goldenrise Development, Inc., a California corporation (“Goldenrise”). In connection with the SPA, we also agreed to effectuate a 1:100 reverse stock split of the Company’s issued and outstanding common stock (“Reverse Split”) which became effective on January 22, 2015. Under the SPA, we sold 12,000,000 shares of our common stock to Goldenrise for $180,000 which equated to approximately 92% of our outstanding shares. This transaction effectuated a change in control of the Company and the then officer and members of the board of directors resigned and were replaced by new management.
Business of Issuer
We are in development to be an information technology services and software company that delivers immediate, easy and secure access to computer desktops and other consumer electronic devices from remote locations.
Overview
We are an early stage security and information access technology software company that delivers immediate information with ease and secure access to computer desktops and other consumer electronic devices from remote locations.
Following the closing of the SPA with Goldenrise, the Company continues the development of its proprietary cloud security technology, MyComputerKey™, and related cloud computing security software product lines.
Our flagship product, MyComputerKey™, is a proprietary, patented technology that provides a secure multi-factor validation and authentication system for cloud-based infrastructures and protects data accessed from remote locations worldwide. We completed Phase 1 (Version 3) of the MyComputerKey™ product in 2014 and obtained a patent for our technology in 2016. Additional capital is required in order to acquire the source code developed by the third party developers retained to complete the project. Management is in negotiations with these developers to resolve and restructure the original contract. We anticipate our next phase for this product will be to complete the front-end graphic user interface design prior to release. We also intend to develop an APP version of this product for mobile devices (MyMobileKey™) and tablets (MyTabletKey™).
The key advantages of MyComputerKey™ include:
· Provides secure authentication prior to accesses of a User’s same, consistent and familiar desktop where all of their customized and personal applications and files reside;
· No need for software installation on the remote computer and customization-just plug-in MyComputerKey™; and
· Enhances compliance, and audit capabilities, of risk management and legal.
There is an encryption between the host and remote computer as well as a paring feature between the connecting devices. Our patented infrastructure is designed to ensure that the pairing of devices (i.e. host and remote computers) is verified. In addition, the product will monitor any interruptions between the devices and will immediately terminate the connection upon such interruption to prevent unauthorized information transmission.
All information is stored on basis of expiration therefore avoiding an unauthorized access or codes between the connecting computers.
MyComputerKey™ also includes our own connection software that provides the actual connection between the users’ desktop and the host computer the user is using to connect. This software is fully supportive in all Microsoft based computers with quick installation and full security and protection for the computer. We are also currently developing an APP version of this product for mobile devices and tablets and versions to be compatible with Android and Apple operating systems.
Moving forward, management continues to evaluate the Company’s intellectual property and business strategies including raising additional capital for further development of our product, MyComputerKey™, entering into third party development agreements for additional product enhancements, developing additional products, creating and implementing marketing strategies for the sale of our product and raise brand awareness, entering into partnership or distribution agreements, or even an outright sale of our intellectual property.
Intellectual Property
We plan to rely on a combination of trademark, copyright, trade secret and patent laws in the United States as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We plan also to rely on copyright laws to protect any future computer programs and our proprietary databases. We currently own all rights and patents associated with the Invention titled, “Apparatus Systems and Methods for Virtual Desktop Access and Management”, described under patent application (U.S. Serial Number 13/173220) for systems and methods for accessing and managing a computer desktop, and with the invention titled, “System and Methods for One-Time Password Generation on a Mobile Computing Device”, described under patent application (U.S. Serial Number 61/832534) for process and methods of for one-time password on mobile computing devices rel. We are currently in the process of recording a formal notice of assignment related to any inventions/patent applications with the United States Patent and Trademark Office currently held in the name of former executives of the Company.
From time to time, we may encounter disputes over rights and obligations concerning intellectual property. Also, the efforts management has taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm the business, the brand and reputation, and the ability to compete. Also, protecting our intellectual property rights could be costly and time consuming.
Employees
We currently have no active employees. We utilize independent contractors on a part-time/as needed basis to assist in our development activities, marketing, and financial and accounting support. We are also dependent upon our officers and directors for our future business development. As our operations expand, we anticipate the need to hire additional employees, consultants and professionals; however, the exact number is not quantifiable at this time.
Where You Can Find More Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). These filings are not deemed to be incorporated by reference into this Form 10-K. You may read and copy any documents filed by us at the Public Reference Room of the SEC, 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.
ITEM 1A.
ITEM 1A. RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY.
We have a limited operating history and since our inception have not generated revenues. Prospective investors should be aware of the difficulties encountered by such new enterprises, as management faces all of the risks inherent in any new business and especially with a developmental stage company. These risks include, but are not limited to, competition, the absence of an operating history, the need for additional working capital, and the possible inability to adapt to various economic changes inherent in a market economy. The likelihood of our success must be considered in light of these problems, expenses that are frequently incurred in the operation of a new business and the competitive environment in which we will be operating.
IF OUR BUSINESS PLAN IS NOT SUCCESSFUL, THERE IS SUBSTANTIAL DOUBT THAT WE MAY BE UNABLE TO CONTINUE OPERATIONS AS A GOING CONCERN AND OUR STOCKHOLDERS MAY LOSE THEIR ENTIRE INVESTMENT.
We have not generated revenues since our inception. As discussed in the Notes to the Financial Statements included in this Form 10-K, at the end of our reporting period on February 29, 2016, we have incurred cumulative net losses of $1,698,880. We currently have limited liquidity, limited access to capital and no revenue generating activities.
These factors raise substantial doubt that we will be able to continue operations as a going concern, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on the financial statements for the period from inception to February 29, 2016.
Our ability to continue as a going concern is dependent upon raising capital sufficient to meet our obligations as they become due until such time as the Company achieves revenues sufficient to meet its cost structure. There are no assurances that we will be able to raise sufficient capital or that our business plan will be successful. If we cannot continue as a going concern, our stockholders may lose their entire investment.
IT IS DIFFICULT TO EVALUATE THE LIKELIHOOD THAT WE WILL ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
We have prepared audited financial statements for the year end for February 29, 2016. Our ability to continue to operate as a going concern is fully dependent upon obtaining sufficient revenues or financing to continue our development and operational activities. The ability to achieve profitable operations is in direct correlation to our ability to generate revenues or raise sufficient financing. It is important to note that even if the appropriate financing is received, there is no guarantee that we will ever be able to operate profitably or derive any significant revenues from our operations.
WHEN GOLDENRISE BECAME OUR LARGEST SHAREHOLDER, IT GAVE THEM ABILITY TO CONTROL THE COMPANY WITHOUT OTHER SHAREHOLDERS’ APPROVAL.
Goldenrise is the largest stockholder and beneficially owns and has the right to vote approximately 92% of our outstanding common stock. As a result, it will have the ability to control substantially all matters submitted to the Company’s stockholders for approval including:
a) election of a board of directors;
b) removal of any director;
c) amendment of Articles of Incorporation or bylaws; and
d) adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving the Company.
As a result of this ownership, it has the ability to influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. In addition, the future prospect of sales of significant amounts of shares held by former CEO and director Safa Movassaghi could affect the market price of our common stock if the marketplace does not orderly adjust to the increase in shares in the market and the value of shareholder investment in the Company may decrease. Our control over the Company’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce the stock price or prevent the stockholders from realizing a premium over the stock price.
ADVERSE DEVELOPMENTS IN GENERAL BUSINESS, ECONOMIC AND POLITICAL CONDITIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND OUR RESULTS OF OPERATIONS.
Our business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond our control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our financial condition and our results of operations.
IF WE ARE UNABLE TO CREATE AND MAINTAIN SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR ENTER INTO AGREEMENTS WITH THIRD PARTIES TO PERFORM THOSE FUNCTIONS, WE WILL NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize our products, we expect to collaborate with third parties to perform these functions. We have no experience in developing, training or managing a sales force and will incur substantial additional expenses if it decides to market any of our future products directly. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. While the product has been beta tested by three companies in the business-to-business market; the mass consumer market, including direct and indirect channels has not been tested.
WE MAY NOT BE ABLE TO MANUFACTURE OUR PLANNED PRODUCTS IN SUFFICIENT QUANTITIES AT AN ACCEPTABLE COST, OR AT ALL, WHICH COULD HARM OUR FUTURE PROSPECTS.
We do not own any manufacturing facilities and intend to contract out our manufacturing needs. Accordingly, if any of our proposed products become available for widespread sale, we may not be able to arrange for the manufacture of such product in sufficient quantities at an acceptable cost, or at all, which could materially adversely affect our future prospects.
OUR PRODUCTS MAY BECOME OBSOLETE AND UNMARKETABLE IF WE ARE UNABLE TO RESPOND ADEQUATELY TO RAPIDLY CHANGING TECHNOLOGY AND CUSTOMER DEMANDS.
Our industry is characterized by rapid changes in technology and customer demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced products to emerging industry standards, and our new products may not be favorably received.
IF OUR PRODUCTS ARE NOT EFFECTIVELY PROTECTED BY VALID, ISSUED PATENTS OR IF WE ARE NOT OTHERWISE ABLE TO PROTECT OUR PROPRIETARY INFORMATION, IT COULD HARM OUR BUSINESS.
The success of our operations will depend in part on our ability to:
· obtain any necessary patent protections for our technologies both in the United States and in other countries with substantial markets;
· defend patents once obtained;
· maintain trade secrets and operate without infringing upon the patents and proprietary rights of others; and
· obtain appropriate patents or proprietary rights held by others that are necessary or useful to us in commercializing our technology, both in the United States and in other countries with substantial markets.
In the event we are not able protect our intellectual property and proprietary information, our business will be materially harmed.
WE MAY NOT HAVE ADEQUATE PROTECTION FOR OUR PROPRIETARY INFORMATION, WHICH COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION.
In addition to any patents that we may apply for in the future, we will substantially rely on trade secrets, know-how, continuing technological innovations opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, these agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of such information. Likewise, our trade secrets or know-how may become known through other means or be independently discovered by our competitors. Any of these events could prevent us from developing or commercializing our products.
THE INDUSTRY IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND COMPETITIVE PRESSURES FROM EXISTING AND NEW COMPANIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The industry in which we operate is highly competitive and influenced by the following:
· advances in technology;
· new product introductions;
· evolving industry standards;
· product improvements;
· rapidly changing customer needs;
· intellectual property invention and protection;
· marketing and distribution capabilities;
· competition from highly capitalized companies;
· ability of customers to invest in information technology; and
· price competition.
We can give no assurance that we will be able to compete effectively in this market. Many of our competitors have substantially greater capital resources, research and development resources and experience, manufacturing capabilities, regulatory expertise, sales and marketing resources, established relationships with business and consumer products companies and production facilities than us.
TO THE EXTENT WE ENTER MARKETS OUTSIDE OF THE UNITED STATES, OUR BUSINESS WILL BE SUBJECT TO POLITICAL, ECONOMIC, LEGAL AND SOCIAL RISKS IN THOSE MARKETS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
There are significant regulatory and legal barriers in markets outside the United States that we must overcome to the extent it enters or attempts to enter markets in countries other than the United States. We will be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would be subject to political, economic and social uncertainties including, among others:
· changes and limits in import and export controls;
· increases in custom duties and tariffs;
· changes in currency exchange rates;
· economic and political instability;
· changes in government regulations and laws;
· absence in some jurisdictions of effective laws to protect our intellectual property rights; and
· currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United States.
Any changes related to these and other factors could adversely affect Cloud Security’s business to the extent it enters markets outside the United States.
POSSIBLE INABILITY TO FIND SUITABLE EMPLOYEES/AGENTS.
In order to implement the aggressive business plan, management recognizes that additional staff will be required. No assurances can be given that we will be able to find suitable employees/agents that can support our needs or that these employees can be hired on favorable terms.
WE MAY, IN THE FUTURE, ISSUE ADDITIONAL COMMON SHARES, WHICH WOULD REDUCE INVESTORS' PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
The Company’s Articles of Incorporation authorize the issuance of 190,000,000 shares of common stock. The future issuance of common stock may result in substantial dilution in the percentage of common stock held by our then existing shareholders. We may value any common stock issued in the future affecting operating results. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
WE MAY ISSUE SHARES OF PREFERRED STOCK IN THE FUTURE THAT MAY ADVERSELY IMPACT YOUR RIGHTS AS HOLDERS OF COMMON STOCK.
The Company’s Articles of Incorporation authorize the issuance of up to 10,000,000 shares of preferred stock. Accordingly, the board of directors will have the authority to fix and determine the relative rights and preferences of preferred shares, as well as the authority to issue such shares, without further stockholder approval. As a result, the board of directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock. To the extent that we do issue such additional shares of preferred stock, your rights as holders of common stock could be impaired thereby, including, without limitation, dilution of your ownership interests in us. In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult, which may not be in your interest as holders of common stock.
IT IS NOT ANTICIPATED THAT THERE WILL BE AN ACTIVE PUBLIC MARKET FOR SHARES OF OUR COMMON STOCK IN THE NEAR TERM, AND YOU MAY HAVE TO HOLD YOUR SHARES OF COMMON STOCK FOR AN INDEFINITE PERIOD OF TIME. YOU MAY BE UNABLE TO RESELL A LARGE NUMBER OF YOUR SHARES OF COMMON STOCK WITHIN A SHORT TIME FRAME OR AT OR ABOVE THEIR PURCHASE PRICE.
There is not an active public for our common stock, and there can be no assurance that any market will develop or be sustained. There has been limited public trading of our common stock and there can be no assurance that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor may be unable to liquidate its investment, which will result in the loss of your investment.
LOW-PRICED STOCKS MAY AFFECT THE RESALE OF OUR SHARES.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosures relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. SEC regulations generally define a penny stock to be an equity security that has a market or exercise price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has net tangible assets of at least $100,000, if that issuer has been in continuous operation for three years.
Unless an exception is available, the regulations require delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, details of the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations and broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for securities that become subject to the penny stock rules. Since our securities are highly likely to be subject to the penny stock rules, should a public market ever develop, any market for our shares of common stock may not be liquid.
WE HAVE NO IMMEDIATE PLANS TO PAY DIVIDENDS.
We have not paid any cash dividends to date and do not expect to pay dividends for the foreseeable future. We intend to retain earnings, if any, as necessary to finance the operation and expansion of our business.
WE FACE RISKS RELATED TO COMPLIANCE WITH CORPORATE GOVERNANCE LAWS AND FINANCIAL REPORTING STANDARD.
The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the SEC and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting (“Section 404”), will materially increase the Company's legal and financial compliance costs and make some activities more time-consuming, burdensome and expensive. Any failure to comply with the requirements of the Sarbanes-Oxley Act of 2002, our ability to remediate any material weaknesses that we may identify during our compliance program, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR RESOURCES, DIVERT MANAGEMENT’S ATTENTION AND AFFECT OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED BOARD MEMBERS.
As a public company, we incur significant legal, accounting, auditing and other expenses that we would not incur as a private company, including costs associated with public company reporting requirements. We also incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by the SEC and the NYSE AMEX. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters are leased and located at: 927 Canada Ct., City of Industry, CA 91748. We do not own any real property. The Company’s telephone number is (626) 839-9998.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are not presently a party to any material pending legal proceedings, nor to the knowledge of management is any material legal proceeding threatened against us. To our knowledge, no governmental authority is contemplating any such proceedings.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “CLDS. We consider our stock to be “thinly traded” and any reported sale prices may not be a true market-based valuation of the stock. Some of the bid quotations from the OTC Bulletin Board set forth below may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
As of June 8, 2016, there were 15 registered holders of our common stock.
We have not paid any cash dividends since our inception and do not contemplate paying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained to retire debt and for the operation of the business.
Shares eligible for future sale could depress the price of our common stock, thus lowering the value of a buyer’s investment. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for shares of our common stock.
Our revenues and operating results may fluctuate significantly from quarter to quarter, which can lead to significant volatility in the price and volume of our stock. In addition, stock markets have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons unrelated or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
On March 17, 2014, the Company issued 8,125 shares of common stock valued at $48,750 in consideration of $48,750 in legal services in accounts payable under the Plan discussed below.
On July 14, 2014, the Company issued 10,000 shares of common stock valued at $34,500 in consideration of $34,500 in legal services under the Plan discussed below.
On January 22, 2015, pursuant to the Stock Purchase Agreement, entered into as of December 8, 2014 (the “SPA”), by and between the Company and Goldenrise Development, Inc., a California corporation (“Goldenrise”) the Company completed a 1:100 reverse stock split and issued 12,000,000 shares of the Company’s common stock to Goldenrise.
On February 17, 2015, the Company issued 10,000 shares of restricted common stock to a designee of our former law firm as full and final settlement of any monies owed to the law firm for services rendered.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K (THIS “FORM 10-K”), CONSTITUTE “FORWARD LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE “REFORM ACT”). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “BELIEVES”, “EXPECTS”, “MAY”, “SHOULD”, OR “ANTICIPATES”, OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF CLOUD SECURITY CORP. (“THE COMPANY”, “WE”, “US” OR “OUR”) TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K, UNLESS ANOTHER DATE IS STATED, ARE TO FEBRUARY 29, 2016.
Overview of Current Operations
We are an early stage security and information access technology software company that delivers immediate information with ease and secure access to computer desktops and other consumer electronic devices from remote locations.
Our principal business has been the software development of the MyComputerKey™; however, due to cash flow constraints, we were unable to proceed with development in fiscal 2015. We are currently evaluating the software infrastructure and interface for MyComputerKey™, Phase 1 (version 3) of MyComputerKey™ and additional cloud computing security applications.
On December 8, 2014, we entered into a stock purchase agreement (the “SPA”) with Goldenrise Development, Inc., a California corporation (“Goldenrise”) whereby we sold 12,000,000 shares of our common stock for $180,000 to Goldenrise representing approximately 92% of our outstanding shares. In connection with the SPA, we also agreed to effectuate a 1:100 reverse stock split of the Company’s issued and outstanding common stock (“Reverse Split”) which became effective on January 22, 2015. Our then directors and officers immediately preceding the close of this transaction resigned at closing. Goldenrise designated our current directors and officers. This transaction effectuated a change in control.
In connection with the SPA, we also entered into a Consulting Agreement with Safa Movassaghi, the then current Chief Executive Officer whereby, at closing of the SPA, Mr. Movassaghi agreed to remain with us as a consultant for a period of six (6) months to continue the development of our mobile software cloud security business. The Consulting Agreement with Mr. Movassaghi expired on June 8, 2015 and was not renewed.
RESULTS OF OPERATIONS
We had no revenues in the years ending February 29, 2016 (“2016”) or February 28, 2015 (“2015”).
During the 2016 and 2015 periods, we incurred general and administrative expenses of $56,169 and $218,944, respectively. The primary reasons attributable for the decrease during the 2016 period from the 2015 period was a reversal of estimates of previously accrued compensation and related taxes of $21,293 and a reduction of $75,431 in payroll related expenses resulting from the departure of our prior Chief Executive Officer. During the 2016 period, we incurred $15,364 in legal fees compared to $82,905 during the 2015 period. This reduction is primarily due to lower corporate and transactional fees.
Our net loss decreased to $56,969 for the 2016 period from $220,231 for the 2015 period. The decrease was attributable to lower and general and administration costs as described above.
Summary of any product research and development that we will perform for the term of our plan of operation.
We may continue the development of multiple versions of our MyComputerKey™ product, including an APP version for mobile phones and tablets.
Expected purchase or sale of plant and significant equipment
We do not anticipate the purchase or sale of any plant or significant equipment; as such items are not required by us at this time.
Significant changes in the number of employees
As of February 29, 2016, we have no active employees. We utilize independent contractors on a part-time/as needed basis to assist in our development activities, marketing, and financial and accounting support. We are also dependent upon our officers and directors for our future business development. As our operations expand, we anticipate the need to hire additional employees, consultants and professionals; however, the exact number is not quantifiable at this time.
LIQUIDITY AND CAPITAL RESOURCES
As of February 29, 2016, we had cash and cash equivalents of $2,680 and a working capital deficit of $27,811 as compared to cash and cash equivalents of $22 and a working capital deficit of $30,850 as of February 28, 2015.
We had total liabilities of $30,665 as of February 29, 2016 consisting of accounts payable.
We had a total stockholders’ deficit of $27,811 and an accumulated deficit of $1,698,880 as of February 29, 2016.
During 2016, we used $114,387 of cash in operating activities which was attributable primarily to our net loss of $56,969 and $57,418 in aggregate reductions of accounts payable and accrued payroll.
During 2015, we used $134,963 of cash in operating activities which was attributable primarily to our net loss of $220,231 and $49,482 reduction on accounts payable. These amounts were partially offset by $96,750 in stock-based compensation issuance for legal services and a $38,000 increase in accrued compensation.
During the 2016 period, we also received $60,008 in capital contributions from Goldenrise and $57,037 from a 2015 stock sale. During the 2015 period, we issued 12,000,000 shares of our common stock to Goldenrise for a purchase price of $180,000.
Since inception through October 27, 2014, we have received advances from, and had expenses paid on our behalf by, Leeward Ventures, a Company controlled by Walter Grieves, a former director of the Company. A convertible note was initially established which provided for interest at 1%, per annum, and a conversion feature into shares of issued common stock at a rate of $10.00 per share. The note was due on or about August 9, 2012, but the convertibility into new shares of the Company ceased on May 22, 2012 upon the close of the merger discussed above. After the merger, $125,000 along with accrued interest of $596 was cancelled through transfer of our shares by an existing shareholder at $10.00 per share or 12,560 shares, and thus no new shares were issued of the Company. During the years ended February 28, 2015 and 2014, Leeward Ventures contributed $12,000 and $136,775, respectively, to us for 13,678 and 147,500 shares, respectively at $10.00 per share under a $500,000 subscription agreement to purchase 5,000 shares from an existing shareholder. On October 27, 2014, Mr. Grieves resigned as a member of the board of directors and waived the advances owed to him.
Since inception, we have processed compensation to our Chief Executive Officer as an independent contractor under Form 1099 instead of processing it as payroll under Form W-2. We do not expect that any fees or penalties incurred as a result will cause any meaningful or significant misreporting of our financial condition and results of operations for the years ended February 29, 2015, February 28, 2016, or going forward.
Additional capital is required in order to acquire the source code developed by the third party developers retained to complete the MyComputerKey™ project. Management is in negotiations with these developers to resolve and restructure the original contract.
Since we have no liquidity and have suffered losses, we depend to a great degree on the ability to attract external financing in order to conduct our business activities and expand our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. If we are unable to raise additional capital from conventional sources, including increases in related party and non-related party loans and/or additional sales of stock, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results, including our inability to acquire the source code for Phase 1 (Version 3) of our MyComputerKey™ product. We have no commitments to provide us with financing in the future, other than described above. Our independent registered public accounting firm included an explanatory paragraph raising substantial doubt about the Company’s ability to continue as a going concern.
Notwithstanding, we anticipate generating losses and therefore may be unable to continue operations in the future. We anticipate that we will require additional capital in order to grow our business by increasing headcount and our budget for fiscal year ending 2016. We may use a combination of equity and/or debt instruments to funds our growth strategy or enter into a strategic arrangement with a third party.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
None.
Recent Pronouncements
The Company's management has evaluated all the recently issued accounting pronouncements through the filing date of these financial statements and does not believe that any of these pronouncements will have a material impact on the Company's financial position and results of operations.
Off-Balance Sheet Arrangements
None.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Cloud Security Corporation
We have audited the accompanying balance sheets of Cloud Security Corporation (the “Company”) as of February 29, 2016 and February 28, 2015, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cloud Security Corporation as of February 29, 2016 and February 28, 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company requires working capital to continue to develop, operate and market its products. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ dbbmckennon
Newport Beach, California
June 10, 2016
PART I - FINANCIAL INFORMATION
CLOUD SECURITY CORPORATION
BALANCE SHEETS
See accompanying notes to financial statements
CLOUD SECURITY CORPORATION
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements
CLOUD SECURITY CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
See accompanying notes to financial statements
CLOUD SECURITY CORPORATION
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements
CLOUD SECURITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1.Organization and Business
Cloud Security Corporation, formerly Accend Media (the “Company”), was incorporated in the State of Nevada on December 20, 2010. On May 22, 2012, the Company merged with Cloud Star Corporation (“Cloud Star”), a privately held Nevada corporation incorporated on October 17, 2011 headquartered in California (the “Merger”). Cloud Star’s then Chief Executive Officer assigned his rights and interests in technology named “The VirtualKey Desktop Solution” (the “MyComputerKey”) and additional cloud security technology products to the Company in connection with the Merger. Following the Merger, the Company conducted the business of Cloud Star and changed its name from “Accend Media” to “Cloud Star Corporation”. On May 28, 2013, the Company changed its corporate name to “Cloud Security Corporation”.
The Company’s principal business has been the software development of the MyComputerKey; however, due to cash flow constraints, we were unable to proceed with development in fiscal 2015. The Company is currently evaluating the software infrastructure and interface for MyComputerKey, Phase 1 (version 3) of MyComputerKey and additional cloud computing security applications. During 2016, the Company received a patent and is continuing to evaluate its intellectual property and business strategies including raising additional capital for further development of our product, MyComputerKey™, entering into third party development agreements for additional product enhancements, developing additional products, creating and implementing marketing strategies for the sale of our product and raise brand awareness, entering into partnership or distribution agreements, or even an outright sale of our intellectual property.
Stock Purchase Agreement
On December 8, 2014, the Company entered into a stock purchase agreement (the “SPA”) with Goldenrise Development, Inc., a California corporation (“Goldenrise”) whereby the Company sold 12,000,000 shares of its common stock for $180,000 to Goldenrise representing approximately 92% of our outstanding shares. In connection with the SPA, we also agreed to effectuate a 1:100 reverse stock split of the Company’s issued and outstanding common stock (“Reverse Split”) which became effective on January 22, 2015. The Company’s then directors and officers immediately preceding the close of this transaction resigned at closing. Goldenrise designated the current directors and officers of the Company. The transaction effectuated a change in control of the Company.
In connection with the SPA, the Company also entered into a Consulting Agreement with its then Chief Executive Officer, Safa Movassaghi, whereby, at closing of the SPA, Mr. Movassaghi was to remain with the Company as a consultant for a period of six (6) months to continue the development of the Company’s mobile software cloud security business. The Consulting Agreement with Mr. Movassaghi expired on June 8, 2015. During the year ended February 29, 2016, the Company had no active employees.
2.Summary of Significant Accounting Policies
Basis of Presentation
Stock Split
On January 22, 2015, the Company effectuated a one (1) for one hundred (100) reverse stock split of the Company's common stock. All share and per share information have been adjusted to give effect to the stock split for all periods presented, including all references throughout the financial statements and accompanying notes.
Going Concern Considerations and Management’s Plans
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. The Company has no revenues, has incurred net losses and has an accumulated deficit of $1,698,880 as of February 29, 2016. The Company currently has limited liquidity and limited access to capital. These factors raise substantial doubt about our ability to continue as a going concern. If the Company is unable to obtain adequate capital, we could be forced to cease operations.
Management anticipates the Company will be dependent, for the foreseeable future, on additional capital to fund further development of our infrastructure and to fund operations until such time we have sufficient revenues to meet our cost structure. Additional capital is required in order to acquire source code developed by consultants retained to complete the project and to ultimately launch our anticipated products in the marketplace. In light of management’s efforts, there are no assurances that the Company will be successful in obtaining sufficient capital 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 plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Risks and Uncertainties
We have a limited operating history and have not commenced planned principal operations.
Our business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond our control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our financial condition and our results of operations.
We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize our products, we expect to collaborate with third parties to perform these functions. We have no experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our future products directly. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. While the product has been beta tested by three companies in the business-to-business market; the mass consumer market, including direct and indirect channels has not been tested.
We do not own any manufacturing facilities and we intend to utilize contract manufacturers to meet manufacturing needs. Accordingly, if any of our proposed products become available for widespread sale, we may not be able to arrange for the manufacture of such product in sufficient quantities at an acceptable cost, or at all, which could materially adversely affect our future prospects.
Our industry is characterized by rapid changes in technology and customer demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced products to emerging industry standards, and our new products may not be favorably received.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimate is the determination of timing and the amount of costs to be capitalized for software development and any related impairment of such assets, estimates of fair value attributable to common stock, as well as the carrying value acquired technologies for which development has not been completed and tested.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 29, 2016 and February 28, 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, receivable deposits, accounts payable, accrued payroll and related costs, and related-party advances. Fair values for these items were assumed to approximate carrying values because of their short-term in nature or they are payable on demand. Cash of $2,680 and $22 represent the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at February 29, 2016 and February 28, 2015, respectively.
Basic Loss per Common Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of February 29, 2016 and February 28, 2015, the Company had no shares of potentially dilutive shares that have been excluded from the diluted loss per share computations as they would be antidilutive for the periods presented.
Website and Software Costs
The Company’s accounting for software development costs complies with ASC 985-20, Costs of Software to be Sold, Leased or Marketed, whereby capitalization begins when the Company has a working prototype and has been tested, thereby achieving technological feasibility. This occurs very late in the development stage of the software product. The Company has determined the software costs do not fall under ASC 350-40, Internal-Use Software, based on the guidance in ASC 985-605-55-119 through 125 which covers guidance for hosting agreements. The Company’s product will generally not be hosted and will reside on the technology platform available to the user.
As of February 29, 2016, the Company had no capitalized software costs, as all such costs were deemed research and development.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes, which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carry forwards. Tax law and rate changes are reflected in income in the period such changes are enacted. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within the provision for income taxes.
The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
Stock-Based Compensation
ASC 718, Share-Based Payment requires that compensation cost related to share-based payment transactions for employees be recognized in the financial statements. Share-based payment transactions within the scope of ASC 718 include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans.
ASC 718 requires disclosure of the fair value and other characteristics of stock options and more prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based compensation on reported net loss. The Company has reflected the expense of such stock based compensation based on the fair value at the grant date for awards consistent with the provisions of ASC 718.
In connection with ASC 718, the fair value of our share-based compensation has been determined using the quoted market prices of the Company’s common stock. For stock options, we will be utilizing the Black-Scholes pricing model. The fair value of the shares and options granted are amortized as compensation expense on a straight line basis over the requisite service period of the award, which is generally the vesting period. The fair value calculations involve significant judgments, assumptions, estimates and complexities that impact the amount of compensation expense to be recorded in current and future periods. Upon option exercise, the Company issues new shares of stock.
The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Emerging Issues Task Force (“EITF”) 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, codified into ASC 505 Equity. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement at various performance completion dates, and for unvested instruments, at each reporting date. Compensation expense, once recorded, may not be reversed.
New Accounting Pronouncements
In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will became effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company adopted ASU 2014-10 during the quarter ended August 31, 2014, thereby no longer presenting or disclosing any information required by Topic 915.
The Company reviewed all recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC and they did not or are not believed by management to have a material impact on the Company's present or future financial statements.
3.Receivable
As discussed in Note 1, the Company issued 12,000,000 shares for $180,000. In connection therewith, the monies were deposited with a company for the benefit of the creditors of Cloud Security to ensure that all outstanding obligations of the Company be satisfied. During the year ended February 28, 2015, the escrow agent paid $122,963 of liabilities on behalf of the Company. During the year ended February 29, 2016, the balance of $57,037 was paid to the Company.
4.Commitments and Contingencies
Payroll
The Company has processed compensation to its former Chief Executive Officer as an independent contractor under Form 1099 instead of processing it as payroll under Form W-2. The Company intended to start processing its payroll under Form W-2 in the first or second fiscal quarter of 2013; however, such was not processed due to lack of liquidity considerations. The Company does not expect that any fees or penalties incurred as a result will cause significant misreporting of our financial condition and results of operations.
On December 8, 2014, in connection with that certain SPA, the Company settled all accrued payroll claims with its former Chief Executive Officer in connection with the execution of a consulting agreement with the Company. As a result, the Company recorded a reduction of $21,293 to general and administrative expenses in the accompanying statement of operations for the year ended February 29, 2016.
5.Related Party Transactions
On October 27, 2014, Mr. Greeves, a former director to the Company resigned as a member of the board of directors and waived $63,000 in advances owed to him. During 2015, Safa Movassaghi had advanced $900 to the Company. In connection with the execution of a consulting agreement with the Company, Mr. Movassaghi released any advances owed to him. The Company recorded the forgiveness of these advances as contributed capital in accompanying financial statements.
In the past, Goldenrise has funded certain Company costs, and may pay for certain costs on behalf of the Company in the future. No firm commitments have been made to fund such costs. See contributed capital below.
6.Stockholders’ Deficit
Authorizations and Designations
The Company is authorized to issue 190,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of its $0.001 par value preferred stock. As of February 29, 2016 and February 28, 2015, no preferred stock has been issued.
Common Stock Transactions
On March 29, 2013, the Company entered into an agreement with Wee Kai, the former Contract Chief Technical Advisor (“Contract CTA”). Among other terms, the Company agreed to issue 5,000 shares of common stock which have vested. The certificates for these shares have not actually been issued. However, the financial statements and notes for the year ended February 29, 2016 and February 28, 2015 have been prepared to reflect issuance of the 3,750 shares vested under this Agreement.
On March 17, 2014, the Company issued 8,125 shares of common stock valued at $48,750 in consideration of $48,750 in legal services.
On July 14, 2014, the Company issued 10,000 shares of common stock valued at $34,500 in consideration of $34,500 in legal services.
On February 27, 2015, the Company issued 10,000 shares of common stock valued at $13,500 for settlement of an outstanding legal bill.
Contributed Capital
During the year ended February 29, 2016, Goldenrise contributed $60,008 to fund business operations.
2014 Stock Incentive Plan
On January 27, 2014, the Board of Directors adopted the 2014 Stock Incentive Plan (the “Plan”). The plan provides for the grant, at the discretion of the Compensation Committee of the Board of Directors, of stock awards, of common stock, restricted stock, awards of common stock, or stock options to purchase common stock of the Company, with a maximum of 150,000 shares. As of February 29, 2016, 131,875 shares are available for issuance under the Plan.
7.Income Taxes
As of February 29, 2016, the Company had net operating loss carry forwards of approximately $760,000 that may be available to reduce future years' federal taxable income for 20 years through 2036. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these net operating loss carry forwards. Net operating losses will begin to expire in 2023.
The following table presents the current income tax provision for federal and state income taxes for the years ended February 29, 2016 and February 28, 2015:
Reconciliations of the U.S. federal statutory rate to the actual tax rate for the years ended February 29, 2016 and February 28, 2015:
The Company's most significant non-deductible expenses relate to shares issued for various agreements which aggregate approximately $673,000 since inception.
The components of the Company's deferred tax assets for federal and state income taxes as of February 29, 2016 and February 28, 2015 consisted of the following:
During the years ended February 29, 2016 and February 28, 2015, the valuation allowance increased approximately $28,000 and $88,000, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of February 29, 2016. Net operating losses may be limited as a result of the merger with Cloud Security and the sale of stock to Goldenrise.
The United States federal tax return years 2012 through 2015 are still subject to tax examination by the United States Internal Revenue Service, however, the Company does not have any ongoing tax examinations. The Company is subject to examination by the California Franchise Tax Board for the years 2012 to 2015 and currently does not have any ongoing tax examinations.
8.Subsequent Events
In March 2016, Goldenrise contributed $40,000 to fund the Company’s operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
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 Form 10-K. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of February 29, 2016, our disclosure controls and procedures were effective.
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 February 29, 2016. 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 its internal controls over financial reporting were effective as of February 29, 2016.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There was no change in our internal controls over financial reporting that occurred during the period covered by this Form 10-K, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
This Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this Form 10-K.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
On April 5, 2016, the United States Patent and Trademark Office (the “USPTO”) issued the patent “Apparatus, Systems and Method For Virtual Desktop Access and Management” as U.S. Patent No. 9,306,954. The patent applicant was originally our former CEO and director, Safa Movassaghi, but the patent was assigned and recorded to the Company on February 23, 2016.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers.
The following table sets forth the names, ages and positions of our executive officers and directors. All directors serve for a term set to expire at the next annual meeting of stockholders of the Company or until their successors are elected and qualified. All officers are appointed by our board of directors and their terms of officer are, except to the extent governed by an employment contract, at the discretion of our board of directors.
Biographies of Current Directors and Executive Officers
Sam (Ning) Liu, Chairman/President/Chief Executive Officer/Secretary. Mr. Liu, who is originally from Fuzhou, Fujian, China, is a businessman, investor and philanthropist. Sam Liu is the founder and serves as the President of American International Cultural Exchange Foundation (AICEF) in Los Angeles, California. AICEF is a non-profit organization that promotes cultural interaction between China and the United States. AICEF has successfully hosted more than 100 large-scale theatrical performance and events, including Spirit of Chang An, Yulan-Love of the World, and The Terracotta Nutcracker. Mr. Liu has also served as President of a health products manufacturer with annual sales over $80 million and as a senior manager of a trading company with annual sales over $300 million, both doing business in the United States and China. In addition, from 2005 to the present, Mr. Liu has assisted the Chinese domestic enterprises in the development of their business in the United States. Mr. Liu, who has a Masters of Art Degree from Beijing University, has been active in founding, organizing and managing a number of foreign investment projects to China. He has served as a senior executive in five different public companies in the U.S. and three in Hong Kong. He has extensive experience in international trade, finance, venture capital, private placement and cultural activities.
Derek Yu, Chief Financial Officer/Director. Mr. Yu obtained his Masters of Accounting degree from the School of Business and Management of National University in San Diego, California. Since 2010, Mr. Yu has been working as the Chief Financial Officer for AICEF in Los Angeles, California. Mr. Yu’s responsibilities as CFO include financial accounting, accounts receivable, accounts payable, project budgeting, payroll and cost management. Mr. Yu is fluent in Chinese and English.
Michael Dunn, Director. Mr. Dunn is an experienced business leader and executive with extensive experience managing and operating public companies. Mr. Dunn previously served as Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors of Global Future City Holding Inc. (OTCQB: FTCY) (fka FITT Highway Products, Inc.) from May 28, 2008 until April 17, 2015. From December 1995 through 2010, Mr. Dunn was the Chief Executive Officer of Bankers Integration Group, Inc., an e-commerce company serving the automotive finance and insurance industry. In mid-1995 through 2006, Mr. Dunn started a company that generated a $60 million auto portfolio which later sold the paper to a subsidiary of General Motors. Mr. Dunn interfaced with the top CEOs of automotive companies, including Harold Poling, the former CEO and Chairman of Ford Motor Company, and Bob Eaton, the former Chairman and CEO of Daimler Chrysler. Mr. Dunn secured $22.2 million in equity financing for the Company, plus an additional $20.8 million and $1.9 million in debt and lease financing, respectively. Bankers Integration Group, Inc. filed for Chapter 11 bankruptcy protection in October of 2007, and Mr. Dunn acted as the Trustee and coordinated the sale of the assets. The case was closed on November 17, 2010. Mr. Dunn also served as Chairman and Chief Executive Officer of Mountaineer Gaming, a gaming and entertainment company, where he coordinated the design and implementation of a $10 million renovation of the racetrack, and put into service over 700 new video lottery machines. The park had over 450 employees while Mr. Dunn was Chairman and CEO of the public company. He was instrumental in raising investor capital of approximately $17 million, plus an additional $17 million in construction loan and equipment lease financing. Mr. Dunn has vast experience as being the owner, manager, and director of various businesses, both large and small. Mr. Dunn attended La Crosse State University, Wisconsin, in business and has extensive training in business management and leadership.
Jie Lai, Director. Ms. Lai, who is originally from China, received her Bachelor of Management degree from Dong Hua University and her Bachelor of Laws degree from East China University of Political Science and Law in Shanghai, China. Since relocating to the United States, Ms. Lai has obtained L.L.M Certificates in Business Law and Negotiation from University of Southern California, Gould School of Law and Harvard Law School, respectively. Ms. Lai has extensive business and legal experience in both China and the United States specializing in business negotiations, M&A, business valuation and financial modeling.
Significant Employees
None
Family Relationships
None.
Involvement in Certain Legal Proceedings.
Our directors, executive officers and control persons have not been involved in any of the following events during the past ten years and which is material to an evaluation of the ability or the integrity of our directors or executive officers:
1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
4. being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5. any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity;
6. Any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions; and
7. Any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of Form 10-K, all current executive officers, directors and persons who beneficially own more than ten percent of our common stock are current in their Section 16(a) reporting.
Board of Directors
Our board of directors currently consists of four members. All directors serve for a term set to expire at the next annual meeting of stockholders of the Company or until their successors are elected and qualified.
Audit Committee
The Company does not presently have an Audit Committee. No qualified financial expert has been hired because the Company is too small to afford such expense.
Committees and Procedures
1. The registrant has no standing audit, nominating and compensation committees of the Board of Directors, or committees performing similar functions. The Board acts itself in lieu of committees due to its small size.
2. The view of the Board of Directors is that it is appropriate for the registrant not to have such a committee because its directors participate in the consideration of director nominees and the board and the company are so small.
3. The members of the Board who acts as nominating committee are not independent, pursuant to the definition of independence of a national securities exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 78f(a).
4. The nominating committee has no policy with regard to the consideration of any director candidates recommended by security holders, but the committee will consider director candidates recommended by security holders.
5. The basis for the view of the Board of Directors that it is appropriate for the registrant not to have such a policy is that there is no need to adopt a policy for a small company.
6. The nominating committee will consider candidates recommended by security holders, and by security holders in submitting such recommendations.
7. There are no specific, minimum qualifications that the nominating committee believes must be met by a nominee recommended by security holders except to find anyone willing to serve with a clean background.
8. The nominating committee's process for identifying and evaluation of nominees for director, including nominees recommended by security holders, is to find qualified persons willing to serve with a clean backgrounds. There are no differences in the manner in which the nominating committee evaluates nominees for director based on whether the nominee is recommended by a security holder, or found by the board.
Code of Ethics
The officers, directors and employees of the Company are held to the highest standards of honest and ethical conduct when conducting the affairs of the Company. All such individuals must act ethically at all times in connection with services provided to the Company. We have not, however, adopted a formal, written corporate code of ethics that applies to our officers, directors and employees.
Limitation of Liability of Directors
Pursuant to the Nevada Revised Statute, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director's liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Nevada Anti-Takeover Law and Charter and By-law Provisions
The anti-takeover provisions of Sections 78.411 through 78.444 of the Nevada Revised Statute apply to us. Section 78.438 of the Nevada law prohibits the Company from merging with or selling more than 5% of our assets or stock to any shareholder who owns or owned more than 10% of any stock or any entity related to a 10% shareholder for two years after the date on which the shareholder acquired our shares, unless the transaction is approved by our Board of Directors. The provisions also prohibit the Company from completing any of the transactions described in the preceding sentence with a 10% shareholder who has held the shares more than two years and its related entities unless the transaction is approved by our Board of Directors or a majority of our shares, other than shares owned by that 10% shareholder or any related entity. These provisions could delay, defer or prevent a change in control.
Director Independence
Our board of directors has determined that currently Michael Dunn and Jie Lai qualify as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended February 29, 2016 and February 28, 2015 in all capacities for the accounts of our named executive officers:
_______________
Grants of Plan-Based Awards
We did not grant any plan based awards to executive officers in the year ended February 29, 2016.
Outstanding Equity Awards at Fiscal Year-End
None.
Option Exercises and Stock Vested
None.
Employment Agreements
We do not have any current employment agreements with our named executive officers.
Potential Payments upon Termination
None.
Compensation of Directors
No compensation was paid to any director (other than compensation set forth under Executive Compensation) for services rendered during the fiscal years ended February 29, 2016.
All directors receive reimbursement for reasonable out-of-pocket expenses in attending Board of Directors meetings and for promoting our business.
From time to time we may engage certain members of the Board of Directors to perform services on our behalf. In such cases, we compensate the members for their services at rates no more favorable than could be obtained from unaffiliated parties.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 29, 2016 by the following persons:
· each person who is known to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares of common stock;
· each of our directors and executive officers; and
· all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. The number of shares and the percentage beneficially owned by each individual listed above include shares that are subject to options held by that individual that are immediately exercisable or exercisable within 60 days from February 29, 2016, and the number of shares and the percentage beneficially owned by all officers and directors as a group includes shares subject to options held by all officers and directors as a group that are immediately exercisable or exercisable within 60 days from February 29, 2016.
_______________
(1) Unless otherwise stated, the address is 927 Canada Ct., City of Industry, CA 91748.
(2) Percent of Class is based on 13,043,230 shares issued and outstanding.
We are not aware of any arrangements that may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-K.
Securities Authorized for Issuance Under Equity Compensation Plans. The following provides information concerning compensation plans under which our equity securities are authorized for issuance as of February 29, 2016:
_______________
(1) 2014 Stock Incentive Plan. On January 27, 2014, our board of directors adopted the 2014 Stock Incentive Plan (“Plan”). The purpose of our Plan is to advance the best interests of the company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 150,000 shares, subject to adjustment. Our board of directors administers our plan and has full power to grant stock options and common stock, construe and interpret the plan, establish rules and regulations and perform all other acts, including the delegation of administrative responsibilities, it believes reasonable and proper. Any decision made, or action taken, by our board of directors arising out of or in connection with the interpretation and administration of the plan is final and conclusive. The board of directors, in its absolute discretion, may award common stock to employees of, consultants to, and directors of the Company, and such other persons as the board of directors or compensation committee may select, and permit holders of common stock options to exercise such options prior to full vesting therein and hold the common stock issued upon exercise of the option as common stock. Stock options may also be granted by our board of directors or compensation committee to non-employee directors of the company or other persons who are performing or who have been engaged to perform services of special importance to the management, operation or development of the Company. In the event that our outstanding common stock is changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, other reorganization, recapitalization, combination of shares, stock split-up or stock dividend, prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to stock options which may be granted under the Plan. Our board of directors may at any time, and from time to time, suspend or terminate the plan in whole or in part or amend it from time to time in such respects as our board of directors may deem appropriate and in our best interest. The maximum aggregate number of shares of common stock that may be issued and sold under all awards granted under the plan is 131,875 shares, and as of February 29, 2016, we have issued 18,125 shares under the Plan. Since March 1, 2014, we have issued 18,125 shares under the Plan.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related-Party Convertible Notes Payable; Contributed Capital and Advances
The Company received advances from, and had expenses paid on its behalf by, Leeward Ventures (“Leeward”), a company controlled by Walter Grieves, a former director of the Company. A convertible note was initially established which provided for interest at 1%, per annum, and a conversion feature into shares of issued common stock at a rate of $0.10 per share. The note was due on or about August 9, 2012, but the convertibility into new shares of the Company ceased on May 22, 2012 upon the close of the merger discussed above. After the merger, $125,000 along with accrued interest of $596 was cancelled through transfer of our shares by an existing shareholder at $10.00 per share or 1,256 shares, and thus no new shares were issued of the Company. As a result, $125,596 was recorded as contributed capital. Also see Note 5 to our financial statements for discussion of additional advances made by this related party as contributed capital.
During the years ended February 28, 2014 and 2015, Leeward contributed $147,500 and $63,000, respectively, to us for 14,750 and 0 shares, respectively at $10.00 per share under a $500,000 subscription agreement to purchase 50,000 shares from an existing shareholder. As a result, no new shares were issued by the Company. As a result, the subscriptions have been recorded as contributed capital in the accompanying financial statements.
During the year ended February 28, 2015, Leeward, a company controlled by a director, was repaid $12,000 of prior advances.
Since March 1, 2014, Leeward, a company controlled by a director, advanced $10,500 to the Company to fund operations. The advances do not incur interest and are payable upon demand.
On October 27, 2014, Leeward and the Company entered into a general release and waiver agreement whereby the amounts advanced by Leeward amounted to $63,000 shall be considered contributed capital to the Company and will fulfill Leeward’s funding commitment. In exchange, the shares held by Leeward which should have been returned to the Company were retained by Leeward. As part of the settlement, Leeward forgave the $63,000 advanced. The amount forgiven is considered contributed capital to the Company and the settlement released Leeward’s funding commitment.
Operating Lease
None.
Other Activities
The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
Promoters
None.
Director Independence
For our description of director independence, see “Director Independence” under the section entitled “Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act” above.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Appointment of Auditors
dbbmckennon audited our financial statements for the fiscal years ended February 29, 2016 and February 28, 2015.
Audit Fees
dbbmckennon billed us $11,000 in fees for the audit of our financial statements for the year ended February 29, 2016 and $14,000 in fees for the audit of our financial statements for the year ended February 28, 2015. dbbmckennon billed us $13,000 for the review of our quarterly financial statements for quarters ended May 31, 2015, August 31, 2015 and November 30, 2015. dbbmckennon billed us $5,000 for the review of our quarterly financial statements for quarters ended May 31, 2014. TAAG, our predecessor auditors billed us a total of $5,000 for the review of our quarterly financial statements for the quarters ended August 31, 2014 and November 30, 2014.
Audit Related Fees
dbbmckennon billed us $5,604 for the audit related services for the year ended February 28, 2015.
Tax Fees
We have not yet incurred tax preparation fees for the year ended February 29, 2016 which we expect will be similar to 2015. We incurred tax preparation fees of $1,500 during 2015 in connection with the preparation of our tax returns for the years ended February 28, 2015.
All Other Fees
None.
Pre-Approval Policies and Procedures
We have implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, our board of directors pre-approves all services to be provided by dbbmckennon and the estimated fees related to these services.
All audit, audit related, and tax services were pre-approved by our board of directors, which concluded that the provision of such services dbbmckennon was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. Our pre-approval policies and procedures provide for the board of directors’ pre-approval of specifically described audit, audit-related, and tax services on an annual basis, but individual engagements anticipated to exceed pre-established thresholds must be separately approved. The policies and procedures also require specific approval by our board of directors if total fees for audit-related and tax services would exceed total fees for audit services in any fiscal year. The policies and procedures authorize the audit committee to delegate to one or more of its members pre-approval authority with respect to permitted services.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) We have filed the following documents as part of this Form 10-K:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Financial Statements:
Balance Sheets
Statements of Operations
Statements of Stockholders’ Deficit
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules: None.
(3) Exhibits: See Exhibit Index below.
EXHIBIT INDEX
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Sam (Ning) Liu
President, Chief Executive Officer, Secretary and Chairman of the Board
June 10, 2016
/s/ Derek Yu
Chief Financial Officer and Director
June 10, 2016
/s/ Michael Dunn
Director
June 10, 2016
/s/ Jie Lai
Director
June 10, 2016