Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Cloudweb, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Cloudweb, Inc. (the “Company”) as of December 31, 2020 and 2019, the related statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of its internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the board of directors and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Share-based compensation
As discussed in Note 4 to the financial statements, on March 5, 2020, prior to the issuance of the Company’s 2019 financial statements, the Company issued 60 million shares of restricted common stock valued at $93 million based on the Company’s stock weekly trading price at $1.55 per share to Letterston Investments Limited, as compensation for the payment of the Chief Executive Officer’s salary for the years 2019 and 2020.
Auditing management’s application of fair value for the restricted common stocks can be a significant judgment, given the fact that the Company’s common stock is a thinly traded security listed in U.S. OTC Markets.
To evaluate the appropriateness and accuracy of the fair value applied by management, we examined the closing price on the date of issuance and the preceding weekly and monthly average closing prices, as discussed in the SEC Staff Accounting Bulletin No. 107. We also reviewed the underlying accounting codifications for this accounting treatment applied by management. In addition, we evaluated the Company’s disclosure in relation to this matter included in Note 4 to the financial statements.
/s/ BF Borgers CPA PC
We have served as the Company’s auditor since 2014.
Lakewood, Colorado
March 10, 2021
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(in U.S. Dollars, except for number of shares or otherwise stated)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
Cloudweb, Inc. (the “Company”, or “we”) is a Florida corporation incorporated on May 25, 2014 as Formigli, Inc. In December 2015, the Company changed its name to Data Backup, Inc., and on November 4, 2016, the Company changed its name to Data Backup Solutions Inc. On October 1, 2017, the Company changed its name to Cloudweb, Inc.
We are currently exploring different options of further developing and marketing our web hosting and data storage services. This includes plans to make hosting available for free while being supported by advertiser content. The Company will also look into white labeling its services to allow other brands to use our platforms for their own needs.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company’s year-end is December 31.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
ASC 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.
These tiers include:
Level 1: defined as observable inputs such as quoted prices in active markets;
Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3: defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The carrying value of cash, prepayments and the Company’s loan from shareholder approximates its fair value due to their short-term maturity.
Web Development Cost
In accordance with FASB ASC350-50 “Web Development Costs”, all costs incurred during the website planning stage are incurred. During the website application and infrastructure development stage, software tool costs and internet domain costs are capitalized, and website hosting costs are expensed. Cost incurred in the graphics development, content development and operating stage are generally expensed unless the costs are software related and should then be capitalized. During the year ended December 31, 2020, the Company incurred $10,030 web development cost on three websites contributed by the Company’s director.
Share-based Expenses
ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services and non-employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees and non-employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC 740 “Income Taxes”. Pursuant to ASC 740 deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At December 31, 2020, there were no unrecognized tax benefits.
Basic and Diluted Income (Loss) Per Share
The Company computes income (loss) per share in accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
For the years ended December 31, 2020 and 2019, respectively, the following convertible notes were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Shares)
|
|
|
(Shares)
|
|
Convertible notes payable
|
|
|
57,827,097
|
|
|
|
23,200,000
|
|
Recent accounting pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with Conversion and Other Options”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its financial statements.
NOTE 3 – GOING CONCERN
The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company estimates that it will require additional cash resources from loan from related party and unaffiliated parties based on its current operating plan and condition. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.
NOTE 4 – RELATED PARTY TRANSACTIONS
On January 1, 2017, the Company entered into an agreement with an entity controlled by Mr. Liao, the Company’s executive officer and sole member of the Board of Directors, to issue a promissory note for $137,316 to replace the full amount of related party advances that had been provided to the Company between January 1, 2016 and December 31, 2016. The promissory note bears interest at 28% per annum, and is payable on December 31, 2019. On July 1, 2017, the holder of the promissory note entered into an Interest Purchase Agreement with four non-affiliated assignees whereby each assignee was assigned with a convertible promissory note at the principal amount of $34,000 and accrued interest of $4,806. The convertible notes bear interest at 4% per annum, have an expiry date of June 30, 2019 and are convertible at $0.005 per share for the Company common stock. On June 30, 2019, the maturity dates of the notes were extended for three years to June 30, 2022. The Company assessed the note amendment for a debt extinguishment or modification in accordance with ASC 470-50. As the change in fair value of the convertible notes from the note amendment fell below 10% of the carrying value of the original convertible notes, the note amendment is regarded as a note modification. As of December 31, 2020 and 2019, the convertible notes payable, net of note discount of $3,584 and $5,984, was $112,416 and $110,016 respectively.
During the year ended December 31, 2019, the Company recorded stock payable for 30,000,000 outstanding common shares of $46,500,000 based on the Company’s stock weekly trading price at $1.55 per share to Letterston Investments Limited, a BVI corporation controlled by the Company’s Chief Executive Officer, as compensation for the payment of the Chief Executive Officer’s salary for the year 2019.On March 5, 2020, the Company issued 60,000,000 shares of restricted common stock valued at $93,000,000 based on the Company’s stock weekly trading price at $1.55 per share to Letterston Investments Limited as compensation for the payment of the Chief Executive Officer’s salary for the years 2019 and 2020. During the year ended December 31, 2020, the Company has recognized $46,500,000 for the year 2020 salary and $46,500,000 for the year 2019 salary.
During the year ended December 31, 2020, the Company incurred $10,030 web development cost on three new websites contributed by the Company’s director.
NOTE 5 – PROMISSORY NOTES
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|
|
December 31,
|
|
|
December 31,
|
|
|
|
Expiry Date
|
|
2020
|
|
|
2019
|
|
Promissory Note - November 2017
|
|
Due on demand
|
|
$
|
2,160
|
|
|
$
|
2,160
|
|
Promissory Note - December 2017
|
|
Due on demand
|
|
|
-
|
|
|
|
17,033
|
|
Promissory Note - March 2018
|
|
3/31/2028
|
|
|
15,296
|
|
|
|
15,296
|
|
Promissory Note - June 2018
|
|
6/30/2028
|
|
|
12,249
|
|
|
|
12,249
|
|
Promissory Note - September 2018
|
|
9/30/2028
|
|
|
5,408
|
|
|
|
5,408
|
|
Promissory Note - December 2018
|
|
12/31/2028
|
|
|
6,137
|
|
|
|
6,137
|
|
Promissory Note - March 2019
|
|
3/31/2029
|
|
|
7,150
|
|
|
|
7,150
|
|
Promissory Note - June 2019
|
|
6/30/2029
|
|
|
10,105
|
|
|
|
10,105
|
|
Promissory Note - September 2019
|
|
9/30/2029
|
|
|
4,081
|
|
|
|
4,081
|
|
Promissory Note - December 2019
|
|
12/31/2029
|
|
|
6,900
|
|
|
|
6,900
|
|
|
|
|
|
|
69,486
|
|
|
|
86,519
|
|
Less current portion of promissory note payable
|
|
|
|
|
(2,160
|
)
|
|
|
(19,193
|
)
|
Long-term promissory notes payable
|
|
|
|
$
|
67,326
|
|
|
$
|
67,326
|
|
As of December 31, 2020 and December 31, 2019, the accrued interest on the promissory notes was $45,881 and $44,752, respectively.
NOTE 6 – CONVERTIBLE NOTES
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Expiry Date
|
|
2020
|
|
|
2019
|
|
Convertible Notes - July 2017
|
|
6/30/2022
|
|
$
|
116,000
|
|
|
$
|
116,000
|
|
Convertible Notes - January 2020
|
|
Due on demand
|
|
|
8,033
|
|
|
|
-
|
|
Convertible Notes - March 2020
|
|
Due on demand
|
|
|
4,768
|
|
|
|
-
|
|
Convertible Notes - June 2020
|
|
Due on demand
|
|
|
13,800
|
|
|
|
-
|
|
Convertible Notes - September 2020
|
|
Due on demand
|
|
|
7,307
|
|
|
|
-
|
|
Convertible Notes - December 2020
|
|
Due on demand
|
|
|
6,074
|
|
|
|
-
|
|
Less debt discount
|
|
|
|
|
(3,584
|
)
|
|
|
(5,984
|
)
|
|
|
|
|
|
152,398
|
|
|
|
110,016
|
|
Less current portion of convertible note payable
|
|
|
|
|
(39,982
|
)
|
|
|
-
|
|
Long-term convertible notes payable
|
|
|
|
$
|
112,416
|
|
|
$
|
110,016
|
|
Convertible Notes – July 2017
On July 1, 2017, the Company replaced the promissory notes held by the four non-affiliated assignees with convertible notes at principal amount of $34,000, for total note principal amount of $136,000. The convertible notes bear interest at 4% per annum, has an original expiry date of June 30, 2019 and subsequently extended to June 30, 2022 and are convertible at $0.005 per share for the Company common stock. On January 2, 2018, the four non-affiliated holders of the convertible notes elected to convert $5,000 principal portion of their notes for 1,000,000 shares of common stock at $0.005 per share. An aggregate $20,000 principal amount of the four convertible notes were converted for 4,000,000 common shares.
Convertible Note – January 2020
On January 2, 2020, the Company replaced a promissory note of $17,033 originally issued to an unaffiliated party on December 31, 2017 with a convertible note of $17,033. The convertible note is due on demand, bear interest at 10% per annum and is convertible at $0.003 per share. The discount on convertible note from beneficial conversion feature of $17,033 was fully amortized during the year ended December 31, 2020.
Convertible Note – March 2020
On March 4, 2020, the convertible note comprising of principal amount of $17,033 and accrued interest of $21,073 was sold to another unaffiliated party. On March 23, 2020, the principal amount of the convertible note of $9,000 was converted into 3,000,000 shares of common stock. (see Note 7)
On March 31, 2020, the Company issued to an unaffiliated party a convertible note at $4,768 for paying operating expenses on behalf of the Company. The convertible note is due on demand, bears interest at 30% per annum and is convertible at $0.001 per share. The discount on convertible note from beneficial conversion feature of $4,768 was fully amortized during the year ended December 31, 2020.
Convertible Note – June 2020
On June 30, 2020, the Company issued to an unaffiliated party a convertible note at $13,800 for paying operating expenses on behalf of the Company. The convertible note is due on demand, bears interest at 30% per annum and is convertible at $0.001 per share. The discount on convertible note from beneficial conversion feature of $13,800 was fully amortized during the year ended December 31, 2020.
Convertible Note – September 2020
On September 30, 2020, the Company issued to an unaffiliated party a convertible note at $7,307 for paying operating expenses on behalf of the Company. The convertible note is due on demand, bears interest at 30% per annum and is convertible at $0.001 per share. The discount on convertible note from beneficial conversion feature of $7,307 was fully amortized during the year ended December 31, 2020.
Convertible Note – December 2020
On December 31, 2020, the Company issued to an unaffiliated party a convertible note at $6,074 for paying operating expenses on behalf of the Company. The convertible note is due on demand, bears interest at 30% per annum and is convertible at $0.001 per share. The discount on convertible note from beneficial conversion feature of $6,074 was fully amortized during the year ended December 31, 2020.
During the year ended December 31, 2020 and 2019, the Company recognized amortization of debt discount and beneficial conversion feature of $51,382 and $9,600, respectively.
As of December 31, 2020 and December 31, 2019, the convertible notes payable was $112,416 and $110,016, net of note discount of $3,584 and $5,984, and accrued interest payable was $61,684 and $31,403, respectively.
NOTE 7 - EQUITY
Authorized Stock
The Company’s authorized common stock consists of 500,000,000 shares with no par value.
Common Shares
On November 27, 2019, a majority of stockholders of our Company and our board of directors approved a reverse stock split of our issued and outstanding shares of common stock on a basis of up to one hundred and fifty (150) old shares for one (1) new share of common stock. The name change and reverse stock split have been reviewed by the Financial Industry Regulatory Authority (“FINRA”) and have been approved for filing with an effective date of December 19, 2019. Articles of Amendment to our Articles of Incorporation were filed on December 9, 2019 with the Florida Secretary of State in connection with the reverse split, with an effective date of December 18, 2019.
On March 5, 2020, the Company issued 60,000,000 shares of restricted common stock valued at $93,000,000 to a corporation controlled by the Company’s CEO. (Note 4)
On March 23, 2020, principal amount of $9,000 from a convertible note was converted for 3,000,000 shares of common stock at stock trading price of $1.25 per share. (Note 6)
NOTE 8 – INCOME TAX
The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the statutory rate to the income tax amount recorded as of December 31, 2020 and 2019, are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net operating loss carryforward
|
|
$
|
(368,586
|
)
|
|
$
|
(251,683
|
)
|
Statutory tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Deferred tax asset
|
|
|
(77,403
|
)
|
|
|
(52,853
|
)
|
Less: Valuation allowance
|
|
|
77,403
|
|
|
|
52,853
|
|
Net deferred asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2020, the Company had $368,586 in net operating losses (“NOLs”) that may be available to offset future taxable income, which begin to expire between 2035 and 2040. NOLs generated in tax years prior to December 31, 2017, can be carryforward for twenty years, whereas NOLs generated after December 31, 2017 can be carryforward indefinitely. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company’s net operating loss carry forwards is subject to annual limitations following greater than 50% ownership changes. Tax returns for the years ended 2015 through 2020 are subject to review by the tax authorities.
Tax returns for the years ended 2015 through 2020 are subject to review by the tax authorities.
NOTE 9 – RISKS AND UNCERTAINTIES
In early 2020, the World Health Organization declared the rapidly spreading coronavirus disease (COVID-19) outbreak a pandemic. This pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at December 31, 2020. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company in the future. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this financial statements. These estimates may change, as new events occur and additional information is obtained.