UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to________________
Commission file number 000-53855
SURF A MOVIE SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
Nevada 26-1973257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#149, 19744 Beach Boulevard, Huntington Beach, CA 92648
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 475-3516
Securities registered under Section 12(b) of the Act:
None N/A
Title of each class Name of each exchange on which registered
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by checkmark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by checkmark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
As of December 27, 2011, there were 4,410,000 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibits incorporated by reference are referred to in Part IV.
AVAILABLE INFORMATION
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and all amendments to those reports that we file with the Securities
and Exchange Commission, or SEC, are available at the SEC's public reference
room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains
reports, proxy and information statements and other information regarding
reporting companies.
TABLE OF CONTENTS
Page
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PART I
ITEM 1. Business 4
ITEM 1A Risk Factors 9
ITEM 1B Unresolved Staff Comments 14
ITEM 2. Properties 14
ITEM 3. Legal Proceedings 14
ITEM 4. Submission of Matters to a Vote of Security Holders 14
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 14
ITEM 6 Selected Financial Data 15
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk 21
ITEM 8. Financial Statements and Supplementary Data 22
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 30
ITEM 9A. Controls and Procedures 30
ITEM 9B. Other Information 31
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 32
ITEM 11. Executive Compensation 33
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 35
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence 36
ITEM 14. Principal Accounting Fees and Services 36
ITEM 15. Exhibits, Financial Statement Schedules 37
Signatures 38
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PART I
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors" and the risks set out below, any of which may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks include, by way of example and not in
limitation:
* the uncertainty that we will not be able to successfully identify and
evaluate a suitable business opportunity;
* risks related to the large number of established and well-financed
entities that are actively seeking suitable business opportunities;
* risks related to the failure to successfully manage or achieve growth
of a new business opportunity; and
* other risks and uncertainties related to our business strategy.
This list is not an exhaustive list of the factors that may affect any of our
forward-looking statements. These and other factors should be considered
carefully and readers should not place undue reliance on our forward-looking
statements.
Forward looking statements are made based on management's beliefs, estimates and
opinions on the date the statements are made and we undertake no obligation to
update forward-looking statements if these beliefs, estimates and opinions or
other circumstances should change. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
The safe harbors of forward-looking statements provided by Section 21E of the
Exchange Act are unavailable to issuers of penny stock. As we issued securities
at a price below $5.00 per share, our shares are considered penny stock and such
safe harbors set forth under the Private Securities Litigation Reform Act of
1995 are unavailable to us.
Our financial statements are stated in United States dollars and are prepared in
accordance with United States generally accepted accounting principles.
In this Annual Report on Form 10-K, unless otherwise specified, all dollar
amounts are expressed in United States dollars and all references to "common
stock" refer to the common shares in our capital stock.
As used in this Annual Report on Form 10-K, the terms "we", "us", "our", the
"Company," "SURF" and "SURF A MOVIE" mean Surf A Movie Solutions Inc., unless
otherwise indicated.
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ITEM 1. BUSINESS.
We were incorporated in the State of Nevada on December 18, 2007. Since the
inception of our business on December 18, 2007, we have engaged in the
development of video applications. The address of our principal executive office
is #149, 19744 Beach Boulevard, Huntington Beach, CA, 92648. Our telephone
number is (714) 475-3516.
We are in the development stage of creating an easy to use and comprehensive
solution that will enable our customers to open a video rental storefront on the
Internet. Our product will enable video store customers to download rented
movies to their computers to be played using Microsoft Media Player. We believe
that online shopping has become a driving force in the continued growth of the
Internet. We further believe that the ability to download movies and other forms
of entertainment directly to personal computers will become an increasingly
larger segment of the on-line shopping market. We plan to develop a turn-key
online video store operation that will allow the store owner to stock the
various types of movies he or she chooses to offer to his or her customers on a
pay-per-view basis.
Online videos currently available cover a wide range of titles from home movies
to premium quality movies. We believe, although no assurance can be given, that
the use of online videos will continue to increase in popularity and
sophistication and as such, we believe our plan to offer turn-key web sites for
online video businesses is set to launch at the right time in history.
We plan to charge an initial fee of $1,000 to our online customers wishing to
launch online video rental stores. We will also be receiving 20% of the revenue
from rentals generated by our customers' online video stores. We will provide
our customers with the infrastructure to launch their businesses and
subsequently earn a portion of revenue from each downloaded video from their web
site. We believe, although no assurance can be given, that this business model
will establish a number of ongoing revenue streams that will contribute to our
long-term growth.
We are a development stage company that has not generated any revenue and has
had limited operations to date. From December 18, 2007 (inception) to September
30, 2011, we have incurred accumulated net losses of $67,676. As of September
30, 2011, we had $7,608 in current assets and $14,284 in current liabilities.
OUR SOFTWARE PRODUCT
We intend to develop software and infrastructure to enable our customers to
set-up their own Internet-based video rental store, through which our customers'
clients will be able to rent a movie and download it to their computer to view
it. We plan to use Microsoft's Digital Rights Management ("DRM") tool to protect
videos from being pirated, copied by other users or played indefinitely. Once a
customer subscribes to license an online video store through our site, a portal
will automatically be created for them with which they can create their online
video store. Customers wishing to sign up for our "turn-key" online video store
will start with a basic model and be able to add optional services and customize
their website based on the scope of the movie selection and volume of activity
levels. Each online video store will include a template which will include the
following:
* A home page that will highlight information such as movies chosen by
the store owner, top ten movies, the available video categories,
information about the video store company, etc.;
* Each video category will have its own home page, which can list the
videos in alphabetical order, popularity or price. An optional
recommendation list also will be displayed;
* Each page will have the store owner's branding: the top of each page
will be reserved for a banner that the video store owner chooses;
* A password protected log-in page will be available for the video store
customers;
* Shopping Cart with PayPal link;
* Search function to browse the inventory by keyword;
* Video download instructions for the video store customers;
* Video upload instructions for the video store owner;
* Movie reviews;
* Newsletter that includes quarterly survey of competitor prices;
* Suggestions on how to attract online advertisers;
* Terms and Conditions & Privacy information;
* Information about Surf a Movie, Inc.;
* Email contact and optional telephone support;
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* DRM software; and
* An administrative interface where the store owner can access sale and
customer information. In this interface they will be able to build the
store and add features and categories.
Our "turn-key" web site will allow the video store owner to add, edit and remove
video descriptions in an easy to use format. Each web site will be modular in
form allowing the web site owner to add as much or as little content as they
like as well as add or delete sections or movie titles and other information.
HOME PAGE
The store owner will be able to choose from various designs for their home pages
for their online stores. These pages will be customizable by the video store
owner using their administrative interface.
TOP OF PAGE BANNER
Web pages use a variety of "top of page" banner spaces for brand name and
corporate identification. The video store owner will be able to choose from
several top of page formats that allow customization such as adjusting length of
the banner across the page, the width of the banner, fonts and the option to
have text only or the ability to insert a graphic image or icon.
SIGN-IN PAGE FOR THE VIDEO STORE CLIENTS
The sign-in page will feature a registration area for the new video store
clients and login for existing clients. The login area will be password
protected and will contain a "Forgot your Password" retrieval function. Once the
subscriber signs in, he or she will be directed to his or her own web page where
he or she can review previous selections and move onto browsing and ordering
more movies. New clients will be required to register with the video store owner
before making a purchase.
SHOPPING CART
We plan to use an open source code for our shopping cart that is available on
the Internet at no cost in order to keep our own development costs within
budget. "Open source" means that the source code for our site will be available
to the general public for use and/or modification from our original design free
of charge. The shopping cart will be integrated with the PayPal payment system.
PayPal is recognized internationally as the global leader in secure online order
processing. There are no set up fees and a graduated payment fee based on the
level of business activity. Paypal will be the sole method of payment by video
store customers for rental of their videos. We will collect all payments from
the video store customers and deposit into the video store owner's PayPal
account an appropriate share of revenue on a monthly basis, less applicable
costs.
ADD / DELETE CATEGORY
This section will allow the video store owner to add or delete category sections
within the web site. Each category will be situated along the left hand column
for ease of use by the video store owner.
SEARCH FUNCTION
The search function will allow the video store customer to search the content of
the site. We plan to position a search window near the top of the page in the
main viewing area of each web page. Search results will be displayed using a
contemporary search engine that searches the content of the site including
current inventory and the "Coming Soon" section.
VIDEO DOWNLOAD INSTRUCTIONS
When the video store customers decide to buy a movie, they will first be
required to add it to their shopping cart. When they have completed their
selections and made payment through PayPal, they will be able to proceed and
download their selection. Step-by-step instructions will assist the customer in
downloading and playing their selection.
VIDEO UPLOAD INSTRUCTIONS
Video store owners will be provided with video upload instructions to which they
can refer when adding new content to their web site. Videos will be available
only in Microsoft Media Player-compatible formats. This area will instruct the
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video store owner which type of video formats are compatible with our DRM
software. It will also provide a step-by-step instruction for uploading movies.
The video store owner will be charged a monthly fee based on the amount of
storage capacity they use for their inventory of online videos. Typically each
full length movie requires 0.5-1 giga byte ("GB") of storage capacity on the
hard drive of our computer system (the exact amount of storage will depend on
the length and resolution of the video). The cost to the video store owner to
store one GB of storage will be $1.00 per month.
MOVIE REVIEWS
This is a popular choice with many online stores selling products to end users
and is an optional feature that the video store owner may wish to include.
Administrative functionality will allow the video store owner to add or delete
movie reviews at their discretion.
TOP 10 DOWNLOADED VIDEOS AND MOVIES
An optional Top 10 list of downloaded videos and movies will be included. Many
people expect to see this type of information to help guide them in the
selection and browsing of online content. Administrative functionality will
allow the video store owner to make changes to the list at any time, include
hyperlinks that go directly to the full web page that can features a movie
trailer or short video clip sample of the movie for the customer's review.
TOP DOWNLOADED MOVIES BY CATEGORY
An optional section we will make available to the video store owner is the "Top
Downloaded Videos" and/or "Movies by Category." As with the other add-ons, this
section includes administrative functions to add and delete content.
QUARTERLY NEWSLETTER
We will publish a Quarterly Newsletter that will be distributed free of charge
to each video store owner that will discuss the latest and incoming features.
The newsletter will also discuss techniques that will help drive more traffic to
a video store owner's web site. Additionally, our video store owner will be able
to send out a periodic newsletter (not exceeding one per month) updating
customers to and recent changes and new video arrivals. This newsletter will be
sent to video store customers who elect to receive this service.
TERMS AND CONDITIONS
The Terms and Conditions section will appear at the bottom of the home page for
every online video store. There will be rules which will prohibit video store
owners from sharing their customer's email address and other private contact
information. An embedded link will direct inquires or complaints to our
Company's directors who will have the authority to revoke a video store owners'
license to operate an online video store with us. Video store customers will be
provided with a notice that their privacy will not be compromised and to contact
us directly if they feel this has been compromised or that the video store owner
has engaged in any illegal or unethical activities.
EMAIL CONTACT AND OPTIONAL TELEPHONE SUPPORT
Our turn-key operation will include email contact information for the video
store owner that they can display throughout the web site for customers and
general inquiries.
An optional telephone support service will be available for those video store
owners that would like to offer this service. We plan to outsource this function
to an offshore company that can provide this type of customer service in modular
blocks of 12 - 18 or 24 hour per day coverage, seven days a week. This will be
an additional cost item and pricing will be based on the level of coverage the
video store owner seeks. We have not finalized our pricing structure for this
service as of yet and we have not included it in our financial projections.
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TECHNICAL AND CUSTOMER CARE SECTION
Each store will come with a technical and customer support section. The
technical support section will be the same for all stores. The customer support
section is customizable by the store owner. This support section will have
frequently asked questions, trouble shooting suggestions, and general
information about the service.
DIGITAL RIGHTS MANAGEMENT SOFTWARE
We will use Microsoft DRM to protect the video content of our video store owner
clients from piracy and to enforce viewing rules. This will protect the content
of our video store owners and their partners from being pirated.
REPORTING
Our customers will have access in their portal to powerful reporting tools. They
will be able to generate sales reports daily, weekly, monthly and on customized
schedules. The video store owners will be able to determine their customers'
locations and their purchasing patterns. We believe this type of information
will help determine the most advantageous marketing and sales channels.
Each video store owner will be required to set up a merchant account with
PayPal.com, the same online order processing company that we plan to integrate
with the shopping cart inside the online movie web sites. Video store owners
will be charged a weekly fee for storage capacity of their online movie
inventory. The video store owners will also receive, through PayPal, their
revenue share generated from movie rental.
MARKETING & SALES STRATEGY
The use of Internet is continuing to evolve as a global platform for doing
business. We believe our concept of having a turn-key style of business for
online video stores is one that fits well with the emerging trends of e-commerce
and the continuing growth of the world wide web. We intend to use a multi-prong
strategy to reach our target audience. Our major focus in the first year will be
to use Google Adwords program in order to drive traffic to our own web site.
Continuous updates to the home page of our web site will encourage web visitors
to return over and over again. Another marketing tactic we will use will be to
offer free online seminars on how to start and run an online video store. We
will use a series of in-house press releases to the media to provide the details
including date, times and how to sign up for free to attend web seminar. We will
be able to use the home page of our web site to promote these seminars that will
start in June 2011 and run once per quarter or more often if an increased level
of interest in such seminars is demonstrated.
We also intend to develop an email distribution list. We will send our quarterly
newsletter, major announcements and press releases to those on our list. Video
store customers will also be able to receive the newsletter. We will also target
web sites, blogs, discussion forums that are frequented by independent video
producers.
We have started compiled a list of web sites, newsletters and magazines that are
relevant to our industry.
OUR COMPETITION
Our analysis of the market suggests that the online movie download industry is
an emerging market. Our research shows that there are several companies offering
video rental on the Internet. Some of these online outlets (such as
http://www.blockbuster.com, http://www.netflix.com/, http://www.zip.ca) rent
programming and send them through the regular mail. These companies have either
started offering video on demand service in 2010 or have plans to do so in 2011.
This present serious threat to our business as these businesses have
significantly more resources than we do.
Other online outlets (such as http://www.bellvideostore.ca,
http://www.blockbuster.com/download and http://www.real.com) offer movie and
video rental with the rented programming downloaded to the customer's computer.
While these companies may be deemed to be direct competitors of our customers,
we do not perceive such companies to be our competitors as they do not rent or
sell their software or services to enable third parties to engage in this type
of business.
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There are several companies (such as Akamai Technologies Inc.) that offer video
hosting for customers. However, it does not offer a complete turn-key solution
and are simply video storage services that cater to individuals and businesses
who want to make their video available to the public.
SOURCES AND AVAILABILITY OF PRODUCTS AND SUPPLIES
There are no constraints on the sources or availability of products and supplies
related to our business. We will be producing our own product, and the
distribution of our product will be over the internet.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The nature of our product is such that it does not typically result in
dependence on one or a few major customers. Our website will be available to the
general public over the Internet. As our licensing fees for those who want to
own an online video store, and our monthly rental charges will be priced for
mass market consumption, we do not anticipate dependence on one or a few major
customers for the foreseeable future.
PATENT, TRADEMARK, LICENSE & FRANCHISE RESTRICTIONS AND CONTRACTUAL OBLIGATIONS
& CONCESSIONS
We have not entered into any franchise agreements or other contracts that have
given, or could give rise to obligations or concessions. We have developed a
software product and intend to protect our software product with copyright and
trade secrecy laws. Beyond our trade name and our software product, we do not
hold any other intellectual property.
EXISTING OR PROBABLE GOVERNMENT REGULATIONS
Existing government regulations governs the distribution of video content and
copyrights. The Digital Millennium Copyright Act (the "DMCA") is a United States
copyright law that was signed in 1998 to extend the reach of copyright, while
limiting the liability of the providers of on-line services for copyright
infringement by their users. The DMCA criminalizes production and dissemination
of technology, devices, or services intended to circumvent measures (commonly
known as Digital Rights Management or DRM) that control access to copyrighted
works. The DMCA further criminalizes the act of circumventing an access control,
whether or not there is actual infringement of copyright laws itself and
heightens the penalties for copyright infringement on the Internet..
DMCA Title II, the Online Copyright Infringement Liability Limitation Act (the
"OCILLA"), creates a safe harbor for online service providers (OSPs, including
ISPs) against copyright liability provided they adhere to and qualify for
certain prescribed safe harbor guidelines. OCILLA requires such OSPs to promptly
block access to material that allegedly infringes upon the copyrights of third
parties (or remove such material from their systems) upon receipt of
notification claiming infringement from a copyright holder or the copyright
holder's agent. OCILLA also includes a counter-notification provision that
offers OSPs a safe harbor from liability to their users, if the material in fact
does not infringe upon the copyrights of others.
We intend to fully comply, and will take the necessary measures to ensure that
our customers also comply, with the provisions of DMCA. Further, when
appropriate, we intend to avail of the safe harbor protection provided under the
OCILLA.Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
internet generally, covering issues such as user privacy, pricing, and
characteristics and quality of products and services. Similarly, the growth and
development of the market for internet commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business over the Internet. The adoption of any such laws
or regulations may decrease the growth of commerce over the Internet, increase
our cost of doing business, or otherwise have a harmful effect on our business.
To date, governmental regulations have not materially restricted the use or
expansion of the internet. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. New laws may cover issues
that include:
* Sales and other taxes;
* User privacy;
* Pricing controls;
* Characteristics and quality of products and services;
* Consumer protection;
* Libel and defamation;
* Copyright, trademark and patent infringement; and/or
* Other claims based on the nature and content of internet materials.
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These new laws may have an impact on our ability to market our products and
services in accordance with our business plan.
RESEARCH AND DEVELOPMENT ACTIVITIES AND COSTS
We have plans to undertake certain research and development activities during
the next twelve months of operation related to the development of the software
and our website, which we anticipate will cost approximately $17,000. For a
detailed description of our plans, see "Plan of Operation" in Item 7 below.
EMPLOYEES
As of December 26, 2011, we have no employees as we have been unable to secure
sufficient financing to hire full time or part time staff. Our sole officer and
two Directors provide services to us on an as-needed basis.
ITEM 1A. RISK FACTORS.
RISK FACTORS RELATED TO OUR BUSINESS
WE ARE UNCERTAIN OF OUR ABILITY TO CONTINUE AS A GOING CONCERN, INDICATING THE
POSSIBILITY THAT WE MAY NOT BE ABLE TO OPERATE IN THE FUTURE.
To date, we have completed only the initial stages of our business plan and we
can provide no assurance that we will be able to generate a sufficient amount of
revenue, if at all, from our business in order to achieve profitability. It is
not possible for us to predict at this time the potential success of our
business. The revenue and income potential of our proposed business and
operations are currently unknown. If we cannot continue as a viable entity, you
may lose some or all of your investment in our Company.
AS A COMPANY IN THE EARLY STAGE OF DEVELOPMENT WITH AN UNPROVEN BUSINESS
STRATEGY, OUR LIMITED HISTORY OF OPERATIONS MAKES EVALUATION OF OUR BUSINESS AND
PROSPECTS DIFFICULT.
We were incorporated on December 18, 2007. Our website is not complete, we have
no customers, and have not earned any revenues. Our business prospects are
difficult to predict because of our limited operating history, early stage of
development and unproven business strategy. Our primary business activities
will, at this time, be focused on the development of our website and the sale of
online video store outlets. Although we believe that our business plan will have
significant profit potential, we may not attain profitable operations and our
management may not succeed in realizing our business objectives.
OUR BUSINESS WILL FAIL IF WE ARE UNABLE TO DEVELOP OUR ONLINE VIDEO STORE
WEBSITE OR IMPLEMENT OUR BUSINESS PLAN SUCCESSFULLY.
The success of our business plan is dependent on the development of our online
video store website. We may not be able to develop this website in a timely
manner. In addition, the success of our business plan is dependent upon the
market acceptance of our website and the services offered thereby. Our business
will fail if we can not successfully implement our business plan, or develop our
website or successfully market our product and capabilities.
WE EXPECT TO SUFFER LOSSES IN THE IMMEDIATE FUTURE.
We expect to incur operating losses in future periods. These losses will occur
because we do not yet have any revenues to offset the expenses associated with
the development of our website and our business. We cannot guarantee that we
will ever be successful in generating revenues in the future. We recognize that
if we are unable to generate revenues, we will not be able to earn profits or
continue operations. There is no history upon which to base any assumption as to
the likelihood that we will prove successful, and we can provide investors with
no assurance that we will generate any operating revenues or ever achieve
profitable operations. If we are unsuccessful in addressing these risks, our
business will most likely fail.
WE MAY NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN OR STAY IN BUSINESS WITHOUT
ADDITIONAL FUNDING.
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Our ability successfully to develop our online video store website and
eventually to sell online video stores to generate operating revenues depends on
our ability to obtain the necessary financing to implement our business plan. We
may require additional financing through issuance of debt and/or equity in order
to establish profitable operations. Such financing, if required, may not be
forthcoming. As widely reported, the global and domestic financial markets have
been extremely volatile in recent months. If such conditions and constraints
continue, we may not be able to acquire additional funds either through credit
markets or through equity markets. Even if additional financing is available, it
may not be available on terms we find favorable. At this time, there are no
anticipated sources of additional funds in place. Failure to secure the needed
additional financing will have an adverse effect on our ability to remain in
business.
IF OUR ESTIMATES RELATED TO EXPENDITURES ARE ERRONEOUS OR INACCURATE, OUR
BUSINESS WILL FAIL AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.
Our success is dependent in part upon the accuracy of our management's estimates
of expenditures for legal and accounting services, including those we expect to
incur as a publicly reporting company, for website development and
administrative expenses, which management estimates to be $40,000 over the next
twelve months. If such estimates are erroneous or inaccurate, or we encounter
unforeseen costs, we may not be able to carry out our business plan, which could
result in the failure of our business and you could lose your entire investment.
THE POPULARITY OF THE INTERNET FOR VIEWING VIDEOS AND VIDEO RELATED SERVICES MAY
DECREASE OR FAIL TO GROW, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The use of the Internet for viewing videos and video related services has
rapidly developed over the years. As is common for any rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk. It is also
difficult to predict the industry's future growth rate, if any. If the
popularity of the Internet for viewing videos declines, fails to develop or
develops more slowly than expected, or our website does not achieve or sustain
market acceptance, our results of operations and financial condition could be
materially and adversely affected.
ANY SIGNIFICANT DISRUPTION IN SERVICE ON OUR WEBSITE COULD RESULT IN A LOSS OF
CUSTOMERS.
Our plans call for our customers to access our service through our website. Our
reputation and ability to attract, retain and serve our customers will be
dependent upon the reliable performance of our website, network infrastructure
and fulfillment processes. Interruptions in these systems could make our website
unavailable and hinder our ability to make our customers on-line video store
available. Service interruptions or the unavailability of our website could
diminish the overall attractiveness of our subscription service to existing and
potential customers.
Our servers will likely be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions
and delays in our service and operations and loss, misuse or theft of data. It
is likely that our website will periodically experience directed attacks
intended to cause a disruption in service, which is not uncommon for web-based
businesses. Any attempts by hackers to disrupt our website service or our
internal systems, if successful, could harm our business, be expensive to remedy
and damage our reputation. Efforts to prevent hackers from entering our computer
systems are expensive to implement and may limit the functionality of our
services. Any significant disruption to our website or internal computer systems
could result in a loss of subscribers and adversely affect our business and
results of operations.
ADVANCEMENT IN TECHNOLOGY MAY HINDER OUR ABILITY TO KEEP PACE WITH THE INDUSTRY
OF SUPPLYING ONLINE VIDEOS.
Online movies are produced in a variety of formats, which continually change as
technology advances. We face the risk of not being able to maintain a level of
technological sophistication needed effectively to compete in this market place,
which may result in the failure of our business.
INTELLECTUAL PROPERTY CLAIMS AGAINST OUR CUSTOMERS, THE OPERATORS OF THE ON-LINE
VIDEO RENTAL STORES, COULD EXTEND TO US.
Our customers will use the intellectual property of third parties in
merchandising their products and at present, we do not have the necessary
technology to monitor whether our customers are operating the on-line video
stores in accordance with current anti-piracy legislation or regulations. This
may adversely impact our ability to take the necessary measures to ensure that
our customers also comply, with the provisions of The Digital Millennium
Copyright Act (the "DMCA"). Further, it may also impact our ability to avail
ourselves of the safe harbor protection provided under the DMCA Title II, the
Online Copyright Infringement Liability Limitation Act (the "OCILLA").
10
In addition, actions on the part of our customers and their use of the
intellectual property of others may result in a claim against our customers for
infringement, misappropriation, misuse or other violation of third party
intellectual property rights. Such claims may extend to us, either directly or
under the doctrine of contributory infringement, and we may face costly
litigation, diversion of technical and management personnel, and may be unable
to use our website. If we are unable to obtain or develop sufficient technology
to ensure that our customers do not infringe on the intellectual property of
others, or to provide non-infringing alternative technology, our business and
competitive position may be affected adversely. As a result of a dispute, we may
have to develop non-infringing technology, enter into royalty or licensing
agreements adjust our merchandizing or marketing activities or take other action
to resolve the claims, including cessation of operations which are deemed to
infringe. These actions, if required, may be unavailable on terms acceptable to
us, costly or unavailable. As part of our effort to protect the intellectual
property of others, we will make available on our website and on the site of
each online video store a Copyright Infringement Notification form, for those
who believe that their intellectual property rights are being infringed, to
submit to us. Upon receipt of such forms, we will remove the allegedly
infringing material from our customers' sites. Repeat offenders will have their
stores closed indefinitely.
ANTI-PIRACY ISSUES HAVE BEEN AND WILL CONTINUE TO BE A MAJOR ISSUE BETWEEN
PRODUCERS AND CONSUMERS AS THE AMOUNT OF VIDEO CONTENT BEING EXCHANGED ON THE
INTERNET GROWS.
The introduction of Digital Rights Management ("DRM") systems was thought to
resolve many of the issues related to unauthorized downloading and acquisition
of music and video content. We believe DRM continues to be an option used by
many vendors of movies to protect the intellectual capital of their investments.
Although we plan to monitor the trends in the marketplace and make any necessary
changes, unforeseen changes in piracy law may prevent us from competing
effectively and our business may fail.
WE ARE IN A COMPETITIVE MARKET WHICH COULD IMPACT OUR ABILITY TO GAIN MARKET
SHARE WHICH COULD HARM OUR FINANCIAL PERFORMANCE.
The business of maintaining websites to sell online videos is very competitive.
Barriers to entry on the Internet are relatively low, and we face competitive
pressures from numerous companies that have existed and been successful in this
general market space for many years. There are a number of successful websites
operated by proven companies that offer mail order video rentals, which may
prevent us from gaining enough market share to become successful. These
competitors have existing customers that may form a large part of our customers'
targeted clients and such targeted clients may be hesitant to switch over from
already established competitors to our customers. If we cannot gain enough
market share, our business and our financial performance will be adversely
affected.
WE ARE A SMALL COMPANY WITH LIMITED RESOURCES RELATIVE TO OUR COMPETITION AND WE
MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
Our competitors' online video stores have longer operating histories, greater
resources and name recognition, and a larger base of customers than we have. As
a result, these competitors will have greater credibility with our clients'
potential customers. They also may be able to adopt more aggressive pricing
policies and devote greater resources to the development, promotion, and sale of
their online video stores than we or our clients can to ours. Therefore, we may
not be able to compete effectively and our business may fail.
WE NEED TO RETAIN KEY PERSONNEL TO SUPPORT OUR PRODUCT AND ONGOING OPERATIONS.
The development of our website and the marketing of our services will continue
to place a significant strain on our limited personnel, management, and other
resources. Our future success depends upon the continued services of our
executive officers who are developing our business. The loss of the services of
either of our officers could negatively impact our ability to develop our
website and sell our services, which could adversely affect our financial
results and impair our growth.
RISKS RELATING TO OUR COMMON STOCK
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR SECURITIES, AND THERE CAN BE NO
ASSURANCE THAT ANY PUBLIC MARKET WILL DEVELOP OR THAT OUR COMMON STOCK WILL BE
QUOTED FOR TRADING.
There has been no public market for our securities and there can be no assurance
that an active trading market for the securities offered herein will develop,
or, if developed, be sustained. We intend to identify a market maker to file an
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application with the Financial Industry Regulatory Authority ("FINRA") to have
our common stock quoted on the Over-the-Counter Bulletin Board. We will have to
satisfy certain criteria in order for our application to be accepted. We do not
currently have a market maker who is willing to participate in this application
process, and even if we identify a market maker, there can be no assurance as to
whether we will meet the requisite criteria or that our application will be
accepted. Our common stock may never be quoted on the Over-the-Counter Bulletin
Board, or, even if quoted, a public market may not materialize.
If our securities are not eligible for initial quotation, or if quoted, are not
eligible for continued quotation on the Over-the-Counter Bulletin Board or a
public trading market does not develop, purchasers of our common stock may have
difficulty selling or be unable to sell their securities should they desire to
do so, rendering their shares effectively worthless and resulting in a complete
loss of their investment.
BECAUSE WE WILL BE SUBJECT TO "PENNY STOCK" RULES ONCE OUR SHARES ARE QUOTED ON
THE OVER-THE-COUNTER BULLETIN BOARD, THE LEVEL OF TRADING ACTIVITY IN OUR STOCK
MAY BE REDUCED.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on some national securities
exchanges). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
broker-dealers who sell these securities to persons other than established
customers and "accredited investors" must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. Consequently, these
requirements may have the effect of reducing the level of trading activity, if
any, in the secondary market for a security subject to the penny stock rules. If
a trading market does develop for our common stock, these regulations will
likely be applicable, and investors in our common stock may find it difficult to
sell their shares.
FINRA SALES PRACTICE REQUIREMENTS MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND
SELL OUR STOCK.
FINRA has adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for certain customers. FINRA
requirements will likely make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may have the effect of reducing
the level of trading activity in our common stock. As a result, fewer
broker-dealers may be willing to make a market in our common stock, reducing a
stockholder's ability to resell shares of our common stock.
STATE SECURITIES LAWS MAY LIMIT SECONDARY TRADING, WHICH MAY RESTRICT THE STATES
IN WHICH YOU CAN SELL THE SHARES OFFERED BY THIS PROSPECTUS.
If you purchase shares of our common stock, you may not be able to resell the
shares in a certain state unless and until the shares of our common stock are
qualified for secondary trading under the applicable securities laws of such
state or there is confirmation that an exemption, such as listing in certain
recognized securities manuals, is available for secondary trading in such state.
There can be no assurance that we will be successful in registering or
qualifying our common stock for secondary trading, or identifying an available
exemption for secondary trading in our common stock in every state. If we fail
to register or qualify, or to obtain or verify an exemption for the secondary
trading of, our common stock in any particular state, the shares of common stock
could not be offered or sold to, or purchased by, a resident of that state. In
the event that a significant number of states refuse to permit secondary trading
in our common stock, the market for the common stock will be limited which could
drive down the market price of our common stock and reduce the liquidity of the
shares of our common stock and a stockholder's ability to resell shares of our
common stock at all or at current market prices, which could increase a
stockholder's risk of losing some or all of his investment.
IF QUOTED, THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH MAY
SUBSTANTIALLY INCREASE THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT
OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SHARES.
12
Even if our shares are quoted for trading on the Over-the-Counter Bulletin Board
and a public market develops for our common stock, the market price of our
common stock may be volatile. It may fluctuate significantly in response to the
following factors:
* variations in quarterly operating results;
* our announcements of significant contracts and achievement of
milestones;
* our relationships with other companies or capital commitments;
* additions or departures of key personnel;
* sales of common stock or termination of stock transfer restrictions;
* changes in financial estimates by securities analysts, if any; and
* fluctuations in stock market price and volume.
Your inability to sell your shares during a decline in the price of our stock
may increase losses that you may suffer as a result of your investment.
OUR INSIDERS BENEFICIALLY OWN 90.70% OF OUR ISSUED AND OUTSTANDING STOCK, AND
ACCORDINGLY, HAVE CONTROL OVER STOCKHOLDER MATTERS, THE COMPANY'S BUSINESS AND
MANAGEMENT.
As of December 26, 2011, our executive officers and directors beneficially own
4,000,000 shares of our common stock in the aggregate, or approximately 90.70%
of our issued and outstanding common stock. Mr. Fadi Zeidan, our President,
Treasurer, Secretary and a director, owns 58.96% or 2,600,000 shares of the
Company's common stock issued and outstanding. Mr. Ufuk Turk, a director, owns
1,400,000 shares, equivalent to 31.75%, of our issued and outstanding common
stock.
As a result, our executive officers, directors and affiliated persons will have
significant influence to:
* elect or defeat the election of our directors;
* amend or prevent amendment of our articles of incorporation or bylaws;
* effect or prevent a merger, sale of assets or other corporate
transaction; and
* affect the outcome of any other matter submitted to the stockholders
for vote.
Moreover, because of the significant ownership position held by our insiders,
new investors will not be able to effect a change in the Company's business or
management, and therefore, shareholders would be subject to decisions made by
management and the majority shareholders.
In addition, sales of significant amounts of shares held by our directors and
executive officers, or the prospect of these sales, could adversely affect the
market price of our common stock. Management's stock ownership may discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of us, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
BECAUSE WE DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON STOCK, HOLDERS OF
OUR COMMON STOCK MUST RELY ON STOCK APPRECIATION FOR ANY RETURN ON THEIR
INVESTMENT.
We have not declared or paid any dividends on our common stock since our
inception, and we do not anticipate paying any such dividends for the
foreseeable future. Accordingly, holders of our common stock will have to rely
on capital appreciation, if any, to earn a return on their investment in our
common stock.
13
FUTURE ADDITIONAL ISSUANCES OF OUR SHARES OF COMMON STOCK MAY RESULT IN
IMMEDIATE DILUTION TO EXISTING SHAREHOLDERS.
We are authorized to issue up to 50,000,000 shares of common stock, of which
4,410,000 shares are issued and outstanding. Our Board of Directors has the
authority to cause us to issue additional shares of common stock, and to
determine the rights, preferences and privilege of such shares, without consent
of any of our stockholders. Any future additional issuances of our common stock
will result in immediate dilution to our existing shareholders' interests, which
may have a dilutive impact on our existing shareholders, and could negatively
affect the value of your shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
We do not own interests in any real property.
ITEM 3. LEGAL PROCEEDINGS.
We know of no material, active or pending legal proceedings against our Company,
nor of any proceedings that a governmental authority is contemplating against
us. There are no proceedings in which any of our directors, officers or any of
their respective affiliates, or any beneficial stockholder, is an adverse party
or has a material interest adverse to our interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year ended September 30, 2011.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET FOR SECURITIES
There is no established public market for our common stock. We intend to seek a
market maker to file an application with the Financial Industry Regulatory
Authority, Inc., or FINRA, to have our common stock quoted on the
Over-the-Counter Bulletin Board. We will have to satisfy certain criteria in
order for our application to be accepted. We do not currently have a market
maker who is willing to participate in this application process, and even if we
identify a market maker, there can be no assurance as to whether we will meet
the requisite criteria or that our application will be accepted. Our common
stock may never be quoted on the Over-the-Counter Bulletin Board, or, even if
quoted, a public market may not materialize. There can be no assurance that an
active trading market for our shares will develop, or, if developed, that it
will be sustained.
We have issued 4,410,000 shares of our common stock since the Company's
inception on December 18, 2007. There are no outstanding options or warrants or
securities that are convertible into shares of common stock.
HOLDERS OF OUR COMMON STOCK
On December 26, 2011, there were 39 registered shareholders of our common stock,
and 4,410,000 shares outstanding.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and have no present
intention of paying any dividends on the shares of our common stock. Our future
dividend policy will be determined from time to time by our Board of Directors.
14
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
As of September 30, 2011, we had not adopted an equity compensation plan and had
not granted any stock options.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended September 30, 2011, we did not sell any equity
securities not registered under the Securities Act.
USE OF PROCEEDS FROM REGISTERED SECURITIES
We conducted a self-underwritten offering of 600,000 shares of newly issued
common stock in the public markets (the "Offering"), which was registered with
the Securities and Exchange Commission on a Form S-1 Registration Statement
(File No. 333-156480). The Offering commenced upon effectiveness of the
Registration Statement, which occurred on February 12, 2009. The Offering was
for a 180-day period, which was then extended for an additional 90 days in the
Company's discretion As of October 31, 2009, the Company sold 410,000 of these
shares for $41,000 in proceeds.
We plan to use the proceeds for the development of the company product and
proceed with preliminary marketing and sales activities. For a detailed
description on how we intend to use the proceeds, refer to Plan of Operation
under Item 7.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
During each month within the fourth quarter of the fiscal year ended September
30, 2011, neither we nor any "affiliated purchaser," as that term is defined in
Rule 10b-18(a)(3) under the Exchange Act, repurchased any of our common stock or
other securities.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The following discussion should be read in conjunction with our audited
financial statements and the related notes that appear elsewhere in this Annual
Report on Form 10-K. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward looking statements.
Factors that could cause or contribute to such differences include those
discussed below and elsewhere in this Annual Report on Form 10-K.
Our consolidated financial statements are stated in United States dollars and
are prepared in accordance with United States generally accepted accounting
principles.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with United States
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 revenues and expenses during the year.
The more significant areas requiring the use of estimates include asset
impairment, stock-based compensation, and future income tax amounts. Management
bases its estimates on historical experience and on other assumptions considered
to be reasonable under the circumstances. However, actual results may differ
from the estimates.
GENERAL ORGANIZATION AND BUSINESS
Surf A Movie Solutions, Inc. ("SURF" or the "Company") is a Nevada corporation
in the development stage. The Company was incorporated under the laws of the
State of Nevada on December 18, 2007. The Company is in the development stage of
creating an easy to use and comprehensive solution that will enable our
customers to open a video rental storefront on the Internet. The accompanying
15
financial statements of Surf A Movie Solutions, Inc. were prepared from the
accounts of the Company under the accrual basis of accounting.
In addition, SURF conducted a self-underwritten offering of 600,000 shares of
its common stock in the public markets (the "Offering"), which was registered
with the Securities and Exchange Commission on a Form S-1 Registration Statement
(File No. 333-156480). The Offering commenced upon effectiveness of the
Registration Statement, which occurred on February 12, 2009. The Offering was
for a 180-day period, which was then extended for an additional 90 days in the
Company's discretion. As of October 31, 2009, the Company sold 410,000 of these
shares for $41,000 in proceeds.
CASH AND CASH EQUIVALENTS
For purposes of reporting within the statements of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all highly liquid investments instruments purchased with a
maturity of three months or less to be cash and cash equivalents.
REVENUE RECOGNITION
The Company is in the development stage and has yet to realize revenues from
operations. It plans to realize revenues from product sales when the products
are delivered to customers, and collection is reasonably assured. For product
support and product software updates, SURF plans to realize revenues when
completion of services has occurred, provided there is persuasive evidence of an
agreement, acceptance has been approved by its customers, the fee is fixed or
determinable based on the completion of stated terms and conditions, and
collection of any related receivable is probable.
INTERNAL WEBSITE DEVELOPMENT COSTS
Under Emerging Issues Taskforce Statement 00-2, "ACCOUNTING FOR WEBSITE
DEVELOPMENT COSTS" ("EITF 00-2"), costs and expenses incurred during the
planning and operating stages of the Company's website are expensed as incurred.
Under EITF 00-2, costs incurred in the website application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the website's estimated useful life or period of benefit. As of September 30,
2011, the Company had not undertaken any project related to the development of
an internal-use website.
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Under Statement of Position 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE" ("SOP 98-1"), the Company capitalizes
external direct costs of materials and services consumed in developing or
obtained internal-use computer software; payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project; and, interest costs related to loans
incurred for the development of internal-use software. As of September 30, 2011,
the Company had not undertaken any projects related to the development of
internal-use software.
COSTS OF COMPUTER SOFTWARE TO BE SOLD OR OTHERWISE MARKETED
Under Statement of Financial Accounting Standards No. 86, "ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED" ("SFAS No.
86"), the Company capitalizes costs associated with the development of certain
software products held for sale when technological feasibility is established.
Capitalized computer software costs of products held for sale are amortized over
the useful life of the products from the software release date. As of September
30, 2011, the Company had not capitalized any sums related to its website
software to be sold and not recorded any sums in accumulated amortization
related to its software.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives at each balance sheet date. SURF records an impairment
or change in useful life whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable or the useful life has changed.
For the years ended September 30, 2011 and 2010, no events or circumstances
occurred for which an evaluation of the recoverability of long-lived assets was
required.
16
LOSS PER COMMON SHARE
Basic loss per share is computed by dividing the net loss attributable to the
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted loss per share is computed similar to
basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive. There were no dilutive financial instruments issued or outstanding for
the years ended September 30, 2011, and 2010.
DEFERRED OFFERING COSTS
The Company defers as other assets the direct incremental costs of raising
capital until such time as the offering is completed. At the time of the
completion of the offering, the costs are charged against the capital raised.
Should the offering be terminated, deferred offering costs are charged to
operations during the period in which the offering is terminated. As of
September 30, 2011, SURF did not have any reclassified deferred offering costs.
INCOME TAXES
Income taxes are provided in accordance with SFAS No. 109, "ACCOUNTING FOR
INCOME TAXES" ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and
liabilities are determined based on temporary differences between the bases of
certain assets and liabilities for income tax and financial reporting purposes.
The deferred tax assets and liabilities are classified according to the
financial statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
SURF establishes a valuation allowance based upon the potential likelihood of
realizing the deferred tax asset and taking into consideration the Company's
financial position and results of operations for the current period. Future
realization of the deferred tax benefit depends on the existence of sufficient
taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
year of the change in estimate.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts SURF could realize in a current market
exchange. As of September 30, 2011, and 2010, the carrying value of financial
instruments approximated fair value due to the short-term nature and maturity of
these instruments.
CONCENTRATION OF RISK
As of September 30, 2011, and 2010, the Company maintained its cash account at
one commercial bank. The account was subject to FDIC coverage.
ESTIMATES
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States of America. 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 as of September 30, 2011, and 2010, and revenues and
expenses for the years ended September 30, 2011, and 2010, and cumulative from
inception. Actual results could differ from those estimates made by management.
EXECUTIVE OVERVIEW
We are a development stage company with limited operations and no revenues from
our business operations. Our registered independent auditors have issued a going
concern opinion. This means that our registered independent auditors believe
there is substantial doubt that we can continue as an on-going business for the
next 12 months. We do not anticipate that we will generate significant revenues
17
until we have implemented our marketing plan to generate customers. Accordingly,
we must raise cash from sources other than our operations in order to implement
our marketing plan.
In our management's opinion, there is a need for software that would allow our
customers with no technical knowledge to open a video rental storefront on the
Internet and to maintain and update the websites with new product listings
easily and quickly. We are focused on developing such software products and
offering them to customers.
As of October 31, 2009, we completed the sale of 410,000 shares of our common
stock pursuant to the terms of the S-1 Registration Statement that was declared
effective on February 12, 2009, and we generated $41,000 in gross proceeds.
If we are unable to generate revenues going forward, or if we are unable to make
a reasonable profit, we may have to suspend or cease operations. At the present
time, we have not made any arrangements to raise additional cash. We may seek to
obtain additional funds through a second public offering, private placement of
securities, or loans. Other than as described in this paragraph, we have no
other financing plans at this time.
RECENT DEVELOPMENTS
During the previous twelve months, we focused on the preparation and filing of
our Registration Statement on Form S-1 and the Offering in order to raise the
necessary funds to develop and market our product.
PLAN OF OPERATION
We are in the formative phase of development. Our plan is to develop a product
that will allow us to offer a turn-key online video rental store to customers
wishing to offer such services to their potential subscribers. Our online
service will give our customers a large level of control over the feel and look
of their online video store and it will come with the supporting infrastructure
to run the online video store. Each of our customers will be able to customize
their web site with brand name markings and icons to distinguish themselves in
the marketplace. We also intend to provide our customers with training on the
administrative and reporting functions during an orientation period, along with
ongoing customer support.
We are in the process of developing an "information only" web to promote our
company and our product. The goal of this effort will be to create a presence on
the Internet and attract potential customers to inquire about our services. A
preliminary web site is now available at www.surfamovie.com. As well, we have
retained the services of a software contractor for the development of our
product. Our choice was based on a combination of competitive price, experience,
ability to meet deadlines and stay within a budget. We are experiencing delays
in the development of our software.
We have finished the specification of the product and created the High-Level.
This part of our design work includes the specifications for the different
modules to be developed.
We are delayed in our development schedule and we do not expect we will need the
production servers till May 2012.
Our goals for approximately the next twelve months (between October 1, 2011 and
September 30, 2012) are to:
* DESIGN OF WEB INTERFACES: The usability of our web site and its visual
appeal are very important to the success of our Internet-based
services. We will hire a web interface designer to work with our
directors on the layout of the web pages and to optimize how the web
pages interact with the user. We expect that this task will take
approximately two months to complete.
* SURF A MOVIE WEBSITE DEVELOPMENT: Our web site will contain
information to help an entity evaluate our solution to open an online
movie rental business. It will enable the entity to sign up for our
service. Once they sign up and payment is made via PayPal, an account
will be created, which will be protected by a user specific username
and password. Our customers will be able to login to their portal
through our web site and proceed with the creation of their online
store. Our web site will also contain examples and templates of video
stores. We anticipate that the development of our website will take
approximately one month to complete.
* CUSTOMER PORTAL DEVELOPMENT: When a web site visitor wishes to make a
purchase (i.e., rent a video from the online video store) he or she
will be required to create a user or a customer account which will be
protected by a password of his or her choice. After the account is
created, he or she will be able to proceed to make the payment for
their video selection(s). As soon as a payment confirmation is
generated from PayPal, the purchased videos will be available for
18
download for a limited period of time. The customer will be able to
login to his or her account and download the videos within the
specified period. The next time the customer wishes to make a
purchase, he or she will simply have to login to their existing
account. We anticipate that it will take approximately one month to
develop the customer portal feature.
* STORE OWNERS PORTAL DEVELOPMENT: Each video store owner who purchases
one of our turn-key operations will be required to begin by completing
the online registration form. We will review each online registration
form for approval. Once approved, a "Business Owner's Account" will be
created, and within the portal, the video store owners will find the
necessary information and tools to create their store. They will be
able to add and edit categories, add videos, description, trailer, top
10 list, top videos by category, etc... Helpful hints and instructions
will be included in each step of the portal to assist the store owner
in the set-up and maintenance phase of the online store. We expect
that it will take approximately four months to develop the store
owners' portal.
* SURF A MOVIE ADMINISTRATIVE PORTAL DEVELOPMENT: This portal will allow
us to approve or suspend an online video store if necessary. It will
enable us to append notes to document our relationship and
correspondence with each individual store owner. In addition, this
feature will automatically calculate the amount of rental revenue
(minus fees) that we owe to a store owner. Further, it will enable our
directors and staff to access a wide range of reporting related to
sales and where end users are coming from. We expect that development
of this feature will take approximately one month to complete.
* DIGITAL RIGHTS MANAGEMENT: We will be implementing Microsoft Digital
Right Management ("DRM") system to prevent the copying and exchange of
copies of online movies between multiple persons, in an effort to
protect the intellectual property of the video store owners and their
revenue stream. We expect that it will take approximately one month to
implement the DRM with our site.
EXPENDITURES
The following chart provides an overview of our budgeted expenditures by
significant area of activity over the twelve months:
Accounting & Legal $ 8,000.00
Transfer Agent $ 2,500.00
Server Leasing & hosting $ 3,100.00
Additional Data Traffic $ 400.00
Product Development $14,900.00
Telephone $ 200.00
Web hosting $ 60.00
Corporate and marketing collateral $ 2,450.00
Marketing $ 3,000.00
Sales Support Staff $ 0.00
Office Equipment $ 1,200.00
Office Rental $ 2,280.00
Office Supplies $ 1,200.00
Misc. Expenditure $ 7,100.00
----------
TOTAL $46,390.00
==========
19
MILESTONES
Below is a brief description of our planned activities over the next 12 months
starting January 1, 2012.
MONTHS 1 TO 3
* Finalize corporate and marketing materials, such as brochures, letter
heads, email and letter templates, and the like.
* finalize the work on the web interfaces and the feel and look of the
website;
* work with the contractor on the development of the website and
software;
* review targeted "milestones" and adjust workloads, if necessary;
* commence the Google Adwords advertising campaign to attract potential
video store owners;
* prepare marketing contracts for the video store owners; and
* monitor the hits on our web site and arrange for follow up with
marketing contacts.
MONTHS 4 TO 6
* Continue work on all development of all portals;
* evaluate online ads, increase the frequency and monitor results
weekly;
* begin work on training documentation for the video store owners;
* review targeted "milestones" timetable and adjust workload, if
necessary; and
* begin discussions with four to six prospective beta customers for
testing.
MONTHS 7 TO 9
* Complete development of website, software and all intended features
and functions;
* conduct our Beta trial and complete modifications to our product
trials with several beta customers;
* correct any detected discovered defects;
* interview and hire sales support staff to start work in month eleven;
* promote the upcoming official of our site in Google online ads; and
* launch the product in month 12.
MONTHS 10 TO 12
* Focus on the marketing and sale of our product
* Fixing bugs
OFF BALANCE SHEET TRANSACTIONS
We have had no off balance sheet transactions.
SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment for the next twelve
months.
20
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2011
REVENUES
We had no revenues for the period from December 18, 2007 (date of inception),
through September 30, 2011.
EXPENSES
Our expenses for the twelve month period ended September 30, 2011and 2010 were
$15, 592 and $23,594, respectively. During the period from December 18, 2007
(date of inception), through September 30, 2011, we incurred expenses of
$67,676. These expenses were comprised primarily of legal expenses, accounting
expenses, SEC filing fees, as well as bank fees.
NET INCOME (LOSS)
Our net loss for the twelve-month period ended September 30, 2011 and 2010 was
$15,592 and $23,594, respectively. During the period from December 18, 2007
(date of inception), through September 30, 2011, we incurred a net loss of
$67,676. This loss consisted of legal expenses, accounting expenses, SEC filing
fees, as well as bank fees. Since inception, we have sold 4,410,000 shares of
common stock.
PURCHASE OR SALE OF EQUIPMENT
We do not expect to purchase or sell any plant or significant equipment.
LIQUIDITY AND CAPITAL RESOURCES
Our balance sheet as of September 30, 2011 reflects assets of $4,840 in the form
of cash and cash equivalents. Since inception, we have sold 4,410,000 shares of
common stock with gross proceeds of $61,000.
We anticipate generating losses in the near term, and therefore, may be unable
to continue operations in the future. We require additional capital, and we may
have to issue debt or equity or enter into a strategic arrangement with a third
party to obtain such capital. There can be no assurance that additional capital
will be available to us. We currently have no agreements, arrangements, or
understandings with any person to obtain funds through bank loans, lines of
credit, or any other sources.
GOING CONCERN CONSIDERATION
Our registered independent auditors included an explanatory paragraph in their
report on the accompanying financial statements regarding concerns about our
ability to continue as a going concern. Our financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our registered independent auditors.
Due to this doubt about our ability to continue as a going concern, management
is open to new business opportunities which may prove more profitable to the
shareholders of SURF Management, Inc. In the past, we have been able to raise a
limited amount of capital through private placements of our equity stock, but we
are uncertain about our continued ability to raise funds privately. Further, we
believe that our company may have difficulties raising capital unless we locate
a prospective new business opportunity through which we can pursue a new plan of
operation. If we are unable to secure adequate capital to implement our current
business plan or to continue our efforts to acquire a new business opportunity,
our business may fail and our stockholders may lose some or all of their
investment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders of
Surf A Movie Solutions, Inc.
(A Development Stage Company)
Huntington Beach, California
We have audited the accompanying balance sheets of Surf A Movie Solutions, Inc.
("Surf A Movie" or the "Company"), a development stage company, as of September
30, 2011 and 2010 and the related statements of expenses, changes in
shareholders' equity (deficit), and cash flows for the years then ended and the
period from December 17, 2007 (inception) through September 30, 2011. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
2011 and 2010 and the results of its operations and its cash flows for the years
then ended and the period from December 17, 2007 (inception) through September
30, 2011, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that Surf A
Movie will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company suffered losses from operations and has a working
capital deficiency, which raises substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
-------------------------------
www.malonebailey.com
Houston, Texas
December 20, 2011
22
Surf A Movie Solutions Inc.
(A Development Stage Company)
Balance Sheets
September 30, September 30,
2011 2010
-------- --------
ASSETS
Cash $ 4,840 $ 17,470
Prepaid expenses 2,768 2,000
-------- --------
Total Assets $ 7,608 $ 19,470
======== ========
LIABILITIES
Accounts payable and accrued liabilities $ 14,284 $ 10,554
-------- --------
Total Liabilities 14,284 10,554
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock authorized -
50,000,000 common shares with a par value of $0.001
Common stock issued and outstanding -
4,410,000 common shares, respectively 4,410 4,410
Additional paid in capital 56,590 56,590
Deficit accumulated in the development stage (67,676) (52,084)
-------- --------
Total Stockholders' Equity (Deficit) (6,676) 8,916
-------- --------
Total Liabilities and Stockholders' Equity (Deficit) $ 7,608 $ 19,470
======== ========
The accompanying notes are an integral part of
these audited financial statements
23
Surf A Movie Solutions Inc.
(A Development Stage Company)
Statement of Expenses
Period
from Inception
Year Ended Year Ended (December 17, 2007) to
September 30, September 30, September 30,
2011 2010 2011
---------- ---------- ----------
Expenses:
General and administrative $ 15,592 $ 23,594 $ 67,676
---------- ---------- ----------
Total expenses 15,592 23,594 67,676
---------- ---------- ----------
Net loss $ (15,592) $ (23,594) $ (67,676)
========== ========== ==========
Basic and diluted loss per common share (0.00) (0.01)
========== ==========
Weighted average number of common shares outstanding 4,410,000 4,375,178
========== ==========
The accompanying notes are an integral part of
these audited financial statements
24
Surf A Movie Solutions Inc.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
For the period from Inception (December 18, 2007) to September 30, 2011
Deficit
Accumulated
Common Shares Additional During
----------------------- Paid In Subscriptions Development
Issued Shares Amount Capital Received Stage Equity
------------- ------ ------- -------- ----- ------
Balance, December 18, 2007 (inception) -- $ -- $ -- $ -- $ -- $ --
Shares issued to founder on
Dec 18, 2008 @ $0.005 per share 4,000,000 4,000 16,000 -- -- 20,000
Net (Loss) -- -- -- -- (5,874) (5,874)
--------- ------- -------- -------- -------- --------
Balance, September 30, 2008 4,000,000 4,000 16,000 -- (5,874) 14,126
Subscriptions received -- -- -- 16,000 -- 16,000
Net (Loss) -- -- -- -- (22,616) (22,616)
--------- ------- -------- -------- -------- --------
Balance, September 30, 2009 4,000,000 4,000 16,000 16,000 (28,490) 7,510
Private placement closed on
October 31, 2009 @ $0.10 per share 410,000 410 40,590 (16,000) -- 25,000
Net (loss) -- -- -- -- (23,594) (23,594)
--------- ------- -------- -------- -------- --------
Balance, September 30, 2010 4,410,000 4,410 56,590 -- (52,084) 8,916
Net loss -- -- -- -- (15,592) (15,592)
--------- ------- -------- -------- -------- --------
Balance, September 30, 2011 4,410,000 $ 4,410 $ 56,590 $ -- $(67,676) $ (6,676)
========= ======= ======== ======== ======== ========
The accompanying notes are an integral part of
these audited financial statements
25
Surf A Movie Solutions Inc.
(A Development Stage Company)
Statement of Cash Flows
Period
from Inception
Year Ended Year Ended (December 17, 2007) to
September 30, September 30, September 30,
2011 2010 2011
-------- -------- --------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net loss $(15,592) $(23,594) $(67,676)
Adjustments to reconcile net loss to net cash
used in operating activities:
Changes in operating assets and liabilities:
Prepaid expenses (768) (1,880) (2,768)
Accounts payable and accrued expenses 3,730 7,200 14,284
-------- -------- --------
Net cash used in operating activities (12,630) (18,274) (56,160)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Subscriptions received -- -- 16,000
Sale of stock -- 25,000 45,000
-------- -------- --------
Net cash provided by financing activities -- 25,000 61,000
-------- -------- --------
Net change in cash (12,630) 6,726 4,840
Cash, beginning of period 17,470 10,744 --
-------- -------- --------
Cash, end of period $ 4,840 $ 17,470 $ 4,840
======== ======== ========
The accompanying notes are an integral part of
these audited financial statements
26
Surf A Movie Solutions Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2011
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
Surf A Movie Solutions Inc. ("we", "our", "Surf A Movie" or the "Company"),
incorporated in the state of Nevada on December 18, 2007, is a development stage
company engaged in the development, sales and marketing of online video stores.
The Company is creating a "turn-key" solution to enable customers to open a
video rental storefront on the Internet. A "turn-key" solution is an easy to use
solution that includes all tools and features necessary to enable its customers
to offer download-based video rental service and is intended to enable its
customers to set-up their video store without the need for third party's tools.
The Company's product will enable video store customers to download rented
movies to their computers to be played using Microsoft Media Player. The product
will be offered as a service hosted on the Company's servers which will be
located in a preferred data center in North America.
The Company has limited operations and in accordance with ASC 915-15 is
considered to be in the development stage.
GOING CONCERN
These financial statements have been prepared on a going concern basis. Surf A
Movie has incurred losses since inception and has a working capital deficit,
which raises substantial doubt about Surf a movie's ability to continue as a
going concern. Its ability to continue as a going concern is dependent upon the
ability of Surf A Movie's to generate profitable operations in the future and/or
to obtain the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they come due.
Management has plans to seek additional capital through a private placement and
public offering of its common stock. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING BASIS
These financial statements are prepared on the accrual basis of accounting in
conformity with accounting principles generally accepted in the United States of
America.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles of the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
The more significant areas requiring the use of estimates include asset
impairment, stock-based compensation, and future income tax amounts. Management
bases its estimates on historical experience and on other assumptions considered
to be reasonable under the circumstances. However, actual results may differ
from the estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with an original maturity of
three months or less.
27
Surf A Movie Solutions Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2011
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEVELOPMENT STAGE
The Company complies with Statement of Financial Accounting Standard ASC 915-15
and the Securities and Exchange Commission Exchange Act 7 for its
characterization of the Company as development stage.
NET LOSS PER SHARE
Net income loss per common share is computed based on the weighted average
number of common shares outstanding and common stock equivalents, if not
anti-dilutive. The Company has not issued any potentially dilutive common
shares.
Basic loss per share is calculated using the weighted average number of common
shares outstanding and the treasury stock method is used to calculate diluted
earnings per share. For the years presented, this calculation proved to be
anti-dilutive.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. These assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which the
temporary differences are expected to reverse.
We have net operating loss carryforwards available to reduce future taxable
income. Future tax benefits for these net operating loss carryforwards are
recognized to the extent that realization of these benefits is considered more
likely than not. To the extent that we will not realize a future tax benefit, a
valuation allowance is established.
NOTE 3 - STOCKHOLDERS' EQUITY (DEFICIT)
During the year ended September 30, 2011, we did not issue any stock. As at
September 30, 2011, we have 4,410,000 common shares issued and outstanding.
On December 18, 2009, the Company issued 4,000,000 common shares for total
proceeds of $20,000.
On October 31, 2009, the Company issued 410,000 common shares for total proceeds
of $41,000. As at September 30, 2011, the company has no warrants or options
outstanding.
28
Surf A Movie Solutions Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2011
NOTE 4 - INCOME TAX
Surf a movie uses the liability method, where deferred tax assets and
liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes. During fiscal year 2011, Surf a
Movie incurred net losses and, therefore, has no tax liability. The net deferred
tax asset generated by the loss carry-forward has been fully reserved. The
cumulative net operating loss carry-forward is approximately $67,676 at
September 30, 2011, and will expire in the year 2031.
As at September 30, 2011, deferred tax assets consisted of the following:
Deferred tax asset $ 23,010
Less: Valuation allowance (23,010)
--------
Net deferred tax asset $ --
========
NOTE 5 - SUBSEQUENT EVENTS
On December 7, 2011, the Company borrowed $4,000 from its President. The loan
bears no interest and the funds are due on demand.
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15/15d-15 under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), as of September 30, 2010, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of our management, our President and Treasurer
(Principal Executive Officer and Principal Financial Officer). Based upon the
results of that evaluation, our management has concluded that, as of September
30, 2011, our disclosure controls and procedures were ineffective due to lack of
segregation of duties and provide reasonable assurance that material information
related to our Company required to be disclosed in the reports that we file or
submit under the Exchange Act 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 management to allow timely
decisions on required disclosure.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
As of September 30, 2011, management assessed the effectiveness of our internal
control over financial reporting. The Company's management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the supervision of, the Company's
Chief Executive Officer and Chief Financial Officer and effected by the
Company's Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP in the United States of America and includes those policies and procedures
that:
* Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and dispositions of our
assets;
* Provide reasonable assurance our transactions are recorded as
necessary to permit preparation of our financial statements in
accordance with GAAP, and that receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
* Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statement.
In evaluating the effectiveness of our internal control over financial
reporting, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control
Integrated Framework. Based on that evaluation, completed only by Fadi Zeidan,
our President, Chief Executive Officer, Treasurer and Director, who also serves
as our principal financial officer and principal accounting officer, Mr. Zeidan
concluded that, during the period covered by this report, such internal controls
and procedures were not effective to detect the inappropriate application of US
GAAP rules as more fully described below. This was due to deficiencies that
existed in the design or operation of our internal controls over financial
reporting that adversely affected our internal controls and that may be
considered to be material weaknesses.
30
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (i) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (ii) inadequate segregation of duties consistent with control
objectives; and (iii) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were identified
by our President, Chief Executive Officer, Secretary, Treasurer and Director,
who also serves as our principal financial officer and principal accounting
officer, in connection with the review of our financial statements as of
September 30, 2011.
Management believes that the lack of a functioning audit committee and the lack
of a majority of outside directors on our board of directors results in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures, which could result in a material misstatement in our
financial statements in future periods.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, which has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
EXECUTIVE OFFICER AND DIRECTORS
Our officers and directors and their ages and positions are as follows:
Name Age Position
---- --- --------
Fadi Zeidan 41 President, Secretary, Treasurer and Director
Ufuk Turk 33 Director
FADI ZEIDAN
Mr. Zeidan is our President, Treasurer, and a director and has served in these
capacities since February 15, 2008. In addition, he was appointed as the
Company's Secretary on August 18, 2008. Since November 2005, Mr. Zeidan has been
employedas a Project Manager with Ceridian Tax Services, a private company
engaged in providing accounting services to individuals and businesses. The
company is located in Fountain Valley, California. His duties included planning
scheduling, monitoring, evaluating and directing projects to ensure a
implementation of complete business solutions. Mr. Zeidan will continue to work
for Ceridian Tax Services on a full time basis. Between July 2000 and October
2005, Mr. Zeidan was a System Development Manager at Strategic Business
Solutions, a private company engaged in providing Accounting services to
individuals and businesses. The company is located in Santa Ana, California. Mr.
Zeidan graduated with a Bachelor Degree in Computer Science from California
State University, Long Beach, California in 1999.
UFUK TURK
Mr. Turk is a director, and has served on our Board of Directors since February
15, 2008. Since December 2006, Mr. Turk has been employed as a Software
Specialist at AbisZNet in Berlin, Germany, a private company involved in the
development of web-based applications. Between February 2005 and November 2006,
Mr. Turk worked on a student information management system for the Newport
International University in Turkey. Between February 2002 and August 2005, Mr.
Turk worked as a Software Specialist for NTV Television in Istanbul, Turkey,
where he was responsible for e-commerce business application development
projects. Mr. Turk completed his degree in 2002 in Computer Science Engineering
from Newport University, Istanbul, Turkey. He previously attended Sakarya
University in Sakarya, Turkey where he completed a Computer Programming program
in 1999.
BOARD COMPOSITION
Our Bylaws provide that the Board of Directors shall consist of no less than 1,
but not more than 9 directors. Each director serves until his successor is
elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
To date, our Board of Directors has not established a nominating and governance
committee, a compensation committee, nor an audit committee. Nor do we have an
audit committee "financial expert." As such, our entire Board of Directors acts
as our audit committee and handles matters related to compensation and
nominations of directors.
DIRECTOR INDEPENDENCE
We are not subject to listing requirements of any national securities exchange
or national securities association and, as a result, we are not at this time
required to have our board comprised of a majority of "independent directors."
Our determination of independence of directors is made using the definition of
32
"independent director" contained in Rule 4200(a)(15) of the Marketplace Rules of
the NASDAQ Stock Market ("NASDAQ"), even though such definitions do not
currently apply to us because we are not listed on NASDAQ. We have determined
that none of our directors currently meet the definition of "independent" as
within the meaning of such rules as a result of their current positions as our
executive officers.
CODE OF ETHICS
We currently do not have a written code of ethics applicable to our executive
officers. We have not yet adopted a written code of ethics due the early stage
of development of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers, and stockholders holding more than 10% of the
outstanding common stock of companies with a class of equity securities
registered pursuant to Section 12 of the Exchange Act, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in beneficial ownership of the common stock. Executive officers,
directors and greater-than-10% stockholders are required by SEC regulations to
furnish the issuer with copies of all Section 16(a) reports they file. During
the fiscal year ended September 30, 2011, our common stock was registered under
Section 12 of the Exchange Act on December 21, 2009.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD
We have not implemented a formal policy or procedure by which our stockholders
can communicate directly with our Board of Directors. Nevertheless, every effort
has been made to ensure that the views of stockholders are heard by the Board of
Directors or individual directors, as applicable, and that appropriate responses
are provided to stockholders in a timely manner. We believe that we are
responsive to stockholder communications, and therefore have not considered it
necessary to adopt a formal process for stockholder communications with our
Board. During the upcoming year, our Board will continue to monitor whether it
would be appropriate to adopt such a process.
ITEM 11. EXECUTIVE COMPENSATION.
The particulars of compensation paid to the following persons during the fiscal
period ended September 30, 2011 are set out in the summary compensation table
below:
* our Chief Executive Officer (Principal Executive Officer);
* our Chief Financial Officer (Principal Financial Officer);
* each of our three most highly compensated executive officers, other
than the Principal Executive Officer and the Principal Financial
Officer, who were serving as executive officers at the end of the
fiscal year ended September 30, 2011; and
* up to two additional individuals for whom disclosure would have been
provided under the item above but for the fact that the individual was
not serving as our executive officer at the end of the fiscal year
ended September 30, 2011;
(collectively, the "Named Executive Officers"):
33
SUMMARY COMPENSATION TABLE
Non-Equity Nonqualified
Fiscal Year Incentive Deferred
Ended Option Plan Compensation All Other
September Salary Bonus Stock Awards Awards Compensation Earnings Compensation Total
Name 30, ($) ($) ($) ($) ($) ($) ($) ($)
---- --------- ------ ----- ------------ ------ ------------ -------- ------------ -----
Fadi Zeidan (1) 2011 0 0 0 0 0 0 0 0
2010 0 0 0 0 0 0 0 0
----------
(1) Mr. Zeidan has been our President, and Treasurer (Principal Executive
Officer and Principal Financial Officer), and Director since February 15,
2007. He has been appointed secretary on August 18, 2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards Stock Awards
----------------------------------------------------------------- ----------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Equity Number of Value of
Incentive Number Unearned Unearned
Plan Awards; of Market Shares, Shares,
Number of Number of Number of Shares Value of Units or Units or
Securities Securities Securities or Units Shares or Other Other
Underlying Underlying Underlying of Stock Units of Rights Rights
Unexercised Unexercised Unexercised Option Option That Stock That That That
Options (#) Options (#) Unearned Exercise Expiration Have Not Have Not Have Not Have Not
Name Exercisable Unexercisable Options (#) Price Date Vested(#) Vested Vested Vested
---- ----------- ------------- ----------- ----- ---- --------- ------ ------ ------
Fadi
Zeidan -- -- -- -- -- -- -- -- --
OPTION GRANTS AND EXERCISES
There were no option grants or exercises by any of the Named Executive Officers
named in the Summary Compensation Table above.
EMPLOYMENT AGREEMENTS
We have not entered into employment and/or consultant agreements with our
Directors and officers.
COMPENSATION OF DIRECTORS
All directors receive reimbursement for reasonable out-of-pocket expenses in
attending board of directors meetings and for promoting our business. From time
to time we may engage certain members of the board of directors to perform
services on our behalf. In such cases, we compensate the members for their
services at rates no more favorable than could be obtained from unaffiliated
parties. Our directors have not received any compensation for the fiscal year
ended September 30, 2011.
34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The table below sets forth the number and percentage of shares of our common
stock owned as of December 26, 2011, by the following persons: (i) stockholders
known to us who own 5% or more of our outstanding shares, (ii) each of our
executive officers and directors, and (iii) our officers and directors as a
group. Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. These rules generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities. The person is also deemed to
be a beneficial owner of any security of which that person has a right to
acquire beneficial ownership within 60 days. Unless otherwise indicated, the
persons or entities identified in this table have sole voting and investment
power with respect to all shares shown as beneficially owned by them, subject to
applicable community property laws, and the address for each person listed in
the table is c/o Surf A Movie Solutions Inc., #149, 19744 Beach Boulevard,
Huntington Beach, CA, 92648.
The percentage ownership information shown in the table below is calculated
based on 4,410,000 shares of our common stock issued and outstanding as of
December 26, 2011. We do not have any outstanding options, warrants or other
securities exercisable for or convertible into shares of our common stock.
Name and Address of Amount and Nature of Percentage
Title of Class Beneficial Owner (2) Beneficial Ownership of Class (1)
-------------- -------------------- -------------------- ------------
Common Stock Fadi Zeidan 2,600,000 58.96%
Common Stock Ufuk Turk 1,400,000 31.75%
All officers and directors
as a group (2 persons) 4,000,000 90.70%
----------
(1) Based on 4,410,000 shares of our common stock outstanding.
CHANGES IN CONTROL
There are no existing arrangements that may result in a change in control of the
Company.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
The following table sets forth information regarding our equity compensation
plans.
Number of Securities
Number of Securities to be Remaining Available for
Issued Upon Exercise of Weighted-Average Exercise Future Issuance Under
Outstanding Options, Price of Outstanding Options, Equity Compensation Plans
Warrants and Rights Warrants and Rights (excluding column (a))
Plan Category (a) (b) (c)
------------- ------------------- ------------------- -------------------------
Equity Compensation Plans -- -- --
Approved by Security
Holders
Equity Compensation Plans Not -- -- --
Approved by Security Holders
Total -- -- --
35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Other than the transactions discussed below, we have not entered into any
transaction since the last fiscal year nor are there any proposed transactions
that exceed $120,000 or one percent of the average of our total assets at year
end for the last two completed fiscal years; in which any of our Directors,
executive officers, stockholders or any member of the immediate family of any of
the foregoing had or is to have a direct or indirect material interest.
On August 12, 2008, we sold 2,600,000 shares of our common stock to Mr. Fadi
Zeidan, our President, Secretary, Treasurer and a Director, for cash payment to
us of $13,000.
On August 12, 2008, we sold 1,400,000 shares of our common stock to Mr. Ufuk
Turk, a Director of SURF, for cash payment to us of $7,000.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
For the years ended September 30, 2011 and 2010, MaloneBailey, LLP. charged us
for $8,100 and $8,100, respectively, in audit and quarterly review fees.
AUDIT-RELATED FEES
None.
TAX AND ALL OTHER FEES
None.
PRE-APPROVAL POLICIES AND PROCEDURES
We have implemented pre-approval policies and procedures related to the
provision of audit and non-audit services. Under these procedures, our Board of
Directors pre-approves all services to be provided by MaloneBailey, LLP and the
estimated fees related to these services.
36
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibit Description
------- -----------
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
our Registration Statement on Form S-1 (File No. 333-156480) filed
December 29, 2008)
3.2 Bylaws. (incorporated by reference to Exhibit 3.2 to our Registration
Statement on Form S-1 (File No. 333-156480) filed December 29, 2008).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to our Registration Statement on Form S-1 (File No. 333-156480)
filed December 29, 2008)
10.1 Subscription Agreement dated August 12, 2008 between Surf A Movie
Solutions Inc. and Ufuk Turk (incorporated by reference to Exhibit 10.1
to our Registration Statement on Form S-1 (File No. 333-156480) filed
December 29, 2008)
10.2 Subscription Agreement Subscription Agreement dated August 12, 2008
between Surf A Movie Solutions Inc. and Fadi Zeidan (incorporated by
reference to Exhibit 10.2 to our Registration Statement on Form S-1
(File No. 333-156480) filed December 29, 2008)
10.3 Form of Subscription Agreement to be entered into in connection with
the public offering (incorporated by reference to Exhibit 10.3 to our
Registration Statement on Form S-1/A (File No. 333-156480) filed
February 5, 2009)
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101 Interactive Data Files pursuant to Rule 405 of Regulation S-T.
(incorporated by reference to Exhibit 101 to our Form 10-K (File No.
000-53855) filed December 27, 2011)
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has suly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SURF A MOVIE SOLUTIONS, INC.
Date: September 21, 2012 By: /s/ Fadi Zeidan
--------------------------------------------
Fadi Zeidan
President, Treasurer, Secretary and Director
(Principal Executive, Principal Accounting
and Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Fadi Zeidan President, Treasurer, Secretary, and Director September 21, 2012
----------------------- (Principal Executive, Principal Accounting and
Fadi Zeidan Principal Financial Officer)
/s/ Ufuk Turk Director September 21, 2012
-----------------------
Ufuk Turk
38
INDEX TO EXHIBITS
Exhibit Description
------- -----------
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
our Registration Statement on Form S-1 (File No. 333-156480) filed
December 29, 2008)
3.2 Bylaws. (incorporated by reference to Exhibit 3.2 to our Registration
Statement on Form S-1 (File No. 333-156480) filed December 29, 2008).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to our Registration Statement on Form S-1 (File No. 333-156480)
filed December 29, 2008)
10.1 Subscription Agreement dated August 12, 2008 between Surf A Movie
Solutions Inc. and Ufuk Turk (incorporated by reference to Exhibit 10.1
to our Registration Statement on Form S-1 (File No. 333-156480) filed
December 29, 2008)
10.2 Subscription Agreement Subscription Agreement dated August 12, 2008
between Surf A Movie Solutions Inc. and Fadi Zeidan (incorporated by
reference to Exhibit 10.2 to our Registration Statement on Form S-1
(File No. 333-156480) filed December 29, 2008)
10.3 Form of Subscription Agreement to be entered into in connection with
the public offering (incorporated by reference to Exhibit 10.3 to our
Registration Statement on Form S-1/A (File No. 333-156480) filed
February 5, 2009)
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101 Interactive Data Files pursuant to Rule 405 of Regulation S-T.
(incorporated by reference to Exhibit 101 to our Form 10-K (File No.
000-53855) filed December 27, 2011)