Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended November 30, 2015

 

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

 

For the transition period from _________________ to _________________

 

Commission File No.: 000-54440

 

CLOUD SECURITY CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada		27-4479356
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

927 Canada Ct. City of Industry, CA 91748

(Address of principal executive offices)

 

Issuer’s telephone number: (866) 250-2999

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of January 7, 2016, 13,026,980 shares of our common stock were outstanding.

 

 

 

CLOUD SECURITY CORPORATION

 

FORM 10-Q

 

NOVEMBER 30, 2015

 

TABLE OF CONTENTS

 

 

				Page
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements		3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		9
Item 4.		Control and Procedures		9
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings		11
Item 1A.		Risk Factors		11
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		15
Item 3.		Defaults Upon Senior Securities		15
Item 4.		Mine Safety Disclosures		15
Item 5.		Other Information		15
Item 6.		Exhibits		16
SIGNATURES				17

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CLOUD SECURITY CORPORATION

BALANCE SHEETS

(unaudited)

 

		November 30, 2015				February 28, 2015
ASSETS
Current assets:
Cash		$	6,326			$	22
Receivable (Note 3)			–				57,037
Deposit			175				175
TOTAL ASSETS		$	6,501			$	57,234
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable		$	48,330			$	29,434
Accrued payroll and related			1,690				58,650
Total liabilities			50,020				88,084
Commitments and contingencies			–				–
Stockholders' deficit:
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at November 30, 2015 and February 28, 2015			–				–
Common stock, $0.001 par value, 190,000,000 shares authorized; 13,043,230 issued at November 30, 2015 and February 28, 2015; 13,026,980 shares outstanding at November 30, 2015 and February 28, 2015			13,027				13,027
Additional paid-in capital			1,641,610				1,598,034
Accumulated deficit			(1,698,156	)			(1,641,911	)
Total stockholders' deficit			(43,519	)			(30,850	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	6,501			$	57,234

 

See accompanying Notes to Financial Statements

 

 

 

CLOUD SECURITY CORPORATION

STATEMENTS OF OPERATIONS

(unaudited)

 

		For the Three Months Ended November 30, 2015				For the Three Months Ended November 30, 2014				For the Nine Months Ended November 30, 2015				For the Nine Months Ended November 30, 2014
Revenue		$	–			$	–			$	–			$	–
General and administrative			12,461				57,016				56,245				173,165
Loss before provision for income taxes			(12,461	)			(57,016	)			(56,245	)			(173,165	)
Provision for income taxes			–				(1,287	)			–				(1,287	)
Net loss		$	(12,461	)			(58,303	)		$	(56,245	)		$	(174,452	)
Weighted average shares basic and diluted			13,026,980				1,016,706				13,026,980				1,011,324
Weighted average basic and diluted loss per common share		$	(0.00	)		$	(0.06	)		$	(0.00	)		$	(0.17	)

 

 

See accompanying Notes to Financial Statements

 

 

 

CLOUD SECURITY CORPORATION

STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the Nine Months Ended November 30, 2015				For the Nine Months Ended November 30, 2014
Cash flows from operating activities:
Net loss		$	(56,245	)		$	(174,452	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation			–				34,500
Changes in operating assets and liabilities:
Accounts payable			18,790				55,401
Accrued liabilities			(56,960	)			72,250
Net cash used in operating activities			(94,415	)			(12,301	)
Cash flows from financing activities:
Capital contributions from Goldenrise			43,682				–
Proceeds from the prior period sale of common stock			57,037				–
Proceeds from related party advances / loans			–				12,900
Net cash provided by financing activities			100,719				12,900
Net change in cash			6,304				599
Cash, beginning of period			22				22
Cash, end of period		$	6,326			$	621
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	–			$	–
Taxes		$	–			$	–
Non-cash investing and financing activities:
Contributed services		$	–			$	63,000

 

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.

 

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 the outstanding shares. The Company’s 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.

 

We will continue to evaluate and develop our proprietary cloud security technology, MyComputerKey, and related cloud computing security software product lines. We intend to use Goldenrise’s international contacts to assist with the development of its existing business while also seeking out acquisition targets to increase shareholder value. Specific acquisition targets are not yet known at this time.

 

2.	Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities Exchange Commission (“SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with the accounting principles generally accepted in the Unites States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with the historical financial statements and related notes thereto of the Company filed with the SEC including our Annual Report on Form 10-K for the fiscal year ended February 28, 2015. The results of operations for the three and nine months ended November 30, 2015, are not necessarily indicative of the results that may be expected for the full year.

 

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 $1,698,156 as of November 30, 2015. 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, it 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 its 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.

 

New Accounting Pronouncements

 

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 of common stock for $180,000. In connection therewith, the monies were deposited with a company for the benefit of the creditors of the Company to ensure that all outstanding obligations of the Company be satisfied. As of November 30, 2015 and February 28, 2015, the Company had a receivable from this entity in the amount of $0 and $57,037, respectively.

 

4.	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 November 30, 2015 and February 28, 2015, no preferred stock has been issued.

 

2014 Stock Incentive Plan

 

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 November 30, 2015, 131,875 shares are available for issuance under the Plan.

 

Capital Contributions

 

During the nine months ended November 30, 2015, Goldenrise contributed $43,682 to fund business operations.

 

 

 

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

 

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS “FORM 10-Q”), 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 CORPORATION (“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-Q, UNLESS ANOTHER DATE IS STATED, ARE TO NOVEMBER 30, 2015.

 

Overview of Current Operations

 

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 to approximately 92% of the outstanding shares. Our 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.

 

We will continue to evaluate and develop our proprietary cloud security technology, MyComputerKey, and related cloud computing security software product lines. We intend to use Goldenrise’s international contacts to assist with the development of its existing business while also seeking out acquisition targets to increase shareholder value. Specific acquisition targets are not yet known at this time.

 

RESULTS OF OPERATIONS

 

Three Months Ended November 30, 2015 Compared to the Three Months Ended November 30, 2014

 

We had no revenues during the three month periods ending November 30, 2015 or 2014.

 

During the 2015 and 2014 periods, we incurred general and administrative expenses of $12,461 and $57,016, respectively. The decrease during the 2015 period resulted from lower payroll expenses and legal fees. The reduction of $24,250 in payroll related expenses resulted from the departure of our prior Chief Executive Officer. Our legal fees were also lower by $18,264 during the 2015 period.

 

Our net loss decreased to $12,461 for the 2015 period from $58,303 for the 2014 period. The decrease was attributable to lower and general and administration costs as described above.

 

Nine Months Ended November 30, 2015 Compared to the Nine Months Ended November 30, 2014

 

We had no revenues during the nine month periods ending November 30, 2015 or 2014.

 

During the 2015 and 2014 periods, we incurred general and administrative expenses of $56,245 and $173,165, respectively. The primary reasons attributable for the decrease during the 2015 period was a reversal of estimates of previously accrued compensation and related taxes of $19,603 and a reduction of $94,329 in payroll related expenses resulting from the departure of our prior Chief Executive Officer.

 

Our net loss decreased to $56,245 for the 2015 period from $174,452 for the 2014 period. The decrease was attributable to lower and general and administration costs as described above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of November 30, 2015, we had cash and cash equivalents of $6,326 and a working capital deficit of $43,519 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 $50,020 as of November 30, 2015, consisting of current liabilities, consisting primarily of accounts payable.

 

We had a total stockholders’ deficit of $43,519 and an accumulated deficit of $1,698,156 as of November 30, 2015.

 

We used $94,415 of cash in operating activities for the nine months ended November 30, 2015, which was attributable primarily to our net loss of $56,245 and $38,170 in aggregate reductions of accounts payable and accrued payroll.

 

During the nine months ended November 30, 2015 cash provided by financing activities was $100,719 as we received $43,682 in capital contributions from Goldenrise and $57,037 in proceeds from the prior period sale of common stock. Cash from financing activities for the 2014 period was $12,900 and consisted of advances from a former related-party.

 

During the year ended February 28, 2015, we issued 12,000,000 shares of our common stock to Goldenrise for a purchase price of $180,000.

   

Since we have limited 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. For the year ended February 28, 2015, 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 its budget for fiscal year ending 2016. We may use a combination of equity and/or debt instruments to funds its 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.

 

Off-Balance Sheet Arrangements

 

None.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

 

ITEM 4. 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-Q. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of November 30, 2015, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

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 ITS 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 28, 2015, we have incurred cumulative net losses of $1,641,911.  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 28, 2015.

 

Our ability to continue as a going concern is dependent upon raising capital sufficient to meet its 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 its business plan will be successful. If we cannot continue as a going concern, its 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 28, 2015. Our ability to continue to operate as a going concern is fully dependent upon obtaining sufficient revenues or financing to continue its 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 its 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 its 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 ITS PRODUCTS.

 

We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize its 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 its 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 intends to contract out its manufacturing needs. Accordingly, if any of its 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 its 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 its 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 its 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 its technology, both in the United States and in other countries with substantial markets.

 

In the event we are not able protect its intellectual property and proprietary information, our business will be materially harmed.

 

WE MAY NOT HAVE ADEQUATE PROTECTION FOR OUR UNPATENTED 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 its 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 its trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, these agreements may not provide meaningful protection of its 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 its competitors. Any of these events could prevent us from developing or commercializing its 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 it will be able to compete effectively in its markets. 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 its 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

The Company received a Notice of Allowance from the U.S. Patent and Trademark Office (“USPTO”) for its Patent Application Serial No. 13/173,220 for a system facilitating virtual access and management of desktop interface from a second computing device through a portable key (the “System”). The System is comprised of a removable virtual desktop key that permits remote access and management of various computing devices that are communicatively linked to the Company’s secured cloud network.

 

 

ITEM 6. EXHIBITS

 

Item No.		Description		Method of Filing
31.1		Certification of Sam (Ning) Liu pursuant to Rule 13a-14(a)		Filed herewith.
31.2		Certification of Derek Yu pursuant to Rule 13a-14(a)		Filed herewith.
32.1		Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002		Filed herewith.
32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002		Filed herewith.
101.INS		XBRL Instance Document		Filed herewith.
101.SCH		XBRL Schema Document		Filed herewith.
101.CAL		XBRL Calculation Linkbase Document		Filed herewith.
101.DEF		XBRL Definition Linkbase Document		Filed herewith.
101.LAB		XBRL Label Linkbase Document		Filed herewith.
101.PRE		XBRL Presentation Linkbase Document		Filed herewith.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: January 8, 2016	/s/ Sam (Ning) Liu
	Name: Sam (Ning) Liu
	Title: Chief Executive Officer and President (Principal Executive Officer)

 

Date: January 8, 2016	/s/ Derek Yu
	Name: Derek Yu
	Title: Chief Financial Officer (Principal Financial and Accounting Officer)