Attached files
| file | filename |
|---|---|
| EX-32.2 - CERTIFICATION - US-China Biomedical Technology, Inc. | cloud_10q-ex3202.htm |
| EX-32.1 - CERTIFICATION - US-China Biomedical Technology, Inc. | cloud_10q-ex3201.htm |
| EX-31.2 - CERTIFICATION - US-China Biomedical Technology, Inc. | cloud_10q-ex3102.htm |
| EX-31.1 - CERTIFICATION - US-China Biomedical Technology, Inc. | cloud_10q-ex3101.htm |
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 August 31, 2017
| 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.) |
|
2 Park Plaza, Suite 400 Irvine, CA 92691 |
| (Address of principal executive offices) |
Issuer’s telephone number: (949) 769-3536
__________________________________________
(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, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer (Do not check if a smaller reporting company) | o | Smaller reporting company | x |
| Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 October 23, 2017, 13,126,980 shares of our common stock were outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends, and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, uncertainties associated with product research and development, product plans and performance, management’s assessment of market factors, and other risks identified in the Registrant’s filings with the Securities and Exchange Commission from time to time.
In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.
| 1 |
CLOUD SECURITY CORPORATION
FORM 10-Q
AUGUST 31, 2017
| 2 |
PART I – FINANCIAL INFORMATION
CLOUD SECURITY CORPORATION
August 31, 2017 (Unaudited) | February 28, 2017 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,052 | $ | 3,366 | ||||
| Prepaid expense | 7,500 | 2,500 | ||||||
| Deposit | 175 | 175 | ||||||
| TOTAL ASSETS | $ | 9,727 | $ | 6,041 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 61,319 | $ | 14,151 | ||||
| Accrued payroll – related parties | 33,000 | – | ||||||
| Accrued payroll – non-related party | 26,583 | – | ||||||
| Notes payable and accrued interest | 120,000 | – | ||||||
| Due to related party (See Note 4) | 1,850 | – | ||||||
| Total liabilities | 242,752 | 14,151 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at August 31, 2017 and February 28, 2017 | – | – | ||||||
| Common stock, $0.001 par value, 190,000,000 shares authorized; 13,026,980 and 13,026,980 issued and outstanding at August 31, 2017 and February 28, 2017, respectively | 13,027 | 13,027 | ||||||
| Common stock to be issued | 100 | – | ||||||
| Additional paid-in capital | 1,772,442 | 1,722,542 | ||||||
| Accumulated deficit | (2,018,594 | ) | (1,743,679 | ) | ||||
| Total stockholders' deficit | (233,025 | ) | (8,110 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 9,727 | $ | 6,041 | ||||
See accompanying Notes to the unaudited Financial Statements
| 3 |
CLOUD SECURITY CORPORATION
(unaudited)
| For the Three Months Ended August 31, 2017 | For the Three Months Ended August 31, 2016 | For the Six Months Ended August 31, 2017 | For the Six Months Ended August 31, 2016 | |||||||||||||
| General and administrative | $ | 229,881 | $ | 20,746 | $ | 269,915 | $ | 39,625 | ||||||||
| Interest Expense | 5,000 | – | 5,000 | – | ||||||||||||
| Loss before provision for income taxes | (234,881 | ) | (20,746 | ) | (274,915 | ) | (39,625 | ) | ||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net loss | $ | (234,881 | ) | $ | (20,746 | ) | $ | (274,915 | ) | $ | (39,625 | ) | ||||
| Weighted average shares basic and diluted | 13,061,763 | 13,026,980 | 13,044,372 | 13,026,980 | ||||||||||||
| Weighted average basic and diluted loss per common share | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.00 | ) | ||||
See accompanying Notes to the unaudited Financial Statements
| 4 |
CLOUD SECURITY CORPORATION
(unaudited)
| For the Six Months Ended August 31, 2017 | For the Six Months Ended August 31, 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (274,915 | ) | $ | (39,625 | ) | ||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (5,000 | ) | (7,500 | ) | ||||
| Accounts payable | 47,168 | (1,276 | ) | |||||
| Accrued expenses | 64,583 | – | ||||||
| Due to related party | 1,850 | – | ||||||
| Net cash used in operating activities | (166,314 | ) | (48,401 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Sale of common stock | 50,000 | – | ||||||
| Capital contributions from Goldenrise | – | 50,000 | ||||||
| Proceeds from issuance of notes payable | 115,000 | – | ||||||
| Net cash provided by financing activities | 165,000 | 50,000 | ||||||
| Net change in cash | (1,314 | ) | 1,599 | |||||
| Cash, beginning of period | 3,366 | 2,680 | ||||||
| Cash, end of period | $ | 2,052 | $ | 4,279 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | – | $ | – | ||||
| Taxes | $ | – | $ | – | ||||
See accompanying Notes to the unaudited Financial Statements
| 5 |
CLOUD SECURITY CORPORATION
NOTES TO (UNAUDITED) FINANCIAL STATEMENTS
AUGUST 31, 2017
| 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” (“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 through July 2017 has been the software development of MyComputerKey; however, due to cash flow constraints, we have been unable to proceed with development of this software. The Company is currently evaluating alternative business ventures, as discussed below. 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™. While the Company is contemplating alternative business ventures, it intends to either further consider the development of its technology for application in a new business venture, or may consider the sale of such technology.
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.
On March 31, 2017, Goldenrise and the Company entered into a Stock Purchase Agreement (the “Peng Agreement”) with Zhi Lu Peng, an individual (the “Peng Purchaser”). Pursuant to the Peng Agreement, Goldenrise agreed to sell and Peng Purchaser agreed to purchase 12,000,000 restricted common stock shares of the Company, representing approximately 92.12% of the Company’s outstanding shares of common stock. In consideration for these shares, Peng Purchaser was required pay to Goldenrise a total of $400,000 as follows: (i) $100,000 upon the execution of the Peng Agreement, and (ii) $300,000 on or before June 15, 2017. The purchase price was not fully funded, $50,000 towards the purchase price that was remitted was returned to Peng Purchaser, and the Peng Agreement terminated by its terms on June 15, 2017 and is no further force or effect.
On June 28, 2017, Goldenrise and the Company entered into a Stock Purchase Agreement (the “Dunn Agreement”) with Michael R. Dunn, the Company’s sole officer and director (the “Dunn”). Pursuant to the Dunn Agreement, Goldenrise agreed to sell and Dunn agreed to purchase 12,000,000 restricted common stock shares of the Company, representing approximately 92.12% of the Company’s outstanding shares of common stock. In consideration for the shares, the Dunn will pay to Goldenrise a total of $400,000 as follows: (i) $180,000 on or before July 15, 2017 (extended to July 28, 2017), (ii) $180,000 shall be withheld by Dunn and applied towards monies owed by Goldenrise to Dunn; and (iii) $40,000 shall be with withheld by Dunn and applied towards invoices related to the audit and legal fees associated with the reporting requirements of the Company through the date of Closing.
Concurrently, on June 28, 2017, Dunn and China Israel Biotechnology Co. Ltd. and Central Bio-MD Technology Co. Ltd., each a Chinese corporation (collectively, the “Buyers”), entered into a Stock Purchase Agreement (the “SPA”). Pursuant to the SPA, Dunn agreed to sell and Buyers agreed to purchase 6,000,000 restricted common stock shares of the Company (the “Shares”), representing approximately 46.06% of the Company’s outstanding shares of common stock. In consideration for the Shares, Buyers agreed to pay to Dunn a total of $200,000 upon execution of the SPA (the “Purchase Price”). The Closing of the SPA was extended mutually by the parties and closed on July 28, 2017. The Purchase Price was wired directly to the Company for the benefit of Dunn.
Prior to the Closing of the Dunn Agreement with Goldenrise, on July 25, 2017, the Company entered into an unsecured promissory note with Goldenrise in the amount of $90,000 (the “Note”) (See Note 5). As such, when remitting the purchase price under the Dunn Agreement, $90,000 was paid to Goldenrise as payment under the Dunn Agreement and $90,000 was retained in the Company’s account as payment from Goldenrise to the Company for the Note. The Dunn Agreement purchase price has been paid in full.
The Closing of the Dunn Agreement and SPA occurred on July 28, 2017. The Dunn Agreement and SPA resulted in a change in control of the Company.
| 6 |
In August 2017, the Company began considering a revised business plan wherein the Company’s primary focus will be the integration and development of synergistic relationships with high profiled doctors and hospitals that will act as a bridge for connecting patients and bio-technology advances in China with the Company’s network of US based doctors and hospitals. The Company intends to develop a scalable biomedical bridge for the US and China markets. The bridge would provide concierge services for moving patients from China to the US with a focus on the following demographics: (i) cancer patient referrals that are in non-critical, non-life threatening positions, (ii) pre-screening and genetic testing for family members of cancer patients, (iii) patients suffering from Diabetes, and (iv) general medical services including preventative care and physicals. The Company intends to develop working relationships with key medical innovators for possible joint ventures related to medical device manufacturing in China, including working towards obtaining CFDA approval for medical device sales to government owned hospitals. As of the date of this report, the Company has not yet implemented this business plan and is currently in the development phase.
Impact of Legal Issues Facing our Former Chief Executive Officer
On January 31, 2017, our former Chief Executive Officer, President, and Chairman of the Board of Directors, Ning Liu resigned after being detained in China. Mr. Liu’s legal troubles are unrelated to the Company, have had no effect on our operations, and we do not believe this poses any business risk.
| 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, 2017 filed with the SEC on June 14, 2017. The results of operations for the three and six months ended August 31, 2017, 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 $2,018,594 as of August 31, 2017. 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 within one year after the date of the financial statements are issued. 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.
New Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements and these were disclosed in the Company’s most recently filed Form 10-K or are not believed by us to have a material impact on the Company's present or future financial statements, based on our current operations.
| 3. | Prepaid Expenses |
During 2016 and 2017, the Company capitalized its annual fees of $10,000 for its OTC Markets listing. The amounts are being amortized over the term of the contract. During each of the three and six months ended August 31, 2017 and 2016, the Company recorded amortization expense of $2,500 and $5,000, respectively.
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| 4. | Related Party Transactions |
Due to Related Party
During the six months ended August 31, 2017, Mr. Dunn advanced funds through entities affiliated with him, net of repayments to the Company to fund certain operating expenses. The advances are due on demand and do not bear interest. The amounts due to Mr. Dunn of August 31, 2017 and February 28, 2017 were $1,850 and $0, respectively.
Related Party Transaction
On June 28, 2017, Goldenrise and the Company entered into a Stock Purchase Agreement (the “Dunn Agreement”) with Michael R. Dunn, the Company’s sole officer and director (the “Dunn”). Pursuant to the Dunn Agreement, Goldenrise agreed to sell and Dunn agreed to purchase 12,000,000 restricted common stock shares of the Company, representing approximately 92.12% of the Company’s outstanding shares of common stock. In consideration for the shares, the Dunn will pay to Goldenrise a total of $400,000 as follows: (i) $180,000 on or before July 15, 2017 (extended to July 28, 2017), (ii) $180,000 shall be withheld by Dunn and applied towards monies owed by Goldenrise to Dunn; and (iii) $40,000 shall be with withheld by Dunn and applied towards invoices related to the audit and legal fees associated with the reporting requirements of the Company through the date of Closing.
Concurrently, on June 28, 2017, Dunn and China Israel Biotechnology Co. Ltd. and Central Bio-MD Technology Co. Ltd., each a Chinese corporation (collectively, the “Buyers”), entered into a Stock Purchase Agreement (the “SPA”). Pursuant to the SPA, Dunn agreed to sell and Buyers agreed to purchase 6,000,000 restricted common stock shares of the Company (the “Shares”), representing approximately 46.06% of the Company’s outstanding shares of common stock. In consideration for the Shares, Buyers agreed to pay to Dunn a total of $200,000 upon execution of the SPA (the “Purchase Price”). The Closing of the SPA was extended mutually by the parties and closed on July 28, 2017. The Purchase Price was wired directly to the Company for the benefit of Dunn.
Prior to the Closing of the Dunn Agreement with Goldenrise, on July 25, 2017, the Company entered into an unsecured promissory note with Goldenrise in the amount of $90,000 (the “Note”) (See Note 5). As such, when remitting the purchase price under the Dunn Agreement, $90,000 was wired to Goldenrise as payment under the Dunn Agreement and $90,000 remained in the Company’s account as payment from Goldenrise to the Company for the Note. The Dunn Agreement purchase price has been paid in full.
Facility Lease
Commencing on June 1, 2017, Michael Dunn and the Company entered into a real property lease whereby the Company leased 5,824 square feet of office space on a month-to-month basis at a monthly rental amount of $16,962 plus approximately $300 per month for parking spaces. The Lease may be terminated by either party by giving the non-terminating party a written 30-day notice of Lease termination and non-renewal and specifically stating the intended termination date. The Company shall be responsible for all services and utilities including, but not limited to, telephone, water, trash disposal, gas, and electricity, used during term of this lease.
During the three and six months ended, the Company incurred $51,786 in rent expense under this lease.
Accrued Payroll
As of August 31, 2017 and February 28, 2017, the Company approved compensation to Michael Dunn in the amount of $5,000 per month beginning in June 2017. The Company accrued and unpaid payroll due to Mr. Dunn of $15,000 and $0, respectively.
As of August 31, 2017 and February 28, 2017, the Company approved compensation to Amanda Huang, our Senior Vice President in the amount of $5,000 per month beginning in June 2017. The Company accrued and unpaid payroll due to Ms. Huang of $15,000 and $0, respectively.
| 5. | Notes Payable |
During the six months ended August 31, 2017, the Company issued an unsecured note payable to an unrelated third party in the amount of $25,000. The note together with accrued interest of $5,000 is payable upon demand. The amounts due as of August 31, 2017 and February 28, 2017 were $30,000 and $0, respectively. During the three and six months ended August 31, 2017, the Company recorded interest expense of $5,000 and $5,000, respectively. There was no interest expense during the 2016 periods.
| 8 |
On July 25, 2017, the Company entered into an unsecured promissory note with Goldenrise, a former related party before change of control on June 28, 2017, in the amount of $80,000, which was increased to $90,000 by the Parties (the “Note”). The Note together with accrued interest is due and payable on August 31, 2017. The note does not bear interest. The note has not been repaid. The amounts due as of August 31, 2017 and February 28, 2017 were $90,000 and $0, respectively. The funds were to be used for transaction related costs which was to be repaid in August 2017 from anticipated future financing activities of the Company. The Company has been unable to secure this financing and the Note remains outstanding. Due to the outstanding balance not being paid, Mr. Dunn, who was the purchaser of 12,000,000 shares under the Dunn Agreement, will not provide the $40,000 in funds to be used for legal and accounting until such time as the loan is paid in full to Goldenrise.
| 6. | Capital Stock |
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 August 31, 2017 and February 28, 2017, no preferred stock has been issued.
On July 31, 2017, the Company sold 100,000 shares of restricted common stock for $50,000. The shares were recorded under common stock to be issued as of August 31, 2017 since the shares were issued in September 2017.
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 August 31, 2017, 131,875 shares are available for issuance under the Plan.
Capital Contributions
During the six months ended August 31, 2016 Goldenrise, the Company’s former majority shareholder, contributed $50,000 to fund business operations of the Company. Upon Goldenrise’s sale of all interest in the Company on July 28, 2017, Goldenrise has no interest in the Company, with the exception of the outstanding Note for $90,000, and there will be no further commitments to fund such costs in the future.
| 7. | Subsequent Event |
In September 2017, the Company issued 100,000 shares of common stock to an accredited investor. The shares were sold in July and recorded as common stock to be issued as of August 31, 2017.
| 9 |
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 AUGUST 31, 2017.
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 MyComputerKey™; however, due to cash flow constraints, we have been unable to proceed with further development. We are currently evaluating the software infrastructure and interface for MyComputerKey™, Phase 1 (version 3) of MyComputerKey™ and additional cloud computing security applications. Additionally, we have begun evaluating additional business ventures and may elect to develop and update our technology for use in the new venture.
In August 2017, the Company began considering a revised business plan wherein the Company’s primary focus will be the integration and development of synergistic relationships with high profiled doctors and hospitals that will act as a bridge for connecting patients and bio-technology advances in China with the Company’s network of US based doctors and hospitals. The Company intends to develop a scalable biomedical bridge for the US and China markets. The bridge would provide concierge services for moving patients from China to the US with a focus on the following demographics: (i) cancer patient referrals that are in non-critical, non-life threatening positions, (ii) pre-screening and genetic testing for family members of cancer patients, (iii) patients suffering from Diabetes, and (iv) general medical services including preventative care and physicals. The Company intends to develop working relationships with key medical innovators for possible joint ventures related to medical device manufacturing in China, including working towards obtaining CFDA approval for medical device sales to government owned hospitals. As of the date of this report, the Company has not yet implemented this business plan and is currently in the development phase.
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.
On March 31, 2017, Goldenrise and the Company entered into a Stock Purchase Agreement (the “Peng Agreement”) with Zhi Lu Peng, an individual (the “Peng Purchaser”). Pursuant to the Peng Agreement, Goldenrise agreed to sell and Peng Purchaser agreed to purchase 12,000,000 restricted common stock shares of the Company, representing approximately 92.12% of the Company’s outstanding shares of common stock. In consideration for these shares, Peng Purchaser was required pay to Goldenrise a total of $400,000 as follows: (i) $100,000 upon the execution of the Peng Agreement, and (ii) $300,000 on or before June 15, 2017. The purchase price was not fully funded, all funds remitted were returned to the Peng Purchaser, and the Peng Agreement terminated by its terms on June 15, 2017 and is no further force or effect.
On June 28, 2017, Goldenrise and the Company entered into a Stock Purchase Agreement (the “Dunn Agreement”) with Michael R. Dunn, the Company’s sole officer and director (the “Dunn”). Pursuant to the Dunn Agreement, Goldenrise agreed to sell and Dunn agreed to purchase 12,000,000 restricted common stock shares of the Company, representing approximately 92.12% of the Company’s outstanding shares of common stock. In consideration for the shares, the Dunn will pay to Goldenrise a total of $400,000 as follows: (i) $180,000 on or before July 15, 2017 (extended to July 28, 2017), (ii) $180,000 shall be withheld by Dunn and applied towards monies owed by Goldenrise to Dunn; and (iii) $40,000 shall be with withheld by Dunn and applied towards invoices related to the audit and legal fees associated with the reporting requirements of the Company through the date of Closing.
| 10 |
Concurrently, on June 28, 2017, Dunn and China Israel Biotechnology Co. Ltd. and Central Bio-MD Technology Co. Ltd., each a Chinese corporation (collectively, the “Buyers”), entered into a Stock Purchase Agreement (the “SPA”). Pursuant to the SPA, Dunn agreed to sell and Buyers agreed to purchase 6,000,000 restricted common stock shares of the Company (the “Shares”), representing approximately 46.06% of the Company’s outstanding shares of common stock. In consideration for the Shares, Buyers agreed to pay to Dunn a total of $200,000 upon execution of the SPA. The Closing of the SPA was extended mutually by the parties and closed on July 28, 2017.
The Closing of the Dunn Agreement and SPA occurred on July 28, 2017. The Dunn Agreement and SPA resulted in a change in control of the Company.
RESULTS OF OPERATIONS
Three Months Ended August 31, 2017 Compared to the Three Months Ended August 31, 2016
We had no revenues during the three month periods ending August 31, 2017 and 2016.
During the three month period ended August 31, 2017 and 2016, we incurred general and administrative expenses of $229,881 and $20,746, respectively. During these periods we incurred accounting, legal and other costs associates with being a publicly traded company and increased operating expenses in connection with the planned launch of the business model during this period. The change in general and administrative expenses from August 31, 2016 to August 31, 2017 periods was primarily attributable to following:
| · | $67,187 in higher legal fees incurred in connection with the review and documentation of transactions as described above; |
| · | $71,627 in higher payroll and related personnel costs; and |
| · | $81,786 in rent and related office expense. |
During the three month periods ended August 31, 2017 and 2016, our net loss was $234,881 and $20,746, respectively, total increase of $214,881. The increase was attributable to higher legal costs, as described above.
Six Months Ended August 31, 2017 Compared to the Six Months Ended August 31, 2016
We had no revenues during the six month periods ending August 31, 2017 and 2016.
During the six month period ended August 31, 2017 and 2016, we incurred general and administrative expenses of $269,915 and $37,758, respectively. During these periods we incurred accounting, legal and other costs associates with being a publicly traded company and increased operating expenses in connection with the planned launch of the business model during the second quarter of 2017. The change in general and administrative expenses from August 31, 2016 to August 31, 2017 was attributable to higher legal fees incurred in connection with the filing our Form 10-K and the review of other transactions as described above.
The change in general and administrative expenses from August 31, 2016 to August 31, 2017 periods was primarily attributable to following:
| · | $72,350 in higher legal fees incurred in connection with the review and documentation of transactions as described above; |
| · | $71,627 in higher payroll and related personnel costs; and |
| · | $82,670 in rent and related office expense. |
During the six month periods ended August 31, 2017 and 2016, our net loss was $274,915 and $37,758, respectively, total increase of $245,705. The increase was attributable to higher legal costs, as described above.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2017, we had cash and cash equivalents of $2,052 and a working capital deficit of $233,025 compared to cash and cash equivalents of $3,366 and a working capital deficit of $8,110 as of February 28, 2017.
We had total liabilities of $242,752 as of August 31, 2017, consisting primarily of accounts payable, accrued payroll, notes payable and amounts due to Michael Dunn. At February 28, 2017, our total liabilities were $14,151.
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We had a total stockholders’ deficit of $(233,025) and an accumulated deficit of $(2,018,593) as of August 31, 2017, compared to $8,110 and $(1,743,679), respectively, as of February 28, 2017.
We used $166,314 of cash in operating activities for the six months ended August 31, 2017, which was attributable primarily to our net loss of $274,914 and a prepayment $10,000 for certain public company costs, partially offset by an increase in accounts payable and accrued expenses of $111,749 and amounts due to a related party (Michael Dunn) of $1,850. In comparison, we used $48,401 of cash in operating activities for the six months ended August 31, 2016.
During the six months ended August 31, 2017 and 2016, cash provided by financing activities were $165,000 and $50,000, respectively. During the 2017 period, we sold 100,000 shares of common stock for $50,000 and received $115,000 from the issuance of two note payables including $90,000 from Goldenrise and received $25,000 of the proceeds from the issuance of a note payable. During the 2016 period we received capital contributions from Goldenrise totaling $50,000.
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 2017. 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.
Critical Accounting Policies and Estimates
None.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Item 10(f)(1) 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.
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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 August 31, 2017, 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 August 31, 2017 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.
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From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.
We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended August 31, 2017, the Company issued the shares described below in private placements pursuant to Section 4(a)(2) of the Securities Act, and Rule 506 of Regulation D, in each case on the basis that the shares were offered and sold in a non-public offering to an “accredited investor” as defined in Rule 501 of Regulation D. Additionally, at the time of the issuances, unless registered for resale, the shares were deemed to be restricted securities under the Securities Act and the certificates evidencing such shares bear a legend to that effect.
On July 31, 2017, the Company received a subscription for 100,000 restricted shares of common stock for net proceeds of $50,000. The Board of Directors accepted the subscription on September 14, 2017; as a result, 100,000 shares of common stock were issued to one U.S. accredited investor.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
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| 101.INS | XBRL Instances Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
______________
* Filed herewith
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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: October 30, 2017 | /s/ Michael R. Dunn |
| Name: Michael R. Dunn | |
|
Title: Chief Executive Officer (Principal Executive Officer), President, and Chief Financial Officer (Principal Financial and Accounting Officer) |
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