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EX-31.1 - EXHIBIT 31.1 - SKY DIGITAL STORES CORP.ex311.htm
EX-32.2 - EXHIBIT 32.2 - SKY DIGITAL STORES CORP.ex322.htm
EX-31.2 - EXHIBIT 31.2 - SKY DIGITAL STORES CORP.ex312.htm
EX-32.1 - EXHIBIT 32.1 - SKY DIGITAL STORES CORP.ex321.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: April 30, 2011
or
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
Commission File Number: 000-52293

SKY DIGITAL STORES CORP.
(Exact name of registrant as specified in its charter)

Nevada
83-0463005
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

8/F, South Block, Yuan Xing Technology Building,
1 Song Ping Shan Road, High-tech Park,
Nanshan District, Shenzhen, P.R.C.
(Address of principal executive offices) (Zip Code)

86 755 82718088
(Registrant’s telephone number, including area code)

#1801 Building B, Hai Song Da Sha
Che Gong Miao, Fu Tian Qu
Shenzhen, China 518041
 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has 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 [  ]

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 [  ]  No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
[  ]
 
Accelerated filer
[  ]
Non-accelerated filer
[  ]
(Do not check if a smaller reporting company)
Smaller reporting company
[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes [X]  No [  ]

 
1

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ]  No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 24,586,090 shares of common stock are issued and outstanding as of June 16, 2011.


 
2

 

TABLE OF CONTENTS

 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS  5
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  11
ITEM 4. CONTROLS AND PROCEDURES  11
PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.  12
ITEM 1A. RISK FACTORS  12
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. (REMOVED AND RESERVED)  12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS 12
SIGNATURES  13
 
 
3

 


 
PART I – FINANCIAL INFORMATION
 
 
Forward Looking Statements
 
 
This quarterly report contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “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, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements 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, performance or achievements. 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.
 
Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report, particularly in the section entitled “Risk Factors” of this quarterly report.
 
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “common shares” refer to the common shares in our capital stock.
 
As used in this quarterly report, the terms "we", "us", "our", and "SKYC" mean SKY Digital Stores Corp., unless the context clearly requires otherwise.

 
4

 
 
ITEM 1 FINANCIAL STATEMENTS.
 
 Financial Statements (Unaudited)
Page
 Balance Sheets as of April 30, 2011 (Unaudited) and July 31, 2010
F-1
 Statements of Operations for the Three and Nine Months Ended April 30, 2011 and 2010 and the Period from March 23, 2006 (Inception) to April 30, 2011 (Unaudited)
F-2
 Statements of Changes in Stockholders’ Equity (Deficiency)  for the Period from March 23, 2006 (Inception) to April 30, 2011 (Unaudited)
F-3
 Statements of Cash Flows for the Nine Months Ended April 30, 2011 and 2010 and the Period from March 23, 2006 (Inception) to April 30, 2011 (Unaudited)
F-4
 Notes to Financial Statements (Unaudited)
F-5--F-13
 
 
 
 
 
 
 
 
 
 
 

 
5

 
 
SKY DIGITAL STORES INC.
           
(An Exploration Stage Company)
           
BALANCE SHEETS
           
             
             
   
April 30,
   
July 31,
 
   
2011
   
2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 164     $ 5,307  
Total Current Assets
    164       5,307  
                 
Office equipment, net
    -       647  
Reclamation bonds
    -       62,400  
Total Assets
  $ 164     $ 68,354  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
Current Liabilities
               
Accounts payable and accrued expenses
  $ 23,281     $ 132,036  
Demand loan payable
    125,000       125,000  
Related party advances
    -       15,214  
Total Current Liabilities
    148,281       272,250  
                 
Commitments and Contingencies
               
                 
Stockholders' Deficiency
               
Preferred stock
    -       -  
Par value $0.001; 25,000,000 shares authorized, 0 shares issued and outstanding as of April 30, 2011 and July 31, 2010, respectively
 
Common stock
    578       277  
par value $0.001; 750,000,000 shares authorized, 578,031 and 276,678 shares issued and outstanding as of April 30, 2011 and July 31, 2010, respectively
 
Additional paid-in capital
    20,224,255       20,142,280  
Retained deficiency
    (20,372,950 )     (20,346,453 )
Total Stockholders' Deficiency
    (148,117 )     (203,896 )
                 
Total Liabilities and Stockholders' Deficiency
  $ 164     $ 68,354  
                 
                 
See accompanying notes to the financial statements
 

 
F-1

 
 
 SKY DIGITAL STORES INC.
                             
 (An Exploration Stage Company)
                             
STATEMENTS OF OPERATIONS (UNAUDITED)
                         
                               
   
Three Months Ended
   
Three Months Ended
   
Nine Months Ended
   
Nine Months Ended
 
Inception (March 23, 2006
 
   
April 30, 2011
   
April 30, 2010
   
April 30, 2011
   
April 30, 2010
   
to April 30, 2011
 
                               
Revenues
  $ -     $ -     $ -     $ -     $ -  
                                         
Expenses
                                       
Consulting fees
    -       (24 )     -       11,793       485,011  
General and administrative
    42       5,036       3,227       53,617       351,369  
Impairment of mineral interests
    -       -       -       -       11,681,559  
Investor relations
    -       (765 )     -       756       209,633  
Management fees
    -       14,189       -       193,343       4,105,560  
Mineral property interests
    -       -       -       (11,105 )     2,087,233  
Financing costs
    -       -       (24,000 )     -       685,200  
Professional fees
    18,136       31,168       39,755       84,609       894,167  
Loss from Operations
    (18,178 )     (49,604 )     (18,982 )     (333,013 )     (20,499,732 )
                                         
Other income (expense)
                                       
Interest Income
    -       -       1,835       -       141,714  
Interest expense
    (3,048 )     -       (9,350 )     -       (14,932 )
      (3,048 )     -       (7,515 )     -       126,782  
                                         
                                         
 Loss before income tax expense
    (21,226 )     (49,604 )     (26,497 )     (333,013 )     (20,372,950 )
                                         
Income tax expense
    -       -       -       -       -  
Net Loss
  $ (21,226 )   $ (49,604 )   $ (26,497 )   $ (333,013 )   $ (20,372,950 )
                                         
Net loss per share
                                       
Basic and Diluted
  $ (0.04 )   $ (0.18 )   $ (0.06 )   $ (1.20 )        
                                         
Weighted average shares outstanding
                                       
Basic and Diluted
    578,033       278,033       443,967       278,033          
                                         
                                         
                                         
                                         
See accompanying notes to the financial statements
 

 
F-2

 
 
SKY DIGITAL STORES INC.
                             
(An Exploration Stage Company)
             
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
 
FOR THE PERIOD FORM MARCH 23, 2006 (INCEPTION) TO APRIL 30, 2011 (UNAUDITED)
 
                               
                               
                     
Deficit Accumulated
 
   
Common stock
   
Additional
Paid-in
   
during the Exploration
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Stage
   
Equity (Deficiency)
 
Balance, March 23, 2006
                             
(date of inception)
                             
Shares issued:
                             
Initial capitalization
    300,000     $ 300     $ 1,700     $ -     $ 2,000  
Private placement
    159,000       159       52,841       -       53,000  
Net loss for the period
                            (9,134 )     (9,134 )
Balance, July 31, 2006
    459,000       459       54,541       (9,134 )     45,866  
Shares issued:
                                       
Private placements
    30,658       31       5,909,969       -       5,910,000  
Acquisition of mineral rights
    45,000       45       10,157,098       -       10,157,143  
Shares returned to treasury
    (280,000 )     (280 )     280       -       -  
Share issue costs
    -       -       (257,505 )     -       (257,505 )
Stock-based compensation
    -       -       2,370,719       -       2,370,719  
Net loss for the year
    -       -       -       (4,121,534 )     (4,121,534 )
Balance, July 31, 2007
    254,658       255       18,235,102       (4,130,668 )     14,104,689  
Shares issued:
                                       
Acquisition of mineral rights
    2,411       2       235,221       -       235,223  
Stock-based compensation
    -       -       787,828       -       787,828  
Net loss for the year
    -       -       -       (13,007,493 )     (13,007,493 )
Balance, July 31, 2008
    257,069       257       19,258,151       (17,138,161 )     2,120,247  
Stock-based compensation
    -       -       540,722       -       540,722  
Net loss for the year
    -       -       -       (2,856,327 )     (2,856,327 )
Balance, July 31, 2009
    257,069       257       19,798,873       (19,994,488 )     (195,358 )
Shares issued for debt
    19,609       20       204,743       -       204,763  
Stock-based compensation (Note 5)
      -       138,664  
Net loss for the period
    -       -       -       (351,965 )     (351,965 )
Balance, July 31, 2010
    276,678       277       20,142,280       (20,346,453 )     (203,896 )
Forgiven payables
    -       -       22,275       -       22,275  
Proceeds from sale of common stock
   
300,000
     
300
     
59,700
      -       60,000   
Shares issued for stock split rounding up
   
1,353
      1       -       -       1  
Net loss for the period
    -       -       -       (26,497 )     (26,497 )
Balance, April 30, 2011
    578,031     $ 578     $ 20,224,255     $ (20,372,950 )   $ (148,117 )
                                         
                                         
See accompanying notes to the financial statements  
 
 
F-3

 
 
(An Exploration Stage Company)
                 
STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
                   
   
Nine Months Ended
   
Nine Months Ended
   
Inception (March 23, 2006
 
   
April 30, 2011
   
April 30, 2010
   
to April 30, 2011
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (26,497 )   $ (333,013 )   $ (20,372,950 )
                         
                         
Adjustments to reconcile net loss to cash used in operating activities:
                 
Items not affecting cash:
                       
Stock-based compensation
    -       138,664       3,837,933  
Write off of mineral interests
    -       -       11,681,559  
                         
Changes in assets and liabilities:
                       
Accounts receivable
    -       -       -  
Prepaid expenses
    -       16,264       -  
Exploration advances
    -       -       -  
Accounts payable and accrued liabilities
    (86,479 )     26,737       250,320  
Net cash used in operating activities
    (112,976 )     (151,348 )     (4,603,138 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Disposal of office equipment
    647       162       -  
Reclamation bond
    62,400       -       -  
Acquisition of mineral rights
    -       -       (1,289,193 )
Net cash provided by (used in) investing activities
    63,047       162       (1,289,193 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from issuance of capital stock
    60,000       -       5,767,495  
Proceeds from demand loan
    -       125,000       125,000  
Related party advance - repayment
    (15,214 )     -       -  
Net cash provided by financing activities
    44,786       125,000       5,892,495  
                         
Change in cash during the period
    (5,143 )     (26,186 )     164  
 
                       
Cash, beginning of period
    5,307       31,756       -  
 
                       
Cash, end of period
  $ 164     $ 5,570     $ 164  
                         
Cash paid for interest during the period
  $ 6,302     $ 2,432          
 
                       
                         
                         
Supplemental disclosure with respect to Cash Flows (Note 8)
                       
                         
                         
                         
See accompanying notes to the financial statements
 
 
 
F-4

 
 
SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
1.    BASIS OF PRESENTATION
 
The unaudited interim period financial statements have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America. The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of annual financial statements, and in the opinion of management these financial statements contain all adjustments necessary (consisting of normally recurring adjustments) to present fairly the financial information contained therein. Certain information and footnote disclosure normally included in the financial statements prepared in conformity with generally accepted accounting principles in the United States of America have been condensed or omitted. These unaudited interim period statements should be read together with the most recent audited financial statements and the accompanying notes for the year ended July 31, 2010. The results of operations for the nine-month period ended April 30, 2011 are not necessarily indicative of the results to be expected for the year ending July 31, 2011.
 
2.   NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
 
 The Company was incorporated in the State of Nevada on March 23, 2006 under the name Hoopsoft Development Corp.  The Company entered into an agreement and plan of merger (the “Merger Agreement”) dated January 9, 2007 with Yellowcake Mining Inc., a Nevada corporation and wholly-owned subsidiary of Hoopsoft Development Corp., incorporated for the sole purpose of effecting the merger.  Pursuant to the terms of the Merger Agreement, Yellowcake Mining Inc. merged with and into Hoopsoft Development Corp., with Hoopsoft Development Corp. carrying on as the surviving corporation under the name “Yellowcake Mining Inc.” The Company is an Exploration Stage Company, as defined by the FASB Accounting Standards Codification (ASC) ASC 915 “Development Stage Enterprises”.
 
Initial operations included capital formation, organization, target market identification and marketing plans.  Management was planning to develop downloadable videos and a website for educational and instructional use by young teens.  In January, 2007 the Company changed its primary business to that of mineral exploration in Wyoming and Texas, USA.  Currently, the Company has no agreements to explore, develop or mine any properties.
 
These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company has not generated revenues and has accumulated losses of $20,372,950 since inception and is unlikely to generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to achieve its operating objectives, confirmation of the Company’s interests in the underlying properties and the attainment of profitable operations. Management cannot provide assurances that such plans will occur. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
On May 5, 2011, the Company entered into a Share Exchange Agreement ("Exchange Agreement") by and among Hong Kong First Digital Holding Ltd. (“First Digital”), and the shareholders of First Digital (the "First Digital Shareholders"). The closing of the transaction (the "Closing") took place on May 5, 2011 (the "Closing Date"). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the "Shares") of First Digital from First Digital's shareholders; and First Digital's shareholders transferred and contributed all of their Shares to the Company. In the Exchange, the Company issued to First Digital’s shareholders, their designees or assigns, an aggregate of 23,716,035 post-split shares (the "Shares Component") or 97.62% of the shares of common stock of the Company issued and outstanding after the Closing (the "Share Exchange"), at $0.20 per share. The parties understand and acknowledge that such exchange is based upon an acquisition value of First Digital at $4,743,207, which is agreed and accepted by all.

 
F-5

 
 
SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
2.   NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN (continued)
 
As a result of the Share Exchange, First Digital became our wholly owned subsidiary and its subsidiaries business became our main operational business.  Consequently, the Share Exchange has caused the Company to cease to be a shell company.  The material terms of the Exchange Agreement are more fully described in Exhibit 10.1 of Form 8-K filed with the Securities and Exchange Commission on May 6, 2011.
 
On May 5, 2011, the Company issued an aggregate of 15,000 shares of common stock to Sichenzia Ross Friedman Ference LLP for legal services provided in connection with the Share Exchange.
 
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Use of Estimates

The preparation of financial statements in conformity with US GAAP 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 of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from these estimates.  Significant items subject to such estimates and assumptions include the recoverability of the carrying amounts of recorded assets and liabilities, estimated useful life of property and equipment.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
 
Cash

Cash includes deposits in banks which are unrestricted as to withdrawal or use.  Management believes that these major financial institutions are of high credit quality.

Mineral Rights and Mineral Property Interests

Mineral rights includes the cost of advancing minimum royalty payments, the cost of capitalized property leases, and the cost of property acquired either by cash payment,  the  issuance  of  term  debt  or  common  shares.   Expenditures for exploration on specific properties with no proven reserves are written off as incurred. Mineral rights will be amortized against future revenues or charged to operations at the time the related property is determined to have impairment in value.

The Company also considers the provisions of EITF 04-02 "Whether Mineral Rights are Tangible or Intangible Assets" which concluded that mineral rights are tangible assets.

Asset Retirement Obligations

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets in accordance with FASB ASC 410 ("ASC 410", formerly referred to as SFAS No. 143), "Accounting for Asset Retirement Obligations". The initial recognition

 
F-6

 

SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Asset retirement Obligations (continued)

of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life.  As of April 30, 2011 and July 31, 2010, the Company has not accrued any asset retirement obligations.

Impairment of Long-lived Assets

Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the nine months ended April 30, 2011 and 2010, the Company recognized no impairment in respect of one of its mineral properties.

Foreign Currency Translation

The Company's functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with FASB ASC 830 ("ASC 830", formerly referred to as SFAS No. 52), "Foreign Currency Translation", using the exchange rate prevailing at the balance sheet date.  Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income.  Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Stock-based Compensation

The Company accounts for stock-based compensation pursuant to FASB ASC 718, “Compensation- stock Compensation” which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of estimated forfeitures, over the requisite service period for awards expected to vest.

Income Tax

The Company has adopted the provisions of FASB ASC subtopic 740-10 (“ASC 740-10”), Income taxes: Overall (Pre-Codification: FIN 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109). FASB ASC 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognizing, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company applies the provisions of FASB ASC 740-10, Accounting For Uncertainty In Income Taxes, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in its combined financial statements. FASB ASC 740-10 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FASB ASC 740-10 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements.

Fair Value

The Company has categorized its assets and liabilities at fair value based upon the fair value hierarchy specified by  FASB ASC 820.

 
F-7

 

SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Fair Value (continued)

 
The levels of fair value hierarchy are as follows:

i.  
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.
ii.  
Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
iii.  
Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.  As of April 30, 2011 and July 31, 2010, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest available to the Company.

Earnings Per share
 
The Company reports earnings per share in accordance with the provisions of ASC 260.10, "Earnings Per Share”. FASB ASC 260.10 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.
 
For the nine months ended April 30, 2011 and 2010, potentially dilutive common shares relating to options outstanding totaling 100,000 (500 post-split) were not included in the computation of loss per share because the effects were anti-dilutive.
 
4.   MINERAL RIGHTS
 
Juniper Ridge
 
On March 14, 2007, the Company entered into an option and joint venture agreement with Strathmore Minerals Corp. (“Strathmore”) on the Baggs, Juniper Ridge Project properties located in Wyoming.  The Company was granted sole and exclusive rights to earn-in an 80% interest in the properties.  Under the terms of the original agreement, the Company was required to make cash payments of $500,000 in various stages as follows: $100,000 upon closing of the option agreement (paid) and $100,000 on each of the first (paid), second, third and fourth anniversary. The Company also issued 9,000,000 (45,000 post-split) shares of common stock to Strathmore upon closing of the agreement (issued).  The Company also was required to incur expenditures of $1,600,000 per year for a period of 5 years for a total commitment of $8,000,000.  The Company will earn 40% of the optioned interest upon spending $4,000,000.  The Company was to earn the remaining 40% of the optioned interest by spending an additional $4,000,000 during the 5-year term and by paying a royalty of 3% on the optioned portion on all future production.
 
In April 2008, the Company and Strathmore reached an agreement to amend certain terms of the option agreement.  Pursuant to the terms of the amended agreement the joint operations were restructured so that they were jointly owned by a Limited Liability Company (“LLC”). The Company maintained on option to earn up to an 80% interest in the LLC, Juniper Ridge Project.  The Company’s requirement to incur expenditures was amended to require $764,518 be spent not later than May 1, 2008 (incurred), a minimum of $300,000 not later than September

 
F-8

 

SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
4.   MINERAL RIGHTS (continued)
 
Juniper Ridge (continued)
 
1, 2008, a minimum of $500,000 not later than December 31, 2009 and the balance of the $8,000,000 not later than December 31, 2012.
 
According to management of the Company, the forecast long term uranium price is expected to be lower than the estimated costs for development extraction on the Juniper property and it is not economically feasible to continue with the exploration and drilling work at the present time.  As a result, management has written down the mineral interest in Juniper Ridge property to a nominal value, $1, as of the year ended July 31, 2008.
 
In December 2008, the Company formally terminated the option agreement with Strathmore and subsequently the Company has written off the remaining net book value of the mineral rights.
 
Jeep
 
The Company entered into an option and joint venture agreement with Strathmore Resources (US) Ltd., a related party under a common director, to explore, develop and mine the Jeep property located in Gas Hills, Freemont County, Wyoming. Under the agreement, the Company has sole and exclusive rights from Strathmore Resources (US) Ltd. to earn-in a 60% interest in the Jeep property in consideration of the Company’s incurring a total of $10,000,000 in expenditures on the Jeep property. The first expenditures in the amount of $250,000 was to be met on or before September 29, 2008, with additional expenditures of:  $1,250,000 were to be expended during the twelve months ended September 29, 2009, $1,500,000 was to be expended during the twelve months ended September 29, 2010, $2,000,000 to be expended during the twelve months ended September 29, 2011, $2,000,000 to be expended during the twelve months ended  September 29, 2012 and $3,000,000 to be expended during the twelve months ended September 29, 2013.  The option agreement was terminated on April 21, 2008.
 
Sky
 
The Company entered into an option and joint venture agreement with Strathmore Resources (US) Ltd., a related party under a common director, to explore, develop and mine the Sky property located in West Gas Hills, Freemont County, Wyoming. Under the agreement, the Company has sole and exclusive rights from Strathmore Resources to earn-in a 60% interest in the Sky property in consideration of the Company incurring a total of $7,500,000 in expenditures, over four years, on the Sky property. The first expenditures in the amount of $500,000 must be met on or before September 29, 2008, with additional expenditures of $2,000,000 to be expended during the twelve months ended September 29, 2009, $2,000,000 to be expended during the twelve months ended September 29, 2010 and $3,000,000 to be expended during the twelve months ended September 29, 2011.  The option agreement was terminated on April 21, 2008.
 
Beck
 
On December 28, 2007 the Company entered into a master option agreement with American Nuclear Fuels, as well as six lease and option agreements with individual claimholders, to purchase 185 mining claims, approximating 3,700 acres, in the Uravan uranium belt, Montrose County, Colorado, also known as the Beck Project, in exchange for total payments of $5,968,750 in cash and the issuance of 2,765,625 (13,828 post-split) shares of our common stock, payable over 5 years as follows:

 
F-9

 
 
SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
4.   MINERAL RIGHTS (continued)
 
Beck (continued)                                                                 
 
Date
 
Cash
   
Number of Shares (Pre-split)
   
Number of Shares (Post-split)
 
                   
October 3, 2007 (stand still payment)
    125,000 *  *     -       -  
December 15, 2007 (stand still payment)
    250,000 *     -       -  
December 28, 2007
    80,357 *     65,179 *     326 *
March 31, 2008
    321,429 *     260,714 *     1304 *
June 15, 2008
    312,407 *     156,250 *     781 *
December 15, 2008
    1,035,714       517,857       2,589  
December 16, 2009
    1,000,000       500,000       2,500  
December 17, 2010
    1,000,000       500,000       2,500  
December 18, 2011
    1,000,000       500,000       2,500  
December 19, 2012
    843,750       265,625       1,328  
Total
  $ 5,968,657       2,765,625       13,828  
                         
*As of July 31, 2009, the Company had made total cash payments of $1,089,193 and issued 482,143 (2,411 post-split) common shares of the Company.
 
 
Pursuant to the terms and conditions of the option agreements, Yellowcake had the exclusive right to access, explore and develop the properties. All future production from the property was subject to a 3.5% royalty based on the contained metal value of ore after deduction of mining, transport and processing costs.
 
The Company decided to terminate the agreements related to the Beck project because it currently does not have sufficient cash on hand to continue the exploration program and to meet the cash payments requirement on the property.  The Company does not believe that it would be able to raise the money that it requires on acceptable terms.  The Company also believes that any potential uranium deposits that might be discovered on the property would not be commercially feasible to develop further at this time because of low market prices for uranium, and the potential of discovering enough uranium to recoup the investment in the property is low.
 
Management of the Company has used its best effort to re-negotiate the terms and conditions of the option agreements with American Nuclear Fuels but the efforts to restructure were unsuccessful. On May 15, 2009, the Company formally terminated its master option agreement with American Nuclear Fuels as well as six lease and option agreements with individual claimholders regarding the Beck Project. Consequently, the carrying value of the mineral interests has been fully impaired as at July 31, 2009. The Company has no further financial obligations pursuant to the terminated master agreement and six lease and option agreements related to the Beck properties.
 
5.   SHAREHOLDER’S EQUITY
 
Stock issuances
 
On August 20, 2009 the Company issued 3,921,808 (19,609 post-split) shares with a total fair value of $204,763 pursuant to agreements to convert certain debts to shares. The fair value was based on the quoted market price on the date of issuance.
 
On December 1, 2010 the Company issued a total of 60,000,000 (300,000 post-split) shares of common stock to a director at par value for aggregate proceeds of $60,000.

 
F-10

 
 
SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
5.   SHAREHOLDER’S EQUITY (continued)
 
Reverse Split
 
On April 6, 2011, the Company effected a 1:200 reverse split of the Company’s issued and outstanding shares of common stock, decreasing the number of outstanding shares from 55,335,976 to 276,678 as of July 31, 2010 and from 115,335,576 to 578,031 as of April 30, 2011. These statements have been adjusted to reflect this reverse split.
 
Stock options
 
In May 2007, the Company adopted a stock option plan (the "Plan") to grant options to directors, officers, employees and consultants.  Under the Plan the Company may grant options to acquire up to 5,000,000 (25,000 post-split) common shares of the Company.  Options granted can have a term up to ten years and an exercise price typically not less than the Company's closing stock price at the date of grant.  Options vest as specified by the Board of Directors.
 
Options granted to date vest 25% upon the grant date, and 25% at the end of each succeeding year for three years after grant.
 
The Company adopted ASC 718.  Effective with the adoption of ASC 718, the Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted.  Compensation expense for stock options granted to employees and non-employees is amortized over the contract services period or, if none exists, from the date of grant until the options vest.  Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.
 
The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model.  For non-employees, the expected term of the options approximates the full term of the options.  The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the reporting period.
 
Stock options are summarized as follows:
 
   
Number of Options
   
Weighted Average
 
   
(Post-split)
   
Exercise Price
 
Balance at July 31, 2010 and April 30, 2011
    500     $ 3.05  
 
As of April 30, 2011, the following stock options were outstanding and exercisable:
 
Number of Options
         
Aggregate
     
Number of Options
   
Aggregate
 
Outstanding (Post-split)
 
Exercise Price
   
Instrinsic Value
 
Expiry Date
 
Exercisable (Post-split)
 
Intrinsic Value
 
  500     $ 3.05     $ -  
April 13, 2012
    500     $ -  
 
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $2.60 per share as of April 30, 2011, which would have been received by the option holders had all option holders exercised their options as of that date.  The total number of in-the-money options vested and exercisable as of April 30, 2011 and 2010 was $Nil.  As of April 30, 2011, 100,000 (500 post-split) outstanding options were vested and exercisable and the weighted average exercise price was $3.05 (2010 - $3.05).  The total intrinsic value of options exercised during the nine months ended April 30, 2011 and 2010 was $Nil.

 
F-11

 
 
SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
5.   SHAREHOLDER’S EQUITY (continued)
 
Stock-based Compensation
 
Total stock based compensation recognized during the three months ended and nine months ended April 30, 2011 and 2010 in respect of options granted in prior periods was, which has been recorded in the Statements of Operations with corresponding additional paid-in capital recorded in stockholders’ equity is as follows:
 
   
Three months ended
   
Three months ended
   
Nine months ended
   
Nine months ended
   
Inception (March 23, 2006)
 
   
April 30, 2011
   
April 30, 2010
   
April 30, 2011
   
April 30, 2010
   
to April 30, 2011
 
Expenses (recovery):
                             
Consulting fees
  $ -     $ (24 )   $ -     $ (179 )   $ 222,958  
management fees
    -       14,190       -       138,843       3,614,975  
Total stock-based compensation expense
  $ -     $ 14,166     $ -     $ 138,664     $ 3,837,933  
 
The following weighted average assumptions were used for the Black-Scholes valuation of stock options granted:
 
   
Nine months ended
   
Nine months ended
 
   
April 30, 2011
   
April 30, 2010
 
Risk-free interest rate
    -       1.31%-4.59 %
Expected life of options (years)
    -       1.89-2.60  
Expected volatility
    -       119%-234 %
Dividend rate
    -       0 %
 
6.   RELATED PARTY TRANSACTION
 
Demand loan payable
 
On February 18, 2010, a lender, unrelated party, loaned the Company a total of $125,000 pursuant to a promissory note requiring interest at 10% per annum and payable on demand.
 
In December 2010, a shareholder purchased the loan from the lender for $134,000 which included the principal and accrued but unpaid interest.  For the nine months ended April 30, 2011, interest expense for the nine months ended April 30, 2011 and 2010 was $9,350 and $2,432.
 
7.    FINANCIAL INSTRUMENTS
 
The Company's financial instruments consist of cash and accounts payable and accrued liabilities.  Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.  The fair value of these financial instruments approximates their carrying values, unless otherwise noted.  
 
8.   SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
 
In August 2009 the Company issued 3,921,808 (19,609 post-split) common shares to settle an aggregate debt of $204,763, of which $152,500 was with two former officers and directors of the Company and the remaining $52,263 was with a consultant.  The amounts have been excluded from cash flows from financing activities.

 
F-12

 

SKY DIGITAL STORES CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
8.   SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (continued)
 
The Reclamation Bond proceeds of $64,235 received in September 2010 were subject to an assignment with two former directors and a former consultant in full settlement of certain debts. This resulted in a forgiven amount of $22,275 which has been applied to Additional Paid-in Capital.
 
9.    CONTINGENT LIABILITIES
 
In 2007 the Company conducted a private placement offering and agreed with the subscribers that a penalty was payable in the event that the securities offered in the private placement were not registered with the U.S. Securities & Exchange Commission within 6 months. The Company was unable to register the securities in time and accordingly in March, 2008 sent a check to each of the subscribers in the private placement for 12% of the amount invested. Some of the investors in the private placement were not able to be contacted and some of the checks sent by the Company were left uncashed. Therefore, certain former investors of the Company may have a claim for a payment which in the aggregate for all those investors adds up to $24,000 which they were entitled to receive. The Company made substantial efforts to locate these investors and does not consider it likely that they would make a claim at this late date.
 
10.    SUBSEQUENT EVENTS
 
For the nine months ended April 30, 2011, the Company has evaluated subsequent events for potential recognition and disclosure.  
 
On May 5, 2011, The Company entered into a Share Exchange Agreement ("Exchange Agreement") by and among Hong Kong First Digital Holding Ltd. (“First Digital”), and the shareholders of First Digital (the "First Digital Shareholders"). The closing of the transaction (the "Closing") took place on May 5, 2011 (the "Closing Date"). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the "Shares") of First Digital from First Digital's shareholders; and First Digital's shareholders transferred and contributed all of their Shares to the Company. In the Exchange, the Company issued to First Digital’s shareholders, their designees or assigns, an aggregate of 23,716,035 post-split shares (the "Shares Component") or 97.62% of the shares of common stock of the Company issued and outstanding after the Closing (the "Share Exchange"), at $0.20 per share. The parties understand and acknowledge that such exchange is based upon an acquisition value of First Digital at $4,743,207, which is agreed and accepted by all.
 
As a result of the Share Exchange, First Digital became our wholly owned subsidiary and its subsidiaries business became our main operational business.  Consequently, the Share Exchange has caused the Company to cease to be a shell company.  The material terms of the Exchange Agreement are more fully described in Exhibit 10.1 of Form 8-K filed with the Securities and Exchange Commission on May 6, 2011.
 
On May 5, 2011, the Board of Directors adopted a resolution by unanimous written consent changing its fiscal year end from July 31 to December 31.   This change was made to be consistent with the fiscal year of First Digital which is now our wholly-owned subsidiary. 
 
 
 
F-13

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of April 30, 2011 and July 31, 2010, together with our results of operations for the nine and three months ended April 30, 2011 and 2010, and the cumulative period from inception (March 23, 2006) to April 30, 2011 and cash flows for the nine months ended April 30, 2011 and 2010 and the cumulative period from inception (March 23, 2006) to April 30, 2011. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report.
 
Our unaudited financial statements are stated in United States Dollars and are prepared in accordance with Generally Accepted Accounting Principles in the United States of America.
 
Overview
 
We were incorporated in the state of Nevada on March 23, 2006 under the name Hoopsoft Development Corp.  On January 9, 2007, we entered into an agreement and plan of merger with Yellowcake Mining Inc., a Nevada corporation and wholly-owned subsidiary of Hoopsoft Development Corp., incorporated for the sole purpose of effecting the merger.  Pursuant to the terms of the agreement and plan of merger, Yellowcake Mining Inc. merged with and into Hoopsoft Development Corp., with Hoopsoft Development Corp. carrying on as the surviving corporation under the name “Yellowcake Mining Inc.”
 
On May 5, 2011, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with HongKong First Digital Holding Limited (“FDH”) and the shareholder os FDC (the “FDH Shareholders”). The acquisition of FDH is treated as a reverse acquisition, and the business of FDH became the business of the Company. For further discussion of the reverse acquisition see entitled Note 10 “Subsequent Events” above.
 
Recent Developments
 
Prior to entering into the Exchange Agreement with FDH as noted above and further discussed in Note 10 entitled “Subsequent Events” in the accompanying Notes to Financial Statements, the Company’s previously planned to seek new business opportunities with established business entities for a merger with or acquisition of a target business.
 
As noted above and discussed further in Note 10 entitled “Subsequent Events” in our accompanying Notes to Financial Statements, we entered in to Exchange Agreement with FDH which was treated as a reverse acquisition. As a result, FDH’s business will be the business objectives and strategy which will drive our plan of operation going forward. FDH is a company that is in the business of designing, manufacturing and selling of mobile communication and digital products through its direct operating subsidiaries Shenzhen Donxon Mobile Communication Technology Co., Ltd. (“Donxon”) and Shenzhen Xing Tian Kong Digital Co., Ltd. (“XTK”). The Company intends to research and develop new products, including projector phones and tablet computers and develop a network of digital products and mobile phone retail chains in the third and fourth-tier cities throughout China. The accompanying financial statements have been prepared assuming the Company will continue as a going concern.
 
Material Changes in Financial Condition
 
We continue to manage our financial position and activities in a manner to maximize the benefit of our current assets.
 
 
6

 
 
Working Capital
 
Our financial condition on April 30, 2011 and July 31, 2010 and the changes between those dates for the respective items are summarized as follows:

   
April 30, 2011
   
July 31, 2010
 
Current Assets
  $ 164     $ 5,307  
Current Liabilities
    148,281       272,250  
Working Capital Deficiency
  $ (148,117 )   $ (266,943 )
 
Our working capital deficiency decreased by 44.5% due to our decrease in liabilities as a result of decreases in accounts payable during the three months ended April 30, 2011.  We were able to decrease our accounts payable and accrued liabilities because we terminated our obligations under our mineral property agreements and financing costs.
 
Cash Flows
 
   
Nine Months
Ended April 30
 
   
2011
   
2010
 
Net cash used in Operating Activities
  $ (112,976 )     (151,348 )
Net cash provided by Investing Activities
  $ 63,047       162  
Net cash provided by Financing Activities
  $ 44,786       125,000  
Change in cash during the period
  $ (5,143 )     (26,186 )
 
Cash Used In Operating Activities
 
During the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, our cash used in operating activities decreased by 25.35% when compared to the prior year because we terminated our obligations under our mineral property agreements and our management and consultant agreements.
 
Cash Provided by Investing Activities
 
During the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010 our cash provided by investing activities increased from $162 to $63,047 through the sale of office equipment and completion of an assignment of a reclamation bond and the sale of common stock. On May 7, 2009 the Company remitted $62,400 to the State of Colorado Department of Mined Land Reclamation and Safety, in order to replace $130,400 of existing reclamation bonds received by the Company. The Company confirmed with the State that the approved remediation process had been completed on some of the Company’s site exploration activities. The process resulted in the Company receiving $130,400 from the State and the holding of $62,400 in reclamation bonds over existing properties in Colorado. The State inspected the properties to insure that the Company had completed all of the required remediation on site exploration and the Company made an application for the return of these funds. In February 2010 the Company assigned its interest in these Bonds to two directors and a consultant in respect of certain amounts owed to them.
 
Cash Provided by Financing Activities
 
During the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, our cash from financing activities decreased by 64.17% when compared to the prior year because we didn’t incur new demand loan during the nine months ended April 30, 2011 period.
 
Material Changes in Results of Operation
 
The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended July 31, 2010 and our unaudited financial statements for the period ended April 30, 2011.
 
Revenues
 
We have not earned any revenues to date.
 
 
7

 
 
Expenses
 
In the tables below show our operating results for the three and nine months ended April 30, 2011 and 2010:
 
   
Three Months ended April 30, 2011
   
Three Months ended April 30, 2010
   
Nine months ended
April 30,
 2011
   
Nine months ended
April 30,
 2010
 
Revenues
   
-
     
-
     
-
     
-
 
Expenses
                               
Consulting fees
 
$
-
   
$
(24
)
 
$
-
   
$
11,793
 
              General and administrative
   
42
     
5,036
     
3,227
     
53,617
 
I             Impairment of mineral interests
     
-
   
-
     
-
     
-
 
Investor relations
     
-
   
(765
)
   
-
     
756
 
Management fees
     
-
   
14,189
     
-
     
193,343
 
Mineral property interests
     
-
   
-
     
-
     
(11,105
)
Financing costs
     
-
   
-
     
(24,000)
     
-
 
Professional fees
   
18,136
     
31,168
     
39,755
     
84,609
 
 Loss from operations
   
(18,178)
     
(49,604
)
   
(18,982)
     
(333,013
)
           Interest income
   
-
     
-
     
1,835
     
-
 
Interest expense
   
(3,048)
     
-
     
(9,350)
     
-
 
                                 
Net Loss
   
(21,226)
     
(49,604
)
 
$
(26,497)
   
$
(333,013
)
                                 
                                 
Basic and diluted loss per share
 
$
(0.06)
     
(0.18
)
 
$
(0.07)
   
$
(1.20
)
                                 
Weighted average number of shares outstanding
   
578,033
     
278,033
     
443,967
     
278,033
 
 
Consulting fees
 
We did not incur any consulting fees during the three months ended April 30, 2011. For the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, our consulting fee expenses decreased by 100% compared to the same period last year.  This decrease was due to the cancellation of our consulting agreements

General and administrative
 
For the three months ended April 30, 2011 compared to the three months ended April 30, 2010, our general and administrative expenses decreased by 99% compared to the same period last year.  This decrease was due to the termination of our obligations under our mineral property agreements. For the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, our general and administrative expenses decreased by 94% compared to the same period last year.  This decrease was due to the termination of our obligations under our mineral property agreements.

Impairment of Mineral Interests
 
We did not incur any impairment of mineral interests for the three months or nine months ended April 30, 2011 and April 30, 2010.

Investor relations
 
We did not incur any investor relations expenses for the three months and nine months ended April 30, 2011.
 
Management fees
 
For the three months ended April 30, 2011 compared to the three months ended April 30, 2010, our management fees decreased by 100% compared to the same period last year.  This decrease was due to the cancellation of our agreement with outgoing management in February 2010.
 
For the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, our management fees decreased by 100% compared to the same period last year.  This decrease was due to the cancellation of our agreement with outgoing management in February 2010.
 
Financing Costs
 
We did not incur any financing costs during the three months ended April 30, 2011. We did not incur any financing costs for the three months or nine months ended April 30, 2010.
 
 
8

 

 Professional fees
 
For the three months ended April 30, 2011 compared to the three months ended April 30, 2010, our professional fees decreased by 41.81% compared to the same period last year.  This decrease was due to the termination of our obligations under our mineral property agreements and the resulting decrease in requirements for professional services.
 
For the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, our professional fees decreased by 53% compared to the same period last year.  This decrease was due to the termination of our obligations under our mineral property agreements and the resulting decrease in requirements for professional services.
 
Liquidity and Capital Resources /Anticipated Cash Requirements
 
As of April 30, 2011, we had nominal assets and had not generated any revenues from any business activities. As a result of our subsequent reverse acquisition of FDH, we believe that our current cash on hand and cash flow from operations will meet our present cash needs unless we expand our current scale of production to another level in a short period of time, in which case we may require additional cash resources to fund our additional capital expenditures and working capital requirements related to such growth. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to ramp up our production facilities and increase machinery and equipment, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.Off-Balance Sheet Arrangements
 
There are 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 is material to investors.
 
Recent accounting pronouncements
 
In March 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-11, which is included in the Codification under ASC 815.  This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements.  Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption.  This guidance became effective for our interim and annual reporting periods beginning January 1, 2010.  The adoption of this guidance did not have a material impact on our financial statements.
 
In February 2010, the FASB issued ASU No. 2010-09, which is included in the Codification under ASC 855, Subsequent Events (“ASC 855”).  This update removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated and became effective for interim and annual reporting periods beginning January 1, 2010.  The adoption of this guidance did not have a material impact on our financial statements.
 
In January 2010, the FASB issued ASU No. 2010-06, which is included in the Codification under ASC 820, Fair Value Measurements and Disclosures (“ASC 820”).  This update requires the disclosure of transfers between the observable input categories and activity in the unobservable input category for fair value measurements.  The guidance also requires disclosures about the inputs and valuation techniques used to measure fair value and became effective for interim and annual reporting periods beginning January 1, 2010.  The adoption of this guidance did not have a material impact on our financial statements.
 
Application of Critical Accounting Policies
 
Basis of Presentation
 
These financial statements are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars.
 
 
 
9

 
 
Use of Estimates
 
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to deferred income tax asset valuations, asset impairment, stock based compensation and loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
Basic and Diluted Loss Per Share
 
We compute our net loss per share in accordance with FASB ASC 260-10-45 (“ASC 260-10-45”, formerly referred to as SFAS No. 128), “Earnings per Share”. ASC 260-10-45 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.  In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. For the year ended July 31, 2010, potentially dilutive common shares relating to options and warrants outstanding totalling 500 post split (2009 – 8,000 post split) were not included in the computation of loss per share because the effect was anti-dilutive.
 
Mineral Rights and Mineral Property Interests
 
Mineral rights includes the cost of advance minimum royalty payments, the cost of capitalized property leases, and the cost of property acquired either by cash payment, the issuance of term debt or common shares.  Expenditures for exploration on specific properties with no proven reserves are written off as incurred.  Mineral rights will be amortized against future revenues or charged to operations at the time the related property is determined to have impairment in value.
 
We also consider the provisions of EITF 04-02 “Whether Mineral Rights are Tangible or Intangible Assets” which concluded that mineral rights are tangible assets.
 
Asset retirement obligations
 
We record the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets in accordance with FASB ASC 410 (“ASC 410”, formerly referred to as SFAS No. 143), "Accounting for Asset Retirement Obligations".  The initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life.  At April 30, 2011 and 2010, we have not accrued any asset retirement obligations.
 
Impairment of long-lived assets
 
Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  During the year ended July 31, 2010, we recognized an impairment of nil in respect of one of our mineral properties.
 
Foreign Currency Translation
 
Our functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with FASB ASC 830 (“ASC 830”, formerly referred to as SFAS No. 52), “Foreign Currency Translation”, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. We have not, to the date of our financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
 
Income Taxes
 
We follow the asset and liability method of accounting for income taxes whereby deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  If it is determined that the realization of the future tax benefit is not more likely than not, we established a valuation allowance.  On August 1, 2007, we adopted FASB ASC 740 (“ASC 740”, formerly referred to as FIN 48), regarding accounting for uncertainty in tax positions. We remain subject to examination of income tax filings in the United States and various state jurisdictions for periods since its inception in 2006. We have also determined that we are subject to examination in Canada for all prior periods due to our continued loss position in such jurisdictions. Material tax positions were examined under the more-likely-than-not guidance provided by ASC 740. If interest and penalties were to be assessed, we would charge interest to interest expense, and penalties to general and administrative expense.
 
 
10

 
 
As a result of the ASC 740 assessment, we concluded that it has not taken any uncertain tax positions on any of its open tax returns that would materially distort our financial statements. There was no material cumulative effect of adopting ASC 740 on our financial statements as of August 1, 2007.
 
Stock-based Compensation
 
We records stock-based compensation in accordance with FASB ASC 718 (“ASC 718”, formerly referred to as SFAS No. 123R), “Accounting for Stock-based Compensation”, and applied the recommendations of this standard using the modified prospective method. Under this application, we are required to record compensation expense, based on the fair value of the awards, for all awards granted after the date of the adoption and for the unvested portion of previously granted awards that remain outstanding as at the date of adoption.   Prior to the adoption of ASC 718, we did not issue any compensation awards.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not Applicable.
 
ITEM 4. CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our management, with the participation of our principal executive and principal financial officer evaluated our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, management concluded that as of the period covered by this quarterly report on Form 10-Q, these disclosure controls and procedures were not effective.
 
Changes in Internal Control over Financial Reporting
 
During the period ended April 30, 2011, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
 
Plan for Remediation of Material Weaknesses
 
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate our material weaknesses when we are able to do so financially and when the timing is appropriate for our company. We do not know what further measures we will take, when we will take them or how much they will cost.
 
Certifications
 
Certifications with respect to disclosure controls and procedures and internal control over financial reporting under Rules 13a-14(a) or 15d-14(a) of the Exchange Act are attached to this quarterly report on Form 10-Q.

 
11

 

 
PART II – OTHER INFORMATION
 
 
ITEM 1. LEGAL PROCEEDINGS.
 
None.
 
ITEM 1A. RISK FACTORS.
 
Not Applicable.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
 
None.
 
ITEM 4. (REMOVED AND RESERVED).
 
 
ITEM 5. OTHER INFORMATION.
 
None.
 
ITEM 6. EXHIBITS .
 
Exhibits required by Item 601 of Regulation S-K:

Exhibit
Number
 
Description
3.1  
Articles of Incorporation (attached as an exhibit to our Form SB-2 Registration Statement, filed on September 22, 2006)
3.2  
Bylaws (attached as an exhibit to our Form SB-2 Registration Statement, filed on September 22, 2006)
3.3  
Articles of Merger filed with the Secretary of State on January 12, 2007 and which is effective January 23, 2007 (attached as an exhibit to our current report on Form 8-K, filed on January 25, 2007)
3.4  
Certificate of Change filed with the Secretary of State of Nevada on January 12, 2007 and which is effective January 23, 2007 (attached as an exhibit to our current report on Form 8-K, filed on January 25, 2007)
3.5  
Amended and Restated Bylaws (attached as an exhibit to our current report on Form 8-K, filed on September 18, 2008)
10.1  
Letter of intent between our company and Strathmore Minerals Corp. dated January 29, 2007 (attached as an exhibit to our current report on Form 8-K, filed on January 30, 2007)
10.2  
Form of Overseas Subscription Agreement (attached as an exhibit to our current report on Form 8-K, filed on February 22, 2007)
10.3  
Form of US Subscription Agreement (attached as an exhibit to our current report on Form 8-K, filed on February 22, 2007)
10.4  
Option and Joint Venture Agreement dated March 14, 2007 between our company and Strathmore Minerals Corp. (attached as an exhibit to our current report on Form 8-K, filed on March 16, 2007)
10.5  
Letter of Intent dated April 5, 2007 between our company and Strathmore Minerals Corp. (attached as an exhibit to our current report on Form 8-K, filed on April 10, 2007)
10.6  
Letter of Intent dated April 12, 2007 between our company and Strathmore Minerals Corp. (attached as an exhibit to our current report on Form 8-K, filed on April 19, 2007)
10.7  
Investor Relations Agreement with Carson Seabolt dated June 15, 2007 (attached as an exhibit to our current report on Form 8-K, filed on July 12, 2007)
10.8  
Amended Letter of Intent with Strathmore Resources (US) Ltd. dated July 23, 2007 regarding the Jeep Project (attached as an exhibit to our current report on Form 8-K, filed on July 31, 2007)
10.9  
Amended Letter of Intent with Strathmore Resources (US) Ltd. dated July 23, 2007 regarding the Sky Project (attached as an exhibit to our current report on Form 8-K, filed on July 31, 2007
10.10  
Stock Option Plan (attached as an exhibit to our current report on Form 8-K, filed on July 31, 2007)
10.11  
Form of Master Agreement Concerning Lease and Option for Purchase and Sale of Mining Properties (Mining Claims, Montrose County, Colorado) (attached as an exhibit to our current report on Form 8-K filed on January 7, 2008)
10.12  
Limited Liability Company Operating Agreement dated effective December 31, 2007 with Strathmore Resources (US) Ltd. (attached as an exhibit to our current report on Form 8-K, filed on May 1, 2008)
10.13  
Jeep Project Termination Agreement dated April 21, 2008 with Strathmore Resources (US) Ltd. (attached as an exhibit to our current report on Form 8-K, filed on May 1, 2008)
10.14  
Sky Project Termination Agreement dated April 21, 2008 with Strathmore Resources (US) Ltd. (attached as an exhibit to our current report on Form 8-K, filed on May 1, 2008)
10.15  
Juniper Ridge Project Termination Agreement dated December 29, 2008 with Strathmore Resources (US) Ltd. (attached as an exhibit to our current report on Form 8-K, filed on January 2, 2009)
10.16  
American Nuclear Fuels (Colorado) LLC Standstill Agreement dated March 16, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on March 23, 2009)
10.17  
Relinquishment and Surrender of Lease and Option with Beckworth Corporation dated May 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 15, 2009)
10.18  
Relinquishment and Surrender of Lease and Option with Energy Venture LLC and Uravan Land and Cattle Company LLC dated May 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 15, 2009)
10.19  
Relinquishment and Surrender of Lease and Option with Bruce L. Beck dated May 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 15, 2009)
10.20  
Relinquishment and Surrender of Lease and Option with Bedrock Development Corp. dated May 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 15, 2009)
10.21  
Relinquishment and Surrender of Lease and Option with Eagle Venture Group LLC dated May 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 15, 2009)
10.22  
May 15, 2009 letter to American Nuclear Fuels (Colorado) LLC terminating the master agreement (attached as an exhibit to our quarterly report on Form 10-Q filed on June 15, 2009)
10.23
 
Shane Exchange Agreement by and among SKY Digital Stores Corp., Hong Kong First Digital Holding Limited and the Shareholders of Hong Kong First Digital Holding Limited dated May 5, 2011 (attached as exhibit 10.1 to our current report on Form 8-K, filed on May 6, 2011)
14.1  
Code of Ethics (attached as an exhibit to our annual report on Form 10-KSB, filed on November 14, 2007)
16.1  
Letter on change in certifying accountant (attached as an exhibit to our current report on Form 8-K filed on April 28, 2010)
31.1 *
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 *
Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 *
Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1  
Audit Committee Charter (attached as an exhibit to our annual report on Form 10-KSB, filed on November 14, 2007)
99.2  
Nominating Committee Charter (attached as an exhibit to our annual report on Form 10-KSB, filed on November 14, 2007)

* Filed herewith.

 
12

 

 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:  June 20, 2011
 
 
SKY DIGITAL SOTRES CORP.
 
       
 
By:
/s/ Lin Xiangfeng  
   
Lin Xiangfeng
 
   
Chief Executive Officer and Chairman
(Chief Executive Officer)
 
       
 
       
 
By:
/s/ Johnny C.W. Chan  
   
Johnny C.W. Chan
 
   
Chief Financial Officer(Principal Financial Officer)
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

13