Attached files

file filename
EX-32.2 - CERTIFICATION - US-China Biomedical Technology, Inc.uschina_10q-ex3202.htm
EX-32.1 - CERTIFICATION - US-China Biomedical Technology, Inc.uschina_10q-ex3201.htm
EX-31.2 - CERTIFICATION - US-China Biomedical Technology, Inc.uschina_10q-ex3102.htm
EX-31.1 - CERTIFICATION - US-China Biomedical Technology, Inc.uschina_10q-ex3101.htm

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 30, 2018

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________ to _________________

 

Commission File No.: 000-54440

 

US-CHINA BIOMEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

 

Nevada   27-4479356

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2 Park Plaza, Suite 400

Irvine, CA 92614

(Address of principal executive offices)

 

Issuer’s telephone number: (949) 679-3992

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted 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 such files). Yes x No o

 

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

 

Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
Emerging growth company o    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

As of January 10, 2019, 15,510,646 shares of our common stock and 0 shares of our preferred stock were issued and outstanding.

 

 

 

   
 

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:

 

  · The availability and adequacy of our cash flow to meet our requirements;

 

  · Economic, competitive, demographic, business and other conditions in our local and regional markets;

 

  · Changes or developments in laws, regulations or taxes in our industry;

 

  · Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;

 

  · Competition in our industry;

 

  · The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;

 

  · Changes in our business strategy, capital improvements or development plans;

 

  · The availability of additional capital to support capital improvements and development; and

 

  · Other risks identified in this report and in our other filings with the Securities and Exchange Commission (“SEC”).

 

This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Use of Term

 

Except as otherwise indicated by the context, references in this Annual Report to the words "we," "our," "us," the "Company," "UCBB," or “US-China” refers to US-China Biomedical Technology, Inc. All references to “USD” or United States Dollars refer to the legal currency of the United States of America.

 

 

 

 

 2 
 

 

US-CHINA BIOMEDICAL TECHNOLOGY, INC.

 

FORM 10-Q

 

November 30, 2018

 

TABLE OF CONTENTS

 

      Page
PART I – FINANCIAL INFORMATION 4
       
Item 1.   Financial Statements 4
    Condensed Balance Sheets (unaudited) as of November 30, 2018  and February 28, 2018 4
    Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended November 30, 2018 and 2017 5
    Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended November 30, 2018 and 2017 6
    Notes to (unaudited) Condensed Financial Statements 7
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 13
Item 4.   Control and Procedures 13
       
PART II – OTHER INFORMATION 14
       
Item 1.   Legal Proceedings 14
Item 1A.   Risk Factors 14
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3.   Defaults Upon Senior Securities 15
Item 4.   Mine Safety Disclosures 15
Item 5.   Other Information 15
Item 6.   Exhibits 16
       
SIGNATURES     17
       
CERTIFICATIONS      

 

 

 

 

 

 

 

 

 

 3 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

US-CHINA BIOMEDICAL TECHNOLOGY, INC.

(FORMERLY CLOUD SECURITY CORPORATION)

CONDENSED BALANCE SHEETS

 

  

November 30,

2018

  

February 28,

2018

 
   (unaudited)     
ASSETS          
Current assets:          
Cash  $211,483   $56,407 
Prepaid expenses   8,617    5,000 
Total current assets   220,100    61,407 
           
Deposit   19,219    19,219 
           
TOTAL ASSETS  $239,319   $80,626 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current liabilities:          
Accounts payable  $24,277   $18,153 
Deferred rent   6,650     
Accrued payroll - non-related parties       27,806 
Accrued payroll - related parties   33,000    35,175 
Notes payable and accrued interest       45,000 
Related party notes payable and accrued interest       226,299 
           
TOTAL LIABILITIES   63,927    352,433 
           
Commitments and contingencies          
         
Stockholders' equity (deficit):          
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at November 30, 2018 and February 28, 2018, respectively        
Common stock, $0.001 par value, 190,000,000 shares authorized; 15,510,646 and 13,510,646 shares issued and outstanding at November 30, 2018 and February 28, 2018, respectively   15,511    13,510 
Additional paid-in capital   2,922,682    1,940,526 
Accumulated deficit   (2,762,801)   (2,225,843)
Total stockholders' equity (deficit)   175,392    (271,807)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $239,319   $80,626 

 

 

See accompanying Notes to the unaudited condensed Financial Statements

 

 4 
 

 

US-CHINA BIOMEDICAL TECHNOLOGY, INC.

(FORMERLY CLOUD SECURITY CORPORATION)

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

   For the Three Months Ended
November 30, 2018
   For the Three Months Ended
November 30, 2017
   For the Nine Months Ended
November 30, 2018
   For the Nine
Months Ended
November 30, 2017
 
                 
Operating expenses:                    
General and administrative expense  $119,345   $128,969   $348,906   $398,883 
Operating loss   (119,345)   (128,969)   (348,906)   (398,883)
                     
Other expense:                    
Interest expense       2,583    3,896    7,583 
Loss on conversion of related party debt           184,156     
                     
Loss before provision for income taxes   (119,345)   (131,552)   (536,958)   (406,466)
                     
Provision for income taxes                
                     
Net loss  $(119,345)  $(131,552)  $(536,958)  $(406,466)
                     
Weighted average shares basic and diluted   15,510,646    13,071,207    15,016,101    13,053,317 
Weighted average basic and diluted loss per common share  $(0.01)  $(0.01)  $(0.04)  $(0.03)

 

 

 

See accompanying Notes to the unaudited condensed Financial Statements

 

 5 
 

 

US-CHINA BIOMEDICAL TECHNOLOGY, INC.  

(FORMERLY CLOUD SECURITY CORPORATION)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

   For the Nine Months Ended November 30, 2018   For the Nine Months Ended November 30, 2017 
Cash flows from operating activities:          
Net loss  $(536,958)  $(406,466)
Adjustments to reconcile net loss to net cash used in operating activities:          
Loss on conversion of related party debt   184,156     
Write-off of security deposit       175 
Changes in operating assets and liabilities:          
Prepaid expenses   (3,617)   (2,500)
Accounts payable   6,125    96,597 
Deferred rent   6,650     
Accrued liabilities   (26,085)   89,167 
Net cash used in operating activities   (369,729)   (223,027)
           
Cash flows from financing activities:          
Cash overdraft       7,167 
Proceeds from sale of common stock   569,805    75,000 
Proceeds from issuance of note payable       137,500 
Payments on notes payable   (45,000)    
Net cash provided by financing activities   524,805    219,667 
           
Net change in cash   155,076    (3,360)
Cash, beginning of period   56,407    3,366 
Cash, end of period  $211,483   $6 
           
Supplemental disclosures of cash flow information          
Cash paid during the period for:          
Interest  $   $ 
Taxes  $800   $ 

 

 

 

See accompanying Notes to the unaudited condensed Financial Statements

 

 6 
 

 

US-CHINA BIOMEDICAL TECHNOLOGY, INC.

(FORMERLY CLOUD SECURITY CORPORATION)

NOTES TO (UNAUDITED) CONDENSED FINANCIAL STATEMENTS

NOVEMBER 30, 2018

 

1. Organization History and Business

 

Organization and History

 

We were incorporated on December 20, 2010 in the State of Nevada as Accend Media. On May 23, 2012 we consummated a merger (the “Merger”) with Cloud Star Corporation, a Nevada corporation, and we changed our name to Cloud Star Corporation (“Cloud Star”). The Merger was accounted for as a reverse acquisition with Cloud Star being treated as the acquirer for accounting purposes.

 

On May 28, 2013, we changed our corporate name to Cloud Security Corporation.

 

On December 8, 2014, we entered into a Stock Purchase Agreement (the “Goldenrise Agreement”) with Goldenrise Development, Inc. (“Goldenrise”). Under the Goldenrise Agreement, we sold 12,000,000 shares of our common stock to Goldenrise for $180,000 which equated to approximately 92% of our outstanding shares. This transaction effectuated a change in control of our Company.

 

On June 28, 2017, Goldenrise and our Company entered into a Stock Purchase Agreement (the “Dunn Agreement”) with Michael R. Dunn, our then sole officer and director (“Dunn”). Pursuant to Dunn Agreement, Goldenrise agreed to sell 12,000,000 shares of our common stock to Dunn representing approximately 92% of our outstanding shares. In consideration for these shares, Dunn agreed to pay Goldenrise a total of $400,000 as follows: (i) $180,000 on or before July 15, 2017 (extended to July 28, 2017), (ii) $180,000 withheld as an offset to monies owed by Goldenrise to Dunn; and (iii) $40,000 withheld and applied towards invoices related to the audit and legal fees associated with the reporting requirements of our Company through the date of Closing.

 

Concurrently, on June 28, 2017, Dunn entered into a Stock Purchase Agreement (the “SPA”) with China Israel Biotechnology Co. Ltd. (“China-Israel”) and Central Bio-MD Technology Co. Ltd., each a Chinese corporation (collectively, the “Buyers” or “China-Israel”). Pursuant to the SPA, Dunn agreed to sell 6,000,000 of our common shares, representing approximately 46% of our outstanding shares. In consideration for the shares, Buyers agreed to pay Dunn a total of $200,000 upon the SPA’s execution (the “Purchase Price”).

 

The Closing for both the Dunn Agreement and the SPA occurred on July 28, 2017. The Dunn Agreement and the SPA resulted in a change in control of our Company.

 

Name Change

 

On December 29, 2017, our Board of Directors approved an agreement and plan to merge with our wholly-owned subsidiary, US-China Biomedical Technology, Inc., a Nevada corporation, to effectuate a name change from Cloud Security Corporation to US-China Biomedical Technology, Inc. (“US-China”). US-China was formed solely for the purpose of this name change and our Company was the surviving entity following the merger. On February 8, 2018, the Financial Industry Regulatory Authority (“FINRA”) announced the effectiveness of a change in our Company’s name to “US-China Biomedical Technology, Inc.” and new trading symbol “UCBB” which became effective on the opening of trading as of February 9, 2018.

  

Business

 

We are an early stage biomedical technology and services company. Through late 2017 our principal business was related to the software development of MyComputerKey™ and our other patented cloud computing technologies; however, due to cash flow constraints, we were unable to proceed with the further development of our software. Due to enhanced competition in the software development market and advancements in technology made by our competitors, we began evaluating alternative business plans.

 

 

 

 

 7 
 

 

Following the change in control of our Company pursuant to the SPA, the decision was made to put the software development on hold and to shift our primary business focus. Our newly revised business plan is directed towards biomedical technology and related services. The primary focus of our plan is the integration and development of synergistic relationships with high profiled doctors and hospitals that will act as a bridge for connecting patients and bio-technology advances in China with our Company’s network of US based doctors and hospitals. We intend to develop a scalable biomedical bridge for the US and China markets. We will provide services for moving patients from China to the US with an emphasis on the following demographics:

 

  (i) cancer patient referrals that are in non-critical, non-life threatening positions,
  (ii) pre-screening and genetic testing for family members of cancer patients,
  (iii) patients suffering from Diabetes, and
  (iv) general medical services including preventative care and physicals.

 

We intend to develop working relationships with key medical innovators for possible joint ventures related to medical device manufacturing in China, including working towards obtaining China Food & Drug Administration (“CFDA”) approval for medical device sales to government owned hospitals. As of the date of this report, we have begun identifying qualified physicians and additions to our management team to begin initiation of operations in the US. The business plan is currently in the development phase.

 

Matters Relating to Former Officers and Directors

 

On January 31, 2017, our former Chief Executive Officer, President, and Chairman of the Board of Directors, Ning Liu resigned after being detained in China. Mr. Liu’s legal troubles are unrelated to our Company, have had no effect on our operations, and we do not believe this poses any business risk.

 

On November 23, 2017, our former Chief Executive Officer and Director, Michael R. Dunn, passed away unexpectedly.

 

On January 9, 2018, Ms. Amanda Huang resigned as the Senior Vice President of our Company effective immediately. The Board approved and accepted Ms. Huang’s resignation as Senior Vice President on January 10, 2018.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim financial statements have been prepared by us pursuant to the rules and regulations of the United States Securities Exchange Commission (“SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with the accounting principles generally accepted in the Unites States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with our Company’s historical financial statements and related notes filed with the SEC including our Annual Report on Form 10-K for the fiscal year ended February 28, 2018 filed on June 13, 2018. The results of operations for the three and nine months ended November 30, 2018, are not necessarily indicative of the results that may be expected for the full year.

 

Going Concern Considerations

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of our Company as a going concern. We currently have no revenues, have incurred net losses, and have an accumulated deficit in excess of $2.7 million as of November 30, 2018. We presently have limited liquidity and limited access to capital. These factors raise substantial doubt about our ability to continue as a going concern for one year from the date of this report. If we are unable to obtain adequate capital, we could be forced to cease operations.

 

 

 

 8 
 

 

Management anticipates we will be dependent, for the foreseeable future, on additional capital to fund further development of our infrastructure and to fund operations until such time we have sufficient revenues to meet our cost structure. Additional capital will be required for, among other things, the establishment of a network of medical partners, the development of a marketing program, and to fund ongoing business needs. There are no assurances that we will be successful in obtaining sufficient capital to continue as a going concern. Our ability to continue as a going concern is also dependent upon our success in accomplishing the plans described in the section of Note 1 titled “Business” for which there can be no assurance.

 

The accompanying financial statements do not include any adjustments that might be necessary if our Company is unable to continue as a going concern.

 

New Accounting Pronouncements

 

We have reviewed all recently issued accounting pronouncements and determined that they were either disclosed in our most recently filed Form 10-K or, based on current operations, are not believed to have a material impact on our financial statements.

 

3. Facility Lease

 

Effective June 1, 2017, we entered into a lease with a company related to our former CEO, Michael Dunn, whereby we leased 5,824 square feet of office space on a month-to-month basis at a monthly rental amount of $16,962 plus approximately $300 per month for parking spaces. The lease could be terminated by either party by giving the non-terminating party a written 30-day notice of lease termination and non-renewal and specifically stating the intended termination date. Under this lease, we were responsible for all services and utilities including, but not limited to, telephone, water, trash disposal, gas, and electricity, used during term of this lease. This lease was terminated effective January 31, 2018.

 

On March 7, 2018, we entered into a new lease with our landlord for the same 5,824 square feet of office space. The new lease has a minimum term of approximately 35 months, expiring January 31, 2021, and requires the following minimum payments, excluding property taxes and other common area costs: months 1 through 11 - $16,016 per month totaling $176,176; months 12 through 23 - $16,715 per month totaling $200,580; and months 24 through 35 - $17,472 per month totaling $209,664. As of November 30, 2018, the future minimum payments for this lease for the fiscal years ending February 28, 2019, 2020, and 2021 are $48,747, $201,337, and $192,192, respectively.

 

During the three and nine months ended November 30, 2018, we incurred $52,659 and $137,859 in rent expense. During the three and nine months ended November 30, 2017 we incurred $48,730 and $117,320 in rent expense.  As of November 30, 2018, we had $6,650 of deferred rent recorded as an accrued liability on the accompanying balance sheet.

 

4. Related Party Transactions

 

Related Party Transactions

 

On May 8, 2018, we completed a subscription agreement for the sale of 2,000,000 shares of our common stock to our largest shareholder for $800,000. $230,195 of the purchase price was applied to the settlement of related party notes payable and accrued interest and the remaining $569,805 was paid in cash. During the nine months ended November 30, 2018, we recorded $3,896 of related party interest expense in connection the buyers’ related party notes payable. Also during the nine months ended November 30, 2018, we recorded a loss on settlement of debt of $184,156 on the accompanying statement of operations based on the excess in fair market value of the shares issued in connection with this transaction.

 

Accrued Payroll

 

In 2017, our Company approved compensation to Michael Dunn in the amount of $5,000 per month beginning in June 2017. In connection with this obligation, as of November 30, 2018, we have recorded accrued and unpaid payroll, including estimated payroll taxes, totaling $33,000.

 

 

 

 9 
 

 

5. Notes Payable

 

On July 25, 2017, prior to the closing of the Dunn Agreement described in Note 1, we entered into an unsecured promissory note with Goldenrise, a former related party before change of control on June 28, 2017, in the amount of $80,000, which was increased to $90,000 by the Parties (the “Note”). The Note, which bore no interest, was due and payable on August 31, 2017. On January 13, 2018, the Note was settled for $45,000 and, as a result, we recorded a gain on settlement of $45,000 during the year ended February 28, 2018. The note was repaid on April 2, 2018.

 

6. Capital Stock

 

Authorizations and Designations

 

We are authorized to issue 190,000,000 shares of our $0.001 par value common stock and 10,000,000 shares of our $0.001 par value preferred stock. As of November 30, 2018, no preferred stock has been issued.

 

Capital Stock Activity

 

As described in Note 4, on May 8, 2018, we completed a subscription agreement for the sale of 2,000,000 shares of our common stock to our largest shareholder for $800,000.

 

2014 Stock Incentive Plan

 

The Board of Directors adopted the 2014 Stock Incentive Plan (the “Plan”). The Plan provides for the grant, at the discretion of the Compensation Committee of the Board of Directors, of stock awards, of common stock, restricted stock, awards of common stock, or stock options to purchase common stock of our Company, with a maximum of 150,000 shares. The Plan, as originally adopted authorized 15,000,000 shares, however, the authorized shares under the Plan were reversed 100 for 1 in accordance with the reverse split of our Company which became effective on January 22, 2015 (see Note 1). As of November 30, 2018, 131,875 shares are available for issuance under the Plan.

 

7. Subsequent Events

 

There have been no material subsequent events through the date of this filing.

 

 

 

 

 

 

 

 10 
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 We are an early stage biomedical technology and services company. Through late 2017 our principal business was related to the software development of MyComputerKey™ and our other patented cloud computing technologies; however, due to cash flow constraints, we were unable to proceed with the further development of our software. Due to enhanced competition in the software development market and advancements in technology made by our competitors, we began evaluating alternative business plans.

 

Following the change in control of our Company pursuant to the SPA, the decision was made to put the software development on hold and to shift our primary business focus. Our newly revised business plan is directed towards biomedical technology and services. The primary focus of our plan is the integration and development of synergistic relationships with high profiled doctors and hospitals that will act as a bridge for connecting patients and bio-technology advances in China with our Company’s network of US based doctors and hospitals. We intend to develop a scalable biomedical bridge for the US and China markets. We will provide services for moving patients from China to the US with an emphasis on the following demographics:

 

  (i) cancer patient referrals that are in non-critical, non-life threatening positions,
  (ii) pre-screening and genetic testing for family members of cancer patients,
  (iii) patients suffering from Diabetes, and
  (iv) general medical services including preventative care and physicals.

 

We intend to develop working relationships with key medical innovators for possible joint ventures related to medical device manufacturing in China, including working towards obtaining China Food & Drug Administration (“CFDA”) approval for medical device sales to government owned hospitals. As of the date of this report, we have begun identifying qualified physicians and additions to our management team to begin initiation of operations in the US. The business plan is currently in the development phase.

 

RESULTS OF OPERATIONS

 

Three Months Ended November 30, 2018 Compared to the Three Months Ended November 30, 2017

 

During the three months ended November 30, 2018, we incurred general and administrative expenses of $119,345 compared to $128,969 for the same period in 2017. Major differences in expense categories in 2018 versus 2017 were payroll and benefits ($4,000 lower), insurance ($2,000 higher), legal fees ($8,000 lower), rent ($4,000 higher), travel ($8,000 higher), telephone and internet ($3,000 lower), accounting and tax preparation ($11,000 lower), and office supplies ($1,000 higher). The cost reductions are primarily the result of restructuring our office staff and outside legal and accounting arrangements and the cost increases mainly come from a revised office lease, insurance policies and numerous meetings with potential strategic partners and investors.

 

In the 2017 period we incurred $2,583 in interest expense on debt that was converted to equity in December 2017.

 

As a result of the above, our net loss decreased from $131,552 in the 2017 period to $119,345 in 2018.

 

Nine Months Ended November 30, 2018 Compared to the Nine Months Ended November 30, 2017

 

During the nine months ended November 30, 2018, we incurred general and administrative expenses of $348,906 versus $398,883 in the 2017 period. Major differences in expense categories in 2018 versus 2017 were payroll and benefits ($31,000 lower), insurance ($4,000 higher), IT support ($2,000 lower), legal fees ($46,000 lower), travel ($7,000 higher), rent ($21,000 higher), public company fees ($7,000 higher), accounting and tax preparation ($4,000 lower), and telephone and internet ($4,000 lower). The cost reductions are primarily the result of restructuring our office staff and outside legal and accounting arrangements and the cost increases mainly come from a revised office lease, insurance policies, higher market access and SEC filing fees, and numerous meetings with potential strategic partners and investors.

 

 

 

 

 11 
 

 

During 2018 we incurred $3,896 in related party interest on debt owed to our largest shareholder. On May 8, 2018, this shareholder purchased 2.0 million shares of our common stock for $800,000, with a portion of the purchase price satisfied by the cancellation of the previously mentioned debt. A loss of $184,156 was recorded in connection with this transaction based on the excess in fair market value of the shares sold compared to the purchase price. During 2017, we incurred interest expense of $7,583 related to debt that was converted to equity in December 2017.

 

As a result of the above, our net loss increased from $406,466 in the 2017 period to $536,958 in 2018.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We currently have no liquidity and have suffered losses and therefore must depend on our ability to attract external financing and investment to conduct our business activities and expand our operations. During the nine months ended November 30, 2018 we completed the sale of 2.0 million of our common shares for $800,000, consisting of $569,805 in cash and $230,195 in converted debt and accrued interest. Management is currently pursuing additional financing and investment opportunities, but there can be no assurance we will be successful in these pursuits. We are hopeful that with additional capital, we will be able to successfully implement our business plan and achieve profitable status, although that success cannot be assured.

 

These factors raise substantial doubt about our ability to continue as a going concern. If we are unable to raise additional capital, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results. We have no firm commitments at present to provide us with future financing. Our independent registered public accounting firm included an explanatory paragraph raising substantial doubt about our ability to continue as a going concern in their report included in our Annual Report on Form 10-K for the year ended February 28, 2018.

 

At November 30, 2018, we had cash and cash equivalents of $211,486 and working capital of $156,173 compared to cash and cash equivalents of $56,407 and a working capital deficit of $291,026 as of February 28, 2018.

 

We had total liabilities of $63,927 at November 30, 2018 consisting of $24,277 of accounts payable, $6,650 of deferred rent, and $33,000 of accrued payroll – related parties. This compares to total liabilities of $352,433 at February 28, 2018 which included $18,153 of accounts payable, $27,806 of accrued payroll – non-related parties, $35,175 of accrued payroll – related parties, notes payable and accrued interest of $45,000, and related party notes payable and accrued interest of $226,299 as of February 28, 2018.

 

We had a total stockholders’ equity of $175,392 and an accumulated deficit of $2,762,801 as of November 30, 2018.

 

During the nine months ended November 30, 2018, we used $369,729 of cash in operating activities which was attributable primarily to our net loss of $536,958, offset by the loss on settlement of debt of $184,156, plus the net change in operating assets and liabilities of $16,927. During the comparable 2017 period, we used $223,027 of cash in operating activities which was mainly as a result of our net loss of $406,466, offset by the net change in operating assets and liabilities of $183,264.

 

With respect to investing activities, we had no cash activity in either period presented and we do not anticipate any significant capital expenditures in the near future as such items are not required by us at this time.

 

During the nine months ended November 30, 2018 and 2017, net cash provided by financing activities was $524,805 and $219,667, respectively. In April 2018, we paid $45,000 to Goldenrise in complete settlement of a $90,000 debt based on a debt settlement agreement entered into in January 2018. In May 2018 we completed the sale of 2.0 million of our common shares for $800,000, consisting of $569,805 in cash and $230,195 in converted debt and accrued interest. In the 2017 period, we sold 125,000 shares of our common stock for $75,000 and we issued notes payable for proceeds of $137,500.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

We have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

 

 

 

 

 12 
 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of November 30, 2018. 

 

Changes in Internal Control Over Financial Reporting

 

On November 19, 2017, Mr. Michael R. Dunn, our Company’s Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer, and director, died unexpectedly. As a result, our Company’s Chairman of the Board of Directors, Mr. Qingxi (“Sunny”) Huang, was appointed as our Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer. This change may have affected our internal control over financial reporting during the periods ended November 30, 2017 and subsequent periods. Our Chief Executive Officer will evaluate our controls and procedures quarterly to determine whether or not our controls and procedures have become effective again.

 

Our Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. Our registered public accounting firm has not attested to Management's reports on our internal control over financial reporting.

 

Limitations on Effectiveness of Disclosure Controls and Internal Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

 

 13 
 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although we cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.

 

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

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

 

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

 

During the nine months ended November 30, 2018, we issued the shares described below in private placements pursuant to Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D and Regulation S, in each case on the basis that the shares were offered and sold in a non-public offering to an “accredited investor” as defined in Rule 501 of Regulation D. Additionally, at the time of the issuances, unless registered for resale, the shares were deemed to be restricted securities under the Securities Act and the certificates evidencing such shares bear a legend to that effect.

 

On March 15, 2018, we entered into a subscription agreement with China-Israel Biological Technology, Co. Ltd. (“CIB”), a Chinese company associated with Mr. Qingxi Huang, our President and Chief Executive Officer, for the sale of 2,000,000 shares of our common stock for aggregate proceeds of $800,000 (the “Purchase Price”). The Purchase Price was paid as follows: (i) $569,805 was paid at closing, and (ii) $230,195 was applied toward the Purchase Price pursuant to a Debt Settlement Agreement entered into by our Company. The Purchase Price was paid on May 8, 2018. The shares were issued on May 25, 2018.

 

Exemption From Registration. The shares of Common Stock referenced herein were issued in reliance upon one of the following exemptions:

 

(a) The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, ("Securities Act"), based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an "Investor") confirmed to the Company that it or he is an "accredited investor," as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were "restricted securities" for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

 

 

 

 

 14 
 

 

(b) The shares of common stock referenced herein were issued pursuant to and in accordance with Rule 506 of Regulation D and Section 4(2) of the Securities Act. We made this determination in part based on the representations of the Investor(s), which included, in pertinent part, that such Investor(s) was an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investor(s) that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Our determination is made based further upon our action of (a) making written disclosure to each Investor prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of the Company of any general solicitation or advertising for securities herein issued in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act.

  

(c) The shares of Common Stock referenced herein were issued pursuant to and in accordance with Rule 903 of Regulation S of the Act. We completed the offering of the shares pursuant to Rule 903 of Regulation S of the Act on the basis that the sale of the shares was completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the shares. Each investor represented to us that the investor was not a "U.S. person", as defined in Regulation S, and was not acquiring the shares for the account or benefit of a U.S. person. The agreement executed between us and each investor included statements that the securities had not been registered pursuant to the Act and that the securities may not be offered or sold in the United States unless the securities are registered under the Act or pursuant to an exemption from the Act. Each investor agreed by execution of the agreement for the shares: (i) to resell the securities purchased only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; (ii) that we are required to refuse to register any sale of the securities purchased unless the transfer is in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; and (iii) not to engage in hedging transactions with regards to the securities purchased unless in compliance with the Act. All certificates representing the shares were or upon issuance will be endorsed with a restrictive legend confirming that the securities had been issued pursuant to Regulation S of the Act and could not be resold without registration under the Act or an applicable exemption from the registration requirements of the Act.

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

 

 

 15 
 

 

ITEM 6. EXHIBITS

 

Exhibit No.   Description
3.1   Articles of Incorporation of Accend Media. (now known as Cloud Security Corp), incorporated by reference to our Registration Statement on Form S-1 filed on April 29, 2011
3.2   Bylaws, incorporated by reference to our Registration Statement on Form S-1 filed on April 29, 2011
3.3   Articles of Amendment to Articles of Incorporation, incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
3.4   Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated May 22, 2012.
3.5   Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated May 28, 2013.
3.5   Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated May 28, 2013.
3.6   Articles of Merger, incorporated by reference to our Current Report on Form 8-K dated February 9, 2018
10.1   2014 Stock Incentive Plan, incorporated by reference to our Registration Statement on Form S-8 filed on February 20, 2014.
10.2   Stock Purchase Agreement, dated December 8, 2014 between Cloud Security Corp. and Goldenrise Development, Inc., incorporated by reference to our Current Report on Form 8-K dated December 12, 2014.
10.3   Stock Purchase Agreement, dated June 28, 2017 between Cloud Security Corp., Goldenrise Development, Inc. and Michael R. Dunn, incorporated by reference to our Current Report on Form 8-K dated June 29, 2017.
10.4   Stock Purchase Agreement dated June 28, 2017, by and between Mr. Michael R. Dunn and China Israel Biotechnology Co. Ltd. and Central Bio-MD Technology Co. Ltd., incorporated by reference to our Current Report on Form 8-K dated August 1, 2017
10.5   Subscription Agreement by and between the Company and CIB, incorporated by reference to our Current Report on Form 8-K dated May 24, 2018
10.6   Debt Settlement Agreement between the Company and CIB, incorporated by reference to our Current Report on Form 8-K dated May 24, 2018
31.1   Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer *
31.2   Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer *
32.1   Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 *
32.2   Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 *

 

101.INS   XBRL Instances Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

 

 ______________

* Filed herewith

 

 

 

 

 

 

 

 16 
 

 

  

SIGNATURES

 

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

 

Date:  January 10, 2019 /s/ Qingxi Huang
  Name: Qingxi Huang
 

Title: Chief Executive Officer (Principal Executive Officer),

President, and Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 17