See accompanying notes to the financial statements.
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FILEWARDEN.COM
(FKA SUCCESS EXPLORATION & RESOURCES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2014
(unaudited)
NOTE 1 – BASIS OF PRESENTATION
The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended May 31, 2013 and for the period from Inception (November 29, 2005) to May 31, 2013 and notes thereto included in the Company’s Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim period are not indicative of annual results.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
The Company is currently seeking, and has accelerated its efforts, to evaluate and acquire complimentary operational businesses or business units in emerging markets, with a primary focus on technology and technology delivery, marketing and marketing solutions, on which to base the Company’s future business activities. Management is seeking to acquire assets or shares of an entity engaged in business which generates revenues and have complimentary and synergistic business models, in exchange for the Company’s securities. The Company has not realized any revenues as of yet from its plan of operations.
Following the change of control on July 30, 2013, the Company elected to remain a “shell company”, a self determined status, as that term is defined in the Exchange Act; however, management of the Company has accelerated its efforts to acquire complimentary business or business assets on which to base the Company’s future business activities.
Management is actively pursuing business units in emerging technologies to acquire assets or controlling shares of complimentary entity or entities who are actively engaged in business which; firstly, generate positive EBITDA and secondly, revenues, and lastly, are unique to the space with high potential for immediate growth, to further the Company’s Plan of Operations, in exchange for the Company’s securities and expertise in these areas.
Cash and cash equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value. As of February 28, 2014 and May 31, 2013, cash and cash equivalents were $536,987 and $8,711, respectively.
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Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 28, 2014 and May 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Development Stage Company
The Company complies with ASC 915 for its characterization of the Company as a Development Stage Entity.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Recent pronouncements
The Company has evaluated recent accounting pronouncements and, while it believes that none of such pronouncements shall have a detrimental or materially negative effect on the Company’s Plan of Operations, Financial Reporting and or Controls, the Company has no control of or over such pronouncements and as such, any and all future pronouncements may represent a Risk Factor which the Company has no control over, which may have a material effect on the Company future operations, financial stability and controls.
As of the date herein, the Company has evaluated the most recent accounting pronouncements and believes that none of them will have a material effect on the Company’s financial statements.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Impairment of Long-Lived Assets and Intangible Assets
Long-lived assets and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of the long-lived assets and intangible assets (other than goodwill) by comparing the carrying amount to the estimated future undiscounted cash flow associated with the related assets. The Company recognizes impairment of long-lived assets and intangible assets in the event that the net book value of such assets exceeds the estimated future undiscounted cash flow attributed to such assets. The Company uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to significant concentrations of credit risk consist principally of cash. The Company places its cash with financial institutions with high-credit ratings.
Beneficial Conversion Feature
From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
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NOTE 3 – GOING CONCERN
The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has not generated any revenues as of the date herein. As shown on the accompanying financial statements, the Company has incurred a net loss of $516,039 for the period from inception (November 29, 2005) to February 28, 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its business opportunities.
In order to obtain the necessary capital, the Company may seek equity and/or debt financing. If the financing does not provide sufficient capital, shareholders and non-affiliates of the Company have agreed to provide sufficient funds as a loan over the next twelve-month period. However, there are no assurances or formal agreements obliging any shareholder, officer or director or non-affiliate to provide such funds. The Company is dependent upon management’s ability to secure equity and/or debt financing and there are no assurances that management will be successful. Absent additional financing, it is unlikely for the Company to continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 4 – INTELLECTUAL PROPERTY
During February 2014, the Company entered into separate purchase and licensing agreements relating to encryption computer software the Company has designated Cryptographic Module Number 1. The Company has agreed to pay minimum monthly royalties of $10,000. Mutual non disclosures and for additional reason related to the proprietary nature of the intellectual property and provisional patent status the Company elects not to identify the name of the IP Provider.
The Company entered into a purchase contract with an a company that developed the encryption software the Company refers to as Cryptographic Module Number 1 and the Company entered into a licensing agreement with the IP Provider (“IP Provider”) to license all rights Ad Infinitum in the encryption software owned by IP Provider and designated by the Company as Cryptographic Module Number 1. As part of the agreements, the IP Provider repaid a $33,858 loan including $484 interest to the Company, the Company agreed to pay $25,000 to IP Provider upon execution of the agreement and minimum monthly royalties of $10,000 beginning within sixty (60) days following the close of each fiscal quarter.
The minimum royalties are to be paid with $5,000 on the 1st and 15th of each month. When gross earned royalties exceed $10,000 per month royalty payment will be based on the following Royalty Payment Plan:
| | | | |
| | | | Earned |
| | | | Royalty |
Gross Sales Volume | | Percentage |
| | | | |
$ 65,000 | thru | $ 500,000 | | 12% |
$ 501,000. | thru | $1,500,000 | | 10% |
$1,501,000 | thru | $3,000,000 | | 8% |
$3,001,000 | thru | $5,000,000 | | 7% |
$5,001,000 | and up | | | 6% |
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NOTE 5 – NOTE PAYABLE – RELATED PARTY
Prior to June 1, 2013, Mr. Long, a former officer and director of the Company, had loaned the Company an aggregate amount of $56,090. This loan bore no interest and was due upon demand. On July 30, 2013, in connection with the change of control of the Company, Mr. Long sold his debt to HSC Holdings LLC pursuant to a Debt Exchange Agreement with HSC Holdings LLC, the Company's majority shareholder, in which Mr. Long’s note was exchanged for a Promissory Note in the principal amount of $56,000 with HSC Holdings LLC. The note was due December 31, 2013, bears interest at the rate of 6% per annum due on maturity and is unsecured.
On November 11, 2013 the Board of Directors and a majority in interest of the Shareholders approved the issuance of 600,000 Series B Super Voting Preferred Shares, par value $0.001, to redeem the above Promissory Note in the amount of $56,000 bearing 6% interest, that would have matured on December 31, 2013, payable to majority shareholder, HSC Holdings, LLC. Such Promissory Note was issued in conjunction with the change of control on July 30, 2013. The shares were issued during November 2013.
A summary of the outstanding related-party notes payable follows:
| | | | | |
Description | February 28, 2014 | | May 31, 2013 | | |
Notes Payable - Related Party | | | | | |
6% demand note, December 31, 2013 | | | | | |
maturity date. Sold to related party on | | | | | |
July 30, 2013 and converted to 600,000 | | | | | |
series B super voting preferred shares on | | | | | |
November 1, 2013. | | | | | |
| | | | | |
Principal Balance: | $ 56,090 | | $ 56,090 | | |
Less: | | | | | |
Cash Payment | (90) | | | | |
Preferred Stock | (56,000) | | | | |
| | | | | |
Total Related Party Notes Payable | $ - | | $ 56,090 | | |
NOTE 6 – CONVERTIBLE NOTE PAYABLE – RELATED PARTY
On November 29, 2013 the Company entered into a Convertible Promissory Note (“Note”) in the amount of $70,852, bearing 8% interest per annum, maturing on December 29, 2014, with Secured Income Reserve, Inc., a related party. Ilona A. Mandelbaum is a director of the Company, the managing partner of HSC Holdings LLC, the majority shareholder of the Company and Ms. Mandelbaum is also the majority shareholder of Secured Income Reserve, Inc. The Company utilized the loan proceeds for operating expenses.
At the option of the Lender (or Holder), Lender may convert the note and the unpaid interest thereon into the Common Stock of the Company based upon the closing bid price of one share of the Common Stock as published by the OTC Markets Weekly Report at the rate of the lesser of Ten cents ($0.10) or 50% of the average prior five days bid price of one (1) share of Common Stock. In the event there is no published Closing bid price for one (1) share of Common Stock of the Borrower as published by the OTC Markets Weekly Report, or if, such published amount is less than par value, the Lender may convert all such amounts due to Lender at two (2) times par value of One (1) Common Stock of the Company. The beneficial conversion feature resulting from the discounted conversion price on the date of grant was valued to be the full principal amount of the Note, $70,852. This value was recorded as a discount on debt and offset to additional paid in capital. The debt discount will be amortized to interest expense over the term of the note using the effective interest method. During the three months ended February 28, 2014, debt
discount in the amount of $17,471 was amortized to interest expense with $53,202 remaining as the unamortized portion of the discount.
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As of February 28, 2014, the convertible note payable balance owed to the related party was $70,852, offset by the remaining debt discount of $53,202 and presented on the financial statements in the net amount of $17,650 as the convertible note payable amount due to related party. In addition to the convertible note payable balance owed to the related party was $70,852, there is related accrued interest of $1,413 due to the related party as presented on the financial statements as of February 28, 2014.
A summary of the related-party convertible notes outstanding follows:
| | | |
Description | February 28, 2014 | | May 31, 2013 |
Convertible Notes Payable - Related Party | | | |
| | | |
One 8% one year note maturing on | | | |
December 29, 2014 and convertible at | | | |
lender option at the lower of $0.10 per | | | |
per share or 50% of the OTC five day | | | |
average bid price or if published bid price | | | |
is less that par value conversion price | | | |
will be two times the par value. | | | |
Beneficial conversion feature calculated to | | | |
be $70,852 and recorded as a debt | | | |
discount amortized over the life of the note. | | |
| | | |
Principal: | $ 70,852 | | $ - |
Less: Unamortized debt discount | (53,202) | | |
| | | |
Total Related Party Notes Payable | $ 17,650 | | $ - |
NOTE 7 – CONVERTIBLE NOTES PAYABLE
Between December 9, 2013 and February 12, 2014, the Company entered into six (6) one-year Convertible Promissory Notes in the aggregate amount of $790,000 for working capital purposes by the Company, bearing interest rates of 15% per annum, maturing between December 9, 2014 and February 12, 2015, with Tamda Marketing, Inc. a non-affiliated Debt holder. Terms of the Convertible Promissory Notes required the Company to prepay the interest on the Convertible Promissory Notes in the aggregate amount of $118,500. Additional terms include the ability of the Holder at the option of the Holder to convert such Convertible Promissory Notes.
At the option of the Lender (or Holder), Lender may convert the note and the unpaid interest thereon into the Common Stock of the Company based upon the closing bid price of one share of the Common Stock as published by the OTC Markets Weekly Report at the rate of the lesser of Ten cents ($0.10) or 50% of the average prior five days bid price of one (1) share of Common Stock. In the event there is no published Closing bid price for one (1) share of Common Stock of the Borrower as published by the OTC Markets Weekly Report, or if, such published amount is less than par value, the Lender may convert all such amounts due to Lender at two (2) times par value of One (1) Common Stock of the Borrower. The beneficial conversion feature resulting from the discounted conversion price on the dates of grant was valued to be the full principal amounts of the Notes, $790,000. This value was recorded as a discount on debt and offset to additional paid in capital. The debt discount will be amortized to interest expense over the term of the note using the effective interest method. During the three months ended February 28, 2014, debt discount in the amount of $81,612 was amortized to interest expense with $708,388 remaining as the unamortized portion of the discount.
As of February 28, 2014, the convertible notes payable balance owed was $790,000, offset by the remaining debt discount of $708,388 and presented on the financial statements in the net amount of $81,612 as the convertible notes payable amount due.
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A summary of the notes as of February 28, 2014 follows:
| | | |
Description | February 28, 2014 | | May 31, 2013 |
Convertible Notes Payable | | | |
| | | |
Six 15% one year, convertible notes | | | |
at lender option at the lower of $0.10 per | | | |
per share or 50% of the OTC five day | | | |
average bid price or if published bid price | | | |
is less that par value conversion price | | | |
will be two times the par value. | | | |
Aggregate beneficial conversion feature | | | |
calculated to be $790,000 and recorded | | | |
as a debt discount amortized over the life | | | |
of the notes. | | | |
| | | |
Note Dates: | | | |
December 9, 2013 | $ 110,000 | | $ - |
December 20, 2013 | 65,000 | | - |
January 3, 2014 | 75,000 | | - |
January 28, 2014 | 110,000 | | - |
February 3, 2014 | 207,500 | | - |
February 12, 2014 | 222,500 | | - |
| | | |
Total principal of notes | $ 790,000 | | $ - |
Less: Unamortized debt discount | (708,388) | | |
| | | |
Total Convertible Notes Payable | $ 81,612 | | $ - |
NOTE 8 – STOCK PAYABLE
On January 24, 2014, the Company entered into employment agreements with the President and the Comptroller pursuant to which they will each receive 1,218,750 restricted common shares of the Company’s stock valued at $8,125, for an aggregate amount of 2,437,500 restricted common shares to be issued valued at the aggregate amount of $16,250.
NOTE 9 – STOCKHOLDERS’ EQUITY
The Company is authorized to issue 600,000,000 shares of Common Stock, 5,000,000 shares of “blank check” Preferred Stock, 2,000,000 shares of Series ‘A’ Preferred Stock, 600,000 shares of Series ‘B’ Super Voting Preferred Stock and 2,000,000 shares of Series ‘C’ Preferred Stock, each with a par value of $0.001 per share.
On September 6, 2013, the Company approved the filing of a Certificate of Amendment to the Company’s Articles of Incorporation, Article IV (the “Certificate”) (a) to authorize 600,000,000 shares of $0.001 par value per share common stock and (b) to re-authorize 5,000,000 shares of “blank check” preferred stock, $0.001 par value per share of Preferred Stock.
On November 7, 2013, the Company approved the filing of a Certificate of Amendment to the Articles of Incorporation, setting forth the Designation of Rights & Preferences for three (3) series of Preferred Stock, namely; 2,000,000, Series ‘A’ Preferred Stock, 600,000 Series ‘B’ Super Voting Preferred Stock and 2,000,000 Series ‘C’ Preferred Stock, pursuant to Nevada (NRS) 78.385 & 78.390 – After Issuance of Stock and further pursuant to NR 78.1955.
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The designations, rights and preferences of the 2,000,000 shares of Series A Preferred Stock include:
• each share is entitled to the number of votes as shall equal the number of shares of our common stock into which it is then convertible, and the holders of the Series A Preferred Stock will vote together with the holders of our common stock as a single class on all matters submitted to a vote of our stockholders, except as required by law or as otherwise provided,
• the shares are convertible at our option at any time, or by the option of the holder at any time within the first 12 months of issuance, into shares of our common stock at a conversion ratio determined by (i) multiplying the number of shares of Series A Preferred Stock to be converted by $2.50 plus any declared but unpaid dividends, and (ii) dividing the result thereof by the conversion price of $2.50, and the multiplying this amount by two, subject to proportional adjustment in the event of stock splits, stock dividends or similar corporate events,
• cumulative dividends accrue on each share of Series A Preferred Stock at the rate of 10% per annum payable twice per calendar year, if and when declared by our Board of Directors. Any declared dividends are payable in cash, shares of our common stock, additional shares of Series A Preferred Stock, or any combination thereof in our discretion,
• each share has a liquidation preference of $2.50 per share, subject to proportional adjustment in the event of stock splits, stock dividends or similar corporate events, plus any accrued but unpaid dividends,
• so long as any shares of Series A Preferred Stock are outstanding, the consent of the holders of at least 51% of the shares is necessary to create any series of preferred stock which is not junior to the Series A Preferred Stock,
• at any time upon 10 days notice, and providing that we receive the consent of the holders of at least 51% of the then outstanding shares of Series A Preferred Stock, we are entitled to redeem the shares for a redemption price of (i) $2.50 per share plus declared but unpaid dividends, payable in cash, and (ii) two shares of our common stock, and
• at any time that we (i) complete a “qualified financing,” or (ii) a “qualified registration statement” has occurred, the holders of the Series A Preferred Stock have the right to put the shares back to us and we are obligated to pay them an amount, in cash, equal to 125% of the stated value of the Series A Preferred Stock. For the purposes of the designations, “qualified financing” means gross proceeds received by us from the issuance of equity, debt or equity-linked securities of at least $10 million, and “qualified registration statement” means any registration statement undertaken by us of any equity or equity-linked securities.
The designations, rights and preferences of the 600,000 shares of Series ‘B’ Super Voting Preferred Stock include:
• the holders have 1,000 times the number of votes on all matters submitted to a vote of our stockholders that each stockholder of our common stock is entitled to on any matter submitted to a vote of our stockholders. The Series B Super Voting Preferred Stock and common stock vote together as a single class,
• the shares of Series B Super Voting Preferred Stock are not convertible into any other security,
• the shares pay an annual dividend of 3% of the original issuance price of $0.001 per share if and when declared by the Board of Directors. If, in any 12 month period, the Board declared dividends on our common stock which would exceed the declared dividends on the Series B Super Voting Preferred Stock in such period determined on a common share equivalent basis, the Board is obligated to declare and pay additional dividends on the Series B Super Voting Preferred Stock so that the total dividends on are parity determined on a common stock equivalent basis, and
• subject to any preferential liquidation rights, upon the liquidation or winding up of our company, the holders of Series B Super Voting Preferred Stock are entitled to a distribution in an amount equal to the amount available for distribution to our common stockholders.
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The designations, rights and preferences of the 2,000,000 shares of Series ‘C’ Preferred Stock include:
• each share is entitled to the number of votes as shall equal the number of shares of our common stock into which it is then convertible, and the holders of the Series C Preferred Stock will vote together with the holders of our common stock as a single class on all matters submitted to a vote of our stockholders, except as required by law or as otherwise provided,
• each share is convertible at the option of the holder into two shares of our common stock;provided, however, that such shares may be converted into shares of our common stock with our permission, but restricted for a period of (i) six months after purchase if we file public reports pursuant to Section 12 or 15 of the Securities Exchange Act of 1934, or (ii) 12 months if we do not file such public reports,
• cumulative dividends accrue on each share of Series C Preferred Stock at the rate of 10% per annum, if and when declared by our Board of Directors. Any declared dividends are payable in cash, shares of our common stock, additional shares of Series C Preferred Stock, or any combination thereof in our discretion,
• each share has a liquidation preference of $5.00 per share, subject to proportional adjustment in the event of stock splits, stock dividends or similar corporate events, plus any accrued but unpaid dividends,
• with the consent of the holders of at least 51% of the then outstanding shares of Series C Preferred Stock, the company may call for and or convert the shares into shares of our common stock ,
• at any time upon 10 days notice, and providing that we receive the consent of the holders of at least 51% of the then outstanding shares of Series C Preferred Stock, we are entitled to redeem the shares for a redemption price
of (i) $5.00 per share plus declared but unpaid dividends, payable in cash, and (ii) one share of our common stock, and
• at any time that we (i) complete a “qualified financing,” or (ii) a “qualified registration statement” has occurred, the holders of the Series C Preferred Stock have the right to put the shares back to us and we are obligated to pay them an amount, in cash, equal to 125% of the stated value of the Series C Preferred Stock. For the purposes of the designations, “qualified financing” means gross proceeds received by us from the issuance of equity, debt or equity-linked securities of at least $20 million, and “qualified registration statement” means any registration statement undertaken by us of any equity or equity-linked securities.
On November 11, 2013 the Board of Directors and a majority in interest of the Shareholders approved the issuance of 600,000 Series B Super Voting Preferred Shares, issued on the same date, par value $0.001, to redeem a Promissory Note in the amount of $56,000 bearing 6% interest, that would have matured on December 31, 2013, payable to majority shareholder, HSC Holdings, LLC. Such Promissory Note was issued in conjunction with the change of control on July 30, 2013. The redemption of such Promissory Note and the Issuance of the Preferred Shares is reflected on the Financial Statements of the Company attached herein and by reference.
At February 28, 2014, there were 67,815,000 shares of Common Stock and 600,000 shares Series B Super Voting Preferred Stock issued and outstanding.
NOTE 10 – WARRANTS AND OPTIONS
As of February 28, 2014, there were no warrants or options outstanding to acquire any additional shares of common stock.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Lease Payments - On October 22, 2013 the Company requested assignment of the lease dated May 3, 2013 for the Company’s current office space. Following the effective date of the corporate name change to FileWarden.com, such assignment was finalized to the Company on January 21, 2014. Terms of the lease required the following monthly payments beginning May 3, 2013: $2,650 for months 1-12, $4,331 for months 13-24, $4,633 for months 25-36, $4,935 for months 37-48 and $5,237 for months 49-60.
Royalty Payments - During February 2014, the Company entered into separate purchase and licensing agreements relating to encryption computer software the Company has designated Cryptographic Module Number 1. The Company has agreed to pay minimum monthly royalties of $10,000.
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The following table summarizes the lease and royalty payments for which the Company is obligated during each fiscal year:
| | | | | | | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 |
Minimum lease payments | | $ 12,281 | | $ 52,275 | | $ 55,901 | | $ 59,527 | | $ 57,613 |
Minimum royalty payments | | 30,000 | | 120,000 | | 120,000 | | 120,000 | | 120,000 |
Totals: | | $ 42,281 | | $ 172,275 | | $ 175,901 | | $ 179,527 | | $ 177,613 |
| | | | | | | | | | |
NOTE 12 – RELATED PARTY TRANSACTIONS
Office space, related utilities and office expenses for the period between the change of control on July 30, 2013 through September 30, 2013 had been provided without charge by an officer and director of the Company, Ilona Mandelbaum, through Secured Income Reserve, a related party. Such costs were provided for no consideration and, accordingly, they have not been reflected herein. Ms. Mandelbaum is an officer and director of the Company, the managing partner of HSC Holdings LLC, the majority shareholder of the Company, and Ms. Mandelbaum is also the majority shareholder of Secured Income Reserve, Inc.
On October 15, 2013 the Company entered into a Consulting & Distribution Agreement with Intelakare Marketing, Inc., to provide business and consulting services to the Company. Raymond Talarico, President and Chief Executive Officer of the Company is also the majority shareholder of IntelaKare Marketing, Inc.; terms and conditions of such Agreement are as reported on Form 8-K during the period.
On November 11, 2013, the Company redeemed a Promissory Note in the amount of $56,000 (see Note 5).
On November 29, 2013 the Company entered into a Convertible Promissory Note in the amount of $70,852 with a related party (see Note 6).
NOTE 13 – SUBSEQUENT EVENTS
Name change, stock split and trading symbol:
On February 12, 2014 the Company filed Articles of Amendment to our Articles of Incorporation to change the Company name to FileWarden.com, to more accurately reflect the Plan of Operations of the Company, effective March 5, 2014. This action was approved by our Board of Directors and the holder of a majority of our outstanding common stock on February 11, 2014. The Articles of Amendment to our Articles of Incorporation as filed with the Secretary of State of Nevada are filed as an Exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 10, 2014.
Our common stock is quoted on the OTC Bulletin Board presently under the symbol SCXR. On March 11, 2014 our common stock will be quoted under our new name, our trading symbol will change to FLWD and the new CUSIP number for our common stock will be 317001105.
Certificates representing shares of our common stock which bear our former name and CUSIP number will continue to be valid. New share certificates will be issued reflecting the name change and new CUSP number as current certificates are tendered for exchange or transfer to our transfer agent, Island Stock Transfer, in the ordinary course.
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On March 19, 2014 FileWarden.com filed a Certificate of Change with the Secretary of State of Nevada pursuant to which we will affect a 15 for one forward stock split of our issued and outstanding common stock on April 8, 2014. The forward stock split will be distributed to all stockholders of record on April 7, 2014. Certificates representing the additional shares will be mailed to our stockholders by our transfer agent. No cash will be paid or distributed as a result of the forward stock split and no fractional shares will be issued. All fractional shares, which would otherwise be required to be issued as a result of the stock split, will be rounded up to the nearest whole share. There will be no change in the number of authorized shares of our common stock or the par value of our common stock. The stock split resulted in the issued and outstanding common shares to increase from the previous balance of 4,521,000 shares to 67,815,000 shares. The financial statements have been retroactively updated to reflect the split.
It is expected that our common stock will be quoted on the OTC Bulletin Board post split beginning at market open on April 8, 2014. The trading symbol of our common stock on the OTC Bulletin Board will be changed to “FLWDD” for the 20 trading days beginning on April 8, 2014. Thereafter, the trading symbol of our common stock will revert back to “FLWD.”
The Articles of Amendment to our Articles of Incorporation as filed with the Secretary of State of Nevada are filed as an Exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 4, 2014.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Form 10-Q.
SEC Rule 405 under the Securities Exchange Act defines a “shell company” as a registrant with no or nominal operations and no or nominal assets or just assets consisting entirely of cash. A shell company is required to identify itself as such on the cover page of its periodic SEC reports. In the event of certain corporate reorganizations effecting a change in control of the SEC reporting company with an otherwise privately held company, a shell company is required to make extensive additional disclosures regarding the shell company and the privately held company whose objective may be to become an SEC reporting, public company. We have identified ourselves as a shell company because of our limited operations and assets to date. It is not our plan or intention to seek out or entertain proposals for reorganization of our company with any other company which would result in a change in control or a change in our Plan of Operations.
To date, the point at which a potential shell company's operations and assets are no longer be considered nominal is not defined in the Rule and has not been clarified by any SEC pronouncements or judicial interpretations. The Company intends to re-evaluate our operations and assets as well as any additional legal clarification prior to the filing of every report to determine if it is appropriate to change our self determined status. The Company believes its Plan of Operations, once fully implemented, will provide the Board of Directors of the Company the ability to reevaluate the self determined status of the Company as a “shell company”. However, there can be no assurances the Company will ever meet or exceed the threshold of a non-shell company now or in the future despite the Company’s Plan of Operations or management’s implementation of such Plan of Operations.
Forward-Looking Statements
This discussion contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.
Overview
FileWarden.com, (referred to herein as the “Company”, “we”, “us” and “our”) is currently seeking, and has accelerated its efforts, as a result of monies borrowed by the Company, to evaluate and acquire complimentary operational businesses or business units in emerging markets, with a primary focus on technology and technology delivery, marketing and marketing solutions, on which to base the Company’s future business activities. Management is aggressively seeking to acquire assets or shares of an entity actively engaged in business which generates revenues and have complimentary and synergistic business which promote and support the Company's Plan of Operations, in exchange for the Company’s securities.
During the period the Company evaluated several business entities, and as a result of those evaluations, management circulated one (1) Letter of Intent (LOI) to a company developing encryption based technologies, resulting in the execution of an Intellectual Property Purchase and Assignment Agreement between the two Parties. Pursuant to mutual non disclosures and additional reasons related to the proprietary nature of the intellectual property and provisional patent status of the underlying intellectual property (“IP”), the Company elects not to identify the name of the IP Provider.
During February 2014, the Company entered into separate purchase and licensing agreements relating to encryption computer software known as the Cryptographic Module Number 1. The Company has agreed to pay minimum monthly royalties of $10,000.
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The Company entered into a purchase and assignment agreement with an individual that developed the encryption software known as the Cryptographic Module Number 1 and the Company entered into a licensing agreement with the IP Provider to license all rights Ad Infinitum in the encryption software owned by the IP Provider and known as the Cryptographic Module Number 1. As part of the agreements, the IP Provider repaid a $33,858 loan including $484 interest to the Company, the Company agreed to pay $25,000 to the IP Provider upon execution of the agreement and minimum monthly royalties of $10,000 beginning within sixty (60) days following the close of each fiscal quarter. Mutual non disclosures and for additional reason related to the proprietary nature of the intellectual property and provisional patent status of the underlying IP, the Company elects not to identify the name of the IP Provider.
The Company was incorporated on November 29, 2005 in the State of Nevada. On December 1, 2005, the Company issued to an officer and director of the Company 22,500,000 shares of its $0.001 par value common stock at a price of $0.0001 per share for cash of $2,500. On May 11, 2007, the Company issued an officer and director of the Company 17,865,000 shares of its $0.001 par value common stock at a price of $0.0001 per share for cash of $1,985. On May 15, 2007, the Company issued to various investors of the Company a total of 25,290,000 shares of its $0.001 par value common stock at a price of $0.0016 per share for cash of $42,150. In January, 2012, the company authorized various subscription agreements for 2,160,000 shares of its $0.001 par value common stock and a price of $0.0166 per share for cash of $36,000.
Prior to the change of control effective July 30, 2013, the Company was primarily engaged in the mining business whose purpose was to explore and acquire minerals and mineral rights for commercial use. As a result of all known mining claims either being absent any known commercial mineral reserves or mineral rights, prior management abandoned such plan of operations. Historically, and prior to the change of control, the Company recorded no cost or expenses related to the acquisition of any known mining or mineral claim, claims or rights. Consequently, as a result of its proposed change to its Plan of Operations the Company intends to amend, subject to SEC rule, its SIC Code to 7374 – Computer Processing and Data Preparation and Processing Services from 1000 – Metal Mining; Industry to Computer Services from Metal Mining and finally its Sector to Technology from Basic Metals. Such amendments will reflect more accurately its proposed Plan of Operations.
On July 30, 2013, Messrs. Alexander Long and Jonathan Long, then executive officers and directors of the Company, and Stuart William Craig, a former member of our Board of Directors, entered into a Stock Purchase Agreement with HSC Holdings LLC. Under the terms of this agreement, HSC Holdings LLC acquired 41,265,000 shares of our common stock, representing approximately 61% of the Company’s outstanding common stock, from Messrs. Alexander Long and Jonathan Long for aggregate cash consideration of $211,843.88. HSC Holdings, LLC used its working capital to fund the purchase of these shares. As a provision of this transaction and change of control, Messrs. Alexander Long and Jonathan Long resigned as officers and directors of the Company and Mr. Sage was appointed an officer and director.
On September 6, 2013, the Company approved the filing of a Certificate of Amendment to the Company’s Articles of Incorporation, Article IV (the “Certificate”) (a) to authorize 600,000,000 shares of $0.001 par value per share common stock (b) to re-authorize 5,000,000 shares of “blank check” preferred stock, $0.001 par value per share of Preferred Stock.
On November 7, 2013, the Company approved the filing of a Certificate of Amendment to the Articles of Incorporation, setting forth the Designation of Rights & Preferences for three (3) series of Preferred Stock, namely; 2,000,000, Series ‘A’ Preferred Stock, 600,000, Series ‘B’ Super Voting Preferred Stock and 2,000,000 Series ‘C’ Preferred Stock, pursuant to Nevada (NRS) 78.385 & 78.390 – After Issuance of Stock and further pursuant to NR 78.1955.
On November 11, 2013, the Board of Directors and a majority in interest of the Shareholders approved an issuance of 600,000 Series B Super Voting Preferred Shares, par value $0.001, to redeem a Promissory Note in the amount of $56,000 bearing 6% interest, maturing on December 31, 2013, payable to majority shareholder, HSC Holdings, LLC. Such Promissory Note was issued in conjunction with the change of control on July 30, 2013. The redemption of such Promissory Note and the Issuance of the Preferred Shares is reflected on the Financial Statement of the Company attached herein and by reference.
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On February 12, 2014 the Company filed Articles of Amendment to our Articles of Incorporation to change the name of our Company to FileWarden.com effective March 5, 2014. This action was approved by our Board of Directors and the holder of a majority of our outstanding common stock on February 11, 2014. The Articles of Amendment to our Articles of Incorporation as filed with the Secretary of State of Nevada are filed as an Exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 10, 2014.
Our common stock is quoted on the OTC Bulletin Board presently under the symbol SCXR. On March 11, 2014 our common stock will be quoted under our new name, our trading symbol will change to FLWD and the new CUSIP number for our common stock will be 317001105.
Certificates representing shares of our common stock which bear our former name and CUSIP number will continue to be valid. New share certificates will be issued reflecting the name change and new CUSP number as current certificates are tendered for exchange or transfer to our transfer agent, Island Stock Transfer, in the ordinary course.
On March 19, 2014 FileWarden.com filed a Certificate of Change with the Secretary of State of Nevada pursuant to which we will affect a 15 for one forward stock split of our issued and outstanding common stock on April 8, 2014. The forward stock split will be distributed to all stockholders of record on April 7, 2014. Certificates representing the additional shares will be mailed to our stockholders by our transfer agent. No cash will be paid or distributed as a result of the forward stock split and no fractional shares will be issued. All fractional shares, which would otherwise be required to be issued as a result of the stock split, will be rounded up to the nearest whole share. There will be no change in the number of authorized shares of our common stock or the par value of our common stock. The stock split resulted in the issued and outstanding common shares to increase from the previous balance of 4,521,000 shares to 67,815,000 shares.
During the three month period ending February 28, 2014, the Company borrowed $790,000 from a non-affiliated party to forward its plan of operations.
The amounts listed under Working Capital provided for the Company to evaluate several non-affiliated business units and one affiliated business unit, whereby, during the period, the Company negotiated and delivered two (2), Letters of Intent (LOI), to the management of said business units. Non-disclosure Agreements (NDA) prevent the Company from disclosing the names of the entities or management of said entities. As of the date of this filing, the Company and the entities management in receipt of the Letter(s) of Intent are in the process of evaluating and considering the proposals of the Company. Following execution of the Letter or Letters of Intent, the Company will begin an exhaustive due diligence period with the intent of Closing the transaction(s) and controlling the target, its operations and revenue. The Company will report any and all material events related to the Letter(s) of Intent as is required by Rule, when and if, there is a resultant change in status of such Letter(s) of Intent.
Currently, the Company has not generated any revenues as of the date herein and the Company has incurred a net loss of $516,039 for the period from inception (November 29, 2005) to February 28, 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern had management not changed its Plan of Operations. Consequently, as a result of its proposed Plan of Operations the Company intends to amend, subject to SEC rule, its SIC Code to 7374 – Computer Processing and Data Preparation and Processing Services from 1000 – Metal Mining; Industry to Computer Services from Metal Mining and finally its Sector to Technology from Basic Metals, such amendments will reflect more accurately its proposed Plan of Operations. However, such a change in the Plan of Operations of the Company is not an indication, nor should investors or shareholders consider that such a change in the Plan of Operations be an indication that the Company will be successful in the implementation of such a change in the Plan of Operations now or in the future, or if implemented that the Company will generate revenue now or in the future. Equally, there can be no assurance that the Company’s current Plan of Operations will be any more successful than its prior management’s plan or proposals. Currently, the future of the Company financial status is dependent upon its ability to obtain financing and upon future profitability from operations from the development of its business opportunities and the full implementation of its Plan of Operations.
To finance the current and future operations, the Company may and will seek additional equity and/or debt financing. If such financing does not provide sufficient capital, shareholders and non-affiliates of the Company have agreed to provide stop-gap financing in the form of Convertible Promissory Notes over the next twelve-month period. For the three month period ending February 28, 2014 the Company borrowed $790,000 from a non-affiliated party, to finance current operations during the period contained in this report.
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These loans, and future monies and or loans to the Company represent potentially highly dilutive common stock issuances and shareholders, investors and their financial planners are cautioned to read the Convertible Promissory Notes in their entirety. Furthermore, while the Company believes the lenders will continue to finance the operations of the Company, the lenders are under no formal obligation nor are any shareholder, officer or director or non-affiliate to provide any such funds and there is no assurance that they will continue to do so. On-going, the Company is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful. Without sufficient financing, it is unlikely for the Company, or any company, to continue as a going concern.
Beneficial Conversion Feature
From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
The Company elected to enter into the Convertible Promissory Notes to further its Plan of Operations; to evaluate and acquire operational businesses or business units in emerging markets on which to base the Company’s future business activities, management believes the capital infusion will assist the Company to proactively evaluate and acquire assets or shares of an entity actively engaged in business which generates revenues or has the ability to quickly generate revenue, in exchange for the Company’s securities. The Company may, in the future elect to enter into additional Convertible Promissory Notes or other such dilutive debentures as so deemed by the Board of Directors to be in the best interest of the Company. Furthermore, the Company may enter into such Convertible Promissory Notes with both affiliates of the Company and non-affiliates alike. Such Convertible Promissory Notes may, can and will be highly dilutive to shareholders of the Company. Investors and Shareholder alike are cautioned to evaluate the Debt of the Company prior to making any such investment or purchase of the Company’s securities.
Currently, the Company considers itself a “shell company” under the Rule; however, it is the intent of management through its Plan of Operations to satisfy the Rule and, in the future, redress the self determined status of the Company as a “shell company” as management moves to fully implement its Plan of Operations.
The following analysis of the results of operations and financial condition of the company for the quarter ending February 28, 2014 should be read in conjunction with the company’s financial statements, including the notes thereto contained elsewhere in this Form 10-Q, the financial statements of the Company for the years ended May 31, 2013 and 2012 and for the period from Inception (November 29, 2005) to May 31, 2013 and notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission on July 15, 2013 and the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2013 and November 22, 2013. Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Discussion of Operations & Financial Condition
The Company has not yet generated any revenue from its Plan of Operations. Our ability to evaluate and acquire complimentary operational businesses or business units in emerging markets, with a primary focus on technology and technology delivery, marketing and marketing solutions, on which to base the Company’s future business activities is dependent, in large part, upon our raising additional capital, and accelerating efforts to acquire a business or assets on which to base the Company’s future business activities. Management is actively seeking to acquire assets or shares of an entity actively engaged in business which generates revenues and have complimentary and synergistic business models, in exchange for the Company’s securities.
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Selected financial information:
| | | |
| As of |
| February 28, 2014 | | May 31, 2013 |
Total Assets | $ 669,344 | | $ 8,711 |
Total Liabilities | $ 169,646 | | $ 58,619 |
As of February 28, 2014, the Company had total assets of $669,344, consisting of cash in the amount of $536,987, prepaid interest in the amount of $106,246, intellectual property in the amount of $25,000 and leasehold improvements in the amount of $1,111.
As of February 28, 2014, the Company had total liabilities of $169,646 consisting of accrued expenses of $62,861, deferred rent of $5,178, a convertible note payable balance owed to the related party of $70,852, offset by the remaining debt discount of $53,202 and presented on the financial statements in the net amount of $17,650, convertible notes payable owed to a non-affiliate in the aggregate amount of $790,000, offset by the remaining debt discount of $708,388 and presented on the financial statements in the net amount of $81,612 and accrued interest in the amount of $2,345.
RESULTS OF OPERATIONS OF THE COMPANY
Revenues
No revenue has been generated by the Company's since inception (November 29, 2005).
Net Loss
The Company's expenses are reflected in the Statements of Operations under the category of Expenses. To meet the criteria of United States generally accepted accounting principles (“GAAP”), all exploration and general and administrative costs related to projects are charged to operations in the year incurred.
COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2013 AND 2014
During the three months ended February 28, 2014, the Company recorded a net loss of $310,459 as compared to a loss of $6,089 for the three months ended February 28, 2013. The loss for the nine months ended February 28, 2014 represents a loss of approximately $0.01 per common share and is primarily attributable to increased general and administrative and interest expenses.
For the three months ended February 28, 2014, the significant components of expense that have contributed to the net loss of $310,459 consist of professional fees of $20,697, general and administrative expenses of $177,664 and interest expense of $112,098.
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For the three months ended February 28, 2013, the significant components of expense that have contributed to the operating loss of $6,089 consist of professional fees of $4,500 and general and administrative expenses of $1,589 with no interest expense.
COMPARISON OF NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2014
During the nine months ended February 28, 2014, the Company recorded a net loss of $383,496 as compared to a loss of $36,691 for the nine months ended February 28, 2013. The loss for the three months ended February 28, 2014 represents a loss of approximately $0.01 per common share and is primarily attributable to increased general and administrative and interest expenses.
For the nine months ended February 28, 2014, the significant components of expense that have contributed to the operating loss of $383,496 consist of professional fees of $37,697, general and administrative expenses of $232,590 and interest expense of $113,209.
For the nine months ended February 28, 2013, the significant components of expense that have contributed to the operating loss of $36,691 consist of professional fees of $30,650 and general and administrative expenses of $6,041 with no interest expense.
Plan of Operations
Our Plan of Operations for the next twelve months is determined in large part by management’s ability to evaluate and acquire the business units management has targeted for acquisition by the Company. Currently, the Company is seeking, and has accelerated its efforts, to evaluate and acquire complimentary operational businesses or business units in emerging markets, with a primary focus on technology and technology delivery, marketing and marketing solutions, on which to base the Company’s future business activities. Management is actively seeking to acquire assets or shares of an entity actively engaged in business which generates revenues and have complimentary and synergistic business models which increase our common stocks valuation, in exchange for the Company’s securities.
The Company implemented its current Plan of Operations following the change of control on July 30, 2013, and has not, as of yet, realized any revenues from its Plan of Operations, nor has the Company realized any revenues since inception. Consequently, as a result the change to its Plan of Operations the Company intends to amend, subject to SEC rule, its SIC Code to 7374 – Computer Processing and Data Preparation and Processing Services from 1000 – Metal Mining; its Industry to Computer Services from Metal Mining, and finally its Sector to Technology from Basic Metals, such amendments will reflect more accurately its Plan of Operations.
Following the change of control, July 30, 2013, the Company elected to remain a “shell company”, a self determined status, as that term is defined in the Exchange Act; however, management of the Company has accelerated its efforts to acquire complimentary business or business assets on which to base the Company’s future business activities.
Management is actively pursuing business units in emerging technologies to acquire assets or controlling shares of complimentary entity or entities who are actively engaged in business which; firstly, are unique to the space with high potential for immediate growth, and secondly, have the ability with management’s operational oversight to generate positive EBITDA, and lastly, are complimentary and synergistic to the Company’s Plan of Operations to advantage the Company in scaling of its footprint in the sector.
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During the period the Company evaluated several business entities, and as a result of those evaluations, management circulated one (1) Letter of Intent (LOI) to a company developing encryption based technologies, resulting in the execution of an Intellectual Property Purchase and Assignment Agreement between the two Parties. Mutual non disclosures and for additional reason related to the proprietary nature of the intellectual property and provisional patent status of the underlying IP, the Company elects not to identify the name of the IP. The Company may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
On-going management anticipates that the selection of a business opportunity in which to participate will be complex and extremely risky. Due to general economic conditions, rapid technological advances being made in the sector in which the Company intends to operate coupled with the shortage of available capital; management believes that there are numerous early stage and business seeking the perceived benefits of a publicly registered corporation. These perceived benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes), for all stockholders and other factors. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex, although within the core competencies of the management of the Company.
The analysis of new business opportunities will be undertaken by, or under the supervision of, the Board of Directors, who shall oversee the management of the Company. The Company’s President and Chief Executive Officer, Mr. Talarico, will implement the vision of the Board of Directors and will conduct the initial reviews and evaluations with potential targets.
The Company intends to concentrate on identifying preliminary prospective business opportunities which may be brought to management’s attention through affiliations of the Board of Directors, management and stakeholders.
In analyzing prospective business opportunities, management will consider such matters as:
·
the available technical, financial and managerial resources;
·
working capital and other financial requirements;
·
history of operations, if any;
·
prospects for the future;
·
nature of present and expected competition;
·
the quality and experience of management and the depth of that management;
·
the potential for further growth;
·
specific risk factors known to the Company as of the initial evaluation;
·
the potential for profit;
·
the perceived public recognition of acceptance of products, services, or trades; name identification; and
·
other relevant factors.
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In implementing our Plan of Operations, and in the development of a structure for a particular business acquisition, management may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. The Company may also acquire stock or assets of an existing business. It is possible that the Company will acquire a business or assets from an affiliate, shareholder or Director of our company. Management anticipates that any securities issued in any such transaction would be issued in reliance upon exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of a transaction, the Company may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. Furthermore, management may and will if so determined by the Board of Directors register and or attempt to register additional securities to incentivize management and or consultants. The Company expressly reserves the right to undertake any such registration of any such additional securities it so deems necessary while maintaining compliance under the Rule. The Company has not, as of yet, offered any such piggyback registration rights to any such third party, entity, affiliate or non-affiliate, however, in the normal course of business the Company may in fact offer such piggyback registration rights at the will of the Board. The Company is under no obligation to offer such rights to current or future shareholders and makes no warranties of same. The issuance of substantial additional securities and their potential sale into any trading market which may develop in our securities may have a depressive effect on the value of our securities in the future, if such a market develops, of which there is no assurance.
Management cannot predict with certainty what revenues the Company can expect during the next twelve months, and while management is aggressively implementing its Plan of Operations there can be no assurance that the Company will generate enough revenue, if any, to pay our operating expenses and overhead for the next twelve months. Management anticipates that the Company will need to raise additional capital to expand and implement its Plan of Operations. There can be no assurances management will be able to raise that capital needed to fully implement the Company’s Plan of Operations, in which event such Plan of Operations may need to be amended or ceased entirely.
Liquidity and Capital Resources
We had cash of $536,987 as of February 28, 2014, compared to cash of $8,711 as of May 31, 2013. We had net working capital of $473,587 as of February 28, 2014, compared to a working capital deficiency of $49,908 as of May 31, 2013.
Cash and Working Capital
The Company’s assets are recorded at cost less any allowance for uncollectible accounts, depreciation, amortization, and impairment. The Company’s cash inflow has been generated mainly from shareholder loans, short-term loans and issuance of common stock with no recorded revenues since inception.
Management continually reviews its overall capital and funding needs to ensure that the capital base can support the estimated needs of the business. These reviews take into account current business needs as well as the Company’s future capital requirements. Based upon these reviews, to take advantage of strong market conditions and to fully implement our expansion strategy, management believes that the Company will continue to increase our net capital through the proceeds from sales of our securities, loans, shareholder loans and short-term loans. The Company currently maintains minimal cash balances and is funded by management and shareholder loans to satisfy monthly cash requirements in the interim by external funding.
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COMPARISON OF NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2014
Cash Used in Operating Activities
Cash used by operating activities was $306,375 for the nine months ended February 28, 2014 compared to cash of $34,869 used in operating activities for the nine months ended February 28, 2014. The cash used in operating activities was provided by third party non-affiliate convertible loans in the aggregate amount of $790,000 and a related party convertible loan in the amount of $70,852.
Investing Activities
During the nine months ended February 28, 2014 we acquired intellectual property in the amount of $25,000 and invested $1,111 into leasehold improvements.
Financing Activities
Cash provided by financing activities was $860,762 for the nine months ended February 28, 2014 compared to no cash provided by financing activities for the nine months ended February 28, 2013. This cash was provided primarily by third party non-affiliate convertible loans in the aggregate amount of $790,000 and a related party convertible loan in the amount of $70,852.
We anticipate continuing to rely on equity sales of our common shares and stockholder and non-affiliate loans in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. In May 2007, the Company authorized subscription agreements for 25,290,000 common shares pursuant to the issuer’s Registration Statement filed on Form S-1 which became effective August 22, 2011. The total proceeds of $42,150 were deposited in May 2007 and the shares were issued May 15, 2007. In January 2012, the company authorized subscription agreements for 2,160,000 common shares. The total proceeds of $36,000 were deposited in January 2012 and the shares were issued January 31, 2012.
Beneficial Conversion Feature
From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
We will continue to incur professional fees and those fees may increase because of our reporting status and the required filings for requisite quarterly and annual reports with the Securities and Exchange Commission. We expect that we will have additional filings whereby our auditors may be required to examine further financial reports. We are aware that audit fees have generally increased as a function of the increased reporting requirements mandated by Sarbanes-Oxley Act. We are optimistic that our business activities will increase, which will require auditing procedures over a greater transaction base.
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During the current period the Company elected to enter into several Convertible Promissory Notes to further its Plan of Operations; to evaluate and acquire operational businesses or business units in emerging markets on which to base the Company’s future business activities, management believes the capital infusion will assist the Company to proactively evaluate and acquire assets or shares of an entity actively engaged in business which generates revenues or has the ability to quickly generate revenue, in exchange for the Company’s securities. The Company may, in the future elect to enter into additional Convertible Promissory Notes or other such dilutive debentures as so deemed by the Board of Directors to be in the best interest of the Company. Furthermore, the Company may enter into such Convertible Promissory Notes with both affiliates of the Company and non-affiliates alike. Such Convertible Promissory Notes may, can and will be highly dilutive to shareholders of the Company. Investors and Shareholder alike are cautioned to evaluate the Debt of the Company prior to making any such investment or purchase of the Company’s securities.
We expect our other administrative expenses to increase in the next quarter as our legal fees may increase as we further our strategic goals and additional advice and/or opinions may be required.
Going Concern
Our financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
Other Information - Certain Relationships and Related Transactions
We intend that any transactions between us and our officers, directors, principal stockholders, affiliates or advisors will be on terms no less favorable to us than those reasonably obtainable from third parties. To date, several related party transactions have taken place.
As of February 28, 2014, the convertible note payable balance owed to the related party was $70,852, offset by the remaining debt discount of $53,202 and presented on the financial statements in the net amount of $17,650 as the convertible note payable amount due to related party.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
FileWarden.com intends to invest its cash balances, in excess of its current needs, in an interest bearing account. The Company does not invest for the purposes of trading in securities. Additionally, the Company does not have any significant market risk exposure atFebruary 28, 2014.
Item 4.Controls and Procedures.
Management has evaluated, with the participation of our Principal Executive Officer and Principal Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of the end of the period covered by this report. Based upon this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. There have been no significant changes in our internal controls over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 4T.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e). The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company’s desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company’s certifying officer has concluded that the Company’s disclosure controls and procedures are ineffective in reaching that level of assurance.
As of the end of the period being reported upon, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective.
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3.
Defaults Upon Senior Securities.
None.
Item 4.
Mine Safety Disclosures.
None.
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Item 5.
Other Information.
Entry into a Material Definitive Agreement.
On July 30, 2013, the Company entered into a Debt Exchange Agreement with HSC Holdings LLC pursuant to which Company exchanged the note it had acquired from Mr. Long for a promissory note in the principal amount of $56,000 due December 31, 2013. This note bears interest at the rate of 6% per annum, is due on maturity and is unsecured. On November 11, 2013, the Board of Directors elected to redeem such Promissory Note in exchange for the issuance of 600,000 Series B Super Voting Preferred shares to the Debt holder, HSC Holdings, LLC. The redemption of such Promissory Note and the Issuance of the Preferred Shares is reflected on the Financial Statement of the Company attached herein and by reference.
On November 29, 2013 the Company entered into a Convertible Promissory Note (“Note”) in the amount of $70,852, bearing 8% interest per annum, maturing on December 29, 2014, with Secured Income Reserve, Inc., a related party. Ilona A. Mandelbaum is a director of the Company, the managing partner of HSC Holdings LLC, the majority shareholder of the Company and Ms. Mandelbaum is also the majority shareholder of Secured Income Reserve, Inc. The Company utilized the loan proceeds for operating expenses.
Between December 9, 2013 and February 12, 2014, the Company entered into six (6) one-year Convertible Promissory Notes in the aggregate amount of $790,000 for working capital purposes by the Company, bearing interest rates of 15% per annum, maturing between December 9, 2014 and February 12, 2015, with Tamda Marketing, Inc. a non-affiliated Debt holder. Terms of the Convertible Promissory Notes required the Company to prepay the interest on the Convertible Promissory Notes in the aggregate amount of $118,500. Additional terms include the ability of the Holder at the option of the Holder to convert such Convertible Promissory Notes.
Properties.
Office space and related utilities and office expenses were provided without charge by an officer and director of the Company through the change of control on July 30, 2013 through September 30, 2013, as such costs were provided for no consideration; accordingly, they had not been reflected. Subsequent to September 30, 2013, Secured Income Reserve, Inc., a related party, had been providing office space to the Company for no consideration. Ilona A. Mandelbaum is the managing partner of HSC Holdings LLC, the majority shareholder of the issuer; Ms. Mandelbaum is also the majority shareholder of Secured Income Reserve, Inc.
Office space and related utilities and office expenses had been provided without charge by an officer and director of the Company through the change of control on July 30, 2013 through September 30, 2013 and such costs were provided for no consideration; accordingly, they had not been reflected herein. On October 22, 2013 the Company requested Assignment of the Lease dated May 3, 2013 for the Company’s current office space to the Company and received assignment on January 21, 2014. Terms of the lease required the following monthly payments beginning May 3, 2013: $2,650 for months 1-12, $4,331 for months 13-24, $4,633 for months 25-36, $4,935 for months 37-48 and $5,237 for months 49-60. The following table summarized the lease payments for which the Company is obligated during each fiscal year:
| | | | | | | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 |
Minimum lease payments | | $ 12,281 | | $52,275 | | $55,901 | | $59,527 | | $57,613 |
| | | | | | | | | | |
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Security Ownership of Certain Beneficial Owners and Management.
Common Stock
At February 28, 2014, the Company had 67,815,000 shares of common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of the Company’s common stock as of February 28, 2014 by:
•
each person known by the Company to be the beneficial owner of more than 5% of the Company’s common stock;
•
each of the Company’s directors;
•
each of the Company’s named executive officers; and
•
the Company’s named executive officers, directors and director nominees as a group.
Unless otherwise indicated, the business address of each person listed is in care of 220 Congress Park Drive, Suite 301, Delray Beach, FL 33445. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of the Company’s common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of the Company’s common stock owned by them, except to the extent that power may be shared with a spouse.
| | | |
| Amount and Nature of Beneficial Ownership |
Name | # of Shares | | % of Class |
Matthew H. Sage | 0 | | 0.0% |
Ilona Mandelbaum(1) | 0 | | 0.0% |
Raymond J. Talarico | 1,999,995 | | 2.95% |
| | | |
HSC Holdings LLC(1) | 37,612,935 | | 55.46% |
All named executive officers and directors as a group (one person) | 39,612,930 | | 58.1% |
(1)HSC Holdings LLC is a Florida limited liability company and its address is 3213 S. Olive Avenue, West Palm Beach, FL 33405. Ms. Ilona Mandelbaum has voting and dispositive control over shares of the Company’s common stock owned of record by HSC Holdings LLC.
Preferred Stock
At February 28, 2014, the Company had 600,000 shares of Series B Super Voting Preferred Stock issued and outstanding. Each share of the Series B Super Voting Preferred carries specific Rights and Designations, stakeholders are encouraged to review the Rights and Privileges of the Series B Super Voting Preferred shares as found in the 8-K filed by the Company on November 22, 2103. The following table sets forth information regarding the beneficial ownership of the Company’s Series B Super Voting Preferred Stock as of February 28, 2014 by:
•
each person known by the Company to be the beneficial owner of more than 5% of the Company’s common stock;
•
each of the Company’s directors;
•
each of the Company’s named executive officers; and
•
the Company’s named executive officers, directors and director nominees as a group.
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Unless otherwise indicated, the business address of each person listed is in care of 220 Congress Park Drive, Suite 301, Delray Beach, FL 33445. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our preferred stock outstanding on that date and all shares of the Company’s preferred stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of the Company’s preferred stock owned by them, except to the extent that power may be shared with a spouse.
| | | |
| Amount and Nature of Beneficial Ownership(1) |
Name | # of Shares | | % of Class |
Matthew H. Sage | 0 | | 0.0% |
Ilona Mandelbaum(1) | 0 | | 0.0% |
Raymond J. Talarico | 0 | | 0.0% |
HSC Holdings LLC(2) | 600,000 | | 100.0% |
All named executive officers and directors as a group (one person) | 600,000 | | 100.0% |
(1)HSC Holdings LLC is a Florida limited liability company and its address is 3213 S. Olive Avenue, West Palm Beach, FL 33405. Ms. Ilona Mandelbaum has voting and dispositive control over shares of the Company’s common stock owned of record by HSC Holdings LLC.
(2)each share of Series B Super Voting Preferred carries a 1,000 to 1 (1000:1) voting privilege, hence the issuance of such Series B Super Voting Preferred creates the right to vote 600,000,000 votes on matters before the Company and or voting control of 99.0% voting control of the corporation.
Directors and Executive Officers.
The following table provides information on the Company’s executive officer and director following the change of control as of February 28, 2014.
| | | | | | |
Name | | Age | | Position with the Company | Annual Compensation |
Matthew H. Sage | | | 57 | | Comptroller , Treasurer & Director | $120,000(1) |
Ilona A. Mandelbaum | | | 53 | | Secretary & Director | $0.00(2) |
Raymond Talarico | | | 53 | | President, Chief Executive Officer & Director | $120,000(3) |
(1)The Company entered into a long term employment agreement with Mr. Sage on January 24, 2014.
(2)The Company has entered into negotiations and anticipates entering into a long term consulting agreement with HSC Holdings, LLC., during the next quarter. HSC Holdings LLC managing partner is Ilona Mandelbaum.
(3) The Company entered into a long term employment agreement with Mr. Sage on January 24, 2014.
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Matthew H. Sage. Mr. Sage has been an executive officer and director of the Company since July 30, 2013. He has been President of Sarben Holdings Inc. since founding the company in September 2009. Mr. Sage has worked on product launches as well as mergers and acquisitions over the past four years. His professional experience includes marketing and management within a number of business sectors. Earlier in his career Mr. Sage held FINRA Series 7, variable annuity, and life and health insurance licenses while employed as a securities broker with Prudential Bache and Shearson/ American Express from 1985 to 1990. He also served as the director of communications for the World Council of Peoples for the United Nations in New York from 1994 to 2000 before retiring in 2001. In 2006 Mr. Sage became the managing partner of Paint 1 USA, serving in such position until the company was sold in 2009. Mr. Sage holds a B.S. in Marketing and Business Management from New York Institute of Technology.
Ms. Mandelbaum is the controlling person of HSC Holdings LLC, our principal stockholder. At present, Ms. Mandelbaum is serving without compensation. The Company has entered into negotiations and anticipates entering into a long term consulting agreement with HSC Holdings, LLC., during the next quarter. HSC Holdings LLC managing partner is Ilona Mandelbaum.
Mr. Talarico is the majority shareholder of Intelakare Marketing, Inc. which had a Consulting & Distribution Agreement with the Company for $120,000 annually until he resigned as interim Chief Financial Officer and was elected as President and Chief Executive Officer of the Company on January 24, 2014.
Raymond Talarico. Since 2008, Mr. Talarico has served as President, Chief Executive Officer and a member of the Board of Directors of Intelakare Marketing, Inc. (OTCMarkets: IKMA), a Citra, Florida-based company which marketing company. Since 2007 Mr. Talarico has also been a principal of MGI Consultants Inc., an Ocala, Florida-based consulting company he co-founded. MGI, which provides consulting services to private companies, has incubated numerous entrepreneurial projects from a one sentence business concept through to operations, and following, to being publicly traded entities, and has successfully developed manufacturing facilities and affiliated entities for its clients in China, Taiwan, South and Central America. Prior to developing the MGI, Mr. Talarico was co-founder, and served in various capacities as CEO, Chairman and Senior Vice-President of MEDirect Latino Inc. At his departure, MEDirect was the generally considered the largest distributor of diagnostic testing supplies to the Hispanic Medicare eligible market in the United States, earning the coveted Gold Seal of approval from The Joint Commission, National Quality Approval Rating. From February 2007 until October 2011, Mr. Talarico was a member of the Board of Directors of American Pacific Rim Consulting Group (OTCMarkets: APRM).
Departure of Directors or Certain Officers, Election of Directors, Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On September 6, 2013, as reported in the subsequent Form 8-K during the period, Ms. Ilona A. Mandelbaum and Mr. Raymond Talarico were appointed to the Board of Directors of FileWarden.com and Ms. Mandelbaum was appointed Secretary. On September 6, 2013 Mr. Matthew H. Sage, our President, was also appointed Treasurer. On October 20, 2013 Mr. Talarico was appointed our interim Chief Financial Officer.
On January 24, 2014, as reported in the subsequent Form 8-K during the period, Mr. Matthew Sage, the President of the Company, resigned and accepted the position as Comptroller of the Company. On the same day, Mr. Raymond Talarico resigned as interim Chief Financial Officer of the Company and was elected as President and Chief Executive Officer of the Company. Both Messrs. Sage’s and Talarico’s executed employment agreements with the Company are described below.
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Matthew Sage - Comptroller
On January 24, 2014, the Company entered into an Employment Agreement with Mr. Matthew Sage to which Mr. Sage was hired as Comptroller of the company. Mr. Sage will receive a salary of $10,000 per month and will receive 1,218,750 restricted common shares of the Company valued at $8,125. The initial term of the agreement is for 1 year.
Raymond J. Talarico - President and Chief Executive Officer
On January 24, 2014, the Company entered into an Employment Agreement with Mr. Raymond Talarico to which Mr. Talarico was hired as President and Chief Executive Officer of the company. Mr. Talarico will receive a salary of $10,000 per month and will receive 1,218,750 restricted common shares of the Company valued at $8,125. The initial term of the agreement is for 1 year.
Item 6. Exhibits.
