ITEM 1. BUSINESS.
GENERAL
The following is a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document to “our Company,” “us,” “we,” “our,” “Stratus,” or the “Company” are to Stratus Capital Corp.
DESCRIPTION OF BUSINESS
Stratus Capital Corp., a Delaware corporation, was incorporated in Delaware on April 13, 2018, which was a result of a Delaware holding company reorganization from a predecessor corporation, Ashcroft Homes Corporation, formerly a Colorado corporation which was merged into a subsidiary and thereupon divested. Our principal executive offices are located at 8480 East Orchard Road, Suite 1100, Greenwood Village, Colorado 80111 and the telephone number is (720) 214-5000. We maintain a website at www.StratusCap.com, which website is not incorporated herein or a part of this filing.
IMPACT OF COVID-19
We have only limited operations at this time and consequently have not been directly impacted by the COVID-19 outbreak at this time. However, the detrimental effect of the COVID-19 outbreak on the economy as a whole may have a detrimental impact on our ability to raise funding and commence operations for the foreseeable future.
Reports to Security Holders
We are subject to the reporting requirements of Section 12(g) of the Exchange Act, and as such, we intend to file all required disclosures.
You may read and copy any materials we file with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.
Jumpstart Our Business Startups Act
We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we did not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2019, our last fiscal year.
We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,000,000,000 or (ii) we issue more than $1,000,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.
As an emerging growth company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable to generally reporting companies. These provisions include:
- A requirement to have only two years of audited financial statement and only two years of related Management Discussion and Analysis Disclosures:
- Reduced disclosure about the emerging growth company’s executive compensation arrangements; and
- No non-binding advisory votes on executive compensation or golden parachute arrangements.
As an emerging growth company, we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Such sections are provided below:
Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.
Sections 14A(a) and (b) of the Securities and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
We have already taken advantage of these reduced reporting burdens in this Form 10-K, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As long as we qualify as an emerging growth company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. We are choosing to irrevocably opt in to the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act.
CURRENT BUSINESS
We intend to be engaged in the real estate and land development business in the United States. We intend to develop a portfolio of development opportunities in various stages along with opportunistic acquisitions and partnerships in our core-markets. We operate solely under Stratus Capital Corp. We have historical presence and management experience in the mid-west and south-east regions. We plan to organize our business into the following operating segments:
Early Stage Land Development
In-fill Development of Single-Family Attached and Multi-Family Product
Opportunistic Joint-Ventures, Partnerships, and Lending
Organizational Structure
Stratus Capital Corporation
Organizational Structure
LAND DEVELOPMENT
COMMERCIAL, RESIDENTIAL & MIXED-USE DEVELOPMENT
JOINT-VENTURES, PARTNERSHIPS AND LENDING
ENTITLEMENT
SINGLE & MULTI FAMILY PRODUCT
INFILL JOINT-VENTURES
ASSET REPOSITIONING
SENIOR HOUSING
STRATEGIC PARTNERSHIPS
DEVELOPMENT
CONSTRUCTION SERVICES
STRATEGIC LENDING
Current Projects
NOTE: We reserve the right to add or delete real estate projects or substitute projects in the event that the economics, timing or financing of one or more of the projects, proves to be infeasible under the circumstances. Management will have sole discretion in making those judgments.
Our procedure for contracting for projects:
The identified projects are sought and generated by Peter Gonzalez, our CEO, through his experience and network within in each market. He generally takes an option or purchase contract personally or through an entity he controls, for a period of time during which he performs due diligence on the market, zoning, potential costs, the market absorption projections, local subcontractors and any environmentally issues. If the Company is able to achieve funding sufficient to buy and build any project or projects, Mr. Gonzalez will assign the option or contract positions to the Company, in full, and at no additional consideration or markup so there is no additional cost to the Company. The Company, as it exists with its current funding, is unable to participate in any project until funding under an Offering has been achieved. At this time, there are no pending contracts or agreements due to the uncertainty of funding.
Accordingly, there are no contracts for real estate or development under which the Company is obligated in any way to participate or incur any costs, at this time. Mr. Gonzalez has committed, under our conflicts policy, to first offer all projects that meet the consideration criteria, to the Company on the terms that can be negotiated with the sellers and with no markups, and no additional consideration to Mr. Gonzalez.
Project Criteria:
The Company cannot predict or project any profits on any project as it has no history of development. Our project consideration criteria involve three primary elements:
1. Market projections during construction and product marketing period for the project locale.
2. Targeted yield of 24+% on cash cost-there is no assurance that this can be attained-it is a project qualification criteria.
3. Timely availability of financing for the project costs-equity, bank funding, or a combination, in many instances.
Of course, there are many other subordinate considerations such as zoning, utilities, product selection and design, environmental, marketing strategies, that are somewhat variable to individual projects, and cannot be uniformly predicted, or estimated.
We are seeking funding through a Regulation A offering currently filed with the SEC on Form 1-A through CIM Securities. The offering is not yet qualified under Regulation A.
Summary of current development projects under consideration:
Skiff Point Condos, Wood Dove Avenue Townhomes, Washington Park Townhomes, Magnolia Park Condos, Grande Oaks Preserve Condos, Reunion Station Townhomes and Condos, Miller Street Station Townhomes and Perry Park Townhomes. All projects are located in the Southwest, FL, and Denver, CO markets which are experiencing continuing expansion in employment, residential and commercial development, population growth and resulting housing demand.
Business Strategy
Our long-term strategy:
•	Pursuing opportunities within our core markets;
•	Developing high-quality relationships with our asset partners;
•	Maintaining a cost-efficient culture; and
•	Appropriately balancing risk and opportunity.
We are committed to improving the communities we work within and enhancing the lifestyle of our neighborhoods. Delivering on this involves thoughtful planning to accommodate the needs of our various customers, homeowners and the surrounding community. We engage unaffiliated civil and architectural firms to develop and augment existing plans in order to ensure that our developments reflect current market updates to complement our surrounding communities.
We intend to acquire our assets in core locations where we can target maximizing long-term shareholder value and operate our business to capitalize on market appreciation and mitigate risks from economic downturns as we recognize the cyclical nature of the national real estate market. We intend to regularly assess our capital allocation strategy to drive shareholder return. We also take advantage of joint venture opportunities, partnerships and lending opportunities as they arise in order to secure asset allocations to share risk and maximize returns.
We intend to execute this strategy by:
•	Increasing our existing land supply through expanding market presence;
•	Combining land acquisition and development expertise with development operations;
•	Maintaining an efficient capital structure;
•	Selectively investing in joint-ventures, partnerships and lending opportunities; and
•	Employing and retaining a highly experienced management team with a strong operating track record.
Land and Development Strategies
Community development includes the acquisition and development of communities, which may include obtaining significant planning and entitlement approvals and completing construction of off-site and on-site utilities and infrastructure. We intend to generally operate as small community developers, but in some communities, we operate solely as merchant builders, in which case, we acquire fully planned and entitled lots and may construct on-site improvements or in-fill opportunities.
In order to maximize our expected risk-adjusted return, the allocation of capital for land investment is performed in the discretion of our management (2 persons) at the corporate level with a disciplined approach to overall portfolio management. Macro and micro indices, including but not limited to employment, housing starts, new home sales, re-sales and foreclosures, along with market related shifts in competition, land availability and consumer preferences, are carefully analyzed to determine our land and homebuilding strategy. Our long-term plan is compared on an ongoing basis to current conditions in the marketplace as they evolve and is adjusted to the extent necessary.
Community Integration
We intend to complement each community or neighborhood and governing municipality we interact with, beginning with an overall community master plan and then determining the specific asset opportunity to maximize returns for our shareholders and the stakeholders of the area. After necessary governmental and other approvals have been obtained, we intend to improve the assets as planned.
The life cycle of an asset generally ranges from two to five years, commencing with the acquisition or investment in the asset and continuing through the development phase, concluding with the sale, construction or delivery of product types. The actual life cycle will vary based on the asset type, the development cycle and the general market conditions.
Sources and Availability of Raw Materials
When we commence our business plan of development, based on local market practices, we either directly, or indirectly through our subcontractors, intend to purchase drywall, cement, steel, lumber, insulation and the other building materials necessary to construct the various residential product asset classes we develop. While these materials are generally widely available from a variety of sources, from time to time we may experience material shortages on a localized basis which can substantially increase the price for such materials and our construction process can be slowed. We have multiple sources for the materials we intend to purchase, which will decrease the likelihood that we would experience significant delays due to unavailability of necessary materials.
Trades and Labor
Our construction, land and purchasing teams will coordinate subcontracting services and supervise all aspects of construction work and quality control. We intend to act as a general contractor for residential projects.
Subcontractors perform construction and land development scopes of work, generally under fixed-price contracts. The availability of labor, specifically as it relates to qualified tradespeople, at reasonable prices can be challenging
in some markets as the supply chain responds to uneven industry growth and other economic factors that affect the number of people in the workforce.
Procurement and Construction
We plan to have a comprehensive procurement program that leverages our size and regional presence to achieve efficiencies and cost savings. Our procurement objective is to maximize cost and process efficiencies to ensure consistent utilization of established contractual arrangements.
Sales and Marketing
Our marketing program will be built out utilizing a balanced approach of corporate support and local expertise to attract potential lot buyers or homebuyers in a focused, efficient and cost-effective manner. Our sales and marketing teams will provide a generalized marketing framework across our regional operations. We hope to maintain product and price level differentiation through market and customer research to meet the need of our homebuilders and homebuyers.
The central element of our marketing platform is our web presence at www.StratusCap.com. The main purpose of this website is to connect with potential customers.
Competition
The land development and homebuilding business is highly competitive and fragmented. We compete with numerous national and local competitors of varying sizes, most of which have greater sales and financial resources than us. We compete primarily on the basis of location, lot availability, product design, quality, service, price and reputation.
In order to maximize our sales volumes, profitability and product strategy, we strive to understand our competition and their pricing, product and sales volume strategies and results. Competition among residential land developers and homebuilders of all sizes is based on a number of interrelated factors, including location, lot sizes, reputation, amenities, floor plans, design, quality and price.
Seasonality
We expect to experience variability in our results on a quarterly basis therefore our results may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include, but are not limited to:
•	the timing of the introduction and start of construction of new projects;
•	the timing of sales;
•	the timing of closings of homes, lots and parcels;
•	the timing of receipt of regulatory approvals for development and construction;
•	the condition of the real estate market and general economic conditions in the areas in which we operate;
•	Joint-venture, partnerships and loan and investment opportunities;
•	construction timetables;
•	the cost and availability of materials and labor; and
•	weather conditions in the markets in which we develop and build.
Regulation, Environmental, Health and Safety Matters
Regulatory
We are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular property or locality. In a number of our markets, there has been an increase in state and local legislation requiring the dedication of land as open space. In addition, we are subject to various licensing, registration and filing requirements in connection with the construction, advertisement and sale of homes in our communities. The impact of these laws has been to increase our overall costs and may delay the opening of communities or cause us to conclude that development of particular communities would not be economically feasible, even if any or all necessary governmental approvals are obtained. We also may be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums in one or more of the areas in which we operate, including development of building lots for clients. Generally, such moratoriums relate to insufficient water, power, drainage or sewage facilities or inadequate road capacity.
In order to secure certain approvals in some areas, we may be required to provide affordable housing at below market sales prices of residential product or price certain percentage of building lots to meet these requirements. In addition, local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions, as well as requiring concessions or that the developer or builder construct certain improvements to public places such as parks and streets or fund schools. The impact of these requirements on us depends on how the various state and local governments in the areas in which we engage, or intend to engage, in development implement their programs. To date, these restrictions have not had a material impact on us.
We are subject to various state and federal statutes, rules and regulations, including those that relate to licensing, lending operations and other areas of mortgage origination and financing. The impact of those statutes, rules and regulations can increase our homebuyers’ cost of financing, increase our cost of doing business, as well as restrict our homebuyers’ access to some types of loans. Certain requirements provided for by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") have not yet been finalized or fully implemented. The effect of such provisions on our financial services business will depend on the rules that are ultimately enacted. The title and settlement services provided by Inspired Title are subject to various regulations, including regulation by state banking and insurance regulators.
In order for our homebuyers to finance their home purchases with FHA-insured, Veterans Administration-guaranteed or U.S. Department of Agriculture-guaranteed mortgages, we are required to build such homes in accordance with the regulatory requirements of those agencies.
Some states have statutory disclosure requirements or other pre-approval requirements or limitations governing the marketing and sale of new homes. These requirements vary widely from state to state.
Some states require us to be registered as a licensed contractor, a licensed real estate broker and in some markets our sales agents are additionally required to be registered as licensed real estate agents.
Environmental
We also are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of public health and the environment (collectively, “environmental laws”). For example, environmental laws may affect: how we manage storm water runoff, wastewater discharges, and dust; how we develop or operate on properties on or affecting resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. The particular environmental laws that apply to any given community vary greatly according to the location and environmental condition of the site and the present and former uses of the site. Complying with these environmental laws may result in delays, may cause us to incur substantial compliance and other costs, and/or may prohibit or severely restrict development in certain environmentally sensitive regions or areas. Noncompliance with environmental laws could result in fines and penalties, obligations to
remediate, permit revocation, and other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments could result in claims against us for personal injury, property damage, or other losses.
As part of the land acquisition due diligence process, we intend to utilize environmental assessments to identify environmental conditions that may exist on potential acquisition properties.
We intend to manage compliance with environmental laws at the division level with assistance from the local consultants.
Health and Safety
We are committed to maintaining high standards in health and safety at all of our sites. Key areas of focus are on site conditions meeting exacting health and safety standards, and on subcontractor performance throughout our operating areas meeting or exceeding expectations.
Intellectual Property
We own certain logos and trademarks that are important to our overall branding and sales strategy. Our consumer logos are designed to draw on our recognized homebuilding heritage while emphasizing a customer-centric focus.
Employees, Subcontractors and Consultants
As of March 31, 2021, we have 2 officers, a non-executive director and 4 staff retained as consultants on a part-time basis. Of these, all are engaged in land development, administration and construction operations, senior management facilitate joint-ventures, partnerships or loan investments. As of this date we were not subject to collective bargaining agreements. We consider our employee relations to be good.
We will act as a general contractor at times, or as project manager engaging local general contractors with all construction operations. We will use independent consultants and contractors for land planning, civil engineering, architectural, advertising and legal services.
Revenue
We did not record any revenue during the years ended December 31, 2020 and 2019, or from January 1, 2021 through the date of this filing.
Investment Company Act
Although we will be subject to regulation under the Securities Act of 1933, as amended, and the 1934 Act, we believe we will not be subject to regulation under the Investment Company Act of 1940 (the “1940 Act”) insofar as we will not be engaged in the business of investing or trading in securities. In the event we engage in business combinations that result in us holding passive investment interests in a number of entities, we could be subject to regulation under the 1940 Act. In such event, we would be required to register as an investment company and incur significant registration and compliance costs. We have obtained no formal determination from the SEC as to our status under the 1940 Act and, consequently, any violation of the 1940 Act would subject us to material adverse consequences. We believe that, currently, we are exempt under Regulation 3a-2 of the 1940 Act.
Factors Effecting Future Performance
The factors affecting our future performance are listed and explained below under the section “Risk Factors” below.
Plan of Operations
Our plan of operations is to raise debt and/or equity to meet our ongoing operating expenses with opportunities for growth in return for shares of our common stock to create value for our shareholders. There can be no assurance that we will successfully complete this series of transactions. In particular, there is no assurance that any stockholder will
realize any return on their shares after such a transaction. Any merger or acquisition completed by us can be expected to have a significant dilutive effect on the percentage of shares held by our current stockholders.
Our intended general and administrative budget for the next twelve months is as follows:
At this time, we have minimal cash on hand and no committed resources of debt or equity to fund these losses and will rely, potentially, on advances from our principal shareholder or our directors and officers. There can be no guarantee that we will be able to obtain sufficient funding from these sources.
The Company may change any or all of the budget categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable. The Company will need substantial additional capital to support its budget. We have not recognized revenues from our planned operational activities.
We have minimal current cash reserves as of this date. Our CEO, Pedro Gonzalez, intends to advance capital as loans as necessary to maintain the Company operations. We intend to offer a private placement of shares to investors in order to achieve at least $100,000 in funding in the next year. We intend to commence this offering in April of 2021. If we are unable to generate enough revenue, to cover our operational costs, we will need to seek additional sources of funds. Currently, we have no committed source for any funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
The independent registered public accounting firm’s report on our financial statements as of December 31, 2020, includes a “going concern” explanatory paragraph that expresses doubt about our ability to continue as a going concern.
Reports to Securities Holders
We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with the disclosure rules for a small business issuer under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements including filing Form 10-K annually and Form 10-Q quarterly. In addition, we will file Form 8-K and other proxy and information statements from time to time as required. We do not intend to voluntarily file the above reports in the event that our obligation to file such reports is suspended under the Exchange Act. The public may read and copy any materials that we file with the Securities and Exchange Commission, (“SEC”), at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 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 maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
ITEM 1A.
ITEM 1A. RISK FACTORS.
FORWARD LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS RELATING TO STRATUS’S PLANS, STRATEGIES, OBJECTIVES, EXPECTATIONS, INTENTIONS AND ADEQUACY OF RESOURCES. THESE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT MAY CAUSE OUR COMPANY’S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY; ABILITY TO OBTAIN ADDITIONAL FINANCING; STRATUS’S LIMITED OPERATING HISTORY; UNKNOWN LIABILITIES ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH; SIGNIFICANT COMPETITION; ABILITY TO ATTRACT AND RETAIN TALENTED EMPLOYEES; AND FUTURE GOVERNMENT REGULATIONS; AND OTHER FACTORS DESCRIBED IN THIS FILING OR IN OTHER STRATUS FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. STRATUS IS UNDER NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
RISK FACTORS RELATING TO OUR COMPANY
WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES
During the year ended December 31, 2020 we incurred losses of $134,185, resulting in an accumulated deficit of $319,062 and a stockholders’ deficit of $325,988.
Future losses are likely to occur as, until we have opportunities for growth in return for shares of our common stock to create value for our shareholders as we have no sources of income to meet our operating expenses. As a result of these, among other factors, we received from our registered independent public accountants in their report for the financial statements for the year ended December 31, 2020, an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT TO MEET OUR ONGOING OPERATING EXPENSES
We have no sources of income at this time and insufficient existing cash balances to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt and/or equity we shall be unable to meet our ongoing operating expenses. On a longer-term basis, we intend to raise the debt and/or equity to meet our ongoing operating expenses and merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders. There can be no assurance that this series of events will be successfully completed.
WE MAY BE NEGATIVELY AFFECTED BY COVID-19
We have only limited operations as yet and consequently have not been directly impacted by the COVID-19 outbreak at this time. However, the detrimental effect of the COVID-19 outbreak on the economy as a whole may have a detrimental impact on our ability to raise funding and commence operations for the foreseeable future.
WE MAY BE NEGATIVELY AFFECTED BY ADVERSE GENERAL ECONOMIC CONDITIONS
Current conditions in domestic and global economies are extremely uncertain. Adverse changes may occur as a result of softening global economies, wavering consumer confidence caused by the threat of terrorism and war, and other factors capable of affecting economic conditions. Such changes could have a material adverse effect on our business, financial condition, and results of operations.
OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE RESOLVED FAVORABLY TO US.
Certain conflicts of interest may exist between our directors and us. Our Directors have other business interests to which they devote their attention and may be expected to continue to do so although management time should be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through exercise of such judgment as is consistent with fiduciary duties to us.
WE MAY DEPEND UPON OUTSIDE ADVISORS WHO MAY NOT BE AVAILABLE ON REASONABLE TERMS AND AS NEEDED.
To supplement the business experience of our officers and directors, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Our Board without any input from stockholders will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an "as needed" basis without a continuing fiduciary or other obligation to us. In the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able to provide the required services.
WE ARE A REPORTING COMPANY.
We are subject to the reporting requirements under the Securities and Exchange Act of 1934, Section 13a, due to the effectiveness of our Registration Statement on Form 10 under Section 12(g) which became effective. As a result, stockholders will have access to the information required to be reported by publicly held companies under the Exchange Act and the regulations thereunder. As a result, we will be subject to legal and accounting expenses that private companies are not subject to and this could affect our ability to generate operating income.
WE ARE AN “EMERGING GROWTH COMPANY,” AND ANY DECISION ON OUR PART TO COMPLY ONLY WITH CERTAIN REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO “EMERGING GROWTH COMPANIES” COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.
We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we expect and fully intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year periods.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)2(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to opt in to the extended transition period for complying with the revised accounting standards. We have elected to rely on these exemptions and reduced disclosure requirements applicable to “emerging growth companies” and expect to continue to do so.
WE MAY NOT BE ABLE TO MEET THE FILING AND INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SEC WHICH MAY RESULT IN A DECLINE IN THE PRICE OF OUR COMMON SHARES AND AN INABILITY TO OBTAIN FUTURE FINANCING.
As directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No. 33-8934 on June 26, 2008, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements may have to also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting. We may be required to include a report of management on its internal control over financial reporting. The internal control report must include a statement:
Of management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;
Of management’s assessment of the effectiveness of its internal control over financial reporting as of year-end; and
Of the framework used by management to evaluate the effectiveness of our internal control over financial reporting.
Furthermore, our independent registered public accounting firm may be required to file its attestation on whether it believes that we have maintained, in all material respects, effective internal control over financial reporting.
REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT AND COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002, INCLUDING ESTABLISHING AND MAINTAINING ACCEPTABLE INTERNAL CONTROLS OVER FINANCIAL REPORTING, ARE COSTLY AND MAY INCREASE SUBSTANTIALLY.
The rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which will require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010 and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.
We are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, we anticipate that the expenses that will be required in order to adequately prepare for being a public company could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; personnel, such as a chief financial officer familiar with the obligations of public company reporting; consultants to design and implement internal controls; and financial printing alone will be a few hundred thousand dollars per year and could be several hundred thousand dollars per year. In addition, if and when we retain
independent directors and/or additional members of senior management, we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in the aggregate, may also be material.
In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
The increased costs associated with operating as a public company may decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.
THE JOBS ACT ALLOWS US TO DELAY THE ADOPTION OF NEW OR REVISED ACCOUNTING STANDARDS THAT HAVE DIFFERENT EFFECTIVE DATES FOR PUBLIC AND PRIVATE COMPANIES.
Since we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
WE HAVE A MATERIAL WEAKNESS IN OUR CONTROLS AND PROCEDURES
We have conducted an evaluation of our internal control over financial reporting based on the framework in “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations for the Treadway Commission (“COSO”) and published in 2013, and subsequent guidance prepared by COSO specifically for smaller public companies. Based on that evaluation, management concluded that our internal control over financial reporting was not sufficient as of December 31, 2020 for the reasons discussed below:
A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2020:
·Lack of a functioning audit committee and 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;.
·Inadequate segregation of duties consistent with control objectives;
·Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and
·Ineffective controls over period end financial disclosure and reporting processes.
The management of the Company believes that these material weaknesses will remain until such time that the Company has the resources to increase the number of personnel committed to the performance of its financial duties that such weaknesses can be specifically addressed. This will include, but not limited to, the following:
Hiring of additional personnel to adequately segregate financial reporting duties.
The retention of outside consultants to review our controls and procedures.
IF WE PURSUE OUR OBJECTIVES OF EXPANDING OUR OPERATIONS THROUGH ACQUISITIONS, WE MAY BE UNABLE TO SUCCESSFULLY MANAGE THOSE ACQUISITIONS.
In connection with our potential acquisitions and new market expansion, we may face risks commonly encountered with growth through acquisitions and expansions. These risks include the incurrence of higher than anticipated capital expenditures and operating expenses, the adverse impact on our ongoing business resulting from greater attention of management to the acquired businesses or new market operations and difficulties encountered in integrating the operations and personnel of the acquired business. There can be no assurance that we will be successful in overcoming these risks or any other problems encountered with acquisitions or expansions. To the extent the Company does not successfully avoid or overcome the risks or problems related to its acquisitions or expansions, the Company's results of operations and financial condition could be adversely affected.
To the extent that the Company expands into new markets or through acquisition, it will need to employ or consult with personnel that are knowledgeable in such markets. In addition, the success of any particular acquisition may be significantly dependent on retaining key members of the acquired company's existing management. There can be no assurance that the Company will be able to employ or retain the necessary personnel, that the Company will be able to successfully implement its management process and culture with local management or that the Company's expansion efforts will be successful.
WE ARE DEPENDENT ON THE EFFORTS OF OUR MANAGEMENT TEAM TO CONTINUE OUR OPERATIONS.
The Company's future success depends on the continued services of its executive and senior officers, especially our Director, Richard O. Dean, and President Pedro Gonzalez. The loss of the services of one or more key personnel could have a material adverse effect upon the Company's operations. The Company's success also depends on its ability to attract and retain qualified personnel. There can be no assurances that the Company will be successful in attracting and retaining such personnel.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO CORPORATE OPPORTUNITIES WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN.
Presently there is no requirement contained in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our business to disclose to us business opportunities which come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to us to disclose to us any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. We have no intention of merging with or acquiring a business opportunity from any affiliate or officer or director. We intend to diversify and/or expand our Board of Directors in the future.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY DELAWARE STATUTES.
Delaware General Corporation Laws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
OUR DIRECTORS’ LIABILITY TO US AND STOCKHOLDERS IS LIMITED.
Delaware General Corporation Laws exclude personal liability of our directors and our stockholders for monetary damages for breach of fiduciary duty except in certain specified circumstances. Accordingly, we will have a much more limited right of action against our directors that otherwise would be the case. This provision does not affect the liability of any director under federal or applicable state securities laws.
We have no full-time employees which may impede our ability to carry on our business. Our officers are independent consultants who devote up to 10 hours per week to Company business. The lack of full-time employees may very well prevent the Company’s operations from being efficient, and may impair the business progress and growth, which is a risk to any investor.
RISKS RELATED TO OUR SECURITIES
THERE IS A VERY LIMITED TRADING MARKET FOR OUR COMMON STOCK AND INVESTORS ARE NOT ASSURED OF THE OPPORTUNITY TO SELL THEIR STOCK, SHOULD THEY DESIRE TO DO SO.
Our common stock currently trades on the OTC PINK Market. However, that stock has traded in very limited quantities in the past. We believe a significant factor in the limited market is our limited capitalization and liquidity, results of operation and the characterization of our stock as a “penny stock.” We hope to remedy our financial condition and results of operation in the future. This, in turn, may assist us in obtaining listing of our stock on the OTCQB, Nasdaq or AMEX. However, there is no assurance that any of these objectives will be met or that the market will ever increase to a point where investors could sell their stock at a desirable price, should they desire to do so.
REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING BUSINESS COMBINATION AND DILUTION TO STOCKHOLDERS
Our primary plan of operation is based upon a business combination with a private concern which, in all likelihood, would result in us issuing securities to stockholders of such private company. The issuance of previously authorized and unissued shares of our common stock would result in reduction in percentage of shares owned by present and prospective stockholders and may result in a change in control or management. In addition, any merger or acquisition can be expected to have a significant dilutive effect on the percentage of the shares held by our stockholders.
THE REGULATION OF PENNY STOCKS BY SEC AND NASD MAY HAVE AN EFFECT ON THE TRADABILITY OF OUR SECURITIES.
Our securities are currently listed on the OTC PINK. Our shares are subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000).
For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of purchasers in this offering to sell their securities in any market that might develop therefore.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute "penny stocks" within the meaning of the
rules, the rules would apply to us and to our securities. The rules may further affect the ability of owners of Shares to sell our securities in any market that might develop for them.
Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
The shares of our common stock may be thinly traded on the Pink Sheets, meaning that the number of persons interested in purchasing our shares of common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of our shares of common stock until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares of common stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price.
OUR STOCK IS GOING TO BE CLASSIFIED UNDER THE “SHELL” STATUS OF RULE 144(i) AND WILL NOT BE TRADEABLE EXCEPT UNDER LIMITED CIRCUMSTANCES.
Until and unless the Company meets certain criteria under Rule 144(i), our shares will not be tradeable for 1 year after we are no longer a “shell” defined as having minimal operations, and cash assets only, unless we file and pursue to effectiveness an Offering Statement on Form 1-A or a Registration Statement on Form S-1. We also must remain current in our SEC filings under Section 13(a) of the Securities Exchange Act.
OUR STOCK WILL IN ALL LIKELIHOOD BE THINLY TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
We cannot give you any assurance that a broader or more active public trading market for our shares of common stock will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we can give investors no assurance that they will be able to sell their shares of common stock at or near ask prices or at all if you need money or otherwise desire to liquidate your shares of common stock of our Company.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers, directors, and affiliate stockholders are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. We are registering all of our outstanding shares so officers, directors and affiliates will be able to sell their shares if this Registration Statement becomes effective. Rule 144 provides in essence that a person who has held restricted securities for one year may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company's outstanding common stock or the average weekly trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a nonaffiliate after the owner has held the restricted securities for a period of two years. A sale under Rule 144 or under any other exemption from the Act, may have a depressive
effect upon the price of the common stock in any market that may develop.
THE PRICE OF OUR COMMON STOCK COULD BE HIGHLY VOLATILE
Our shares of common stock are listed on OTC PINK. It is likely that our common stock will be subject to price volatility, low volumes of trades and large spreads in bid and ask prices quoted by market makers. Due to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence prices of our common stock. This low volume of trades could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our common stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our common stock. No assurance can be given that an active market in our common stock will be sustained. If an active market does not continue, holders of our common stock may be unable to readily sell the shares they hold or may not be able to sell their shares at all.
LOSS OF CONTROL BY OUR PRESENT MANAGEMENT AND STOCKHOLDERS MAY OCCUR UPON ISSUANCE OF ADDITIONAL SHARES.
We may issue further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority of our voting power and equity. The result of such an issuance would be those new stockholders and management would control us, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of us by our current shareholders.
IF THE REGISTRATION OF OUR COMMON STOCK IS REVOKED IN THE FUTURE, OUR BUSINESS OPPORTUNITIES WILL CEASE TO EXIST
In the event our securities registration was to be revoked, we would not have the ability to raise money through the issuance of shares and would lose the ability to continue the business plan set out in this filing. Common stock issued and outstanding at that time would no longer be tradable.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK
We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
NONE.
ITEM 2.
ITEM 2. PROPERTIES.
Real Estate.
None.
Oil and Gas.
None.
Patents.
None.	
Trademarks.
None.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. We anticipate that we (including current and any future subsidiaries) will from time to time become subject to claims and legal proceedings arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and we cannot assure that their ultimate disposition will not have a materially adverse effect on our business, financial condition, cash flows or results of operations.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Price and Stockholder Matters
Shares of our common stock trade on the OTC PINK and quotations for the common stock are listed by the OTC Markets under the symbol "SRUS." On September 25, 2018, the symbol changed from “ASHC” to “SRUS” after a holding company reorganization.
The following table sets forth for the respective periods indicated the prices of our common stock in this market as reported and summarized by the National Quotation Bureau. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
During the fiscal years ended December 31, 2020 and 2019, we had a trading history as follows:
Last Reported Price
On March 31, 2021, the last reported bid price of our shares of common stock reported on the OTC PINK was $0.0331 per share.
Record Holders
There were 267 holders of record as of March 31, 2021. In many instances, a registered stockholder is a broker or other entity holding shares in street name for one or more customers who beneficially own the shares.
Our transfer agent is EQ Shareowner Services, 1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120. Their telephone number is 800-468-9716.
Dividend Policy
We have never paid cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined by our board of directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws, any future preferred stock instruments, and any future credit arrangements may then impose.
Penny Stock
Penny Stock Regulation Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00. Excluded from the penny stock designation are securities registered on certain national securities exchanges or quoted on NASDAQ, provided that current price and volume information with respect to transactions in such securities is provided by the exchange/system or sold to established customers or accredited investors.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in connection with the transaction, and the monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. As our securities have become subject to the penny stock rules, investors may find it more difficult to sell their securities.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities.
We have sold no unregulated securities in the past three years, except:
Effective September 30, 2018, we issued 4,000,000 shares of common stock as compensation to two directors and officers. We valued the stock at $220,000 based on the share price of $0.055 on the grant date.
Effective January 17, 2019, we issued 1,000,000 shares of Series A Super Majority Voting Preferred Stock, valued by an independent third-party valuation firm using a market approach at $85,500, to one of our directors and former officer (Richard O. Dean) who was our principal shareholder, for cash consideration of $10,000 and services rendered of $75,500. On October 28, 2020, Mr. Richard Dean and his wife Reagan Dean entered into a Securities Purchase Agreement with Willamette Group Trust, of which Mr. Pedro Gonzalez is Trustee, and agreed to sell a majority of their shares. Subsequently, the Securities Purchase Agreement has been amended to reflect an effective
date of January 10, 2021. As a result, Mr. Gonzalez (current CEO) has beneficial ownership of 1,000,000 shares of Series A Super Majority Voting Preferred Stock. It can vote equivalent of 60% of common stock at all times.
In both our Form 10-Q for the three and nine months ended September 30, 2020 filed on November 16, 2020 and our Form 8-K filed on December 4, 2020, we disclosed our intention to issue certain shares of common stock to directors, officers and staff. No such shares have been issued at this time and any such issuances are unlikely to be finalized before Q2 2021.
Exemption from Registration Claimed
The transactions were exempt from Registration under Section 4(a)2 of the Securities Act of 1933.
Issuer Purchases of Equity Securities
We did not repurchase any shares of our common stock during the year ended December 31, 2020.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements and Associated Risks.
This Form 10-K contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue,” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying financial statements, as of December 31, 2020, we had an accumulated deficit totaling $319,062. This raises substantial doubt about our ability to continue as a going concern.
Plan of Operation
Our plan of operations is to raise debt and/or equity to meet our ongoing operating expenses with opportunities for growth in return for shares of our common stock to create value for our shareholders. There can be no assurance that we will successfully complete this series of transactions. In particular, there is no assurance that any stockholder will realize any return on their shares after such a transaction. Any merger or acquisition completed by us can be expected to have a significant dilutive effect on the percentage of shares held by our current stockholders.
We believe we are an insignificant participant among the firms which engage in the acquisition of business opportunities. There are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we have. In view of our limited financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared to our competitors.
We intend to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to us by persons or firms which desire to seek the advantages of an issuer who has complied with the
Securities Act of 1934 (the “1934 Act”). We will not restrict our search to any specific business, industry or geographical location, and we may participate in business ventures of virtually any nature. This discussion of our proposed business is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to search for and enter into potential real estate development and construction opportunities. We anticipate that we may be able to participate in only a few projects initially because of our lack of financial resources.
We may seek a business opportunity with entities which have recently commenced operations, or that desire to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
We expect that the selection of a business opportunity will be complex and risky. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, we believe that there are numerous firms seeking the benefits of an issuer who has complied with the 1934 Act. Such benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all stockholders and other factors. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. We have, and will continue to have, essentially no assets to provide the owners of business opportunities. However, we will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an issuer who has complied with the 1934 Act without incurring the cost and time required to conduct an initial public offering.
The analysis of new business opportunities will be undertaken by, or under the supervision of, our sole director. We intend to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present associations of our director, professional advisors or by our stockholders. In analyzing prospective business opportunities, we will consider such matters as (i) available technical, financial and managerial resources; (ii) working capital and other financial requirements; (iii) history of operations, if any, and prospects for the future; (iv) nature of present and expected competition; (v) quality, experience and depth of management services; (vi) potential for further research, development or exploration; (vii) specific risk factors not now foreseeable but that may be anticipated to impact the proposed activities of the company; (viii) potential for growth or expansion; (ix) potential for profit; (x) public recognition and acceptance of products, services or trades; (xi) name identification; and (xii) other factors that we consider relevant. As part of our investigation of the business opportunity, we expect to meet personally with management and key personnel. To the extent possible, we intend to utilize written reports and personal investigation to evaluate the above factors.
We will not acquire or merge with any company for which audited financial statements cannot be obtained prior to or within a reasonable period of time after closing of the proposed transaction.
RESULTS OF OPERATIONS FOR FISCAL YEAR ENDED DECEMBER 31, 2020 COMPARED TO THE YEAR ENDED DECEMBER 31, 2019
We are a publicly quoted real estate development company seeking to develop or redevelop residential, commercial or mixed used properties.
Revenue
We recognized no revenue during the years ended December 31, 2020 or 2019 as we had no revenue generating activities during these periods.
General and Administrative Expenses
During the period ended December 31, 2020, we incurred general and administrative expenses of $126,928 comprising officers’ compensation of $63,000, accounting, auditing, legal and share transfer agent fees totaling $61,416 and sundry other expenses of $2,512. During the period ended December 31, 2019, we incurred general and
administrative expenses of $222,452 comprising officers’ compensation of $147,500, accounting, auditing, legal and share transfer agent fees totaling $64,045 and sundry other expenses of $10,907.
The decrease of $84,500 in officer’s compensation between the year ended December 31, 2020 and the year ended December 31, 2019 arose due to $75,500 decrease in stock-based compensation issued to an officer in 2019 as compared to $0 of stock compensation issued during the year ended December 31, 2020 and a decrease of $9,000 of accrued compensation following the resignation of one of our directors during the year ended December 31, 2020.
The decrease of $2,629 in accounting, auditing, legal and share transfer agent fees was largely due to decreases in legal and accounting fees that were higher in the year ended December 31, 2019 as compared to the year ended December 2020 due to the extra work required to make the Company fully reporting for SEC purposes during 2019.
The decrease of $8,395 in sundry office expense was largely due to a decrease in travel costs and office expenses in the year ended December 31, 2020 as compared to the year ended December 31, 2019 due to the decrease in corporate activity arising from the impact of the COVID-19 virus.
Operating Loss
During the year ended December 31, 2020, we incurred an operating loss of $126,928 due to the factors discussed above compared to an operating loss of $222,452 during the year ended December 31, 2019.
Interest and Other Income (Expenses)
During the period ended December 31, 2020, we incurred $7,257 in related party interest expense as compared to $4,890 during the year ended December 31, 2019. The increase in interest expense between the two years was due to the increase in the funds advanced to us by our former principal shareholder and chief executive officer to fund our working capital needs.
Loss before Income Tax
During the period ended December 31, 2020, we incurred a net loss before income taxes of $134,185 due to the factors discussed above compared to the year ended December 31, 2019, during which we incurred a loss of $227,342.
Provision for Income Tax
No provision for income taxes was recorded during the years ended December 31, 2020 and 2019 as we incurred taxable losses in both years.
Net Loss
During the period ended December 31, 2020, we incurred a net loss of $134,185 due to the factors discussed above, compared to the year ended December 31, 2019, during which we incurred a loss of $227,342.
CASH FLOW
At December 31, 2020, we did not have any revenue generating activities or other sources of income and we had total liabilities of $329,277 and a shareholders deficit of ($325,988).
Operating Activities
During the year ended December 31, 2020, we had a net loss of $134,185 an increase in prepaid expenses of $3,250, an increase in accounts payable of $4,076 and an increase in accruals - related parties of $70,257 resulting in net cash of ($63,102) being used in operations.
During the period ended December 31, 2019, we had a net loss of ($227,342) which included $75,500 in stock-based compensation, a decrease in accounts payable of ($24) and an increase in accrued expenses - related parties of $76,890 resulting in net cash of ($74,976) being used in operations.
Investing Activities
During the years ended December 31, 2020 and 2019, we had no investing activities.
Financing Activities
During the year ended December 31, 2020, we received $62,897 by way of loan from one of our directors and officers resulting in a total of $62,897 generated from financing operations.
During the year ended December 31, 2019, we received $65,620 by way of loan from one of our directors and officers, $10,000 from the sale of preferred stock and paid off our $400 overdrawn bank account resulting in a total of $75,220 generated from financing operations.
We are dependent upon the receipt of capital investment or other financing to fund our ongoing operations and to execute our business plan to become a profitable real estate development company seeking to develop or redevelop residential, commercial or mixed used properties. In addition, we are dependent upon our controlling shareholder to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations.
CRITICAL ACCOUNTING POLICIES
All companies are required to include a discussion of critical accounting policies and estimates used in the preparation of their financial statements. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 3 of our Financial Statements on page. These policies were selected because they represent the more significant accounting policies and methods that are broadly applied in the preparation of our financial statements.
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future.
Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Share-based Compensation
The cost of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the equity instruments issued in accordance with ASC 718, “Compensation - Stock Compensation.”
Measurement date for non-employees is the grant date of the stock-based compensation. The cost of employee services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.
Recently Issued Accounting Pronouncements
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and do not believe any of these pronouncements will have a material impact on our financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
STRATUS CAPITAL CORP.
FINANCIAL STATEMENTS
For the years ended December 31, 2020 and
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Stratus Capital Corp.
Greenwood Village, Colorado
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Stratus Capital Corp. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, changes in shareholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has no operations which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Pinnacle Accountancy Group of Utah
We have served as the Company’s auditor since 2018.
Pinnacle Accountancy Group of Utah
a dba of Heaton & Company, PLLC
Farmington, Utah
March 29, 2021
STRATUS CAPITAL CORP.
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND
NOTE 1. NATURE OF OPERATIONS
Nature of Business
Stratus Capital Corporation., a Delaware corporation, (“Status Capital”, “the Company”, “We", "Us" or “Our’) is a publicly quoted real estate development company seeking to develop or redevelop residential, commercial or mixed used properties.
History
Stratus Capital was incorporated in Delaware on April 13, 2018. Effective June 28, 2018 (the Company’s deemed date of inception), following a corporate reorganization pursuant to a reverse recapitalization, Stratus Capital became the reorganized successor to Ashcroft Homes Corporation, a publicly quoted real estate company that ceased trading in 2004.
Impact of COVID-19
We have not commenced operations as yet and consequently have not been directly impacted by the Covid-19 outbreak at this time. However, the detrimental effect of the Covid-19 outbreak on the economy as a whole may have a detrimental impact on our ability to raise funding and commence operations for the foreseeable future.
NOTE 2. GOING CONCERN
Our financial statements are prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have no ongoing business or income, and for year ended December 31, 2020 incurred a loss of $134,185 and had an accumulated deficit of $319,062 as of December 31, 2020. These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. Our ability to continue as a going concern is dependent upon our ability to raise additional debt or equity funding to meet our ongoing operating expenses and ultimately in merging with another entity with experienced management and profitable operations. No assurances can be given that we will be successful in achieving these objectives.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The summary of significant accounting policies is presented to assist in the understanding of the financial statements. These policies conform to GAAP and have been consistently applied. The Company has selected December 31 as its financial year end. The Company has not earned any revenue to date.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
We maintain cash balances in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. As of December 31, 2020 and 2019, our cash balances were $39 and $244, respectively.
Fair Value Measurements:
ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.
Level 2 - Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.
Level 3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
Our financial instruments consist of our cash, prepaid expenses, accounts payable, accrued expenses - related parties and note payable - related party. The carrying amount of our prepaid expenses, accounts payable, accrued expenses- related parties and note payable - related party approximates their fair values because of the short-term maturities of these instruments.
Related Party Transactions:
A related party is generally defined as (i) any person that holds 10% or more of our membership interests including such person's immediate families, (ii) our management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with us, or (iv) anyone who can significantly influence our financial and operating decisions. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. See Notes 5, 6 and 8 below for details of related party transactions in the period presented.
Leases:
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) as assets, operating lease non-current liabilities, and operating lease current liabilities in our balance sheet. Finance leases are property and equipment, other current liabilities, and other non-current liabilities in the balance sheet.
ROU assets represent the right to use an asset for the lease term and lease liability represent the obligation to make lease payment arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over lease term. As most of the leases doesn’t provide an implicit rate, we generally use the incremental borrowing rate on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating ROU asset also includes any lease payments made and exclude lease incentives. Lease expense for lease payment is recognized on a straight-line basis over lease term.
Since June 28, 2018 (Inception), the only lease arrangement we have entered into was a month-to-month lease for a storage unit. This lease had a term of less than 12 months, so we elected to adopt the exemption for short-term leases and have not accounted for it as described above. Effective January 2021 we are no longer renting a storage unit.
Income Taxes:
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Uncertain Tax Positions:
We evaluate tax positions in a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We classify gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as long-term liabilities in the financial statements.
Revenue Recognition:
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue when the entity satisfies a performance obligation
Service revenues are recognized as the services are performed in proportion to the transfer of control to the customer and real estate revenues are recognized at the time of sale when consideration has been exchanged and title has been conveyed to the buyer. At this time, we have not identified specific planned revenue streams.
During the years ended December 31, 2020 and 2019, we did not recognize any revenue.
Advertising Costs:
We expense advertising costs when advertisements occur. No advertising costs were incurred during the years ended December 31, 2020 and 2019.
Stock Based Compensation:
The cost of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the equity instruments issued in accordance with ASC 718, “Compensation - Stock Compensation.” Measurement date for non-employees is the grant date of the stock-based compensation. The cost of employee services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.
Net Loss per Share Calculation:
Basic earnings (loss) per common share ("EPS") is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, assuming all dilutive potential common shares were issued. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
No potentially dilutive debt or equity instruments were issued or outstanding during the years ended December 31, 2020 and 2019.
Recently Accounting Pronouncements:
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and do not believe any of these pronouncements will have a material impact on our financial statements.
NOTE 4. PREPAID EXPENSES
As of December 31, 2020 and 2019, the balance of prepaid expenses was $3,250 and $0, respectively, which related to the annual disclosure and news service subscription for OTC Markets which is being amortized monthly over the course of the year commencing July 1, 2020.
NOTE 5. ACCRUALS - RELATED PARTIES
As of December 31, 2020, a balance of $153,000 (2019-$90,000) accrued compensation was due to our current and former officers and directors and $12,630 (2019-$5,373) in accrued interest on the loan made to us by a partnership controlled by one of our directors, who was a former officer of the company and the former principal shareholder.
NOTE 6. NOTE PAYABLE - RELATED PARTY
During the year ended December 31, 2020, a partnership controlled by one of our directors, who was a former officer of the company and the former principal shareholder, advanced to us $62,897 (2019 - $65,620) by way of a promissory note to finance our working capital requirements.
Effective October 28, 2020, our CEO/CFO entered into a personal guarantee for this loan which became due on March 31, 2020 and was subsequently amended to mature June 30, 2021.
The promissory note bears interest at 8% per annum and as of December 31, 2020 interest of $12,630 (2019-$5,373) was accrued with respect to this loan.
As at December 31, 2020, the balance outstanding under the promissory note was $158,874 (2019 - $95,977).
NOTE 7. INCOME TAXES
We did not provide any current or deferred US federal income tax provision or benefit for the years ended December 31, 2020 or 2019 as we incurred tax losses during these years. When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any future potential future tax benefit. We have provided a full valuation allowance against the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 31, 2020 or 2019 as defined under ASC 740, " Income Taxes." We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of the accumulated deficit on the balance sheet.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences for the periods presented are as follows:
A reconciliation of the income taxes computed at the statutory rate is as follows:
As of December 31, 2020, the Company had a federal net operating loss carryforward of approximately $630,000. The federal net operating loss carryforward do not expire but may only be used against taxable income to 80%. In response to the novel coronavirus COVID-19, the Coronavirus Aid, Relief, and Economic Security Act temporarily repealed the 80% limitation for NOLs arising in 2018, 2019 and 2020. No tax benefit has been reported in the financial statements. The annual offset of this carryforward loss against any future taxable profits may be limited under the provisions of Internal Revenue Code Section 381 upon any future change(s) in control of the Company.
The Company's 2018 and 2019 income tax returns are currently open to audit by federal and state jurisdictions.
NOTE 8. COMMITMENTS & CONTINGENCIES
Legal Proceedings
We were not subject to any legal proceedings during the years ended December 31, 2020 and 2019 and, to the best of our knowledge, no legal proceedings are pending or threatened.
Contractual Obligations
During the years ended December 31, 2020 and 2019, we rented a storage unit under a month-to-month agreement. The rent was initially $120 a month and was reduced to $87 per month in April 2020 when we moved to a smaller unit. Effective January 2021 we are no longer renting a storage unit.
Effective October 1, 2018, we entered into three-year employment agreements with two of our directors and officers. Each individual was entitled to a salary of $36,000 per year and bonuses and stock options to be determined and issued at a later date. The employment agreement for one of one of our officers was terminated by mutual agreement effective September 30, 2020.
NOTE 9. SHAREHOLDERS’ DEFICIT
Preferred Stock
We are authorized to issue 4,000,000 shares of preferred stock with a par value of $0.0001.
1,000,000 shares of Series A Preferred Stock were designated and issued effective January 17, 2019.
5,000,000 shares of Series B 10% Cumulative Dividend Convertible Preferred Stock were designated effective December 15, 2020.
No other series of preferred stock had been designated or issued at December 31, 2020.
Series A Preferred Stock
Effective January 17, 2019, we issued 1,000,000 shares of Series A Preferred Stock, valued by an independent third-party valuation firm using a market approach at $85,500, to one of our directors and a former officer who was also our principal shareholder, for cash consideration of $10,000 and services rendered of $75,500.
The shares of Series A Preferred Stock carry super majority voting rights such that they can vote the equivalent of 60% of common stock at all times.
As of December 31, 2020, 1,000,000 (2019-1,000,000) shares of Series A Preferred Stock were issued and outstanding.
Series B Preferred 10% Cumulative Dividend Convertible Stock
On December 15, 2020, we designated 5,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock, with a par value of $0.0001.
No shares of Series B Convertible Preferred Stock have been issued to date.
Liquidation Rights
The Series B Preferred Stock has a liquidation preference immediately after any Senior Securities, as defined and currently the Series A Preferred Stock, and of an amount equal to $10.00 per share.
Conversion Rights
The conversion price for the Series B Preferred Stock shall be 75% of the ten (10) day average market closing price of common stock, for the previous ten business days, divided into $10.00. ($10.00 / by average market closing price previous ten trading days x 75%) = number of common shares.
At any time on or after eighteen months after issuance (18 months), immediately upon the listing of our Common Stock on an Approved Stock Exchange pursuant to an effective registration statement under the Securities Act of 1933, and a Form 10/12b Registration, as amended all outstanding shares of the Series B Preferred Stock shall automatically be converted into shares of the Common Stock, at the “Preferred Conversion Rate,” which shall be post reverse-split of the Common Stock as may be necessary for any Exchange listing, and (2) such shares of Series B may not be reissued by us. A condition of this conversion is that a Registration Statement for the conversion shares shall be effective.
Dividends
The Series B Preferred Stock shall bear dividends, at ten percent (10%) annually, cumulative, based upon a purchase price of $10.00 per share, computed as (10% x $10.00 = $1.00 per share dividend per annum), payable in cash, on or about December 31 of each year, from the date of issue. Payment in cash shall be made on or before January 31 following, at the discretion of the Board.
We shall pay a Project Participation Dividend to the Series B Preferred Stock record holders (pro rata to the holder’s ownership of the Series B Preferred Stock) in cash computed based upon 3% of the net sales of our real estate projects, computed annually by March 1 of the following year for the previous year, for so long as the Series B Preferred Stock is outstanding. In the event that the Series B Preferred Stock is redeemed or converted during a calendar year, the dividend above shall be pro-rated for the year up to redemption date or conversion date and paid in following year by March 1.
Voting Rights
Each holder of shares of the Series B Preferred Stock shall be entitled to the number of votes equal to the number of shares of the Common Stock into which such shares of the Series B Preferred Stock are then convertible.
The holders of the Series B Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the Board (the "Series B Director") at each meeting; for the avoidance of doubt, at no time shall there be more than one Series B Director serving on the Board.
Redemption
We will have the right, at our option, to redeem all or any portion of the shares of Series B Preferred Stock. On the date fixed for redemption we shall make payment of the Optional Redemption Amount as calculated below.
Redemption Period Redemption Percentage
1. The period beginning on the date of the issuance of shares of Series B Preferred Stock (the “Issuance Date”) and ending on the date which is one (1) year following the Issuance Date. 130%
2. The period beginning on the date which is one (1) year and one day following the Issuance Date and ending on the date which is two (2) years following the Issuance Date. 120%
3. The period beginning on the date which is two (2) years and one day following the Issuance Date and ending on the date which is three (3) years following the Issuance Date. 110%
4. The period beginning on the date that is three (3) years and one day from the Issuance Date and ending ten (10) years following the Issuance Date. 100%
Common Stock
We are authorized to issue 25,000,000 shares of common stock with a par value of $0.0001.
No shares of common stock were issued during the years ended December 31, 2020 and 2019.
In both our Form 10Q for the three and nine months ended September 30, 2020 filed on November 16, 2020 and our Form 8K filed on December 4, 2020, we disclosed our intention to issue certain shares of common stock to directors, officers and staff. No such shares have been issued at this time and any such issuances are unlikely to be finalized before Q2 2021.
As of December 31, 2020 and 2019, 21,525,481 shares of common stock were issued and outstanding.
Warrants
No warrants were issued or outstanding during the years ended December 31, 2020 or 2019.
Stock Options
We have an incentive stock option plan, which provides for the granting by the Board of Directors of stock options to directors and officers for the purchase of authorized but unissued common shares. No stock options were issued or outstanding during the years ended December 31, 2020 or 2019.
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events after December 31, 2020, in accordance with FASB ASC 855 Subsequent Events, through the date of the issuance of these financial statements and has determined there have been no subsequent events for which disclosure is required other than as listed below:
Effective January 15, 2021, we filed a Form 1-A Regulation A Offering Statement Under the Securities Act 1933 in respect of 5,000,000 shares of common stock at an offering price of $10 per share.
On February 23, 2021, we entered into a Placement Agent Fee Agreement with CIM Securities, LLC, a Colorado Limited Liability Company (“CIM”) for the Regulation A Offering. We agreed to pay CIM a commission equal to seven percent (7%) in cash on the subscriptions completed, whether through an investor or referrals from CIM’s investors through May 23, 2021.
We shall pay a three percent (3%) in non-accountable expenses for the anti-money laundering, due diligence, and legal costs required by the regulations applicable, from the proceeds at the closing of the subscriptions.
In addition, CIM Securities has warrants to purchase Preferred shares at sale price of $10.00 for a period of three years after offering closes. The Warrants will be able to be exercised cashless and have piggy-back registration rights for common stock upon conversion. The warrants will be for an amount equal to 7% of the shares sold in the Offering and shall be assignable. The common stock conversion rights shall be those as the Series B provides in the Certificate of Designation.
.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS & PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
In connection with this annual report, as required by Rule 15d-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. Under the supervision of our Board of Directors, our Chief Executive Officer and Chief Financial Officer, acting as our principal executive officer and principal financial officer respectively, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was not effective as of December 31, 2020. Subject to the inherent limitations noted in this Part II, Item 9A as of December 31, 2020, our disclosure controls and procedures were not effective due to the existence of material weaknesses in our internal controls over financial reporting as discussed below. It is management's responsibility to establish and maintain adequate internal control over financial reporting.
This annual report does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting. Management's report on internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC because we are neither an accelerated filer nor a larger accelerated filer.
We have implemented a framework used by management to evaluate the effectiveness of our internal control over financial reporting, which incorporates a quarterly review by our Board of Directors of the recording of transactions and whether questions of accuracy and authorization may arise as the accounting may be reviewed by our auditors.
Our Management's assessment of the effectiveness of internal controls over financial reporting as of the end of the most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective is contained in the section immediately following this paragraph.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
It is Management's responsibility to establish and maintain adequate internal control over financial reporting. The matters involving internal controls and procedures that our Company's management considered to be material weaknesses and may have been ineffective under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and 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; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes.
Management has assessed the effectiveness of its internal controls over financial reporting at the end of the most recent fiscal year and has determined several weaknesses and has determined that its internal controls have not been effective due, in part, to lack of full-time financial accounting professionals.
Management believes that the material weaknesses and ineffectiveness set forth in items (2), (3) and (4) above did not have an affect on our Company's financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on our Company's board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures may result in our Company's financial statements for the future years being subject to error and inaccurate if controls, procedures, and professional financial officers are not maintained.
We are committed to improving our financial organization. As part of this commitment, we intend to create a position to segregate duties consistent with control objectives and intend to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to our Company: i) Appointing one or more outside directors to our board of directors who shall be appointed to the audit committee of our Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and ii) preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
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 Company's Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support our Company if personnel turn over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues our Company may encounter in the future.
Due to insufficient funds during the year ended December 31, 2020, the Company has been unable to implement many of the remedies to the ineffective oversight. The Company will continue to implement the changes as laid out above as soon as funds are available to the Company.
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth information as to persons who currently serve as our directors or executive officers, including their ages as of March 31, 2021.
(1)On October 25, 2020, Mr. Richard Dean resigned as Chief Executive Officer, President and Chairman of the Board, effective immediately. He remains a Director and will continue serving in that position. Concurrently, the Board of Directors of the Company appointed Mr. Pedro C. Gonzalez as the Company's Chief Executive Officer, President and Chairman of the Board. Mr. Gonzalez currently serves as the Company's Chief Financial Officer and Secretary and will continue serving in those positions.
(2)Appointment effective December 1, 2020.
Our officers are elected by the board of directors at the first meeting after each annual meeting of our stockholders and hold office until their successors are duly elected and qualified under our bylaws.
The directors named above will serve until the next annual meeting of our stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. Officers will hold their positions at the pleasure of the board of directors absent any employment agreement. There is no arrangement or understanding between our directors and officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer.
BIOGRAPHICAL INFORMATION
Pedro C. Gonzalez
Mr. Gonzalez was Director, Secretary and Chief Financial Officer of Ashcroft Homes Corp., predecessor, 2003 to 2019, and became Director, Secretary and Chief Financial Officer of Stratus Capital Corporation upon the formation of a holding company in a holding company reorganization in Delaware. On October 25, 2020, the Board of Directors of the Company appointed Mr. Gonzalez as the Company's Chief Executive Officer, President and Chairman of the Board concurrent with Mr. Dean’s resignation. Mr. Gonzalez currently serves as the Company's Chief Financial Officer and Secretary and will continue serving in those positions.
Mr. Gonzalez’s responsibilities include operations oversight, compliance, reporting and key metric management for our business operations. Prior to joining the Company Mr. Gonzalez has held management positions with private equity, public institutional REIT’s, homebuilding and asset management organizations since 2002. Mr. Gonzalez’s focus on portfolio growth, management and disposition on a national basis to provide operational stability and financial growth for our shareholders and stakeholders. Mr. Gonzalez has been the General Partner for Allegiance Group, LP since 2008 to current, Allegiance Group is an opportunity fund with focus in real estate and lending.
Richard O. Dean
Mr. Dean was Chairman and CEO of Ashcroft Homes Corp., predecessor, for 20 years until 2019. Mr. Dean became CEO and founder of Stratus Capital Corporation upon the reorganization of Ashcroft into a holding company. On October 25, 2020, Mr. Dean resigned as Chief Executive Officer, President and Chairman of the Board. He remains a Director and will continue serving in that position.
Mr. Dean has been an active real estate developer and member of the Denver Metro community over the last 40
years. Mr. Dean has held various senior management capacities in the land, commercial, multifamily and homebuilding industries. Mr. Dean has built greater than 2,000 single family units, entitled over 20 subdivisions resulting in 10,000 lots and has managed significant commercial and multi-family development.
John L. Page
Mr. Page was appointed Executive Vice President of Stratus Capital Corporation effective December 1, 2020.
Mr. Page is Co-Founder/Managing Partner of Audex Capital, LLC (since August 2020). From August 2019 until August 2020, he was consulting for a private equity firm in Canada. Mr. Page was Director of Institutional Fixed Income Sales & Trading at Brownstone Investment Group from 2014 until 2019. From January 2010 until March 2014, he was SVP of Institutional Sales & Trading at Carolina Capital Markets. From 2007-2010 Cranwood Capital Management, a fixed-income arbitrage hedge fund. From 1992 - 2010 Mr. Page worked for some of the leading firms on Wall Street; such as, Lehman Brothers, Raymond James, CIBC Oppenheimer and UBS Paine Webber.
Mr. Page holds a Series 7 and 63 securities licenses that are currently inactive. He received his B.A. Political Science from Roanoke College in 1989.
There are no family relationships amongst the officers and directors of the Company.
CONFLICTS OF INTEREST - GENERAL.
Our directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other business entities. While our sole officer and director of our business is engaged in business activities outside of our business, he devotes to our business such time as he believes to be necessary.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our business to disclose to us business opportunities which come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to us to disclose to us any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. We have no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person.
COMMITTEES OF THE BOARD OF DIRECTORS
In the ordinary course of business, the board of directors maintains a compensation committee and an audit committee.
The primary function of the compensation committee is to review and make recommendations to the board of directors with respect to the compensation, including bonuses, of our officers and to administer the grants under our stock option plan.
The functions of the audit committee are to review the scope of the audit procedures employed by our independent auditors, to review with the independent auditors our accounting practices and policies and recommend to whom reports should be submitted, to review with the independent auditors their final audit reports, to review with our internal and independent auditors our overall accounting and financial controls, to be available to the independent auditors during the year for consultation, to approve the audit fee charged by the independent auditors, to report to the board of directors with respect to such matters and to recommend the selection of the independent auditors.
In the absence of a separate audit committee our board of directors’ functions as audit committee and performs some of the same functions of an audit committee, such as recommending a firm of independent certified public
accountants to audit the annual financial statements; reviewing the independent auditor’s independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls.
EXECUTIVE COMMITTEE
We do not have an executive committee, at this time.
ANNUAL MEETING
The annual meeting of stockholders is anticipated in July of 2021 and will include the election of directors. The annual meeting will be held at our principal office or at such other place as permitted by the laws of the State of Delaware and on such date as may be fixed from time to time by resolution of our board of directors.
PREVIOUS "BLANK CHECK" OR "SHELL" COMPANY INVOLVEMENT
No members of our management have been involved in previous "blank-check" or "shell" companies.
INVOLVEMENT IN LEGAL PROCEEDINGS
No executive Officer or Director of our Company has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding that is currently pending.
No executive Officer or Director of our Company is the subject of any pending legal proceedings.
No Executive Officer or Director of our Company is involved in any bankruptcy petition by or against any business in which they are a general partner or executive officer at this time or within two years of any involvement as a general partner, executive officer, or Director of any business.
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ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Executives and Director Compensation Table
The following table sets forth the compensation paid to our officers for the years ended December 31, 2019 and 2020.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
Executive officers Richard O. Dean and Pedro C. Gonzalez had employment agreements, each annually renewable.
Mr. Dean, formerly our President and Chief Executive Officer and Mr. Gonzalez, formerly our Vice President, Chief Operating Officer and Chief Financial Officer, each received a base salary of $36,000 annually and were entitled to receive a minimal annual increase of 6.5%.
Effective September 30, 2020, Mr. Dean’s employment Agreement was terminated by mutual agreement with immediate effect.
Compensation Committee Interlocks and Insider Participation
Our board of directors in our entirety acts as the compensation committee for Stratus Capital Corp.
DIRECTOR COMPENSATION
At this time, our Directors do not receive cash compensation for serving as members of our Board of Directors.
The following table sets forth certain information concerning compensation paid to our directors for services as directors, but not including compensation for services as officers reported in the "Summary Executives’
Compensation Table" during the years ended December 31, 2019 and 2020:
The term of office for each Director is one (1) year, or until his/her successor is elected at our annual meeting and qualified. The term of office for each of our Officers is at the pleasure of the Board of Directors.
The Board of Directors has no nominating, auditing committee or a compensation committee. Therefore, the selection of person or election to the Board of Directors was neither independently made nor negotiated at arm's length.
At this time, our Directors do not receive cash compensation for serving as members of our Board of Directors.
Limitation on Liability and Indemnification
We are a Delaware corporation. The Delaware General Corporation Laws (DGCL) provides that the articles of incorporation of a Delaware corporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or our stockholders for monetary damages for breach of fiduciary duty as a director, except that any such provision may not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or our stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) acts specified in Section 78 (concerning unlawful distributions), or (iv) any transaction from which a director directly or indirectly derived an improper personal benefit. Our articles of incorporation contain a provision eliminating the personal liability of directors to our company’ or our stockholders for monetary damages to the fullest extent provided by the DGCL.
The DGCL provides that a Delaware corporation must indemnify a person who was wholly successful, on the merits or otherwise, in defense of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal (a “Proceeding”), in which he or she was a party because the person is or was a director, against reasonable expenses incurred by him or her in connection with the Proceeding, unless such indemnity is limited by the corporation’s articles of incorporation. Our articles of incorporation do not contain any such limitation.
The DGCL provides that a Delaware corporation may indemnify a person made a party to a Proceeding because the person is or was a director against any obligation incurred with respect to a Proceeding to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan) or reasonable expenses incurred in the Proceeding if the person conducted himself or herself in good faith and the person reasonably believed, in the case of conduct in an official capacity with the corporation, that the person’s conduct was in the corporation’s best interests and, in all other cases, his or her conduct was at least not opposed to the corporation’s best interests and, with respect to any criminal proceedings, the person had no reasonable cause to believe that his or her conduct was unlawful. Our articles of incorporation and bylaws allow for such indemnification. A corporation may not indemnify a director in connection with any Proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or, in connection with any other
Proceeding charging that the director derived an improper personal benefit, whether or not involving actions in an official capacity, in which Proceeding the director was judged liable on the basis that he or she derived an improper personal benefit. Any indemnification permitted in connection with a Proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with such Proceeding.
The DGCL, unless otherwise provided in the articles of incorporation, a Delaware corporation may indemnify an officer, employee, fiduciary, or agent of the corporation to the same extent as a director and may indemnify such a person who is not a director to a greater extent, if not inconsistent with public policy and if provided for by our bylaws, general or specific action of our board of directors or stockholders, or contract. Our articles of incorporation provide for indemnification of our directors, officers, employees, fiduciaries and agents to the full extent permitted by Delaware law.
Our articles of incorporation also provide that we may purchase and maintain insurance on behalf of any person who is or was a director or officer of our company or who is or was serving at our request as a director, officer or agent of another enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not we would have the power to indemnify him or her against such liability.
EQUITY COMPENSATION PLAN INFORMATION
Key Employees Stock Compensation Plan
Effective May 7, 2019, our Stock Option and Award Plan (the "Stock Incentive Plan") was approved by our Board of Directors. Under the Stock Incentive Plan, the Board of Directors may grant options or purchase rights to purchase common stock to officers, employees, and other persons who provide services to us or any related company. The participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase or exercise price, conditions and other terms of each award are determined by the Board of Directors, except that the term of the options shall not exceed 10 years. A total of 4 million shares of our common stock are subject to the Stock Incentive Plan and maybe either a qualified or non-qualified stock option. The shares issued for the Stock Incentive Plan may be either treasury or authorized and unissued shares. As of December 31, 2020, we have granted no stock options to purchase any shares of our common stock under the Plan.
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ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth as of March 31, 2021 the number and percentage of the outstanding shares of common stock (21,525,481), which according to the information available to us, were beneficially owned by:
(i)each person who is currently a director,
(ii)each executive officer,
(iii)all current directors and executive officers as a group, and
(iv)each person who is known by us to own beneficially more than 5% of our outstanding common stock.
Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.
_______________________________________
(1)8480 East Orchard Road, Suite 1100, Greenwood Village, Colorado 80111.
(2)Officer or director of the Company.
(3)Includes 8,110,146 Willamette Group Trust shares.
(4)Beneficially owned by Pedro C. Gonzalez as Trustee of Willamette Group Trust, an officer and director of our Company.
(5)Beneficially owned by John Chen, deceased.
(6)Mr. Gonzalez, as Trustee of Willamette Group Trust, holds 1,000,000 Series A Preferred shares. The record Holders of the Series A Preferred Super Majority Voting Stock shall have the right to vote on any matter with holders of Common Stock and may vote as required on any action, which Delaware law provides may or must be approved by vote or consent of the holders of the specific series of voting preferred shares and the holders of common shares. The Record Holders of the Series A Preferred Shares shall have that number of votes equal to that number of common shares which is not less than 60% of the vote required to approve any action, which Delaware law provides may or must be approved by vote or consent of the holders of other series of voting
preferred shares and the holders of common shares or the holders of other securities entitled to vote, if any.
(7)Based on 21,525,481 common shares outstanding on March 31, 2021.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination of beneficial ownership of securities. That rule provides that a beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security. Rule 13d-3 also provides that a beneficial owner of a security includes any person who has the right to acquire beneficial ownership of such security within sixty days, including through the exercise of any option, warrant or conversion of a security. Any securities not outstanding which are subject to such options, warrants or conversion privileges are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person. Those securities are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. Included in this table are only those derivative securities with exercise prices that we believe have a reasonable likelihood of being “in the money” within the next sixty days.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
We adopted a Stock Option and Award Plan on May 7, 2019. We have authorized 4,000,000 shares of common stock to be available for the Plan. We have granted no options exercisable for shares of our common stock under the Plan.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Other than the stock transactions discussed below, we have not entered into any transaction nor are there any proposed transactions in which any of our founders, directors, executive officers, stockholders or any members of the immediate family of any of the foregoing had or are to have a direct or indirect material interest, in this fiscal year.
Series A Preferred Stock
Effective January 17, 2019, we issued 1,000,000 shares of Series A Preferred Stock, to Richard O. Dean, CEO and Director, valued by an independent third-party valuation firm using a market approach at $85,500 for cash consideration of $10,000 and services rendered of $75,500.
The shares of Series A Preferred Stock carry super majority voting rights such that they can vote the equivalent of 60% of common stock at all times.
Securities Purchase Agreement - Changes in Control of Registrant
On October 28, 2020, Mr. Richard Dean and his wife Reagan Dean entered into a Securities Purchase Agreement with Willamette Group Trust, of which Mr. Pedro Gonzalez is Trustee, and agreed to sell a majority of their shares (5,971,330 and 2,017,271 common shares owned by Richard Dean and Reagan Dean, respectively, and 675,000 and 325,000 preferred shares owned by Richard Dean and Reagan Dean, respectively) to Willamette Group Trust. Pursuant to the agreement, Mr. Dean retained 1,000,000 common shares of Stratus Capital Corp. (the “Company”). Additionally, Mr. Gonzalez agreed to personally guarantee the existing promissory note between the Deans and the Company, with an anticipated repayment date of March 31, 2021.
As a result of the above transaction, Mr. Dean holds 1,000,000 shares of common stock (4.65%) and zero shares of preferred stock; Willamette Group Trust holds 8,110,146 shares of common stock (37.68%) and 1,000,000 shares of preferred stock (100%); Mr. Gonzalez holds 2,836,984 shares of common stock (13.18%) and zero shares of preferred stock (0%) and beneficially owns 10,947,130 shares of common stock (50.86%) and 1,000,000 shares of preferred stock (100%) with the Willamette Group Trust holdings included. Willamette Group Trust acquired the shares for $75,000 in cash, due January 15, 2021 and $75,000 in an 8% secured promissory note due March 31, 2021, with the securities pledged as collateral. As additional consideration, Mr. Gonzalez agreed to personally
guarantee the existing promissory note between the Deans and the Company, with an anticipated repayment date of March 31, 2021.
On October 25, 2020, Mr. Richard Dean resigned as Chief Executive Officer, President and Chairman of the Board, effective immediately. He remains a Director and will continue serving in that position. Concurrently, the Board of Directors of the Company appointed Mr. Pedro C. Gonzalez as the Company's Chief Executive Officer, President and Chairman of the Board. Mr. Gonzalez currently serves as the Company's Chief Financial Officer and Secretary and will continue serving in those positions.
Amendment to Securities Purchase Agreement dated October 28, 2020
Subsequently, we entered into an Amendment Agreement to the Securities Purchase Agreement (“Amendment Agreement”) discussed above with Willamette Group Trust (Pedro Gonzalez as Trustee) and Richard Dean and Reagan Dean to amend the effective date of the Securities Purchase Agreement to January 10, 2021. In addition, the Amendment Agreement revised the anticipated repayment date of the existing promissory notes to reflect June 30, 2021. No other changes or terms of the Securities Purchase Agreement were made.
Promissory Notes
During the year ended December 31, 2020, a partnership controlled by one of our directors, who was a former officer of the company and the former principal shareholder, advanced to us $62,897 (2019 - $65,620) by way of a promissory note to finance our working capital requirements.
Effective October 28, 2020, Mr. Gonzalez entered into a personal guarantee for this loan which became due on March 31, 2020 and was subsequently amended to mature June 30, 2021.
As at December 31, 2020 the balance outstanding under the promissory note was $158,874 (2019 - $95,977).
Employment Agreements
Our officers were party to employment agreements to pay Messrs. Dean and Gonzalez $36,000 per year, plus 6% annual increase. Mr. Dean’ employment agreement was terminated by mutual consent as of September 30, 2020.
As on December 31, 2020 the balance accrued under these agreements was $153,000 (2019 - $90,000).
Placement Agent Agreement
On February 23, 2021, the Company entered into a Placement Agent Fee Agreement with CIM Securities, LLC, a Colorado Limited Liability Company (“CIM”) for the Regulation A Offering. We agreed to pay CIM a commission equal to seven percent (7%) in cash on the subscriptions completed, whether through an investor or referrals from CIM’s investors through May 23, 2021.
We shall pay a three percent (3%) in non-accountable expenses for the anti-money laundering, due diligence, and legal costs required by the regulations applicable, from the proceeds at the closing of the subscriptions.
In addition, CIM Securities has warrants to purchase Preferred shares at sale price of $10.00 for a period of three years after offering closes. The Warrants will be able to be exercised cashless and have piggy-back registration rights for common stock upon conversion. The warrants will be for an amount equal to 7% of the shares sold in the Offering and shall be assignable. The common stock conversion rights shall be those as the Series B provides in the Certificate of Designation.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following is a summary of the fees billed to the Company by its independent registered Public Accounting firm for the years ended December 31, 2020 and 2019:
Audit Fees. Audit fees consist of fees for the audit of our annual financial statements or services that are normally provided in connection with statutory and regulatory annual and quarterly filings or engagements.
Audit-Related Fees. Audit-related fees consist of fees for accounting, assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported as Audit Fees.
Tax Fees. Tax fees consist of fees for tax compliance services, tax advice and tax planning.
All Other Fees. Any other fees not included in Audit Fees, Audit-Related Fees, or Tax Fees.
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PART IV
ITEM 15.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are incorporated into this Form 10-K Annual Report:
Exhibit No.
Description of Document
3.(i).1
Certification of Incorporation - Delaware - Stratus Capital Corp. - 4.13.18 (1)
3.(ii).1
Bylaws (1)
4.1
Certificate of Designation of Series A Preferred Super Majority Voting Stock (1)
4.2
Stratus Capital Corp. 2019 Stock Option and Award Plan (1)
4.3
Certificate of Designation of Series B Preferred 10% Cumulative Dividend Convertible Stock (2)
4.4
Amended Certificate of Designation of Series A Preferred Super Majority Voting Stock (2)
10.1
Agreement and Plan of Merger and Reorganization into Holding Company Structure - Ashcroft Homes Merger Corp., Ashcroft Operations, Inc. and Stratus Capital Corp. (1)
10.2
Richard O. Dean Employment Agreement (1)
10.3
Pedro C. Gonzalez Employment Agreement (1)
10.4
Richard O. Dean Revised Employment Agreement (1)
10.5
Pedro C. Gonzalez Revised Employment Agreement (1)
10.6
Securities Purchase Agreement dated October 28, 2020
10.7
Amendment to Securities Purchase Agreement
10.8
Promissory Note
10.9
CIM Placement Agent Fee Agreement
21.1
List of Subsidiaries
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
Certification of Chief Executive Officer and Chief Financial Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document (3)
101.SCH
XBRL Taxonomy Extension Schema Document (3)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (3)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (3)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (3)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (3)
(1) Incorporated by reference from the exhibits included in the Company's Form 10 filed with the Securities and Exchange Commission (www.sec.gov), dated September 9, 2019.
(2) Incorporated by reference from the exhibits included in the Company's Form 1-A filed with the Securities and Exchange Commission (www.sec.gov), dated January 14, 2021.
(3) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STRATUS CAPITAL CORP.
/s/ Pedro C. Gonzalez
March 31, 2021
Pedro C. Gonzalez
(Chief Executive Officer/Principal Executive Officer and
Chief Financial Officer/Principal Financial Officer/Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Pedro C. Gonzalez
March 31, 2021
Pedro C. Gonzalez, Director
/s/ Richard O. Dean
March 31, 2021
Richard O. Dean, Director