UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to________________
Commission file number 333-152798
DIGITAL VALLEYS CORP.
(Exact name of registrant as specified in its charter)
Nevada 98-0537383
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 100, 1100 Dexter Ave. North, Seattle, Washington 98109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 273-7892
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 has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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 [X] No [ ]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter: N/A - no common stock traded during period
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] N/A
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 2,300,000 shares of common
stock as of June 15, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). Not Applicable
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. Description of Business 3
ITEM 1A. Risk Factors 12
ITEM 2. Description of Property 19
ITEM 3. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
PART II
ITEM 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities 19
ITEM 6. Selected Financial Data 19
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
ITEM 8. Financial Statements 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 32
ITEM 9A. Controls and Procedures 32
ITEM 9B. Other Information 33
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 34
ITEM 11. Executive Compensation 35
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 36
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence 37
ITEM 14. Principal Accountant Fees and Services 37
PART IV
ITEM 15. Exhibits 37
Signatures 38
2
PART I
FORWARD LOOKING STATEMENTS.
This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 management 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.
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, 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, the terms "we", "us", "our" and "Digital Valleys"
mean Digital Valleys Corp., unless otherwise indicated.
ITEM 1. BUSINESS
OVERVIEW OF THE COMPANY
We are a development stage company that was incorporated on May 21, 2007. We
have commenced only limited operations, primarily focused on organizational
matters in connection with this offering. We have never declared bankruptcy,
have never been in receivership, and have never been involved in any legal
action or proceedings. We have not made any significant purchase or sale of
assets, nor has the Company been involved in any mergers, acquisitions or
consolidations. We are not a blank check registrant as that term is defined in
Rule 419(a)(2) of Regulation C of the Securities Act of 1933, because we have a
specific business plan and purpose. Neither the Company nor its sole officer,
Director, promoter or his affiliates, has had preliminary contact or discussions
with, nor do we have any present plans, proposals, arrangements or
understandings with any representatives of the owners of any business or company
regarding the possibility of an acquisition or merger.
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We have not generated any revenue to date and we do not expect to generate any
revenues during the first 12 months following this offering.
We are developing an online help desk customer support system to assist service
companies in improving their customer relationship management. We expect our
system to be used by organizations interested in improving their customer
relationship management by automating their customer support and by establishing
a centralized help desk.
We plan for our software product to be capable of providing a generic solution
across a broad range of industries.
Our offices are currently located at 1100 Dexter Ave. North, Suite 100, Seattle,
Washington 98109. We do not currently have a website; however, we have reserved
a domain name.
THE MARKET OPPORTUNITY
The customer relationship management ("CRM") market is experiencing explosive
growth.
In 2002, the U.S. accounted for $7.14 billion of the world-wide CRM market, and
the U.S. market is expected to swell to $9.19 billion by 2006. ("Moderate,
Steady CRM Growth through 2006" by Robyn Greenspan (July 3, 2003)). The U.S is
expected to maintain approximately 52 percent of the total market through 2006.
The concept of a single point of contact for customers to refer questions and
seek assistance to solve problems has become a ubiquitous feature of modern
business. ("Delivering High Value in Service and Support," by Rhion H Jones and
FrontRange Solutions UK Ltd.). Help desks reduce downtime and reduce the time to
fix errors based on previous learning history. Help desks ensure better use of
resources, improved procurement decisions, higher customer satisfaction and
retention, and increases in profitability, as customers will spend more with a
firm that provides superior service.
We expect corporations to continue to make efforts to please their customers.
Research from the Aberdeen Group forecasts worldwide CRM spending to exhibit
moderate, yet steady, growth in the coming years. Aberdeen estimates that 2002's
spending of $13.7 billion will swell to $17.7 billion in 2006, resulting in a
6.7 percent compound annual growth rate.
Hosted, subscription-based CRM software offerings from independent software
vendors and systems integrators will drive growth, with revenues expected to
soar from $246 million to $2.8 billion through 2006. (Moderate, Steady CRM
Growth through 2006 by Robyn Greenspan | July 3, 2003.)
Historically help desk software has been used by IT professionals and high tech
firms. Now, help desk software is used in a broad range of industries including;
healthcare, finance, telecommunications, oil and gas industries, government,
banking, utilities, insurance and retail.
The importance of customer relationship management is highlighted by two recent
market studies. The "Research Store - The Danger of Defection" study by
ecustomerserviceworld.com concluded that companies need to improve their
retention strategies to stem customer defection rates. According to this study:
* Customer defection rates in UK consumer studies have increased since
2003.
* Average customer defection rate is 19.1% in the UK.
* Internet service providers have one of the highest defection rates at
24%.
* Data driven marketing techniques are successful in retaining
customers.
* Over half of top UK companies are now able to translate sophisticated
database analysis into highly personalized and segmented campaigns,
where creative, message, and enclosures are varied for different types
of recipients.
* A 5% increase in customer loyalty can lead to a 25-85% increase in
profitability.
The "Delivering High Value in Service and Support" study by Rhion H Jones and
FrontRange Solutions UK Ltd. concluded that help desks increase overall
efficiency and customer satisfaction, thus leading to increased retention rates.
According to this study:
4
* Whether or not the term "help desk" is used, the concept of a single
point of contact for customers to refer questions and seek assistance
to solve problems has become a ubiquitous feature of modern
businesses.
* There are an estimated 150,000 to 200,000 help desks in operation
throughout the world. This is a sub-set of the wider call center
phenomenon, which is estimated to employ 5 million people worldwide
(source: IHA Ltd).
* The term "help desk" is now used to describe any call center or part
of a call center which handles complex problem-solving and associated
processes.
* By the year 2000, the help desk model has become firmly established
for IT support in most advanced western-style countries, though with
different market penetration levels.
* Despite the range and variety of help desks, they all share the
characteristic of being an investment (approved and implemented in the
last 10 years or so) which was prompted by perceptions of value.
* Help desks reduce downtime not only by ensuring a faster fix for
problems affecting system performance, but also by providing essential
information which managers can use to reduce the likely recurrence of
such problems.
* In a typical help desk, the cost of fixing a single problem depends
partly on the level of skill required. First-line staff can be trained
far quicker than more technically proficient Second-line personnel;
the real experts who act as third-line staff are often among the most
valuable people in an organization. The cost of resolution at
second-level is frequently up to ten times the cost of a similar fix
at first level; for third-line resolutions the cost multiplier can be
another 10 times (source: Fry Consulting, 1999). Utilization of staff
is therefore an important driver of overall efficiency
* Customers spend more with product and service providers who use help
desk technology to provide customer service.
TARGET MARKET
The customer base for our proposed system includes:
* Small and medium sized businesses that provide services to their
clients and are looking for a help desk solution to support their
products and services.
* Small and medium sized businesses that provide services to their
clients and want to enhance their customer support image and provide
faster customer support via email and internet forms.
We will initially focus our sales in the United States as we know this market
and it represents a significant opportunity in terms of sales potential.
The market is sophisticated, software savvy and educated in terms of the need to
improve customer support and customer relationship management.
OUR COMPETITION
* There are currently other providers of similar software programs
providing customer support help desks. Customer relationship
management is a large and growing industry in the United States.
Competitive pressures and customer demands fuel the growth in the
industry.
* Many of our competitors in this industry are located in the United
States. While there are many competitors, the industry supports a
large number of competitors as demand is huge and growing.
Most software packages are generic, using a cookie cutter approach to software
design and implementation. Our initial product will be generic as it can be used
in a wide range of businesses. Nevertheless, our future goal will be
differentiate our product from the competition by tailoring our software to
niche markets.
* The competition's pricing ranges from $300 to several thousand
dollars. Pricing is based on a selling price, an initial fee, and
monthly maintenance. To compete with our competition, we plan to
devise an aggressive sales strategy, including competitive pricing, to
support growth.
5
OUR SOFTWARE PRODUCT
Our software product will address:
* Problem Management and Workflow,
* Knowledge Management, and
* Data Analysis and Reporting.
Our proposed solution will be comprised of a number of integrated modules that
we expect will enable organizations to solve their customer's issues quickly and
reliably.
We intend for our system to be web-based which will allow our customers to
access the system from their intranet or from the internet. The Intranet mode
will allow internal users of a customer's organization to access the system via
the customer's intranet. The Internet mode will allow off-site employees to
access the system via the internet. We plan for customers to be able to access
our software product via two different means, Email and Web forms.
Organizations will still be able to use the systems to manage issues for
customers that have no internet connection by enabling customer support
representatives to enter the customers' issues on user friendly screens/web
forms.
THE SYSTEM MODULES
Our system will be comprised of the following four modules:
* Support Ticket Module
* Emailing Module
* Reporting Module
* System Administration Module
SUPPORT TICKET MODULE
The purpose of this module is to efficiently track, route, and resolve issues.
We intend for the support ticket module to be able to be customized to the
unique needs of the organization. System administrators will be able to add and
customize ticket fields as needed. The following diagram summaries the flow of
the ticket support process.
6
[GRAPHIC DIAGRAM OF THE FLOW OF THE TICKET SUPPORT PROCESS]
----------------------------> Customer ----------------------------
| ^ |
| | |
| | |
| | \ /
Email, | Web Form & Email,
Notification to | Tickets
customer | |
^ | |
| | |
| | |
| Obtain more info |
| | |
| | |
| |
Ticket/Issue is | \ /
Solved | Tickets Engine
^ |
| | |
| | |
| | |
| | |
| \ / |
---------------------------- Process Tickets <---------------------------
7
The support ticket module can be used to support two main functions:
* To enable customer support representatives to track the status of
tickets and manage the progress of each ticket.
* To enable end customers to submit and track their own support
requests.
GOALS:
* Standardize complex processes to resolve issues quickly
* Ensure issues are resolved in the appropriate amount of time
* Improve communication with end users including staff and customers
KEY FEATURES
* Manage ticket workflow
* Automate ticket routing to speed up the business processes in the
organization
* Automate notifications to inform managers when cases are not resolved
within the defined limits
* Obtain detailed summaries of tickets handled by teams and individuals
* Customize ticket structure and forms, customize dynamic ticket forms
to tailor the trouble ticket software to the needs of end users
* Attach links, screen shots, and files to tickets to assist in
explanations of trouble tickets
* Submit and track complex problems and the progress of tickets from the
web without having to contact the support desk
* Allow users to add comments and responses to tickets
* Provide a complete ticket history for end users to store, reopen, or
post comments to resolved tickets
EMAILING MODULE
The purpose of this module is to automate the response to the customer by
sending an email automatically notifying the end user about the status of
tickets. This module will also enable the system to receive tickets via an email
address.
GOALS:
* Receive tickets via email, and auto respond to customer
* Send Email notifications to customers regarding the status of tickets
* Notify support staff of urgent issues via email
KEY FEATURES:
* Integrate system with 3rd party Pop3 Email server/accounts to receive
emails with tickets
* Convert support emails to tickets and use the email details in the
tickets
* Auto respond to newly created tickets
* Track email communication between the help desk and the customer
REPORTING MODULE
The purpose of the reporting module is to query the system on multi user levels
about the status of tickets and to generate management reports to evaluate the
performance of the helpdesk system.
GOALS:
* Produce reports related to tickets
* Report on tickets processed per user
* Statistics regarding tickets processing and performance
8
KEY FEATURES:
* Reports related to the status of tickets and a breakdown of ticket
history
* Report to customers on the current status of their tickets
* Report to the admin on the status of tickets by dates and status
* Report on the tickets assigned to users
* Report on the average time and statistical details on tickets or group
of tickets
* Report on Ticket Analytics; metrics track average time-to-resolution
and end user satisfaction
SYSTEM ADMINISTRATION MODULE
The system administration module consists of a control panel.
GOALS:
* Enable the system administrator to setup the application on the server
* Customize the ticketing system to suit the organization's needs
* Maintain user accounts
* Filter email originating tickets before presenting them to the help
desk team
* Assign pending tickets to specific personnel
KEY FEATURES:
* Create user accounts and add contact information
* Add/Edit the Database server settings
* Set users and access levels
* Monitor tickets and archive closed records
TECHNICAL SPECIFICATIONS
The system will be a web-based application running on a Microsoft server-based
operating system.
* Platform:
Web Server:
Microsoft Windows Server 2000 and above,
Or Windows XP professional, with IIS server installed.
.NET frame version 2.0 and above.
* Database:
Microsoft SQL Server 2000 or
Microsoft SQL Server Desktop Engine MSDE 2000.
* Development Language:
ASP.NET, Microsoft SQL Server 2000 and above.
* Installation:
User friendly installation software.
The software will be installed as a server, and will be able to be accessed from
PCs on the same network or through the internet.
THE DEVELOPMENT PROCESS
The development process will commence with designing a system prototype to
encompass the above proposed system; once the system prototype has been
completed the implementation stage will start.
9
FUTURE SOFTWARE DEVELOPMENTS
There are several opportunities for future developments to enhance the product
line of our software product.
Our software product is generic in that it will be able to be used in almost any
type of service business that requires a customer support system. However, in
the future we envision customizing the software to industry specific sectors.
Some of these opportunities include:
* System upgrades to enhance the user's functionality.
* Customization options for industry specific applications.
* Communication enhancements including linking and archiving customer's
voice messages, voice conversations, and fax messages into the
software which will enable firms to keep records of their customers
inquires and enhance the management of customer issues.
* E-commerce and client management to track client accounts, sales,
service history and all details of the client database.
* Provide self serve sections, where software users (customers) can
enter their text based search to locate solutions for their issues
without having to wait for a customer support representative, allowing
companies to provide 24 hour customer support to their customers.
These are just some of the options available for future development of the
Company's software product which will enhance the user's experience.
MARKETING & SALES STRATEGY
We plan to implement an aggressive marketing strategy. We intend to market our
software product as a customer support system that empowers businesses to
service their clients' needs.
The target audience will be small and medium sized businesses that will benefit
from a customer support and help desk system. The Company plans to partition the
market into industry specific components, familiarize itself with detailed
industry demands, and design materials that address each customer's needs.
Our strategy will consist of building strategic alliances with complementary
products, a strong web presence, targeted e-mail campaigns, news releases
through industry professionals, print distribution and cold calls by a
knowledgeable sales force.
* Strategic Alliances: We intend to advertise on third party websites of
complementary products and services. Alliances will be formed to
co-operatively market our product and hedge saturation through mutual
leveraging.
* Web Presence: We plan to market our software product through our web
site. A trial version of the software will be available for download
encouraging potential clients to test the software, and an e-commerce
platform will be incorporated into our web site to allow for easy
purchase. We intend for our web presence to feature the benefits of
the system, customer testimonials, and management features, including
significant ROI and ease of installation.
* Targeted e-mail campaigns:We intend to engage in e-mail campaigns that
will target industry specific small and medium sized businesses
outlining the benefits of the software. We will make every effort to
ensure lists are pre-qualified.
* News Releases & Public Relations: We plan to distribute news releases
to industry professionals and send complimentary versions to select
professionals to gain market exposure and publicity.
* Print Distribution: We intend to design a targeted print campaign to
target industry specific potential clients.
* Cold Calls: We plan to make cold calls to potential clients outlining
the benefits of this product.
10
In addition, we intend to engage in the following additional marketing
activities:
* Trade shows
* Business newspaper inserts and advertising
* Trade publications
* Conferences, productivity seminars, guest speakers, etc.
DISTRIBUTION
We plan to distribute our software product via direct channels. We will
distribute our software product through our website and through third party
websites that distribute complementary software programs. Third party websites
will be compensated by commission.
PRICING MODEL
We intend to sell our software product with the following pricing structure:
$300 for 50 licensed users.
EXPENDITURES
The following chart provides an overview of our budgeted expenditures by
significant area of activity over the next 12 months:
Research and Development 15,000
Legal and Accounting 9,000
Transfer Agent 1,000
Marketing and Corporate Collateral 1,500
Travel 500
Telephone and Web Hosting 1,000
Office Equipment and Software Tools 3,000
Office Supplies 1,000
Misc. Administrative Expenses 1,000
Office Rent 2,000
------
EXPENSES 35,000
======
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 services will be over the internet.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
Our business plan and the nature of our service offering does not hinge on one
or a few major customers; however, if we obtain one or more large corporate
accounts, then we may end up being dependent on one or a few major customers.
11
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 are planning to
develop a software product and intend to protect our software product with
copyright and trade secrecy laws.
EXISTING OR PROBABLE GOVERNMENT REGULATIONS
There are no existing government regulations, nor are we aware of any
regulations being contemplated that would adversely affect our ability to
operate.
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
* Other claims based on the nature and content of internet materials.
These new laws may have an impact on our ability to market our services in
accordance with our business plan.
RESEARCH AND DEVELOPMENT ACTIVITIES AND COSTS
We have not incurred any costs to date and have plans to undertake certain
research and development activities during the first year of operation. For a
detailed description see "Plan of Operation".
EMPLOYEES
We have commenced only limited operations; therefore, we have no employees. Our
sole officer and Director provides service to us on an as-needed basis. When we
commence full operations, we will need to hire full-time management and
administrative support staff.
REPORTS TO STOCKHOLDERS
We will voluntarily make available to stockholders an annual report, including
audited financials, on Form 10-K. We are not currently a fully reporting
company, but upon effectiveness of this registration statement, we will be
required to file reports with the SEC pursuant to the Securities Exchange Act of
1934; such as quarterly reports on Form 10-Q and current reports on Form 8-K.
ITEM 1A. RISK FACTORS
Much of the information included in this annual report includes or is based upon
estimates, projections or other "forward looking statements". Such forward
looking statements include any projections or estimates made by us and our
management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
12
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.
Such estimates, projections or other "forward looking statements" involve
various risks and uncertainties as outlined below. We caution the reader that
important factors in some cases have affected, and in the future could
materially affect, actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other "forward
looking statements".
RISK FACTORS RELATING TO OUR COMPANY
1. WE ARE A DEVELOPMENT STAGE COMPANY WITH NO OPERATING HISTORY AND MAY NEVER BE
ABLE TO EFFECTUATE OUR BUSINESS PLAN OR ACHIEVE ANY REVENUES OR PROFITABILITY;
AT THIS STAGE OF OUR BUSINESS, EVEN WITH OUR GOOD FAITH EFFORTS, POTENTIAL
INVESTORS HAVE A HIGH PROBABILITY OF LOSING THEIR ENTIRE INVESTMENT.
We are subject to all of the risks inherent in the establishment of a new
business enterprise. Our Company was established on May 21, 2007. We currently
have no products, sales, customers, or revenues. Although we have begun initial
investigations into the customer relationship management industry, we may not be
able to successfully implement our business objectives. There can be no
assurance that we will ever achieve any revenues or profitability. The revenue
and income potential of our proposed business and operations is unproven, and
the lack of operating history makes it difficult to evaluate the future
prospects of our BUSINESS.
We have not generated any revenues to date. Accordingly, our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in establishing a new business, and our Company is a highly
speculative venture involving a high degree of financial risk.
2. WE EXPECT LOSSES IN THE FUTURE BECAUSE WE HAVE NO REVENUE TO OFFSET LOSSES.
As we have no current revenue, we are expecting losses over the next 12 months
because we do not yet have any revenues to offset the expenses associated with
the development and implementation of our business plan. 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.
3. WE HAVE A GOING CONCERN OPINION FROM OUR AUDITORS, INDICATING THE POSSIBILITY
THAT WE MAY NOT BE ABLE TO CONTINUE TO OPERATE.
We have not yet established an ongoing source of revenues. Furthermore, we
anticipate generating losses for the next 12 months. These factors raise
substantial doubt that we will be able to continue operations as a going
concern, and our independent auditors included an explanatory paragraph
regarding this uncertainty in their report on our financial statements for the
period May 21, 2007 (inception) to April 30, 2010. No adjustment has been made
in the accompanying financial statements to the amounts and classification of
assets and liabilities which could result should we be unable to continue as a
going concern. Our ability to continue as a going concern is dependent upon our
generating cash flow sufficient to fund operations and reducing operating
expenses. Our business strategy may not be successful in addressing these
issues. If we cannot continue as a going concern, our stockholders may lose
their entire investment in us.
4. WE WILL NEED SIGNIFICANT ADDITIONAL CAPITAL, WHICH WE MAY BE UNABLE TO
OBTAIN.
Our capital requirements in connection with our development activities and
transition to commercial operations have been and will continue to be
significant. We will require additional funds to continue research, development
and testing of our technologies and product and to market and sell our product.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. There is no assurance additional funds will
be available from any source; or, if available, such funds may not be on terms
acceptable to the Company. In either of the aforementioned situations, the
13
Company may not be able to fully implement its growth plans. Moreover, we will
not receive any proceeds from the sale of stock by our selling stockholders, and
thus this offering will not affect our ability to meet capital requirements
5. WE WILL RELY ON THIRD PARTIES TO DEVELOP OUR PRODUCT.
We intend to retain third party firms for software development, database design,
and other development functions. We also plan to locate and enter into an
agreement with a web developer for the purpose of developing our website for
direct sales of our products to consumers. As a result, we expect to be
dependent on those third party firms that we engage. There is no assurance that
we will be able to enter into contracts with any such third parties on terms
that are favorable to us. If any of our third party contractors breaches the
contract or does not have the ability, for financial or other reasons, to
perform its obligations, we may not be able to implement our business plan. In
addition, our reliance on third parties may place us at a competitive
disadvantage. If we are unsuccessful in addressing these risks, our business
will most likely fail.
6. THE USE OF INDEPENDENT SALES REPRESENTATIVES OR DISTRIBUTORS WILL SUBJECT US
TO CERTAIN RISKS.
We expect to generate a substantial portion of our revenue from independent
sales representatives or distributors. Such representatives and distributors may
not be required to meet sales quotas and our ability to manage independent sales
representatives or distributors to performance standards is unknown. Failure to
generate revenue from these sales representatives or distributors would have a
negative impact on our business.
7. WE MAY NOT BE ABLE TO COMPETE WITH CURRENT AND POTENTIAL COMPETITORS, SOME OF
WHOM HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO.
We may not have the resources to compete with our existing competitors or with
any new competitors. We intend to compete with many providers of customer
relations software, as well as with providers of help desk services, all of
which may have significantly greater personnel, financial, and managerial
resources than we do. This competition from other companies with greater
resources and reputations may result in our failure to maintain or expand our
business.
Moreover, as the demand for virtual customer support increases, new companies
may enter the market and the influx of added competition will pose an increased
risk to our Company. Increased competition may lead to price wars, which may
harm us since we would be unable to compete with companies with greater
resources.
8. SINCE OUR SOLE OFFICER AND DIRECTOR MAY CONTINUE TO WORK OR CONSULT FOR OTHER
COMPANIES, HIS OTHER ACTIVITIES COULD SLOW DOWN OUR OPERATIONS.
Our sole officer and Director is not required to work exclusively for us and
does not devote all of his time to our operations. Presently, our sole officer
and Director allocates only a portion of his time to the operation our business.
Since our sole officer and Director is currently employed full-time elsewhere,
he is able to commit to us only up to 20 to 25 hours a week. Therefore, his
pursuit of other activities may slow our operations and reduce our financial
results because of the slow-down in operations.
9. OUR SOLE OFFICER AND DIRECTOR IS LOCATED IN THE PHILIPPINES.
Since our sole officer and Director is located in the Philippines, any attempts
to enforce liabilities upon such individual under the U.S. securities and
bankruptcy laws may be difficult.
10. WE NEED TO RETAIN KEY PERSONNEL TO SUPPORT OUR BUSINESS AND ONGOING
OPERATIONS.
The development of our business and the marketing and sale of our intended
product 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 officer and the engagement of key employees and
contractors who have critical industry experience and relationships that we will
rely on to implement our business plan. The loss of the services of our sole
officer or the lack of availability of other skilled personnel would negatively
impact our ability to develop our company and to market and sell our intended
product, which could adversely affect our financial results and impair our
growth.
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11. AS A DEVELOPMENT STAGE COMPANY, WE MAY EXPERIENCE SUBSTANTIAL COST OVERRUNS
IN DEVELOPING AND MARKETING OUR PRODUCT, AND WE MAY NOT HAVE SUFFICIENT CAPITAL
TO SUCCESSFULLY COMPLETE THE DEVELOPMENT AND MARKETING OF OUR PRODUCT.
We may experience substantial cost overruns in developing and marketing our
product, and may not have sufficient capital to successfully complete our
project. We may not be able to market our product because of industry
conditions, general economic conditions, and/or competition from potential
developers and distributors. In addition, the commercial success of any product
is often dependent upon factors beyond the control of the company attempting to
market the product, including, but not limited to, market acceptance of the
product and whether or not third parties promote the product through prominent
marketing channels and/or other methods of promotion.
12. IF OUR SOFTWARE PRODUCT CONTAINS UNDETECTED SOFTWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOSE SALES.
Software products frequently contain undetected errors, failures or bugs when
new products or new versions or updates of existing products are first released
to the marketplace. As with any new product introduction, previously unaddressed
errors or issues with our product's performance may arise. We expect that such
errors will be found in the future from time to time in our product. These
problems may have a material adverse effect on our business by causing us to
incur significant QA and bug-fix costs, diverting the attention of our
development personnel from new product development efforts, delaying the
recognition of revenue, and causing significant customer relations problems.
Further, if our product is not accepted by customers due to defects, our
operating results would be adversely affected.
Furthermore, our product must properly interface with products from other
vendors. As a result, when problems occur in the operation of our product, it
may be difficult to identify the source of these problems. The occurrence of
software errors, even if not caused by our product, could result in the delay or
loss of market acceptance of our product and any necessary revisions to improve
interoperability may cause us to incur significant expenses. The occurrence of
any such problems would likely have a material adverse effect on our business,
operating results and financial condition.
13. OUR INABILITY TO ATTAIN AND PROTECT INTELLECTUAL PROPERTY RIGHTS COULD
REDUCE THE VALUE OF OUR PRODUCTS, SERVICES AND BRAND.
Potential trademarks, trade secrets, copyrights and other intellectual property
rights may be important assets for us. Various events outside of our control
pose a threat to our ability to attain or protect the intellectual property
rights associated with our product. For example, effective intellectual property
protection may not be available in every country in which our product will be
distributed or made available through the internet. Also, the efforts we have
taken to protect our proprietary rights may not be sufficient or effective. Any
significant impairment of our ability to attain or protect our intellectual
property rights could harm our business or our ability to compete. Also,
protecting intellectual property rights is costly and time consuming. Any
increase in the unauthorized use of our intellectual property by others could
make it more expensive to do business and harm our operating results.
14. OUR EXECUTIVE OFFICER OWNS A MAJORITY OF THE OUTSTANDING SHARES OF OUR
COMMON STOCK, AND OTHER STOCKHOLDERS MAY NOT BE ABLE TO INFLUENCE CONTROL OF THE
COMPANY OR DECISION MAKING BY MANAGEMENT OF THE COMPANY.
Our sole officer and Director presently owns 69.56% of our outstanding common
stock. As a result, our executive officer has substantial control over all
matters submitted to our stockholders for approval including the following
matters: election of our Board of Directors; removal of any of our Directors;
amendment of our Articles of Incorporation or bylaws; and adoption of measures
that could delay or prevent a change in control or impede a merger, takeover or
other business combination involving us. Other stockholders may consider the
corporate decisions made by our executive officer to be inconsistent with the
interests of these stockholders. In addition, other stockholders may not be able
to change the Directors and officers, and are accordingly subject to the risk
that management cannot or will not manage the affairs of the Company in
accordance with such stockholders' wishes.
15. CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS ARE SUBJECT TO RAPID TECHNOLOGICAL
CHANGE.
15
Our business is in an emerging market that is characterized by rapid changes in
customer requirements, frequent introductions of new and enhanced products and
services, and continuing and rapid technological advancement. To compete
successfully in the customer support systems market, we must continue to design,
develop and sell new and enhanced systems that provide increasingly higher
levels of performance and reliability at lower cost. These new and enhanced
systems must take advantage of technological advancements and changes, and
respond to new customer requirements. Our success in designing, developing, and
selling such systems will depend on a variety of factors, including:
* Identifying and responding to market demand for new customer support
systems;
* The scalability of our equipment platforms to efficiently deliver our
product;
* Keeping abreast of technological changes;
* Timely developing and implementing new and enhanced features;
* Maintaining quality of performance;
* Providing cost-effective support services; and
* Promoting our customer support system and expanding our market share.
If we are unable, due to resource constraints or technological or other reasons,
to develop and introduce new or enhanced customer support systems in a timely
manner, if such new or enhanced systems do not achieve sufficient market
acceptance, or if such new systems decrease demand for our existing customer
support systems, our operating results would decline and our business would not
grow.
16. BECAUSE MR. PATI HAS NO EXPERIENCE IN RUNNING A COMPANY THAT DEVELOPS AND
SELLS CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS, HE MAY NOT BE ABLE TO
SUCCESSFULLY OPERATE SUCH A BUSINESS, WHICH COULD CAUSE YOU TO LOSE YOUR
INVESTMENT.
We are a start-up company and we intend to market and sell our customer support
system. Mr. Pati, our Director and President, has control over all decisions
regarding both the policy and the operations of our company. Our success is
contingent upon his ability to make appropriate business decisions in these
areas. It is possible that his lack of relevant operational experience could
prevent us from becoming a profitable business and prevent an investor from
obtaining a return on his investment in us.
17. FUTURE REGULATION OF THE INTERNET COULD RESTRICT OUR BUSINESS, PREVENT US
FROM OFFERING SERVICES, AND/OR INCREASE OUR COST OF DOING BUSINESS.
The laws, regulations or rulings that specifically address access to or commerce
on the internet are subject to change. We are unable to predict the impact, if
any, that future legislation, judicial precedents, or regulations concerning the
internet may have on our business, financial condition, and results of
operations. Regulation may be targeted towards, among other things, assessing
access or settlement charges, imposing taxes related to internet communications,
restricting content, imposing tariffs, or regulations based on encryption
concerns or the characteristics and quality of products and services, any of
which could restrict our business or increase our cost of doing business. The
increasing growth of the internet and popularity of broadband video products and
services heighten the risk that governments or other legislative bodies will
seek to regulate internet services, which could have a material adverse effect
on our business, financial condition, and operating results.
18. WE MAY LOSE CUSTOMERS IF WE EXPERIENCE SYSTEM FAILURES THAT SIGNIFICANTLY
DISRUPT THE AVAILABILITY AND QUALITY OF THE SUPPORT SERVICES THAT WE PLAN TO
PROVIDE.
The operation of our support services will depend on our ability to avoid and
mitigate any interruptions in service or reduced capacity for customers.
Interruptions in service or software performance problems, for whatever reason,
could undermine confidence in our ability to provide service to our customers,
and could cause us to lose customers or make it more difficult to attract new
16
ones. In addition, because our support services may be critical to the
businesses of our customers, any significant interruption in the provision of
service could result in lost profits or other losses to our customers.
19. IF A THIRD PARTY ASSERTS THAT WE INFRINGE ITS PROPRIETARY RIGHTS, WE COULD
BE REQUIRED TO REDESIGN OUR SOFTWARE, PAY SIGNIFICANT ROYALTIES, OR ENTER INTO
LICENSE AGREEMENTS.
Although presently we are not aware of any such claims, a third party may assert
that our technology or third party technologies that we license violate its
intellectual property rights. As the number of software products in our market
increases and the functionality of these software products further overlap, we
believe that infringement claims will become more common. Any claims against us,
regardless of their merit, could:
* Be expensive and time-consuming to defend;
* Result in negative publicity;
* Force us to stop selling our services that rely on the challenged
intellectual property;
* Require us to redesign our software products;
* Divert management's attention and our other resources; or
* Require us to enter into royalty or licensing agreements in order to
obtain the right to use necessary technologies, which may not be
available on terms acceptable to us, if at all.
We believe that any successful challenge to our use of a trademark or domain
name could substantially diminish our ability to conduct business in a
particular market or jurisdiction and thus could decrease our revenues and/or
result in losses to our business.
RISKS RELATING TO OUR COMMON STOCK
20. WE MAY, IN THE FUTURE, ISSUE ADDITIONAL COMMON SHARES, WHICH WOULD REDUCE
INVESTORS' PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our Articles of Incorporation authorizes the issuance of 100,000,000 shares of
common stock, par value $0.001 per share, of which 2,300,000 shares are issued
and outstanding. The future issuance of common stock may result in substantial
dilution in the percentage of our common stock held by our then existing
stockholders. We may value any common stock issued in the future on an arbitrary
basis. The issuance of common stock for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held
by our investors, and might have an adverse effect on any trading market for our
common stock.
21. OUR COMMON SHARES ARE SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:
* that a broker or dealer approve a person's account for transactions in
penny stocks; and
* the broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the penny
stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
* obtain financial information and investment experience objectives of
the person; and
* make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
17
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
* sets forth the basis on which the broker or dealer made the
suitability determination; and
* that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
22. THERE IS NO CURRENT TRADING MARKET FOR OUR SECURITIES AND IF A TRADING
MARKET DOES NOT DEVELOP, PURCHASERS OF OUR SECURITIES MAY HAVE DIFFICULTY
SELLING THEIR SHARES.
There is currently no established public trading market for our securities and
an active trading market in our securities may not develop or, if developed, may
not be sustained. We intend to have a market maker apply for admission to
quotation of our securities on the Over The Counter Bulletin Board after the
registration statement relating to this prospectus is declared effective by the
SEC. We do not yet have a market maker who has agreed to file such application.
If for any reason our common stock is not quoted on the Over The Counter
Bulletin Board or a public trading market does not otherwise develop, purchasers
of the shares may have difficulty selling their common stock should they desire
to do so. No market makers have committed to becoming market makers for our
common stock and none may do so.
23. STATE SECURITIES LAWS MAY LIMIT SECONDARY TRADING, WHICH MAY RESTRICT THE
STATES IN WHICH AND CONDITIONS UNDER WHICH YOU CAN SELL THE SHARES OFFERED BY
THIS PROSPECTUS.
Secondary trading in common stock sold in this offering will not be possible in
any state until the common stock is qualified for sale under the applicable
securities laws of the state or there is confirmation that an exemption, such as
listing in certain recognized securities manuals, is available for secondary
trading in the state. If we fail to register or qualify, or to obtain or verify
an exemption for the secondary trading of, the common stock in any particular
state, the 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 liquidity for the common
stock could be significantly impacted thus causing you to realize a loss on your
investment.
24. BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, OUR
STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS THEY
SELL THEM.
We intend to retain any future earnings to finance the development and expansion
of our business. We do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Unless we pay dividends, our stockholders will
not be able to receive a return on their shares unless the value of such shares
appreciates and they sell them. There is no assurance that stockholders will be
able to sell shares when desired.
RISKS RELATING TO DOING BUSINESS IN THE PHILIPPINES
25. THE PHILIPPINES PERIODICALLY EXPERIENCES POLITICAL OR ECONOMIC INSTABILITY,
WHICH COULD DISRUPT OUR OPERATIONS, INCREASE OUR COSTS AND HARM OUR BUSINESS.
The Philippines continues to experience low growth in its gross domestic
product, significant inflation and a shortages of foreign exchange. We are
exposed to the risk of rental and other cost increases due to inflation in the
Philippines, which has historically been at a much higher rate than in the
United States. These conditions could create political or economic instability
that could harm businesses operating in the Philippines.
18
In addition, the Philippines has and may continue to experience political
instability, including strikes, demonstrations, protests, marches, coups d'etat,
guerilla activity or other types of civil disorder. These instabilities and
adverse changes in the political environment in the Philippines could increase
our operational costs, increase our exposure to legal and business risks and
make it more difficult for us to operate our business in the Philippines.
ITEM 2. PROPERTIES
EXECUTIVE OFFICES
We do not own any real property. We currently maintain our corporate office at
1100 Dexter Ave. North, Suite 100, Seattle, Washington 98109. We pay monthly
rent of $200 for use of this space. This space is sufficient until we commence
full operations.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active, or pending legal proceeding against our company,
nor are we involved as a plaintiff in any material proceeding or pending
litigation there such claim or action involves damages for more than 10% of our
current assets. There are no proceedings in which any of our company's
directors, officers, or affiliates, or any registered or beneficial
shareholders, is an adverse party or has a material interest adverse to our
company's interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the fourth
quarter of fiscal 2010.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR SECURITIES
As at the date of this document, the Company has not received its trading symbol
and has yet to develop a market for its securities.
HOLDERS OF OUR COMMON STOCK
On June 15, 2010 the shareholders' list of our common stock showed 36 registered
shareholder and 2,300,000 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.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
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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. 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.
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.
OVERVIEW
We have not generated any revenue since our inception. We are a development
stage company with limited operations. Our auditors have issued a going concern
opinion. This means that our auditors believe there is substantial doubt that we
can continue as an ongoing business for the next twelve months.
PLAN OF OPERATION
We are developing an online help desk customer support system to assist service
companies in improving their customer relationship management. We expect our
system to be used by organizations interested in improving their customer
relationship management by automating their customer support and by establishing
a centralized help desk.
We plan for our software product to be capable of providing a generic solution
across a broad range of industries.
During the next twelve months following the effectiveness of this Registration
Statement, we expect to take the following steps in connection with the further
development of our business and the implementation of our plan of operation:
FIRST QUARTER - 2011:
During the first three months, we plan to:
* Initiate our software development activities
* Initiate the development of our corporate and marketing collateral
Software development: We will search for the services of a third party
independent software developer. We intend for the software developer to supply
his or her own computer, software and high-speed Internet connection. During
months 1 and 2, we intend to coordinate with the software contractor on the
development of the software specifications and on a high level design. The
specifications will be in the form of a document that will describe the product,
the way the product interacts with the customers, and the company's database.
High-level design will include identifying the different components of the
software and how they interact with each other.
Marketing activities: By the end of month 1, we plan to hire an independent
graphic and web designer. We expect that such independent contractor will finish
developing our corporate collateral (including logo, business cards,
20
letterheads, stationeries, e-mail forms) by the end of month 2. We also plan to
develop and complete the information only website, which we expect to be
completed by the end of the first quarter.
SECOND QUARTER - 2011:
During this quarter, we expect to focus on the development of our software
product.
Software development: During this period the actual software development will
start to take place. By the end of the quarter we expect to have a beta version
complete for testing.
Marketing activities: During this quarter we plan to start researching ways to
market our website and product. We will also identify third party websites that
will sell our software. We will also plan our online marketing plan.
THIRD QUARTER - 2011:
Software development: During this period we will test the beta version of the
software and tweak to finalize development. We expect the final version of the
software to be finalized by end of this quarter. At this point we will also put
a trial version of the software online for download.
Marketing activities: During this quarter we plan to finalize agreements with
third party websites for the sale of our software. We expect to implement our
online marketing plan by conducting keyword searches on Yahoo and Google. We
will also place online banner ads on various strategic websites.
FOURTH QUARTER - 2011:
Software development: We intend to complete the development of our software
product by the end of the Fourth Quarter. Initially we plan to sell the software
as a download only product since this will minimize our costs. Potential
customers will be able to purchase the software directly from our website.
Marketing activities: We plan to circulate news releases to industry
professionals and distribute complimentary versions sent to select professionals
to gain market exposure and publicity. We will also start a targeted email
campaign.
ACTIVITIES TO DATE
We were incorporated under the laws of the State of Nevada on May 21, 2007. We
are a development stage company. From our inception to date, we have not
generated any revenues, and our operations have been limited to organizational,
start-up, and capital formation activities. We currently have no employees. To
date, we have conducted market research, started work on a corporate
information-only website, and researched third party software development firms.
RESULTS OF OPERATIONS
REVENUES
We had no revenues for the period from May 21, 2007 (date of inception), through
April 30, 2010.
EXPENSES
Our expenses for the twelve month period ended April 30, 2010 and 2009, were
$13,475 and $45,240. During the period from May 21, 2007 (date of inception),
through April 30, 2010, we incurred expenses of $66,082. These expenses were
comprised primarily of general and administrative, and legal and accounting
expenses, as well as banking fees.
NET INCOME (LOSS)
Our net loss for the twelve-month period ended April 30, 2010 and 2009 was
$13,475 and $45,240. During the period from May 21, 2007 (date of inception),
through April 30, 2010, we incurred a net loss of $66,082. This loss consisted
21
primarily of incorporation costs, legal and accounting fees, consulting fees,
website hosting costs, and administrative expenses. Since inception, we have
sold 2,300,000 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 April 30, 2010 reflects assets of $3,090 in the form of
cash and cash equivalents and prepaid expenses. Since inception, we have sold
2,300,000 shares of common stock with gross proceeds of $55,000. However, cash
resources provided from our capital formation activities have, from inception,
been insufficient to provide the working capital necessary to operate our
Company.
We anticipate generating losses in the near term, and therefore, may be unable
to continue operations in the future. If we require additional capital, we would
have to issue debt or equity or enter into a strategic arrangement with a third
party. 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 Digital Valleys Corp. Historically, 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 until we locate a
prospective business opportunity through which we can pursue our plan of
operation. If we are unable to secure adequate capital to continue our
acquisition efforts, our business may fail and our stockholders may lose some or
all of their investment.
Should our original business plan fail, we anticipate that the selection of a
business opportunity in which to participate will be complex and without
certainty of success. Management believes that there are numerous firms in
various industries seeking the perceived benefits of being a publicly registered
corporation. Business opportunities may be available in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. We can provide no assurance that we will be
able to locate compatible business opportunities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
APRIL 30, 2010 AND 2009
Report of Independent Registered Public Accounting Firm 24
Balance Sheets as of April 30, 2010 and 2009 25
Statements of Operations for the years ended April 30, 2010 and 2009
and for the period from May 21, 2007 (Date of Inception) to
April 30, 2010 26
Statement of Stockholders' Equity (Deficit) as of April 30, 2010 27
Statements of Cash Flows for the years ended April 30, 2010 and 2009
and for the period from May 21, 2007 (Date of Inception) to
April 30, 2010 28
Notes to the Financial Statements 29
23
Silberstein Ungar, PLLC CPAs and Business Advisors
--------------------------------------------------------------------------------
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Digital Valleys Corp.
Reno, Nevada
We have audited the accompanying balance sheets of Digital Valleys Corp. (the
"Company") as of April 30, 2010 and 2009, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended and for the period from May 21, 2007 (inception) to April 30, 2010. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 the audits 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 audits 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 Digital Valleys Corp. as of
April 30, 2010 and 2009, and the results of its operations and its cash flows
for the years then ended and for the period from May 21, 2007 (inception) to
April 30, 2010 in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has negative working capital, has received no
revenue from sales of products or services, and has incurred losses from
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans with regard to these matters are
described in Note 2. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Silberstein Ungar, PLLC
----------------------------------
Bingham Farms, Michigan
June 8, 2010
24
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
APRIL 30, 2010 AND 2009
April 30, April 30,
2010 2009
-------- --------
ASSETS
Current Assets
Cash $ 2,840 $ 32,403
Prepaid expenses 250 586
-------- --------
Total Current Assets 3,090 32,989
-------- --------
Total Assets $ 3,090 $ 32,989
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 11,501 $ 27,925
Due to related party 2,671 2,671
-------- --------
Total Current Liabilities 14,172 30,596
Total Liabilities 14,172 30,596
-------- --------
Stockholders' Equity (Deficit)
Common stock, 100,000,000, par value $0.001 shares authorized;
2,300,000 common shares issued and outstanding 2,300 2,300
Additional paid in capital 52,700 52,700
Deficit accumulated during the development stage (66,082) (52,607)
-------- --------
Total Stockholders' Equity (Deficit) (11,082) 2,393
-------- --------
Total Liabilities and Stockholders' Equity (Deficit) $ 3,090 $ 32,989
======== ========
The accompanying notes are an integral part of these financial statements.
25
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 2010 AND 2009
FOR THE PERIOD FROM MAY 21, 2007 (INCEPTION) TO APRIL 30, 2010
From
May 21, 2007
Year Ended Year Ended (Inception) to
April 30, April 30, April 30,
2010 2009 2010
---------- ---------- ----------
REVENUE $ -- $ -- $ --
---------- ---------- ----------
OPERATING EXPENSES
Accounting and legal 8,750 34,233 45,985
General & Administrative 4,725 9,442 17,006
Bank Fees -- 65 91
Consulting Fees -- 1,500 3,000
---------- ---------- ----------
TOTAL OPERATING EXPENSES 13,475 45,240 66,082
LOSS FROM OPERATIONS (13,475) (45,240) (66,082)
PROVISION FOR INCOME TAXES -- -- --
---------- ---------- ----------
NET LOSS $ (13,475) $ (45,240) $ (66,082)
========== ========== ==========
NET LOSS PER SHARE: BASIC AND DILUTED $ (0.01) $ (0.02)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC AND DILUTED 2,300,000 2,300,000
========== ==========
The accompanying notes are an integral part of these financial statements.
26
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MAY 21, 2007 (INCEPTION) TO APRIL 30, 2010
Deficit
Accumulated
Additional During the
Common Stock Paid in Development
Shares Amount Capital Stage Total
------ ------ ------- ----- -----
Balance, May 21, 2007 (date of inception) -- $ -- $ -- $ -- $ --
Shares issued to founder on at $0.0115 per share 1,600,000 1,600 18,400 -- 20,000
Private placement at $0.05 per share 700,000 700 34,300 -- 35,000
Net loss for the period ended April 30, 2008 -- -- -- (7,367) (7,367)
--------- ------- -------- --------- ---------
Balance, April 30, 2008 2,300,000 2,300 52,700 (7,367) 47,633
Net loss for the year ended April 30, 2009 -- -- -- (45,240) (45,240)
--------- ------- -------- --------- ---------
Balance, April 30, 2009 2,300,000 2,300 52,700 (52,607) 2,393
Net loss for the year ended April 30, 2010 -- -- -- (13,475) (13,475)
--------- ------- -------- --------- ---------
Balance, April 30, 2010 2,300,000 $ 2,300 $ 52,700 $ (66,082) $ (11,082)
========= ======= ======== ========= =========
The accompanying notes are an integral part of these financial statements.
27
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 2010 AND 2009
FOR THE PERIOD FROM MAY 21, 2007 (INCEPTION) TO APRIL 30, 2010
From
May 21, 2007
Year Ended Year Ended (Inception) to
April 30, April 30, April 30,
2010 2009 2010
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(13,475) $(45,240) $(66,082)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
(Increase) decrease in prepaid rent 336 (586) (250)
Increase (decrease) in accounts payable and accrued liabilities (16,424) 23,425 11,501
-------- -------- --------
Net cash Used in Operating Activities (29,563) (22,669) (54,831)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- -- 55,000
Proceeds from loan from stockholder -- -- 2,939
Payments on loan from stockholder -- (268) (268)
-------- -------- --------
Net Cash Provided by Financing Activities -- (268) 57,671
-------- -------- --------
Net Increase (Decrease) in Cash (29,563) (22,669) 2,840
Cash, beginning of the period 32,403 55,072 --
-------- -------- --------
Cash, end of the period $ 2,840 $ 32,403 $ 2,840
======== ======== ========
SUPPLEMENTAL NON-CASH DISCLOSURES
Cash paid for income taxes $ -- $ -- $ --
======== ======== ========
Cash paid for interest $ -- $ -- $ --
======== ======== ========
The accompanying notes are an integral part of these financial statements.
28
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
APRIL 30, 2010
NOTE 1 - NATURE OF OPERATIONS
Digital Valleys Corp. ("the Company"), incorporated in the state of Nevada on
May 21, 2007, is a company with business activities in online customer support /
help desk system. The company has limited operations and is considered to be in
the development stage.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in the notes to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about the Company's ability to continue as a going
concern. Without realization of additional capital, it would be unlikely for the
Company to continue as a going concern. The financial statements do not include
any adjustments that might result from this uncertainty. The Company's
activities to date have been supported by equity financing. It has sustained
losses in all previous reporting periods with an inception to date loss of
$66,082 as of April 30, 2010.
Management continues to seek funding from its shareholders and other qualified
investors to pursue its business plan. In the alternative, the Company may be
amenable to a sale, merger or other acquisition in the event such transaction is
deemed by management to be in the best interests of the shareholders.
NOTE 3 - 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.
Financial Instruments
The Company's financial instruments consist of cash, prepaid expenses, accounts
payable and accrued liabilities, and an amount due to stockholder.
The amount due to stockholder is non interest-bearing. It is management's
opinion that the Company is not exposed to significant interest, currency or
credit risks arising from its other financial instruments and that their fair
values approximate their carrying values except where separately disclosed.
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.
Property
The Company does not own any property. Our office space is leased to us on a
month to month basis for approximately $200 per month.
29
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
APRIL 30, 2010
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
The Company expenses advertising costs as incurred. The Company has had no
advertising activity since inception.
Loss Per Share
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.
Dividends
The Company has not adopted any policy regarding payment of dividends. No
dividends have been paid during the period shown.
Income Taxes
The Company provides for income taxes using an asset and liability approach.
Deferred tax assets are reduced by a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. No provision for income taxes is
included in the statement due to its immaterial amount, net of the allowance
account, based on the likelihood of the Company to utilize the loss
carry-forward.
Net Income Per Common 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.
Recent Accounting Pronouncements
Digital Valleys does not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
NOTE 4 - DUE TO STOCKHOLDER
The amount owing to stockholder is unsecured, non-interest bearing and has no
specific terms of repayment.
NOTE 5 - CAPITAL STOCK
The company has 100,000,000 common shares authorized at a par value of $0.001
per share.
During the year ended April 30, 2008, the company issued 2,300,000 common shares
for total proceeds of $55,000.
As of April 30, 2010, the Company had 2,300,000 common shares issued and
outstanding, and the Company has no warrants or options outstanding.
30
DIGITAL VALLEYS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
APRIL 30, 2010
NOTE 6 - INCOME TAXES
The Company provides for income using an asset and liability approach. Deferred
tax assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect currently.
Deferred tax assets are reduced by a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. In the Company's opinion, it is
uncertain whether they will generate sufficient taxable income in the future to
fully utilize the net deferred tax asset. Accordingly, a valuation allowance
equal to the deferred tax asset has been recorded. The total gross deferred tax
asset at April 30, 2010 is $14,538, which is calculated by multiplying a 22%
estimated tax rate by the cumulative NOL of $66,082. The valuation allowance at
April 30, 2010 is $(14,538).
The company has non-capital losses of $66,082.
NOTE 7 - RELATED PARTY TRANSACTIONS
As at April 30, 2010, there is a balance owing to a stockholder of the Company
in the amount of $2,671.
The officers and directors of the Company are involved in other business
activities and may, in the future, become involved in other business
opportunities that become available. They may face a conflict in selecting
between the Company and other business interests. The Company has not formulated
a policy for the resolution of such conflicts.
NOTE 8 - CONCENTRATIONS OF RISKS
As of October 14, 2008 all non-interest bearing transaction deposit accounts at
an FDIC-insured institution, including all personal and business checking
deposit accounts that do not earn interest, are fully insured for the entire
amount in the deposit account. This unlimited insurance coverage is temporary
and remained in effect for participating institutions until December 31, 2009.
All other deposit accounts at FDIC-insured institutions are insured up to at
least $250,000 per depositor until December 31, 2009. On January 1, 2010, FDIC
deposit insurance for all deposit accounts, except for certain retirement
accounts, will return to at least $100,000 per depositor.
NOTE 9 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to April 30, 2010 and has
determined that it does not have any material subsequent events to disclose in
the financial statements.
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. 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 a process designed by, or under the supervision of, the company's
principal executive and principal financial officers 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
accounting principles generally accepted 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 the transactions and dispositions of the
assets of the company;
- Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and
directors of the company; and
- Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Because of the
inherent limitations of internal control, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this risk.
As of April 30, 2010 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they 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.
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: (1) 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; (2) inadequate segregation of duties consistent with control
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were identified
by our Chief Executive Officer in connection with the audit of our financial
statements as of April 30, 2010.
32
Management believes that the material weaknesses set forth in items (2) and (3)
above did not have an effect on our financial results. However, 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.
This annual report does not include an attestation report of the Corporation's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Corporation's registered public accounting firm pursuant to temporary rules of
the SEC that permit the Corporation to provide only the management's report in
this annual report.
MANAGEMENT'S REMEDIATION INITIATIVES
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
We will create a position to segregate duties consistent with control objectives
and will increase our personnel resources and technical accounting expertise
within the accounting function when funds are available to us. And, we plan to
appoint one or more outside directors to our board of directors who shall be
appointed to an audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required
internal controls and procedures such as reviewing and approving estimates and
assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the lack
of a functioning audit committee and a lack of a majority of outside directors
on our Board.
We anticipate that these initiatives will be at least partially, if not fully,
implemented by December 31, 2010. Additionally, we plan to test our updated
controls and remediate our deficiencies by December 31, 2010.
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.
33
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
---- --- --------
Felipe A. Pati 40 President, Treasurer, Secretary and Director
MR. FELIPE A PATI joined our company in May 2007. Mr. Pati is serving as the
President, Treasurer, Secretary and sole Director of the Company. Mr. Pati
received his Masters in Computer Science in 2001 from De La Salle University in
Manila Philippines, and a Ph.D in Philosophy in Management in 2006 from
University of the Cordilleras, Baguio City, Philippines.
Currently Mr. Pati is a professor at Saint Louis University in Baguio City,
Philippines. He teaches in the Information and Computer Science Department in
both Graduate and Undergraduate programs.
Before that, from 2001 to 2006, he was Department Head and Associate Professor
of Computer Science at the University of the Cordilleras in Bagio City,
Philippines.
AUDIT COMMITTEE
We do not have an audit committee at this time.
CODE OF ETHICS
We currently do not have a Code of Ethics.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers, and stockholders holding more than 10% of our
outstanding common stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in beneficial ownership of
our common stock. Executive officers, directors and greater-than-10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review of the
copies of such reports furnished to us for the year ended April 30, 2010, no
Section 16(a) reports required to be filed by our executive officers, directors
and greater-than-10% stockholders were not filed on a timely basis.
34
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the Chief Executive
Officer and to all other executive officers for services rendered during the
fiscal year ended April 30, 2010.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------- ---------------------------------------------------
Awards Payouts
------------------------- -------
Securities Restricted
Underlying Shares or
Options/ Restricted
Name and SARs Share LTIP
Principal Position Year Salary Bonus Other Granted Units Payouts All Other
------------------ ---- ------ ----- ----- ------- ----- ------- ---------
Mr. Felipe A. Pati 2009 Nil Nil Nil Nil Nil Nil Nil
President, 2010 Nil Nil Nil Nil Nil Nil Nil
Treasurer
Secretary and
Director
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
---- ----------- ------------- ----------- ----- ---- --------- ------ ------ ------
Mr. Felipe
A. Pati -- -- -- -- -- -- -- -- --
OPTION GRANTS AND EXERCISES
There were no option grants or exercises by any of the 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.
35
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 April 30, 2010.
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 July 27, 2009, by the following persons: (i) stockholders
known to us who own 5% or more of our outstanding shares, (ii) each of our
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.
Name and Address of Amount and Nature Percentage of
Title of Class Beneficial Owner(2) of Beneficial Ownership Class(1)
-------------- ------------------- ----------------------- --------
Common Stock Mr. Pati 1,600,000 69.56%
All Officers as
a Group 1,600,000 69.56%
----------
(1) Based on 2,300,000 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 Number of securities
securities to be issued Weighted-average remaining available for future
upon exercise of exercise price of issuance under equity
outstanding options, outstanding options, compensation plans (excluding
Plan category warrants and rights warrants and rights securities reflected in column (a)
------------- ------------------- ------------------- ----------------------------------
Equity compensation
plans approved by
security holders -- -- --
Equity compensation
plans not approved
by security holders -- -- --
Total -- -- --
36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Other than the transactions discussed below, we have not entered into any
transaction nor are there any proposed transactions 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.
As of April 30, 2010, there is a balance owing to one of our stockholders in the
amount of $2,671. This balance is unsecured, non-interest bearing and has no
specific terms of repayment.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
For the year ended April 30, 2010, Silberstein Ungar, PLLC billed us for $4,500
in audit fees.
REVIEW FEES
Silberstein Ungar PLLC, billed us $4,500 for reviews of our quarterly financial
statements in fiscal 2010 and are not reported under Audit Fees above.
TAX AND ALL OTHER FEES
We did not pay any fees to Silberstein Ungar, PLLC for tax compliance, tax
advice, tax planning or other work during our fiscal year ended April 30, 2010
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 Moore and Associates,
Chartered and the estimated fees related to these services.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit Description
------- -----------
3.1 Articles of Incorporation (included as Exhibit 3.1 to the Form
S-1 filed August 6, 2008, and incorporated by reference)
3.2 Bylaws (included as Exhibit 3.1 to the Form S-1 filed August 6,
2008, and incorporated by reference)
31 Certification of Felipe A. Pati
32 Certification of Felipe A. Pati
37
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIGITAL VALLEYS CORP.
June 17, 2010 By: /s/ Felipe A. Pati
--------------------------------------
Felipe A. Pati
President, Treasurer, and Director
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 indicated.
Signatures Title Date
---------- ----- ----
/s/ Felipe A. Pati President, Treasurer, Secretary, June 17, 2010
--------------------------- and Director
Felipe A. Pati
38