ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events or circumstances or to reflect the occurrence of unanticipated events.
In this report unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares of our capital stock.
The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
As used in this quarterly report, the terms "we", "us", "our", and "our company" means Data Backup Solutions,
Inc
., unless otherwise indicated.
Overview
Data Backup Solutions, Inc. (“Data Backup” or the “Company”), is a Florida corporation incorporated on May 25, 2014 as Formigli, Inc. In December 2015, the Company changed its name to Cloudweb, Inc., and on November 4, 2016, the Company changed its name to Data Backup Solutions, Inc. The Company provides website hosting and cloud computing services. Zhi De Liao is the Company’s Chief Executive Officer. Our headquarters are located at Dept. Office 12a, Greenhill Street, Stratford Upon Avon, Warwickshire, United Kingdom CV376L.
Recent Developments
The Company was in the development stages and had planned to engage in the worldwide distribution of custom handmade Italian road bikes, made by Renzo Formigli. Amy Chaffe, who was the President, Chief Executive Officer, Chief Financial Officer, founded the Company.
The Company and Ms. Chaffe decided to conduct a corporate restructuring. On December 3, 2015, Mr. Renzo Formigli resigned as a member of the Board of Directors of the Company.
On the same day, the Company filed Articles of Amendment to its Articles of Incorporation with the Florida Department of State whereby it amended its Articles of Incorporation by (i) changing its name to “Cloudweb, Inc.”, (ii) increasing the Company’s authorized number of shares of common stock from 100 million to 500 million, and (iii) increasing the Company’s total issued and outstanding shares of common stock by conducting a forward split of such shares at the rate of 100 shares for every one (1) share currently issued and outstanding (the “Forward Split”).
The Company then filed an Issuer Company-Related Action Notification Form with FINRA requesting that the name change be effected in the market. It also requested that its ticker symbol be changed to “CLOW”.
Amy Chaffe, who at that time was the Company’s President, Chief Executive Officer, Chief Financial Officer and sole member of the Company’s Board of Directors, executed an agreement whereby an aggregate of 7,500,000 shares of Company common stock owned by her would be cancelled without any remuneration, leaving Ms. Chaffe owning 2,500,000 shares of Company common stock after such cancellation and prior to the Forward Split.
On January 28, 2016, a change in control of the Company occurred by virtue of the Company's largest shareholder Amy Chaffe selling all of the shares of the Company's common stock that she owned, which was in the amount of 250,000,000 shares, to certain third party investors. Such shares sold by Ms. Chaffe represented 80% of the Company's total issued and outstanding shares of common stock. As part of the sale of the shares, the purchaser of such shares, Mr. Zhi De Liao, arranged with Ms. Chaffe his appointment to the Company's Board of Directors and as an executive officer of the Company. Immediately thereafter, Ms. Chaffe resigned as a member of the Board. Mr. Zhi De Liao is the Company’s Chief Executive Officer, President, Chief Financial Officer, and a member of the Company’s Board of Directors.
The Company then completed the acquisition of 100% of the issued and outstanding equity interests of Data Cloud Inc., a Nevada corporation (“Data Cloud”), from Mr. Liao pursuant to a Share Exchange Agreement. As a result of the completion of this acquisition, 2,500,000 shares of the Company’s common stock were issued to Mr. Liao. Mr. Liao now controls 81% of the Company’s total issued and outstanding shares of common stock.
Data Cloud owns 100% of the issued and outstanding equity interests of Web Hosting Solutions Ltd (“WHS”), which it purchased from James Holland for GBP 47,000. Pursuant to the Purchase Agreement, Data Cloud agreed to employ Mr. Holland to continue management and operations of WHS during the period of his employment and appoint Mr. Holland to its Board of Directors. WHS has been providing web hosting solutions for approximately ten (10) years and became a UK private limited company in 2012. In connection with the Share Exchange Agreement, the Company elected to enter into the web hosting industry.
Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.
Liquidity and Capital Resources
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements for the nine months ended September 30, 2016 and audited financial statements for the year ended December 31, 2015, along with the accompanying notes.
At the end of September 30, 2016 we had cash on hand totaling $182 (December 31, 2015 - $5,599), total assets of $89,835 (December 31, 2015 - 95,489) and liabilities of $195,052 (December 31, 2015 - $102,534).
During the first quarter of the current fiscal year, the Company elected to discontinue its former operations, which were divested, and entered into a share exchange agreement to acquire a new business in the web hosting industry, concurrent with a change in control.
We anticipate we will need to secure additional funds in order to continue our business. We believe that we will be able to obtain loans from a current shareholder of the Company to meet shortfalls; however we cannot provide any assurance that we will be able to raise additional proceeds or secure additional loans in the future to cover our expenses related to maintaining our reporting company status (estimated at $60,000 for the next twelve (12) months). Furthermore, there is no guarantee we will receive the required financing to complete our business strategies; we cannot provide any assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. If we are unable to accomplish raising adequate funds then it would be likely that any investment made into the Company would be lost in its entirety.
Results of Operations
Three months ended September 30, 2016 compared to the three months ended September 30, 2015
We generated gross profit during the three months ended September 30, 2016 of $13,211 as compared to $7,839 during the three months ended September 30, 2015. Gross revenues for the three months ended September 30, 2016 and 2015 were $16,566 and $9,977, respectively. Costs of goods sold during the three months ended September 30, 2016 was $3,355 compared to $2,138 for the three months ended September 30,
2015.
The increase to costs of sales was in direct relation to the increase to sales.
Additionally, we continue to incur administrative costs related to filing requirements as a public issuer and ongoing operations as well as operating costs related to our core business. Such operating
expenses totaled $32,536 for the three months ended September 30, 2016 as compared to $17,606 for the three months ended September 30, 2015. Operating expenses during the three months ended September 30, 2016 include professional fees of $14,845 consisting of legal, audit and accounting fees with respect to the requirements for public reporting and transactional costs related to the share exchange agreement, salaries of $13,194 and general and administrative expenses of $4,418. Operating expenses during the three months ended September 30, 2015 include general and administrative expenses of $1,188 and salaries and payroll expense of $16,334. Depreciation for the three months ended September 30, 2016 and 2015 was $79 and $84, respectively. The Company recorded a net loss of $19,325 for the three months ended September 30, 2016, as compared to a net loss of $9,767 for the three months ended September 30, 2015.
Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015
We generated gross profit during the nine months ended
September 30, 2016 of $23,406 as compared to $29,647 for the nine months ended September 30, 2015. Revenues for the nine months ended September 30, 2016 and 2015 were $38,501 and $34,251, respectively.
The increase in gross revenues is a result of additional sales efforts.
Costs of goods sold during the nine months ended September 30, 2016 was $15,095 as opposed to $4,604 for the nine months ended September 30, 2015.
The increase to costs of sales was a result of subcontractor services in the period.
Prior year comparative figures reflect year-end adjustments to the annual costs of goods sold for Web Hosting Solutions in order to reallocate certain previously recorded costs to operating expense, which adjustment dramatically reduced the reported costs of goods sold for that period. We continue to incur administrative costs related to filing requirements as a public issuer and ongoing operations as well as operating costs related to our core business.
Such operating expenses totaled $218,546 for the nine months ended September 30, 2016 as compared to $13,780 in the nine months ended September 30, 2015. Operating expenses during the
nine months ended September 30, 2016 include professional fees of $161,694 consisting of legal, audit and accounting fees with respect to the requirements for public reporting and transactional costs related to the share exchange agreement, salaries of $39,332 and general and administrative expenses of $17,284. Operating expenses during the nine months ended September 30, 2015 include salaries of $8,184 and general and administrative expenses of $5,117. Depreciation for the nine months ended September 30, 2016 and 2015 was $236 and $479, respectively. The Company recorded a net loss of $195,140 for the nine months ended September 30, 2016 as compared to net income of $15,867 for the nine months ended September 30, 2015.
Off-Balance Sheet Arrangements
We have no 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 of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements, included herein.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(“ASU 2016–02”) which replaces the existing guidance in ASC 840,
Leases
. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and requires retrospective application. The Company will adopt ASU 2016-02 in fiscal 2019 and is currently evaluating the impact to its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”). The new guidance will change how companies account for certain aspects of share-based payments to employees. Under existing accounting guidance, tax benefits and certain tax deficiencies arising from the vesting of share-based payments are recorded in additional paid-in-capital. The new guidance will require such benefits or deficiencies to be recognized as income tax benefits or expenses in the statement of operations. Companies are required to apply the new guidance prospectively. The new standard is effective for fiscal years beginning after December 15, 2016, and the Company is currently evaluating the impact that ASU 2016-09 will have on its consolidated financial statements.
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. This standard is not expected to have a material impact on our financial position, results of operations or statement of cash flows upon adoption.
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will be effective for the Company beginning January 1, 2018, with early application permitted. The standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable.