10-Q 1 g6148a.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2012 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______, 2012 , to ______, 2012 . Commission file number: 333-167743 AMWEST IMAGING INCORPORATED (Exact name of registrant as specified in its charter) Nevada 27-2336038 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 815 John St. Suite 150, Evansville, IN 47713 (Address of Principal Executive Offices) (Zip Code) (812) 250-4210 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, par value $0.001 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes [ ] No [X] The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $13,000 as of the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price on the OTC:BB reported for such date. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of July 23, 2012, the Registrant had 532,560,000 outstanding shares of its common stock, $0.001 par value. Documents incorporated by reference: none AMWEST IMAGING INCORPORATED FORM 10-Q--INDEX Part I - Financial Information Item 1. Financial Statements 3 Balance Sheets 3 Statements of Operations 4 Statement of Changes in Stockholders' Equity 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Item 4T. Controls and Procedures 19 Part II - Other Information Item 1. Legal Proceedings 20 Item 1A. Risk Factors 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Mine Safety Disclosures 20 Item 5. Other Information 20 Item 6. Exhibits 21 Signatures 21 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMWEST IMAGING INCORPORATED BALANCE SHEETS --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements. 3 AMWEST IMAGING INCORPORATED STATEMENTS OF OPERATIONS --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements. 4 AMWEST IMAGING INCORPORATED STATEMENTS OF STOCKHOLDERS' EQUITY --------------------------------------------------------------------------------

Note: Retroactively restated for 26:1 forward stock split effective November 7, 2011 The accompanying notes are an integral part of these financial statements. 5 AMWEST IMAGING INCORPORATED STATEMENTS OF CASH FLOWS --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements. 6 Amwest Imaging Incorporated Notes to Financial Statements As of May 31, 2012 and for the Three Months Ended May 31, 2012 and 2011 -------------------------------------------------------------------------------- 1. BACKGROUND INFORMATION Amwest Imaging Inc. ("AMWI", or the "Company") is a technology company whose primary business is providing relationship-building tools and processes that help any business cultivate profitable relationships with customers, all through web based solutions. Our Company is always working on new internet based technology. Our current portfolio consists of My Restaurant Web,(www.myrestaurantweb.com), Lok Drop (www.LokDrop.com), Zip Clik (www.ZipClik.com) The Company derives its revenue by charging basic monthly fees for the use of these website tools and services, which all three of these technologies are currently creating revenue for the Company. The Company's goal is to provide high end turnkey solutions to both businesses and private users of the internet. My Restaurant Web This web based solution specifically addresses the needs of restaurants that desire a website with a strong emphasis of marketing and attracting new customers. The primary component of this web based solution, an on-demand fold out turn-key website for immediate use. The websites designed are highly advanced, niche creations that exceed the needs of small businesses in the target markets. Following the website creation, design, and listing online, the client can utilize additional online tools to develop a marketing plan for its customer base implementing SMS technology ("texting") and email marketing which is a must-have in today's social networking environment. We expect to expand the technology in the coming months to service several other industries. Lok Drop Lok Drop Online Storage provides a secure digital safe deposit box enabling entities to access, store, share and backup digital information in a secure, private and encrypted location. It can be used to access and share critical data from anywhere in the world. Zip Clik Zip Clik provides Encryption Software for Skype & Other Voice Over Internet Protocol (VOIP) Software. Zip Clik software works by providing our own encryption at the time you start your VOIP conversation on any service. The encrypted version is then sent to the individual you are talking to, and then our software decrypts it back into voice as they receive it. This entire process is done instantly without any delay. More importantly is the fact that Skype works with the courts to decrypt any conversation they deem necessary which means the encryption does not protect your privacy and conversations. FORMATION HISTORY Amwest Imaging Incorporated (the "Company"), was incorporated in the State of Nevada on April 7, 2010. The Company's original principal business objective was to provide document digitization services to businesses. On September 6, 2011, registrant completed the transactions of the Share Exchange Agreement of September 6, 2011, between Amwest Imaging Incorporated, a Nevada corporation, and the shareholders of Instant Website Technology Inc. ("IWTI"). Accordingly, registrant acquired all of the issued and outstanding shares of Instant Website Technology Inc., in exchange for the issuance in the aggregate of 157,560,000 shares of common stock of the registrant. As a result of the Share Exchange Agreement, Instant Website Technology Inc., Inc. became a wholly-owned subsidiary of registrant. 7 Amwest acquired from Instant Website Technology Inc. the rights to all technology related to www.myrestaurantweb.com, including but not limited to the Uniform Resource Locator ("URL") and the website development tools; however no employees were retained post merger, the accounting system was not transitioned, there were no bank accounts provided, and there were minimal recurring customers as the majority of the historical revenue came from a one-time sale of the technology and custom software development. It was determined that the assets acquired from Instant Website Technology Inc. did not constitute a business as there were several significant missing elements in the transferred assets that would be necessary to operate a business, including the ability to collect payments from the internet site. 2. GOING CONCERN The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended May 31, 2012, the Company incurred a net loss of approximately $201,050 and approximately $306,047 for the year ended February 29, 2012. As of May 31, 2012, the Company has an accumulated deficit of $536,327, positive working capital of $56,057; however there are limited assets to fund short term operating cash flow or service debt obligations. The Company used $60,306 and $105,339 of cash from operations during the three months ended May 31, 2012 and the year ended February 29, 2012, respectively, which was funded by proceeds from the sale of stock and proceeds from the issuance of convertible derivative notes. There is no assurance that such financing will be available in the future. In view of these matters, there is substantial doubt that the Company will continue as a going concern. The Company is currently pursuing sources of short and long-term working capital. The Company's ability to continue as a going concern is highly dependent on our ability to obtain additional sources of cash flow sufficient to fund our working capital requirements. However, there can be no assurance that the Company will be successful in its efforts to secure such cash flow. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed are: USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 - All cash, other than held in escrow, is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Temporary cash investments with an original maturity of three months or less are considered to be cash equivalents. FINANCIAL INSTRUMENTS - The Company's balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 "Fair Value Measurements and Disclosures" (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on 8 market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: * Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. * Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. * Level 3 - Inputs that are both significant to the fair value measurement and unobservable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 29, 2012. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. The Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company's financial statements. As of May 31, 2012 and February 29, 2012 the fair values of the Company's financial instruments approximate their historical carrying amount. ACCOUNTS RECEIVABLE - The Company currently supplies their web solutions on a monthly basis, billing on the month of services and collection on customer accounts through credit cards or direct payments. The Company does not issue credit on services provided, therefore has minimal accounts receivable. No allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there has been limited credit sales. LONG-LIVED ASSETS - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. There have been no significant impairments of long-lived assets during the three months ended May 31, 2012. SOFTWARE DEVELOPMENT COSTS AND CAPITALIZATION - The Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs. The Company has capitalized the cost of the technology license purchased from an unrelated third party. At the time of purchase the technology was available to be marketed. As such additional costs to customize, modify and betterment to the existing product was charged to expense as it was incurred Capitalized software costs are stated at cost. The estimated useful life of costs capitalized is evaluated for each specific project and is currently being amortized over five years. Amortization is computed on a straight line basis. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of the proprietary software existed at May 31, 2012. 9 Expenditures for software development costs incurred and expensed for the three months ended May 31, 2012 and May 31, 2011 was approximately $6,300 and none respectively. Once technological feasibility of new products or features and functions of current products, which extend its useful life is established, the cost incurred until release to production are capitalized and amortized over a five year useful life. There were no amounts capitalized during the three months ended May 31, 2012 or the three months ended May 31, 2011. Amortization expenses related to capitalized software and charged to operations for the three months ended May 31, 2012 and three months ended May 31, 2011 were approximately $37,500 and none respectively. SHARE-BASED PAYMENTS - Share-based payments to employees, including grants of employee stock or stock options are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented. The company may issue shares as compensation in the future periods for employee services. The Company may issue restricted stock to consultants for various services. Cost for these transactions will be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete. The company has issue shares as compensation in the future period for services associated with the registration of the common shares. REVENUE RECOGNITION - The Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. Consideration for future services are made by customers in advance of those services being provided. All accounts are currently on a month to month service, therefore revenue is recognized ratably over the period that the services are subscribed, the current month. The Company does not offer annual or other term agreements; therefore there is no unearned portion or deferral of revenue. Services are billed in advance of the period those services are provided. The Company has not issued guarantees or other warrantees on the advertising subscription success or results. The Company has not experienced any refund requests or committed to any adjustments for terminated subscriptions. The Company does not believe that there is any required liability. ADVERTISING - The costs of advertising are expensed as incurred. Advertising expense was approximately $7,400 and none for the three months ended May 31, 2012 and May 31, 2011, respectively. Advertising expenses, when incurred are to be included in the Company's operating expenses. INCOME TAXES - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 10 As of May 31, 2012, the Company had no unrecognized tax benefits or related interest and penalties. We will include future interest and penalties associated with any unrecognized benefits within provision for income taxes on the Statements of Operations, if applicable. We do not anticipate any unrecognized benefits in the next 12 months that would result in a material change to our financial position. LOSS PER SHARE - Basic and diluted loss per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, warrants and convertible notes payable. There were none common share equivalents excluded from the computation of diluted earnings per share for the three months ended May 31, 2012 and May 31 2011, respectively, because their effect is anti-dilutive. RECENT ACCOUNTING PRONOUNCEMENTS Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification(TM) ("ASC") is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future consolidated financial statements. 4. SOFTWARE DEVELOPMENT COSTS AND CAPITALIZATION The Company has capitalized the cost of acquiring their technology for internal and external use. The purchase price was valued at the agreed upon price with the unrelated party. Newly developed software was also capitalized based on our accounting policy. Acquired and Developed software costs consist of the following, as of May 31, 2012: May 31, February 29, 2012 2012 -------- -------- Acquired Software $587,500 $587,500 -------- -------- Less accumulated amortization 112,500 75,000 -------- -------- $475,000 $512,500 ======== ======== 2013 $112,500 2014 150,000 2015 150,000 2016 62,500 2017 -- thereafter -- -------- $475,000 ======== 11 5. NOTES PAYABLE May 31, February 28, 2012 2011 -------- -------- Asher note payable $ 42,500 $ 42,500 Asher note payable (2) 42,500 Advanced Capital Management note payable 45,000 45,000 Shareholder note payable 25,000 25,000 Shareholder advance 10,000 10,000 -------- -------- Total debt 155,000 112,500 -------- -------- Debt discount 42,635 36,033 -------- -------- Total note payable $112,365 $ 86,467 ======== ======== The Asher note payable was issued in January of 2012 and is a convertible promissory note for $42,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity date of October 19, 2012. The conversion option price associated with the note has a 45 percent discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a fifteen day period prior to conversion. The note is convertible at any time after 180 days. The Asher note payable (2) was issued in March of 2012 and is a convertible promissory note for $42,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity date of December 20, 2012. The conversion option price associated with the note has a 45 percent discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a fifteen day period prior to conversion. The note is convertible at any time after 180 days. The Advanced Capital management note payable was issued in December of 2011 for $45,000. The note pays no interest unless in default, and principal is due on the maturity date of December 6, 2012. The Shareholder note payable was issued in December of 2012 for $25,000. The note pays interest at 1% per annum, and principal and accrued interest is due on the maturity date of December 15 19, 2012. Share holder advances are considered payable on demand and is non-interest bearing. The Company owed $10,000 to a shareholder as of February 29, 2012. No interest has been accrued or imputed on these debts, as management believes that interest expense would be immaterial. 6. DERIVATIVE LIABILITY In January March of 2012 the Company issued convertible promissory notes for $42,500 and $42,500, respectively. The notes pays interest at 8% per annum, and principal and accrued interest is due on the maturity date of October 19, 2012 and December 20, 2012, respectively. The conversion option price associated with the notes has a 45 percent discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a fifteen day period prior to conversion. The notes are convertible at any time after 180 days. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the Black Scholes model to determine the fair value of the conversion 12 option. At the issuance date, the Company recorded a debt discount and derivative liability of approximately $42,500 and $108,979, respectively for the note issued in January. At the issuance date, the Company recorded a debt discount and derivative liability of approximately $42,500 and $67,972, respectively for the note issued in March. The debt discount will be amortized over the life of the notes. The Company recognized approximately $26,000 of interest expense related to amortization of the debt discount during the three months ended, May 31, 2012. As of May 31, 2012 the unamortized discount related to the notes was $42,635. The derivative liability will be adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense. The unrealized gain associated with the derivative liability was approximately $17,555 for the three months ended May 31, 2012. Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of May 31, 2012 and February 29, 2012 related to the above derivative liability are as follows: Fair Value Fair Value Measurements at Measurements at May 31, 2012 (1) February 29, 2012 (1) ------------------- ------------------- Using Using Level 2 Total Level 2 Total ------- ----- ------- ----- Liabilities: Derivative liabilities $(111,451) $(111,451) $ (61,034) $ (61,034) --------- --------- --------- --------- Total liabilities $(111,451) $(111,451) $ (61,034) $ (61,034) ========= ========= ========= ========= ---------- (1) The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of May 31, 2012 or February 29, 2012. The Company's derivative liabilities are classified within Level 2 of the fair value hierarchy. The Company utilizes the Black-Scholes Option Pricing Model to value the derivative liabilities utilizing observable inputs such as the Company's common stock price, the exercise price of the warrants, and expected volatility, which is based on historical volatility. The Black-Scholes model employs the market approach in determining fair value. 7. INCOME TAXES There is no current or deferred income tax expense or benefit for the years ended May 31, 2012 and May 31, 2011. As of May 31, 2012 and February 29, 2012, the Company had federal and state net operating loss carry-forwards totaling approximately $168,189 and $92,539, respectively, which begin expiring in 2032. The Company has established a valuation allowance to fully reserve all deferred tax assets at May 31, 2012 and February 29, 2012 because it is more likely than not that the Company will not be able to utilize these assets. The change in the valuation allowance for the three months ended May 31, 2012 was an increase of $75,650. As of May 31, 2012, the Company has not performed an IRC Section 382 study to determine the amount, if any, of its net operating losses that may be limited as a result of the ownership change percentages during 2011. However, the Company will complete the study prior to the utilization of any of its recorded net operating losses. 8. RELATED PARTY TRANSACTIONS In support of the Company's efforts and cash requirements, it is relying on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. Amounts represent advances or amounts paid in satisfaction of certain liabilities as they come due. The advances are considered temporary in nature and have not been formalized by a promissory 13 note. Shareholder advances are considered payable on demand and is non-interest bearing. The Company owed $10,000 to a shareholder as of May 31, 2012. No interest has been accrued or imputed on these debts, as management believes that interest expense would be immaterial. The majority shareholder has pledged his support to fund continuing operations; however there is no written commitment to this effect. The Company is dependent upon the continued support of this member. The Company does not have employment contracts with its key employees, including the majority shareholder who is the Chief Executive Chief Accounting and Chief Technical Officer. The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties. 9. COMMITMENTS AND CONTINGENCIES Our offices are located at 815 John Street, Suite 150, Evansville, Indiana. We have a Lease Agreement which expires on December 2014 for approximately 5,000 square feet at a monthly rental of $2,300. We are responsible, with others, for common area maintenance. We believe that the space is adequate for our current operations and additional space is available, if required, at approximately the same cost and expense. Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts. From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company's financial position or results of operations. The Company is not currently a party to any pending legal proceedings. In the ordinary course of business the Company may become a party to various legal proceedings generally involving contractual matters, infringement actions, product liability claims and other matters. 10. SUBSEQUENT EVENTS On July 19, 2012, the board authorized and a majority of shareholders approved the amendment of the company's certificate of incorporation to increase the number of authorized shares of common shares by 600 million from the prior level of 600 million for a total of 1.2 billion authorized shares. There was no change in the stated par value of the shares as a result of this transaction. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED," "BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL," "COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words "expect", "anticipate", "estimate" or similar expressions are also used to indicate forward-looking statements. The following discussions should be read in conjunction with our financial statements and the notes thereto presented in "Item 1 - Financial Statements" and our audited financial statements and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included in our report on Form 10-K for the year ended February 29, 2012. The Company cautions readers that in addition to important factors described elsewhere, the following important facts, among others, sometimes have affected, and in the future could affect, the Company's actual results, and could cause the Company's actual results during 2013 and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. This Management's Discussion and Analysis or Plan of Operation presents a review of the operating results and financial condition of the Company for the three month periods ended May 31, 2012 and 2011. This discussion and analysis is intended to assist in understanding the financial condition and results of operation of the Company and its subsidiary. This section should be read in conjunction with the consolidated financial statements and the related notes. RESULTS OF OPERATIONS COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2012 AND 2011 GENERAL The Company's net sales increased to $1,358 for the three months ended May 31, 2012, an increase of $1,358 or 100%, from no revenue for the three months ended May 31, 2011. Operations began in the forth quarter of last year and Management 15 believes the revenue will continue to grow and is devoting its efforts to increase sales through sales representatives, paid sales leads and advertising. Gross profit for the operations decreased (89,518) to $(89,518) for the three months ended May 31, 2012 from none for the three months ended May 31, 2011. Operations began in the fourth quarter of last year. Selling, general and administrative expenses increased to $100,128 for the three months ended May 31, 2012 from $15,000 for the three months ended May 31, 2011, an increase of $85,128 or 568%. Management believes selling, general and administrative expenses will continue to increase while Management is building the business and will stabilize in the first quarter of next year. The Company incurred net loss of 201,050 for the three months ended May 31, 2012 compared to $15,000 net loss for the three months ended May 31, 2011. LIQUIDITY AND CAPITAL RESOURCES The Company finances its operations primarily through sales of its online products and services, sales of its common stock, the issuance of convertible promissory notes, unsecured promissory notes and license agreements. Our historical revenues have not been sufficient to sustain our operations. We have not achieved profitability since inception and we expect to continue to incur net losses and negative cash flow from operations until we can produce sufficient revenues to cover our costs, which are not expected for several years. Our profitability will require the successful commercialization of our online products and services and any future software or services we develop. No assurances can be given when this will occur. During the three months ended May 31, 2012 a loan was obtained from Asher and was in March of 2012 and is a convertible promissory note for $42,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity date of December 20, 2012. The conversion option price associated with the note has a 45 percent discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a fifteen day period prior to conversion. The note is convertible at any time after 180 days. Any future financing may result in substantial dilution to existing shareholders, and future debt financing, if available, may include restrictive covenants or may require us to grant a lender a security interest in any of our assets not already subject to an existing security interest. To the extent that we attempt to raise additional funds through third party collaborations and/or licensing arrangements, we may be required to relinquish some rights to our technologies or products currently in various stages of development, or grant licenses or other rights on terms that are not favorable to us. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows. We will be dependent upon our existing cash of $14,422 at May 31, 2012, product sales and additional debt and equity issuances to finance our operations through the next 12 months. We must raise additional capital in the amount of approximately $500,000 net of expenses, during the next twelve months in order to fund our working capital requirements in accordance with our existing plans through 2013. If we are unable to raise these funds, we may be required to delay our development plans, and curtail our expenditures. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended May 31, 2012, the Company incurred a net loss of $201,050. As of May 31, 2012, the Company has an accumulated deficit of $536,327. The Company used $60,306 and $19,500 of cash from operations during the three months ended May 31, 2012 and 2011, respectively, which was funded primarily by proceeds from issuance of debt and stock. There is no assurance that such financing will be available in the future. In view of these matters, there is substantial doubt that the Company will continue as a going concern. The Company's ability to continue as a going concern is highly dependent on our ability to obtain additional sources of cash flow sufficient to fund our working capital requirements. However, there can be no assurance that the Company will 16 be successful in its efforts to secure such cash flow. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. STATEMENTS OF CASH FLOWS Cash and cash equivalents as of May 31, 2012 was approximately $14,422 compared to approximately $567as of May 31, 2011. Cash is primarily used to fund our working capital requirements. Net cash used in operating activities was approximately $60,306 for the three months ended May 31, 2012 compared to approximately $19,500 for the same period in 2011. Net cash provided by financing activities was approximately $40,000 for the three months ended May 31, 2012 compared to none during the same period in 2011. During the three months ended May 31, 2012, we received net proceeds of $40,000 from the issuance of debt. SEASONALITY The diversity of operations in the software segment protects it from seasonal trends. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the accompanying financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the accompanying financial statements and the accompanying notes. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from these estimates. Management has discussed the selection of critical accounting policies and estimates with our Board of Directors, and the Board of Directors has reviewed our disclosure relating to critical accounting policies and estimates in this quarterly report on Form 10-Q. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements: THE SIGNIFICANT ACCOUNTING POLICIES FOLLOWED ARE: SOFTWARE DEVELOPMENT COSTS AND CAPITAL TECHNOLOGY The Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs. The Company has capitalized the cost of the technology license purchased from an unrelated third party. At the time of purchase the technology was available to be marketed. As such additional costs to customize, modify and betterment to the existing product was charged to expense as it was incurred Capitalized software costs are stated at cost. The estimated useful life of costs capitalized is evaluated for each specific project and is currently being amortized over five years. Amortization is computed on a straight line basis. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of the proprietary software existed at May 31, 2012 or May 31, 2011. 17 Expenditures for software development costs incurred and expensed for the years ended May 31, 2012 and May 31, 2011 was approximately $6,300 and none respectively. REVENUE RECOGNITION The Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. Consideration for future services are made by customers in advance of those services being provided. All accounts are currently on a month to month service, therefore revenue is recognized ratably over the period that the services are subscribed, the current month. The Company does not offer annual or other term agreements; therefore there is no unearned portion or deferral of revenue. Services are billed in advance of the period those services are provided. The Company has not issued guarantees or other warrantees on the advertising subscription success or results. The Company has not experienced any refund requests or committed to any adjustments for terminated subscriptions. The Company does not believe that there is any required liability. IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS Long-lived and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. There have been no significant impairments of long-lived and intangible assets during the two-year period ended February 29, 2012. TAXES Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of May 31, 2012, the Company had no unrecognized tax benefits or related interest and penalties. We will include future interest and penalties associated with any unrecognized benefits within provision for income taxes on the Statements of Operations, if applicable. We do not anticipate any unrecognized benefits in the next 12 months that would result in a material change to our financial position. NEW ACCOUNTING PRONOUNCEMENTS For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see "Note 3: Recent Accounting Pronouncements" in Part I, Item 1 of this Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 18 ITEM 4(T). CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our President and our Chief Accounting Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management conducted its evaluation based on the framework in INTERNAL CONTROL OVER FINANCIAL REPORTING GUIDANCE FOR SMALLER PUBLIC COMPANIES issued by the Committee on Sponsoring Organizations of the Treadway Commission (COSO). Based upon such evaluation, the President and Chief Accounting Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion by the Company's President and Chief Accounting Officer does not relate to reporting periods after May 31, 2012. 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our President and Chief Accounting Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on their evaluation as of the end of the period covered by this report, management concluded that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. 19 A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The Chief Accounting Officer has determined that material weaknesses exist during the three months ended May 31, 2012, due to the lack of an independent Audit Committee, Financial Disclosure Controls, as well as a lack of segregation of duties, i.e. all of the accounting tasks are performed by a single individual. Currently, the Company's President reviews all transactions. Until the Company raises additional capital, it cannot remediate these weaknesses. We determined that our disclosure controls and procedures were ineffective at May 31, 2012 and that we had material weaknesses in the design of our internal control over financial reporting as of such date. We believe that we have started the process of remediating the material weakness in our financial reporting through the contracting with consultants to provide such services. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING No change in the Company's internal control over financial reporting occurred during the year ended February 29, 2012, that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II ITEM 1. LEGAL PROCEEDINGS None. ITEM 1A. RISK FACTORS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the three months ended May 31, 2012, there was no modification of any instruments defining the rights of holders of the Company's common stock and no limitation or qualification of the rights evidenced by the Company's common stock as a result of the issuance of any other class of securities or the modification thereof. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES None. ITEM 5. OTHER MATTERS None. 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT INDEX Sequentially SEC Exhibit Reference Numbered --------------------- -------- Certification of the Chief Financial Officer 31.1 Certification of the Chief Executive Officer 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbaenes-Oxley Act of 2002 of the Chief Financial Officer 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbaenes-Oxley Act of 2002 of the Chief Executive Officer 32.2 Interactive data files pursuant to Rule 405 of Regulation S-T. 101 (b) Reports on Form 8-K None SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMWEST IMAGING INCORPORATED Date: July 23, 2012 By: /s/ Jason Gerteisen ---------------------------------- Jason Gerteisen, President (Principle Executive Officer) Date: July 23, 2012 By: /s/ Jason Gerteisen ---------------------------------- Jason Gerteisen Chief Financial Officer (Principle Accounting Officer) 21

Amwest Imaging Inc 10-Q