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, 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 July 14, 2017, 13,026,980 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.

 

 

 

 

 

 

 

 

 

     

 

 

CLOUD SECURITY CORPORATION

 

FORM 10-Q

 

May 31, 2017

 

TABLE OF CONTENTS

 

      Page
PART I – FINANCIAL INFORMATION  
       
Item 1.   Financial Statements 4
    Balance Sheets (unaudited) as of May 31, 2017 and February 28, 2017 4
    Statements of Operations (unaudited) for the Three Months Ended May 31, 2017 and 2016 5
    Statements of Cash Flows (unaudited) for the Three Months Ended May 31, 2017 and 2016 6
    Notes to (unaudited) Financial Statements 7
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 12
Item 4.   Control and Procedures 12
       
PART II – OTHER INFORMATION  
       
Item 1.   Legal Proceedings 13
Item 1A.   Risk Factors 13
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3.   Defaults Upon Senior Securities 13
Item 4.   Mine Safety Disclosures 13
Item 5.   Other Information 13
Item 6.   Exhibits 14
       
SIGNATURES     15
       
CERTIFICATIONS      

 

 

 

 

 

 

 

 

 

 

  i  

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CLOUD SECURITY CORPORATION

BALANCE SHEETS

(unaudited)

 

   

May 31,

2017

    February 28,
2017 		 
ASSETS                
Current assets:                
Cash   $ 1,409     $ 3,366  
Prepaid expense     10,000       2,500  
Deposit     175       175  
TOTAL ASSETS   $ 11,584     $ 6,041  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable   $ 46,626     $ 14,151  
Due to related party (See Notes 4 & 6)     13,100       –  
Total liabilities     59,726       14,151  
                 
Commitments and contingencies     –       –  
                 
Stockholders' deficit:                
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at May 31, 2017 and February 28, 2017     –       –  
Common stock, $0.001 par value, 190,000,000 shares authorized; 13,026,980 issued and outstanding at May 31, 2017 and February 28, 2017     13,027       13,027  
Additional paid-in capital     1,722,542       1,722,542  
Accumulated deficit     (1,783,711 )     (1,743,679 )
Total stockholders' deficit     (48,142 )     (8,110 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 11,584     $ 6,041  

 

See accompanying Notes to Financial Statements

 

 

 

 

 

 

 

 

 

 

  2  

 

 

CLOUD SECURITY CORPORATION

STATEMENTS OF OPERATIONS

(unaudited)

 

    For the Three Months Ended
May 31, 2017 		    For the Three Months Ended
May 31, 2016 		 
             
General and administrative   $ 40,032     $ 18,879  
                 
Loss before provision for income taxes     (40,032 )     (18,879 )
                 
Provision for income taxes     –       –  
                 
Net loss   $ (40,032 )   $ (18,879 )
                 
Weighted average shares basic and diluted     13,026,980       13,026,980  
                 
Weighted average basic and diluted loss per common share   $ (0.00 )   $ (0.00 )

 

See accompanying Notes to Financial Statements

 

 

 

 

 

 

 

 

 

  3  

 

 

CLOUD SECURITY CORPORATION

STATEMENTS OF CASH FLOWS

(unaudited)

 

    For the Three
Months Ended May 31, 2017 		    For the Three
Months Ended
May 31, 2016 		 
Cash flows from operating activities:                
Net loss   $ (40,032 )   $ (18,879 )
Changes in operating assets and liabilities:                
Prepaid expenses     (7,500 )     (10,000 )
Accounts payable     32,475       2,215  
Due to related party     13,100       –  
Net cash used in operating activities     (1,957 )     (26,664 )
                 
Cash flows from financing activities:                
Capital contributions from Goldenrise     –       40,000  
Net cash provided by financing activities     –       40,000  
                 
Net change in cash     (1,957 )     13,336  
Cash, beginning of period     3,366       2,680  
Cash, end of period   $ 1,409     $ 16,016  
                 
Supplemental disclosures of cash flow information                
Cash paid during the period for:                
Interest   $ –     $ –  
Taxes   $ –     $ –  

 

See accompanying Notes to Financial Statements

 

 

 

 

 

 

 

 

 

  4  

 

 

CLOUD SECURITY CORPORATION

 

NOTES TO (UNAUDITED) FINANCIAL STATEMENTS

MAY 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 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 the software infrastructure and interface for MyComputerKey, Phase 1 (version 3) of MyComputerKey and additional cloud computing security applications as well as alternative business ventures. During 2016, the Company received a patent and is continuing to evaluate its intellectual property and business strategies including raising additional capital for further development of our product, MyComputerKey™, entering into third party development agreements for additional product enhancements, developing additional products, creating and implementing marketing strategies for the sale of our product and raise brand awareness, entering into partnership or distribution agreements, or even an outright sale of our intellectual property.

 

Stock Purchase Agreement

 

On December 8, 2014, the Company entered into a stock purchase agreement (the “SPA”) with Goldenrise Development, Inc., a California corporation (“Goldenrise”) whereby the Company sold 12,000,000 shares of its common stock for $180,000 to Goldenrise representing approximately 92% of our outstanding shares. In connection with the SPA, we also agreed to effectuate a 1:100 reverse stock split of the Company’s issued and outstanding common stock (“Reverse Split”) which became effective on January 22, 2015. The Company’s then directors and officers immediately preceding the close of this transaction resigned at closing. Goldenrise designated the current directors and officers of the Company. The transaction effectuated a change in control of the Company.

 

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 months ended May 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 $1,783,711 as of May 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. 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.

 

 

 

  5  

 

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Risks and Uncertainties

 

We have a limited operating history and have not commenced planned principal operations.

 

Our business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond our control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our financial condition and our results of operations.

 

We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize our products, we expect to collaborate with third parties to perform these functions. We have no experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our future products directly. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. While the product has been beta tested by three companies in the business-to-business market; the mass consumer market, including direct and indirect channels has not been tested.

 

While the Company holds patents for some of its technology, the Company must actively manage risks related to maintaining its technology and systems which may be obsolete without further development. It may be more costly to upgrade obsolete technology and it may be more cost effective to fund the development of a replacement system or new technology all together.

 

We do not own any manufacturing facilities and we intend to utilize contract manufacturers to meet manufacturing needs. Accordingly, if any of our proposed products become available for widespread sale, we may not be able to arrange for the manufacture of such product in sufficient quantities at an acceptable cost, or at all, which could materially adversely affect our future prospects.

 

Our industry is characterized by rapid changes in technology and customer demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced products to emerging industry standards, and our new products may not be favorably received.

 

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 the three months ended May 31, 2017 and 2016, the Company recorded amortization expense of $2,500 and $0, respectively.

 

 

 

  6  

 

 

4. Related Party Transactions

 

During the three months ended May 31, 2017, entities affiliated with Michael Dunn advanced funds to the Company to fund certain operating expenses. The advances are due on demand. Also see Note 6.

 

5. Stockholders’ Deficit

 

Authorizations and Designations

 

The Company is authorized to issue 190,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of its $0.001 par value preferred stock. As of May 31, 2017 and February 28, 2017, no preferred stock has been issued and there were 13,026,980 shares of common stock issued and outstanding.

 

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 May 31, 2017, 131,875 shares are available for issuance under the Plan.

 

Capital Contributions

 

During the three months ended May 31, 2017 and 2016, Goldenrise contributed $0 and $40,000, respectively to fund business operations. In the past, Goldenrise has funded certain Company costs. No firm commitments have been made to fund such costs in the future.

 

6. Subsequent Events

 

As previously reported on Form 8-K, 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 “Closing”). The purchase price was not paid 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 Purchaser”). Pursuant to the Dunn Agreement, Goldenrise agreed to sell and Dunn 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 the shares, the Dunn Purchaser 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 Purchaser and applied towards monies owed by Goldenrise to Dunn Purchaser; and (iii) $40,000 shall be with withheld by Dunn Purchaser and applied towards invoices related to the audit and legal fees associated with the reporting requirements of the Company through the date of Closing. The Dunn Agreement is subject to certain customary conditions to closing.

 

The Dunn Agreement would effectuate a change in control of the Company should it ultimately close. The Dunn Purchaser would own approximately 92.12% of the Company's issued and outstanding common stock. There are no arrangements or understandings among members of both the former and new control groups and their associates with respect to election of officers or other matters.

 

 

 

  7  

 

 

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 MAY 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.

 

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.

 

As previously reported on Form 8-K, 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 “Closing”). The purchase price was not paid 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 Purchaser”). Pursuant to the Dunn Agreement, Goldenrise agreed to sell and Dunn 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 the shares, the Dunn Purchaser 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 Purchaser and applied towards monies owed by Goldenrise to Dunn Purchaser; and (iii) $40,000 shall be with withheld by Dunn Purchaser and applied towards invoices related to the audit and legal fees associated with the reporting requirements of the Company through the date of Closing. The Dunn Agreement is subject to certain customary conditions to closing.

 

The Dunn Agreement would effectuate a change in control of the Company should it ultimately close. The Dunn Purchaser would own approximately 92.12% of the Company's issued and outstanding common stock. There are no arrangements or understandings among members of both the former and new control groups and their associates with respect to election of officers or other matters.

 

 

 

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RESULTS OF OPERATIONS

 

Three Months Ended May 31, 2017 Compared to the Three Months Ended May 31, 2016

 

We had no revenues during the three month periods ending May 31, 2017 and 2016.

 

During the three month period ended May 31, 2017 and 2016, we incurred general and administrative expenses of $40,032 and $18,879, respectively. During these periods we incurred accounting, legal and other costs associates with being a publicly traded company. The change in general and administrative expenses from May 31, 2016 to May 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.

 

During the three month periods ended May 31, 2017 and 2016, our net loss was $40,032 and $18,879, respectively, total increase o f $21,153. The increase was attributable to higher legal costs, as described above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of May 31, 2017, we had cash and cash equivalents of $1,409 and a working capital deficit of $48,142 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 $59,726 as of May 31, 2017, consisting primarily of accounts payable. At February 28, 2017, our total liabilities were $14,151.

 

We had a total stockholders’ deficit of $48,142 and an accumulated deficit of $1,783,711 as of May 31, 2017, compared to $8,110 and $1,743,679, respectively, as of February 28, 2017.

 

We used $1,957 of cash in operating activities for the three months ended May 31, 2017, which was attributable primarily to our net loss of $40,032 and a prepayment $10,000 for certain public company costs, partially offset by an increase in accounts payable of $32,475 and amounts due to a related party of $13,100. In comparison, we used $26,664 of cash in operating activities for the three months ended May 31, 2016.

 

During the three months ended May 31, 2017 and 2016, cash provided by financing activities were $0 and $40,000, respectively. During the 2016 period we received capital contributions from Goldenrise.

 

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.

 

 

 

  9  

 

 

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.

 

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 May 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 May 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.

 

 

 

  10  

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

In February 2016, the Company received a Notice of Allowance from the U.S. Patent and Trademark Office (“USPTO”) for its Patent Application Serial No. 13/173,220 for a system facilitating virtual access and management of desktop interface from a second computing device through a portable key (the “System”). The System is comprised of a removable virtual desktop key that permits remote access and management of various computing devices that are communicatively linked to the Company’s secured cloud network.

 

Subsequent Events:

 

As previously reported on Form 8-K, 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 “Closing”). The purchase price was not paid 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 Purchaser”). Pursuant to the Dunn Agreement, Goldenrise agreed to sell and Dunn 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 the shares, the Dunn Purchaser 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 Purchaser and applied towards monies owed by Goldenrise to Dunn Purchaser; and (iii) $40,000 shall be with withheld by Dunn Purchaser and applied towards invoices related to the audit and legal fees associated with the reporting requirements of the Company through the date of Closing. The Dunn Agreement is subject to certain customary conditions to closing.

 

The Dunn Agreement would effectuate a change in control of the Company should it ultimately close. The Dunn Purchaser would own approximately 92.12% of the Company's issued and outstanding common stock. There are no arrangements or understandings among members of both the former and new control groups and their associates with respect to election of officers or other matters.

 

 

 

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ITEM 6. EXHIBITS

 

Exhibit No.   Description
2.1   Acquisition Agreement and Plan of Merger dated May 7, 2012 , incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
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.
10.1   Employment Agreement for Scott Gerardi , incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
10.2   Share Lock-Up Agreement with Safa Movassaghi , incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
10.3   Share Lock-Up Agreement with Scott Gerardi , incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
10.4   Share Lock-Up Agreement with Ira Lebovic , incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
10.5   Voting Trust Agreement , incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
10.6   Contract CTA Agreement with Wee Kai Ng , incorporated by reference to our Annual Report on Form 10-K for the year ended February 28, 2013.
10.7   Joint Venture Agreement , incorporated by reference to our Annual Report on Form 10-K for the year ended February 28, 2013.
10.8   Transfer Agreement dated December 3, 2013 between Cloud Security Corp. and App Ventures, Ltd ., incorporated by reference to our Quarterly Report on Form 10-Q for the period ended November 30, 2013.
10.9   Distribution Agreement dated December 3, 2013 between Cloud Security Corp. and App Ventures, Ltd. , incorporated by reference to our Current Report on Form 8-K filed on June 13, 2014.
10.10   Consulting Agreement dated December 3, 2013 between Cloud Security Corp. and Kerry Singh , incorporated by reference to our Quarterly Report on Form 10-Q for the period ended November 30, 2013.
10.11   2014 Stock Incentive Plan , incorporated by reference to our Registration Statement on Form S-8 filed on February 20, 2014.
10.12   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.
10.13   Consulting Agreement , dated December 8, 2014 between Cloud Security Corp. and Safa Movassaghi, incorporated by reference to our Current Report on Form 8-K dated December 12, 2014.
10.14   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.
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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SIGNATURES

 

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

 

Date: July 24, 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)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Michael R. Dunn   President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Chairman of the Board   July 24, 2017

 

 

 

 

 

 

 

 

 

 

 

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