Attached files
| file | filename |
|---|---|
| EX-32.2 - CERTIFICATION - US-China Biomedical Technology, Inc. | uschina_10q-ex3202.htm |
| EX-32.1 - CERTIFICATION - US-China Biomedical Technology, Inc. | uschina_10q-ex3201.htm |
| EX-31.2 - CERTIFICATION - US-China Biomedical Technology, Inc. | uschina_10q-ex3102.htm |
| EX-31.1 - CERTIFICATION - US-China Biomedical Technology, Inc. | uschina_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 May 31, 2018
| 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
| US-CHINA BIOMEDICAL TECHNOLOGY, INC. |
| (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 92614 |
| (Address of principal executive offices) |
Issuer’s telephone number: (949) 679-3992
CLOUD SECURITY CORPORATION
(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 July 16, 2018, 15,510,646 shares of our common stock were issues and 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.
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US-CHINA BIOMEDICAL TECHNOLOGY, INC.
FORM 10-Q
May 31, 2018
| 3 |
PART I – FINANCIAL INFORMATION
US-CHINA BIOMEDICAL TECHNOLOGY, INC.
(FORMERLY CLOUD SECURITY CORPORATION)
| May 31, 2018 | February 28, 2018 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 459,479 | $ | 56,407 | ||||
| Prepaid expenses | 17,698 | 5,000 | ||||||
| Total current assets | 477,177 | 61,407 | ||||||
| Deposit | 19,219 | 19,219 | ||||||
| TOTAL ASSETS | $ | 496,396 | $ | 80,626 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 23,474 | $ | 18,153 | ||||
| Deferred rent | 2,217 | – | ||||||
| Accrued payroll - non-related parties | – | 27,806 | ||||||
| Accrued payroll - related parties | 33,000 | 35,175 | ||||||
| Notes payable and accrued interest | – | 45,000 | ||||||
| Related party notes payable and accrued interest | – | 226,299 | ||||||
| TOTAL LIABILITIES | 58,691 | 352,433 | ||||||
| Commitments and contingencies | ||||||||
| – | – | |||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at May 31, 2018 and February 28, 2018, respectively | – | – | ||||||
| Common stock, $0.001 par value, 190,000,000 shares authorized; 15,510,646 and 13,510,646 shares issued and outstanding at May 31, 2018 and February 28, 2018, respectively | 15,511 | 13,510 | ||||||
| Additional paid-in capital | 2,922,682 | 1,940,526 | ||||||
| Accumulated deficit | (2,500,488 | ) | (2,225,843 | ) | ||||
| Total stockholders' equity (deficit) | 437,705 | (271,807 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 496,396 | $ | 80,626 | ||||
See accompanying Notes to the unaudited Financial Statements
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US-CHINA BIOMEDICAL TECHNOLOGY, INC.
(FORMERLY CLOUD SECURITY CORPORATION)
STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| May 31, 2018 | May 31, 2017 | |||||||
| General and administrative | $ | 274,645 | $ | 40,032 | ||||
| Loss before provision for income taxes | (274,645 | ) | (40,032 | ) | ||||
| Provision for income taxes | – | – | ||||||
| Net loss | $ | (274,645 | ) | $ | (40,032 | ) | ||
| Weighted average shares basic and diluted | 14,032,385 | 13,026,980 | ||||||
| Weighted average basic and diluted loss per common share | $ | (0.02 | ) | $ | (0.00 | ) | ||
See accompanying Notes to the unaudited Financial Statements
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US-CHINA BIOMEDICAL TECHNOLOGY, INC.
(FORMERLY CLOUD SECURITY CORPORATION)
STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| May 31, 2018 | May 31, 2017 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (274,645 | ) | $ | (40,032 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on settlement of debt | 184,156 | – | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (12,698 | ) | (7,500 | ) | ||||
| Accounts payable | 5,322 | 32,475 | ||||||
| Accrued liabilities | (23,867 | ) | – | |||||
| Due to related party | – | 13,100 | ||||||
| Net cash used in operating activities | (121,733 | ) | (1,957 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock | 569,805 | – | ||||||
| Payments on notes payable | (45,000 | ) | – | |||||
| Net cash provided by financing activities | 524,805 | – | ||||||
| Net change in cash | 403,072 | (1,957 | ) | |||||
| Cash, beginning of period | 56,407 | 3,366 | ||||||
| Cash, end of period | $ | 459,479 | $ | 1,409 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | – | $ | – | ||||
| Taxes | $ | 800 | $ | – | ||||
See accompanying Notes to the unaudited Financial Statements
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US-CHINA BIOMEDICAL TECHNOLOGY, INC.
(FORMERLY CLOUD SECURITY CORPORATION)
NOTES TO (UNAUDITED) FINANCIAL STATEMENTS
MAY 31, 2018
| 1. | Organization and Business |
US-China Biomedical Technology, Inc., formerly Cloud Security Corporation (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”.
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 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” or “China-Israel”), 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 4). 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.
On December 29, 2017, the Board of Directors of the Company approved the incorporation of US-China Biomedical Technology, Inc. (“US-China”) in the state of Nevada as a wholly-owned subsidiary of the Company. US-China was incorporated on January 11, 2018. Mr. Qingxi Huang is the sole officer and Director of US-China.
The Company’s principal business through July 2017 has been the software development of MyComputerKey; however, due to cash flow constraints, we were unable to proceed with development of this software. 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.
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On May 8, 2018, we completed a subscription agreement for the sale of 2,000,000 shares of our common stock to our largest shareholder for $800,000. $230,195 of the purchase price was applied to the settlement of related party notes payable and accrued interest and the remaining $569,805 was paid in cash. During the three months ended May 31, 2018, the Company recorded a loss on settlement of debt of $184,156 on the accompanying statement of operations based on the excess in fair market value of the shares issued to settle the debt.
Matters Relating to Former Officers and Directors
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.
On November 23, 2017, our former Chief Executive Officer and Director, Michael R. Dunn, passed away unexpectedly.
On January 9, 2018, Ms. Amanda Huang resigned as the Senior Vice President of the Company effective immediately. The Board approved and accepted Ms. Huang’s resignation as the Company’s Senior Vice President on January 10, 2018.
| 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, 2018 filed with the SEC on June 13, 2018. The results of operations for the three months ended May 31, 2018, 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 $2,500,488 as of May 31, 2018. 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.
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| 3. | Future Commitment |
Facility Lease
On March 7, 2018, entered into a new lease with the Landlord. The new lease has a minimum term of 35 months, expiring January 31, 2021, and requires the following minimum payments, excluding property taxes and other common area costs: months 1 through 11 - $16,016 per month totaling $176,176; months 12 through 23 - $16,715 per month totaling $200,580; and months 24 through 35 - $17,472 per month totaling $209,664. As of May 31, 2018, the future minimum payments towards this lease for the fiscal years ending February 28, 2019, 2020, and 2021 were $144,843, $201,337, and $192,192, respectively.
During the three months ended May 31, 2018 and 2017, the Company incurred $31,149 and $0 in rent expense. As of May 31, 2018, we had $2,217 of deferred rent recorded as accrued liabilities on the accompanying balance sheet.
| 4. | Related Party Transactions |
Related Party Transactions
During the three months ended May 31, 2018, China-Israel funded the Company with proceeds from sale of common stock of $569,805. As of May 8, 2018, the buyers converted $223,694 plus accrued interest of $6,501. During the three months ended May 31, 2018, the Company recorded $3,896 of related party interest expense towards the buyers’ related party notes payable. The proceeds and conversion completed the $800,000 subscription agreement. During the three months ended May 31, 2018, the Company recorded a loss on settlement of debt of $184,156 on the accompanying statement of operations based on the excess in fair market value of the shares issued to settle the debt.
Accrued Payroll
The Company approved compensation to Michael Dunn in the amount of $5,000 per month beginning in June 2017. As of May 31, 2018, the Company has recorded accrued and unpaid payroll due to Mr. Dunn of $30,000.
| 5. | Notes Payable |
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 was settled for $45,000 on January 13, 2018 and thus the Company recorded a gain on settlement of $45,000 during the year ended February 28, 2018. The note was repaid on April 2, 2018.
| 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 May 31, 2018, no preferred stock has been issued.
On May 8, 2018, we completed a subscription agreement for the sale of 2,000,000 shares of our common stock to our largest shareholder for $800,000. $230,195 of the purchase price was applied to the settlement of related party notes payable and accrued interest and the remaining $569,805 was paid in cash. During the three months ended May 31, 2018, the Company recorded a loss on settlement of debt of $184,156 on the accompanying statement of operations based on the excess in fair market value of the shares issued to settle the debt.
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. The Plan, as originally adopted authorized 15,000,000 shares, however, the authorized shares under the Plan was reversed 100 for 1 in accordance with the Reverse Split of the Company which became effective on January 22, 2015. As of May 31, 2018, 131,875 shares are available for issuance under the Plan.
| 7. | Subsequent Events |
There have been no material subsequent events through the date of this filing.
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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 US-CHINA BIOMEDICAL TECHNOLOGY, INC. (“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 MAY 31, 2018.
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.
In 2017, we determined it is in the best interest to shift the corporation’s primary business focus and put all cloud computing software development on hold. As such, we have sought out and have begun implementing a newly revised business plan which will shift the Company’s primary focus to medical tourism and 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 Company 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 |
| (vi) | 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 begun identifying qualified physicians and additions to the company’s management team to begin initiation of operations in the US. The business plan and is currently in the development phase.
RESULTS OF OPERATIONS
Three Months Ended May 31, 2018 Compared to the Three Months Ended May 31, 2017
During the three months ended May 31, 2018 and 2017, we incurred general and administrative expenses of $274,645 and $40,032, respectively. In the 2018 period general and administrative expense included approximately $184,000 of loss on settlement of debt, $10,000 of accounting fees, $19,000 of legal fees, $10,000 of payroll expenses, $6,000 of investor relations, $31,000 of rent expense, $7,000 of telephone expense, $2,000 of transfer agent fees, and $3,000 of travel expense. During the 2017 period, we incurred approximately $15,000 of accounting fees, $17,000 of legal fees, $3,000 of investor relations, and $3,000 of travel expenses.
Our net loss increased to $274,645 for the 2018 period from $40,032 for the 2017 period. The increase was attributable to higher general and administration costs as described above and the loss on settlement of debt. During the three months ended May 31, 2018, the Company recorded a loss on settlement of debt of $184,156 on the accompanying statement of operations based on the excess in fair market value of the shares issued to settle the China-Israel debt.
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During the 2018 and 2017 period, we did not incur costs associated with research and development activities.
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.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 2018, we had cash and cash equivalents of $459,479 and working capital of $418,486 as compared to cash and cash equivalents of $56,407 and a working capital deficit of $291,026 as of February 28, 2018.
We had total liabilities of $58,691 as of May 31, 2018 consisting of $23,474 of accounts payable, $2,217 of accrued liabilities, and $33,000 of accrued payroll – related parties as compared to $352,433 consisting of $18,153 of accounts payable, $27,806 of accrued payroll, $35,175 of accrued payroll – related parties, notes payable and accrued interest of $45,000, and related party notes payable and accrued interest of $226,299 as of February 28, 2018.
We had a total stockholders’ equity of $437,705 and an accumulated deficit of $2,500,488 as of May 31, 2018.
During the three months ended May 31, 2018, we used $121,733 of cash in operating activities which was attributable primarily to our net loss of $274,645, offset by the loss on settlement of debt of $184,156, plus the net change in operating assets and liabilities of $31,244. During the 2017 period, we used $1,957 of cash in operating activities which was attributable primarily to our net loss of $40,032, offset by the net change in operating assets and liabilities of $38,075.
During the three months ended May 31, 2018 and 2017, net cash provided by financing activities were $524,805 and $0, respectively. On January 13, 2018, the Company and Goldenrise entered into a Debt Settlement Agreement whereby the Company paid an aggregate $45,000 in exchange for the extinguishment of all $90,000 in debt held by Goldenrise. During 2018, we had $569,805 of proceeds from sale of common stock. The proceeds of common stock of $569,805 in addition to the conversion of related party notes payable and accrued interest of $230,195 completed the sale of $800,000 in common stock under Regulation S to one of our majority shareholders in exchange for 2,000,000 shares of restricted stock.
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. 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 2019. 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.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, there is substantial doubt that we will be able to continue as a going concern.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
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Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
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
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of May 31, 2018.
Changes in Internal Control Over Financial Reporting
On November 19, 2017, Mr. Michael R. Dunn, the Company’s Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer, and director, died unexpectedly. As a result, the Company’s Chairman of the Board of Directors, Mr. Qingxi (“Sunny”) Huang, was appointed as the Company’s Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer. This change may have affected our internal control over financial reporting during the quarter ended May 31, 2018 and subsequent periods. Our Chief Executive Officer will evaluate our controls and procedures quarterly to determine whether or not our controls and procedures have become effective again.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
Limitations on Effectiveness of Disclosure Controls and Internal Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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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 May 31, 2018, the Company issued the shares described below in private placements pursuant to Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D and Regulation S, 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 March 15, 2018, the Company entered into a subscription agreement with China-Israel Biological Technology, Co. Ltd. (“CIB”), a Chinese company associated with Mr. Qingxi Huang, President and Chief Executive Officer of the Company, pursuant to the Subscription Agreement for aggregate proceeds of $800,000 (the “Purchase Price”). The Purchase Price was paid as follows: (i) $569,805USD paid at closing, and (ii) $230,195 was applied toward the Purchase Price pursuant to a Debt Settlement Agreement entered into by the Company. The Purchase Price was paid on May 8, 2018. The shares were issued on May 25, 2018.
Exemption From Registration. The shares of Common Stock referenced herein were issued in reliance upon one of the following exemptions:
(a) The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, ("Securities Act"), based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an "Investor") confirmed to the Company that it or he is an "accredited investor," as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were "restricted securities" for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
(b) The shares of common stock referenced herein were issued pursuant to and in accordance with Rule 506 of Regulation D and Section 4(2) of the Securities Act. We made this determination in part based on the representations of the Investor(s), which included, in pertinent part, that such Investor(s) was an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investor(s) that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Our determination is made based further upon our action of (a) making written disclosure to each Investor prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of the Company of any general solicitation or advertising for securities herein issued in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act.
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(c) The shares of Common Stock referenced herein were issued pursuant to and in accordance with Rule 903 of Regulation S of the Act. We completed the offering of the shares pursuant to Rule 903 of Regulation S of the Act on the basis that the sale of the shares was completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the shares. Each investor represented to us that the investor was not a "U.S. person", as defined in Regulation S, and was not acquiring the shares for the account or benefit of a U.S. person. The agreement executed between us and each investor included statements that the securities had not been registered pursuant to the Act and that the securities may not be offered or sold in the United States unless the securities are registered under the Act or pursuant to an exemption from the Act. Each investor agreed by execution of the agreement for the shares: (i) to resell the securities purchased only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; (ii) that we are required to refuse to register any sale of the securities purchased unless the transfer is in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; and (iii) not to engage in hedging transactions with regards to the securities purchased unless in compliance with the Act. All certificates representing the shares were or upon issuance will be endorsed with a restrictive legend confirming that the securities had been issued pursuant to Regulation S of the Act and could not be resold without registration under the Act or an applicable exemption from the registration requirements of the Act.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
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| Exhibit No. | Description | |
| 3.1 | Articles of Incorporation of Accend Media. (now known as Cloud Security Corp), incorporated by reference to our Registration Statement on Form S-1 filed on April 29, 2011 | |
| 3.2 | Bylaws, incorporated by reference to our Registration Statement on Form S-1 filed on April 29, 2011 | |
| 3.3 | Articles of Amendment to Articles of Incorporation, incorporated by reference to our Current Report on Form 8-K dated May 22, 2012. | |
| 3.4 | Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated May 22, 2012. | |
| 3.5 | Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated May 28, 2013. | |
| 3.5 | Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated May 28, 2013. | |
| 3.6 | Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated February 9, 2018 | |
| 10.1 | 2014 Stock Incentive Plan, incorporated by reference to our Registration Statement on Form S-8 filed on February 20, 2014. | |
| 10.2 | Stock Purchase Agreement, dated December 8, 2014 between Cloud Security Corp. and Goldenrise Development, Inc., incorporated by reference to our Current Report on Form 8-K dated December 12, 2014. | |
| 10.3 | Stock Purchase Agreement, dated June 28, 2017 between Cloud Security Corp., Goldenrise Development, Inc. and Michael R. Dunn, incorporated by reference to our Current Report on Form 8-K dated June 29, 2017. | |
| 10.4 | Stock Purchase Agreement dated June 28, 2017, by and between Mr. Michael R. Dunn and China Israel Biotechnology Co. Ltd. and Central Bio-MD Technology Co. Ltd., incorporated by reference to our Current Report on Form 8-K dated August 1, 2017 | |
| 10.5 | Subscription Agreement by and between the Company and CIB, incorporated by reference to our Current Report on Form 8-K dated May 24, 2018 | |
| 10.6 | Debt Settlement Agreement between the Company and CIB, incorporated by reference to our Current Report on Form 8-K dated May 24, 2018 | |
| 31.1 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer * | |
| 31.2 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer * | |
| 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 * | |
| 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 * |
| 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: July 16, 2018 | /s/ Qingxi Huang |
| Name: Qingxi Huang | |
|
Title: Chief Executive Officer (Principal Executive Officer), President, and Chief Financial Officer (Principal Financial and Accounting Officer) |
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