UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2012
Commission File No. 333-171091
FIRST AMERICAN GROUP INC.
(Exact name of registrant as specified in its charter)
Nevada 27-2094706
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11037 Warner Ave., Suite 132
Fountain Valley, California 92708
(Address of principal executive offices, zip code)
(714) 500-8919
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 Par Value
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 during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files) Yes [ ] No [X]
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
the 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 Exchange Act). Yes [X] No [ ]
At March 31, 2012, the last business day of the Registrant's most recently
completed second fiscal quarter, the aggregate market value of the voting common
stock held by non-affiliates of the Registrant (without admitting that any
person whose shares are not included in such calculation is an affiliate) was
approximately $49,475. At September 30, 2012, the end of the Registrant's most
recently completed fiscal year, and as of December 27, 2012, there were
2,521,264 shares of the Registrant's common stock, par value $0.001 per share,
outstanding.
FIRST AMERICAN GROUP INC.
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Business 4
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Mine Safety Disclosures 11
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 24
Item 9A. Controls and Procedures 24
Item 9B. Other Information 25
PART III
Item 10. Directors, Executive Officers and Corporate Governance 25
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 28
Item 13. Certain Relationships and Related Transactions, and Director
Independence 29
Item 14. Principal Accounting Fees and Services 29
PART IV
Item 15. Exhibits and Financial Statement Schedules 29
Signatures 30
2
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K of First American Group Inc., a Nevada
corporation (the "Company"), contains "forward-looking statements," as defined
in the United States Private Securities Litigation Reform Act of 1995. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "could", "expects", "plans", "intends", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of such terms and other comparable terminology. These forward-looking statements
include, without limitation, statements about our market opportunity, our
strategies, competition, expected activities and expenditures as we pursue our
business plan, and the adequacy of our available cash resources. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Actual results may differ materially from the predictions
discussed in these forward-looking statements. The economic environment within
which we operate could materially affect our actual results. Additional factors
that could materially affect these forward-looking statements and/or predictions
include, among other things: the Company's need for and ability to obtain
additional financing, the volatility of real estate prices, and the exercise of
the control by Mazen Kouta, the Company's President, and Chairman of the Board
of Directors, other factors over which we have little or no control; and other
factors discussed in the Company's filings with the Securities and Exchange
Commission ("SEC").
Our management has included projections and estimates in this Form 10-K, which
are based primarily on management's experience in the industry, assessments of
our results of operations, discussions and negotiations with third parties and a
review of information filed by our competitors with the SEC or otherwise
publicly available. We caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. We disclaim
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
3
PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
ORGANIZATION WITHIN THE LAST FIVE YEARS
First American Group Inc. was incorporated on March 11, 2010 under the laws of
the State of Nevada, under the name "Radikal Phones Inc." We changed our name to
"First American Group Inc." on October 7, 2010. We are engaged in the
development, sales and marketing of VoIP telephone services to enable end-users
to place free phone calls over the Internet in return for viewing and listening
to advertising. Mazen Kouta has served as President, Treasurer and Director, and
Zeeshan Sajid has served as Secretary and Director of our company from April 27,
2010 to the current date. No person other than Messrs. Kouta and Sajid has acted
as a promoter of First American Group Inc. since our inception.
IN GENERAL
We plan to develop software and infrastructure to enable customers to place free
or subsidized calls via the Internet in exchange for watching or listening to
advertising, from which we will earn revenues. We expect that calls to phone
numbers where our cost is low (such as, the mainland USA or Canada) will be
provided for free where the customer making the telephone call will watch or
listen to advertising, from which we will earn revenues. Calls to countries
where the cost of a call cannot be fully covered by advertising revenue, will be
provided on a subsidized basis.
Our product will consist of: (i) one or more telephony servers, (ii) a software
phone which allow customers to place calls, view and/or listen to advertising,
and (iii) a server to store customer information and to keep customer records,
call, credits and payment history, and which server will also contains our web
site, support center and customer account portal.
TELEPHONY SERVER
Our telephony server will contain the three main components for a customer to
make a call over the Internet:
* software to process a call and send it to the correct destination;
* maintain registration of clients' software phones and prevent
unauthorized calling; and
* data management for customer credit to place calls.
It is likely that we will use an open source telephony server. There are several
of them available on the market. However we are leaning toward the use of
Asterisk (http://www.asterisk.org/) because it is a free stable product and is
supported by a large community of developers and because of the availability of
open source add-on software (billing and software phones for example) which will
simplify and accelerate the implementation of our product.
SOFTWARE PHONE APPLICATION
Our software phone will be designed to be launched from the customer account or
can be installed on a customer computer. The software phone will allow a
customer to:
* make calls to other customers using our service;
* make calls to telephone numbers outside our network; and
* send instant text messages to other members of our network.
We plan to deliver advertising to the customers in both audio and visual modes.
We plan to design our software phone to enable customers to add friends from
subscribers on our service and exchange instant messaging and determine who is
online or the status of a friend. When a customer highlights a friend, the
customer will be able to choose the method of communications:
4
* place an online call;
* simultaneously conference call with two other users;
* voicemail message;
* online instant message;
* text or SMS message; and
* Send e-mail
WEBSITE
A customer will find all necessary information about our service on our website
www.radikalphones.com, the content of which we plan to develop as part of our
plan of operation . In order to use our service, customers will register for an
account which collects personal information about the customer such as name,
address, email, age and income level, user name and password. Once the account
is created, an e-mail will be sent to the customer for confirmation. To complete
the registration the customer must agree to a "Term of Services" agreement that
allow us to insert visual and audio advertising on the software phone they will
be using to place the call. Once confirmation is received, the customer will be
able to login and view the details of his or her account.
Our web site will also include an information section for online advertising
networks and marketing organization that may want to partner with us and place
advertising for themselves or their clients. The customer will be able to
download our customized soft phone or launch one from their account. The web
site will also have a support center that will include:
* a knowledgebase section, which will include information about our
service, cost, and general use;
* a troubleshooting section, which will include descriptions of common
problems and steps to diagnose and resolve common problems
* a service ticketing system, which will allow customer to open a
service request with us. A ticket could simply be a question about
service, a request for support or report a bug in our service.
* online, live customer support, which will allow a customer or someone
interested in our service to chat with a customer support agent in
text via a portal on our website.
We do not plan to provide phone support at this point in time.
CUSTOMER ACCOUNT
Upon visiting our planned website, customers will find general information about
our Company and about the products and services we provide. Interested parties
will be able to register and create an online account with us at no cost.
Our plans anticipate that once the registration process is complete, each
subscriber will be directed to a dedicated web page created for each subscriber
that registers with us. Each subscriber that chooses to register for our
services will be able to access our products and service immediately. The
customer account will be developed around a platform that provides each customer
with an easy-to-use web interface. Information about the qualitative and
quantitative nature of customer contacts will be managed from a single user's
interface.
In a customer account, a customer will be able to view a record of all of his or
her calls, the cost a call with and without the advertising subsidy. A customer
will also able to load up their account with funds in order to make pay calls
(or calls without or reduced visual or audio advertising). We will initially
support only the online payment processor PayPal because of its reliability,
popularity as well and ease of integration to our product. PayPal is a credit
card merchant and a financial services company that accepts and clears all
customer credit card payments on behalf of participating merchants, such as our
company.
In a customer account on our website, a customer will be able to receive calling
credit that is applied toward his or her account to make free calls by taking a
survey in lieu of a credit or watching a video advertising and responding to
surveys.
5
The customer will also able to launch a software phone from their account to
make calls or to download a software phone to install on his or her computer.
PRODUCT DEVELOPMENT TIMELINE
EARLY-STAGE PRODUCT DEVELOPMENT: The company plans to begin work on its planned
website as soon as we begin receiving funds from this offering. Putting an
information-only web site as soon as possible will help to create brand name
recognition. We will also register youtube.com, facebook.com and twitter.com
accounts and link them to our web site. By doing so our plan is to be able to
begin building interest in our Company during the development phase, and that
this will encourage web site visitors to return at a later date.
SOFTWARE DEVELOPMENT: The development of our product will be closely supervised
by our Secretary and Director, Zeeshan Sajid. We expect to hire a software
developer to develop the product we described above under the close supervision
of Mr. Sajid. We expect that the development of our product will start in month
1 after we receive our funding with Mr. Sajid performing high level and system
design. The interview process will also start in month 1 and expect to hire a
developer by the middle of our second month of operation. All product
development and limited trials will be completed by month 12 and all
intellectual property rights by any independent contractors will be assigned to
the Company.
SOFTWARE EVALUATION: We intend to purchase two computers with monitors to be
used by our software developers. Another computer will be purchased to serve as
a local development server. We expect to purchase these computers in the second
months of operation for $600 per computer system.
We will evaluate several phone software platforms and determine which solution
best serves our needs. We will develop a requirement list that will assist us in
the selection of software. The selection will be based on:
* availability of needed functionality in the software;
* the ability to customize and add functionality to software; and
* the ability to integrate the telephony software to the server software
We anticipate that the process of evaluating telephony software will take
approximately two months.
TECHNOLOGY SELECTION AND HIGH-LEVEL DESIGN: We intend to develop the detailed
specifications for our product. This part of our design work will include the
specifications for the different modules to be developed or customized. The
selection of the technology to be used and specifications of the product will
drive the type of software developers we need to hire. This includes:
* The way the telephony and server software interact with each other;
* Adapting the server and VoIP software to work in a hosted environment;
and
* Developing the graphical interfaces for the user as well as the back
office administrative area
It is anticipated that this process will take approximately one and a half
months.
SOFTWARE DEVELOPMENT ENGINEERS: We plan retain the services of two experienced
software developers after three months of raising funding. One of the developers
will have experience in the development of VoIP software phone and the other
person experienced in the development of server based software. We anticipate
the cost of hiring these two developers to be approximately $1,400 per month for
both. We plan to begin the interview process immediately after the completion of
the Technology and high level design task. We expect that this task will last
for 1 month. We expect to sub-lease part of an office space for $200/month. This
will include electricity and maintenance of the office.
DEVELOPMENT AND DEPLOYMENT OF INFRASTRUCTURE: The selection of a data center
which collocate servers, where we will host our servers, is essential to our
success. Service quality and reliability are critical to our selection process.
We intend to purchase two computers to be used by our software developers.
Another computer will be purchased to serve as a local development server. We
expect to purchase these computers in the second months of operation for $600
per computer system. As we move toward deployment, we will purchase a minimum of
three servers: Two of these servers will be running the software for our service
6
and the third one will be available in case one of these two servers fails. We
expect to purchase two servers by month 6 for $2000 per server and a backup
server in month 12. We will co-locate our servers with a wholesale VoIP provider
or in the same data center as the provider. Since we are a start-up company, we
expect that we will make deals with small VoIP providers on a pay per use basis
and no minimum monthly commitments. We however expect to pay collocation fees
for our server of $200 per month starting after six months of raising funding.
INSTALLATION AND INTEGRATION: During this phase, our contractor will install the
phone and server software and commence the integration of the two in order to
make sure that each component works seamlessly with the other. It is anticipated
that the installation and integration phase will take approximately two months.
CUSTOMIZATION OF CUSTOMER INTERFACE(S): During this phase, we will modify each
interface to include phone specific functions such as answering a call, making a
call, recording a call, measuring the length of the call and the like, as
required by each customer. We expect this phase to take approximately three
months of development.
INTEGRATION OF THE SOLUTION TO OUR WEBSITE: Our outside contractor will be
responsible for the integration of the product into our web site. The
integration process is intended to enable our customers to register for service
from our web site, for the customer to login to their account page and to launch
the software phone. Our site will also include a free demonstration which
potential customers can subscribe to. We expect that this process will take
approximately one month.
DEVELOPMENT OF SPECIAL WEBSITE MATERIAL AND CONTENT: Our officer, with the
assistance of our contractor, will be responsible for the development of the
knowledgebase, troubleshooting, and service ticketing sections of our website,
for future customers' use.
BETA TRIAL: We intend to conduct a Beta trial with select customers prior to the
formal launch of our product. The feedback of the trial will be used to affect
future modifications and enhancement to our initial system. We expect that the
Beta test period will last approximately three weeks and any necessary
corrections or improvements to our system based on the Beta trial will take
another three weeks. Non-critical feedback will be incorporated into the
development schedule for our second year of operations.
We plan to use industry-standard, 128-bit encryption for web pages containing
private information and to encrypt our customers' data on our system in order to
secure their information.
MARKETING AND SALES
We plan to use a number of marketing tactics to develop brand name, using
promotions, referral incentives, social marketing, online communities, search
engine optimization, free online classified advertising postings.
SOCIAL MARKETING: This includes the creation of Twitter, Facebook, MySpace and
YouTube accounts. These sites will be updated regularly to keep us in the mind
of subscribers to these pages and generate interest and excitement with our
services. Additionally, our directors will use their own network of personal
contacts in the small and medium business sector in order to generate business
for us. This includes direct telephone contact, email correspondence and email
newsletters.
FORUMS AND FREE CLASSIFIED POSTINGS: We intend to target web sites, blogs, and
discussion forums.
WORD OF MOUTH: Word of mouth is very important to spread word about our service.
In order to be recommended by users to their friends and families, we must
deliver superior service and customer support.
REFERRALS AND REFERRAL INCENTIVES: We will provide incentives for web sites,
people and organizations to refer customers to us. Customers will get credit in
their accounts that will go toward making free calls. Web sites and
organizations will share revenue generated from customers they refer.
SEARCH ENGINE OPTIMIZATION: Another facet of our marketing plan is to work on
search engine optimization. Search engines are designed to search out keywords
as online users look for the information they want. Meta-tags act as keywords
7
that reside in the hidden infrastructure of a web page and help to highlight a
web page when someone is using a search engine to find information. Relevant
content is also essential to obtain higher ranking. For example, by including
keywords such as "INTERNET CALL" on our web page, the search engines will
identify our web pages as a match for the search request. The effect of this
marketing tactic is to have our web page appear higher on the list of results
for the online user looking for information about a free Internet telephone
calls.
UPDATING THE CONTENT ON THE HOME PAGE: Continuous updates to our web site will
encourage web visitors to return over and over again. When web visitors can
quickly find interesting content they will stay longer on each visit and tell
their friends too. Our marketing campaign will monitor daily statistics and
track favorite topics in order to quickly get in synch with our internet
audience. Being able to regularly update the home page is an integral part of
our branding strategy.
We believe that the above strategies are necessary to attract the users to our
phones services. We also need to attract advertisers and advertising agencies to
advertise on our software phone, web site and the customer account portal. We
will be developing a dedicated section on our web site for advertisers including
how our program works and the benefits to them advertising with us. We will also
include a flash video to emphasize the point. We will also develop electronic
brochures and payback models that are sent to advertising companies under NDA.
We also plan to retain advertising agencies in different parts of the world to
market our advertising services to companies directly and to other agencies.
SALES REVENUE
We anticipate that our revenue will come from three primary sources: first, from
the placement of advertising on our website and phone software, second, from
paid calls by our customers, and third from selling our software or service to
entities that wants to offer a similar under their brand name. We anticipate
that our operations will begin to generate revenue approximately 18 to 24 months
following the date of filing of this Form 10-K.
Our research has led us to conclude that the three most common ways in which
online advertising is purchased are CPM, CPC, and CPA. We anticipate selling
online advertising through all three medium, more particularly described as
follows:
* CPM (COST PER MILLE), also known as "cost per thousand," is when
advertisers pay for exposure of their message to a specific audience.
"Per mille" means per thousand impressions, or loads of an
advertisement. However, some impressions may not be counted, such as a
reload or internal user action.
* CPC (COST PER CLICK), also known as "pay per click," is when
advertisers pay each time a user clicks on their listing and is
redirected to their website. They do not actually pay for the listing,
but only when the listing is clicked on.
* CPA (COST PER ACTION), also known as "cost per acquisition"
advertising, is performance based and is common in the affiliate
marketing sector of the business. In this payment scheme, the
publisher takes all the risk of running the ad, and the advertiser
pays only for the amount of users who complete a transaction, such as
a purchase or sign-up.
There many types of advertising that can be incorporated into our soft phone or
web site but we will focus on methods such as:
* BANNER ADVERTISING: This form of online advertising entails embedding
an advertisement into a web page. It is intended to attract traffic to
a website by linking to the website of the advertiser. The
advertisement is constructed from an image (GIF, JPEG, PNG),
JavaScript program or multimedia object employing technologies such as
Java, Shockwave or Flash, often employing animation, sound, or video
to maximize presence.
* FLOATING ADVERTISING: An ad which moves across the user's screen or
floats above the content.
* EXPANDING ADVERTISING: An ad which changes size and which may alter
the contents of the webpage.
* POLITE ADVERTISING: A method by which a large ad will be downloaded in
smaller pieces to minimize the disruption of the content being viewed
8
* WALLPAPER ADVERTISING: An ad which changes the background of the page
being viewed.
* POP-UP ADVERTISING: A new window which opens in front of the current
one, displaying an advertisement, or entire webpage.
* POP-UNDER ADVERTISING: Similar to a Pop-Up except that the window is
loaded or sent behind the current window so that the user does not see
it until they close one or more active windows.
* VIDEO ADVERTISING: similar to banner advertising, except that instead
of a static or animated image, actual moving video clips are
displayed. This is the kind of advertising most prominent in
television, and many advertisers will use the same clips for both
television and online advertising.
* INTERSTITIAL ADVERTISING: a full-page ad that appears before a user
reaches their original destination.
We anticipate that we will sell our advertising directly to advertisers or
through advertising networks, such as Google Adwords, SpotXchange and Tremor
Media. We believe that we will be able to have higher revenue for an
advertisement while working directly with the advertisers rather than going
through a network since the network keeps a percentage of revenue. When
available, we anticipate we will be playing mostly Video advertising since Video
advertising, according to our research (http://www.reelseo.com/
video-advertising-vs-banners-cpms/), currently earns $40-50 per CPM ($0.04-0.05
per impression) which, also according to our research, is up to 3 times that of
a banner. We are estimating a $20 per CPM.
Our research (http://blog.efrontier.com/insights/2011/01/dec-2010-cpcs-robust-
numbers-round-out-the-year.html) indicates that the CPC (cost per click) is
estimated to be between $0.55-1.95 for December 2010 and $0.48 to $1.78 for
December 2009. The lower amounts are associated with advertising to the retail
sector. This is the cost incurred by an advertiser and we expect that will earn
part of that. The management believes that average revenue of $0.3 per click is
a reasonable estimate.
We have no marketing information for the Cost Per Action (CPA) in support of
what we can charge an advertiser for a CPA. We believe that what we can charge
for a CPA will be variable depending on the type of action that a customer does
(fill in a survey) or what type of products and services a customer purchases.
We are estimating $1 of revenue to us from a customer action. However, we could
not find studies to support such an estimate, and management's estimates of $1
per action are not supported by reliable third-party data or empirical evidence.
We may never achieve the revenues we are projecting because the basis upon which
we are making our revenue projections is subjective, and our reliance on
third-party data which is more than two years old may be unreliable because the
veracity of the third-party data cannot be verified.
To date, we have focused on product development and executing the initial stage
of the marketing effort. We have not earned any sales revenue during this time.
COMPETITION
The Company's product competes broadly with Internet phone services available to
consumers. The Internet phone service market is highly competitive, and includes
international, national, regional and local service providers, many of whom have
greater resources than the Company, including but not limited to Internet phone
services offered by Skype, Yahoo, Google, Phone Power, ITP, via:talk, Call
Centric, VYLmedia, inTalk, aptela, nextiva, vocalocity, Jive, Improcom, amongst
others. As for companies that offer free phone services via the Internet, there
are Freephoneline, icall, voipbuster and mediaringtalk. While the Company
believes that it competes favorably on differentiation because it offer of free
service in exchange for the customer viewing and/or listening to audio or visual
advertising, we are yet to see if we can compete in quality and we are weak with
regards to, brand name recognition and, there can be no assurance that the
Company and its products will not experience increasing competitive pressures
from both established and new Internet phone service companies, many of whom
have substantially greater marketing, cash, services and other resources than
the Company.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have not incurred any research expenditures since our incorporation.
9
BANKRUPTCY OR SIMILAR PROCEEDINGS
We have never been subject to bankruptcy, receivership or any similar
proceeding.
REORGANIZATIONS, PURCHASE OR SALE OF ASSETS
There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course of
business.
COMPLIANCE WITH GOVERNMENT REGULATION
We will be required to comply with all regulations, rules and directives of
governmental authorities and agencies applicable to the construction and
operation of any facility in any jurisdiction which we would conduct activities.
We do not believe that government regulation will have a material impact on the
way we conduct our business, however, any government regulation imposing greater
fees for Internet use or restricting information exchange over the Internet
could result in a decline in the use of the Internet and the viability of
Internet-based services, which could harm our business and operating results.
PATENTS, TRADEMARKS AND COPYRIGHTS
We do not own, either legally or beneficially, any patents or trademarks. We
intend to protect our website with copyright laws. Beyond our trade name, we do
not hold any other intellectual property.
RESEARCH AND DEVELOPMENT ACTIVITIES AND COSTS
We have not incurred any research and development costs to date. We have plans
to undertake certain research and development activities during the first 12
months following the date of filing of this Form 10-K related to the development
of our website.
FACILITIES
We currently do not own any physical property or own any real or intangible
property. Our current business address is 11037 Warner Ave, Suite 132, Fountain
Valley, California 92708. Our telephone number is (714) 500-8919.
Mazen Kouta, our President, Treasurer and Director, works on Company business
from a home office. This location serves as our primary office for planning and
implementing our business plan. We believe this space is sufficient for our
current purposes and will be sufficient until we raise financing and hire our
software contractor. The Company intends to lease its own offices at such time
as it has sufficient financing to do so. Management believes the current
premises are sufficient for its needs at this time. Zeeshan Sajid, our Secretary
and Director, works on Company business from his current business office.
EMPLOYEES AND EMPLOYMENT AGREEMENTS
We have no employees as of the date of filing of this Form 10-K. Our President,
Treasurer and Director, Mazen Kouta, is an independent contractor to the Company
and currently devotes approximately 20 hours per week to company matters. Our
Secretary and Director, Zeeshan Sajid, is an independent contractor to the
Company and currently devotes approximately 10 hours per week to company
matters. After receiving funding, Messrs. Kouta and Sajid plan to devote as much
time as the Board of Directors determines is necessary for them to manage the
affairs of the Company. As our business and operations increase, we will hire
full time management and administrative support personnel.
10
ITEM 1A. RISK FACTORS
As a "smaller reporting company," as defined in Rule 12b-2 of the Exchange Act,
we are not required to provide the information called for by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently do not own any physical property or own any real or intangible
property. Our current business address is 11037 Warner Ave, Suite 132, Fountain
Valley, California 92708. Our telephone number is (714) 500-8919.
Mazen Kouta, our President, Treasurer and Director, works on Company business
from a home office. This location serves as our primary office for planning and
implementing our business plan. We believe this space is sufficient for our
current purposes and will be sufficient until we raise financing and hire our
software contractor. The Company intends to lease its own offices at such time
as it has sufficient financing to do so. Management believes the current
premises are sufficient for its needs at this time. Zeeshan Sajid, our Secretary
and Director, works on Company business from his current business office.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings and we are not aware of
any pending or potential legal actions.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Since September 26, 2012, our shares of common stock have been quoted on the OTC
Bulletin Board and the OTCQB, under the stock symbol "FAMG". The following table
shows the reported high and low closing bid prices per share for our common
stock based on information provided by the OTCQB. The over-the-counter market
quotations set forth for our common stock reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
BID PRICE PER SHARE
-------------------
HIGH LOW
---- ---
Three Months Ended September 30, 2012 $0.00 $0.00
HOLDERS
As of the date of this report, there were approximately 26 holders of record of
our common stock.
TRANSFER AGENT
Our transfer agent is Empire Stock Transfer of Henderson, Nevada. Their address
is 1859 Whitney Mesa Dr., Henderson, Nevada 89014 and their telephone number is
(702) 818-5898.
11
DIVIDENDS
Historically, we have not paid any dividends to the holders of our common stock
and we do not expect to pay any such dividends in the foreseeable future as we
expect to retain our future earnings for use in the operation and expansion of
our business.
RECENT SALES OF UNREGISTERED SECURITIES
None.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
We have not established any compensation plans under which equity securities are
authorized for issuance.
PURCHASES OF EQUITY SECURITIES BY THE REGISTRANT AND AFFILIATED PURCHASERS
We did not purchase any of our shares of common stock or other securities during
the year ended September 30, 2012.
ITEM 6. SELECTED FINANCIAL DATA
As a "smaller reporting company," as defined in Rule 12b-2 of the Exchange Act,
we are not required to provide the information called for by this Item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes included elsewhere in this report.
Our auditor's report regarding our September 30, 2012 financial statements
expresses an opinion that substantial doubt exists as to whether we can continue
as an ongoing business.
OVERVIEW
We were incorporated in the state of Nevada on March 11, 2010, under the name
"Radikal Phones Inc." We changed our name to "First American Group Inc." on
October 7, 2010. Our offices are currently located at 11037 Warner Ave., Suite
132, Fountain Valley, California 92708. Our telephone number is (714) 500-8919.
Our website, which is currently being developed, is www.radikalphones.com.
During the fiscal year ended September 30, 2012, we sold shares of our common
stock under a Registration Statement on Form S-1, as amended (File No.
333-171091; the "Form S-1"), in a public offering of 628,000 shares of common
stock, at an offering price of $0.10 per share, for aggregate offering proceeds
of $62,800. During the fiscal year ended September 30, 2012, we offered and sold
159,814 shares of common stock from the Form S-1 for aggregate proceeds of
$15,981. During the fiscal year ended September 30, 2011, we offered and sold
361,450 shares of common stock from the Form S-1 for aggregate proceeds of
$35,836.
We are a development stage company that has not generated any revenue and has
had limited operations to date. From March 11, 2010 (inception) to September 30,
2012, we have incurred accumulated net losses of $56,958. As of September 30,
2012, we had total assets of $23,117, and total liabilities of $12,258,
respectively. Based on our financial history since inception, our independent
auditor has expressed substantial doubt as to our ability to continue as a going
concern.
We are a development stage company which is engaged in the development, sales
and marketing of voice-over-Internet-protocol ("VoIP") telephone services to
enable end-users to place free phone calls over the Internet in return for
viewing and listening to advertising. Our product is planned to consist of: (i)
one or more telephony servers, (ii) a software phone which allow customers to
12
place calls, view and/or listen to advertising, and (iii) a server to store
customer information and to keep customer records, call, credits and payment
history, and which server will also contains our web site, support center and
customer account portal. We anticipate that our revenue will come from two
primary sources: first, from the placement of advertising on our website and
phone software, and second, from paid calls by our customers. We anticipate that
our operations will begin to generate revenue approximately 18 to 24 months
following the date of filing of this Form 10-K. Since we are presently in the
development stage of our business, we can provide no assurance that we will
successfully sell any products or services related to our planned activities.
To date, we have been in contact with professional advisors regarding legal
compliance, accounting disclosure statements and financial reporting. We have
also begun our planning for developing a website and searching for a contractor
to develop that website. We will retain such a contractor only after we secure
further funding. We intend to launch our "information only" web site during the
second quarter of the 2012 calendar year.
Our business activities during the 12 to 18 months following the date of filing
of this Form 10-K will be focused on raising funds, the development of our
website, the development of our product, the development of a network of
resellers and the establishment of our brand name. We do not expect to earn any
sales revenue during this time. We anticipate that our revenue will come from
two primary sources: first, from the placement of advertising on our website and
phone software, second, from paid calls by our customers, and third from
licensing or selling our software. We anticipate that our operations will begin
to generate revenue approximately 18 to 24 months following the date of filing
of this Form 10-K.
RESULTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2012 AND 2011
We did not earn any revenues during the years ended September 30, 2012 and 2011.
We incurred operating expenses in the amount of $29,775 and $22,582 for the
years ended September 30, 2012 and 2011, respectively. Operating expenses for
the year ended September 30, 2012, were comprised of $13,413 in professional
fees and $16,362 of general and administrative expenses. Operating expenses for
the year ended September 30, 2011, were comprised primarily of $17,143 of
professional fees and office and $5,439 of general expenses. Since inception we
have incurred operating expenses of $56,958.
From inception (March 11, 2010) through the year ended September 30, 2012 we had
no revenues and a net loss of $56,958.
The following table provides selected financial data about our company for the
years ended September 30, 2012 and 2011.
BALANCE SHEET DATA September 30, 2012 June 30, 2012
------------------ ------------------ -------------
Cash and Cash Equivalents $ 21,738 $ 30,300
Total Assets $ 23,117 $ 31,300
Total Liabilities $ 12,258 $ 6,647
Shareholders' Equity $ 10,859 $ 31,300
GOING CONCERN
We are a development stage company and currently has no operations. Our
independent auditor has issued an audit opinion for First American Group Inc.,
which includes a statement raising substantial doubt as to our ability to
continue as a going concern.
13
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2012, we had a cash balance of $21,738. Management believes
this amount will satisfy our cash requirements for the next twelve months or
until such time that additional proceeds are raised. We plan to satisfy our
future cash requirements - primarily the working capital required for the
development of our course guides and marketing campaign and to offset legal and
accounting fees - by additional equity financing. This will likely be in the
form of private placements of common stock.
Management believes that if subsequent private placements are successful, we
will be able to generate sales revenue within the following twelve months
thereof. However, additional equity financing may not be available to us on
acceptable terms or at all, and thus we could fail to satisfy our future cash
requirements.
If we are unsuccessful in raising the additional proceeds through a private
placement offering we will then have to seek additional funds through debt
financing, which would be highly difficult for a new development stage company
to secure. Therefore, the Company is highly dependent upon the success of the
anticipated private placement offering and failure thereof would result in the
Company having to seek capital from other sources such as debt financing, which
may not even be available to the Company. However, if such financing were
available, because we are a development stage company with no operations to
date, it would likely have to pay additional costs associated with high risk
loans and be subject to an above market interest rate. At such time these funds
are required, management would evaluate the terms of such debt financing and
determine whether the business could sustain operations and growth and manage
the debt load. If we cannot raise additional proceeds via a private placement of
its common stock or secure debt financing it would be required to cease business
operations. As a result, investors in our common stock would lose all of their
investment.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.
PLAN OF OPERATION FOR FOLLOWING 12 MONTHS
Our business activities during the 12 to 18 months following the filing date of
this Form 10-K will be focused on raising funds, the development of our website,
the development of our product, the development of a network of resellers and
the establishment of our brand name. We do not expect to earn any sales revenue
during this time. We anticipate that our revenue will come from two primary
sources: first, from the placement of advertising on our website and phone
software, second, from paid calls by our customers, and third from licensing or
selling our software. We anticipate that our operations will begin to generate
revenue approximately 18 to 24 months following the date of filing of this Form
10-K.
Our revenue estimates are based on current expectations, estimates and
projections about our business based primarily on assumptions made by
management. In making our revenue projections, we have assumed that we will be
able to generate revenues from advertising based on our subjective view that our
telephony services and products will be fully developed and that there will be a
certain level of customer acceptance and demand for our telephony services and
products. Therefore, actual revenue outcomes and results may differ materially
from what is expressed or forecasted in our revenue estimates due primarily to
factors that advertisers generally look to in deciding whether to advertise on a
website. Some of these factors are: (i) monthly traffic and its repeat rate,
(ii) the number of unique visitors, (iii) targeted marketing opportunities and
demographics, (iv) how professionally designed the website is, and (v) how
established the website is. We currently do not satisfy any of the
aforementioned factors as they relate to our business, and the revenues we
actually generate will depend primarily on our success in developing our
business plan, and more specifically, our ability to attract potential
advertisers based on potential advertisers' views about the quality of our
business based on these factors.
14
YEAR 1 YEAR 2 YEAR 3
------------ ------------ ------------
# of Impressions -- 2,000,000 6,000,000
Average Revenue per impression $ -- $ 0.02 $ 0.02
# of Click -- 200,000 600,000
Average Revenue per Click $ -- $ 0.30 $ 0.30
# of Actions -- 50,000 150,000
Average Revenue per action $ -- $ 1.00 $ 1.00
# of chargeable minutes $ -- 750,000 2,000,000
Average per minute profit $ -- $ 0.005 $ 0.005
Impression Revenue $ -- $ 40,000.00 $ 120,000.00
Per click Revenue $ -- $ 60,000.00 $ 180,000.00
Per Action Revenue $ -- $ 50,000.00 $ 150,000.00
Long Distance net Revenue $ -- $ 3,750.00 $ 10,000.00
------------ ------------ ------------
REVENUE SUBTOTAL $ -- $ 153,750.00 $ 460,000.00
============ ============ ============
The revenue projections above contain a number of assumptions. Year 1 will be
spent on developing our products and services, and we project zero revenue
during that period. In year 2, we project that we will start generating revenue
in the first month of year 2, assuming we have completed the offering of shares
in the Form S-1. We expect that revenue will continue to increase and exceed
expenses by month 7 of year 2. We project that we will sustain $15,105 in losses
between the first month of year 2 and the last month of year 2.
In year 3, we project revenues of $460,000 and a profit of $105,884 between
months 25-36.
We make the following assumptions in our projections above for year 2:
* We will earn $20 CPM ($0.02 every time a customer views an item of
advertising). We are estimating approximately 2,000,000 impressions,
or approximately 167,000 impression per month.
* We will earn $0.3 every time a customer clicks on advertising. We are
projecting 200,000 clicks, or less than 16,700 click per month.
* When a customer fills in a form or take a survey or clicks through and
purchases a product, we will earn revenue. We are estimating $1 per
action. We expect that we will have approximately 50,000 completions
per year, or approximately 4,200 completions per month.
* We estimate that many calls outside North America will incur cost to
the customer. We are estimating approximately 750,000 minutes which
translates to approximately 2000 customers making 300 chargeable
minutes per month. Since we endeavor to provide this service as
cheaply as possible to customers, we are only assuming $0.005 (half a
cent) per minute profit.
While going to make a phone call via our website, multiple advertisements will
be posted to the same webpage the customer is using, which will include a
combination of banners and videos on our website, their portal and the software
phone. We have made our estimated projections ourselves. We believe that our
estimates are reasonable. By way of comparison, according to
http://www.reelseo.com/video- advertising-vs-banners-cpms/:
* The average ad network inventory is: $0.60 to $1.10 CPM;
* The publisher sold display advertising is: $10 to $20 CPM; and
* Video advertising is: $40 to $50 CPM
We may never achieve the revenues we are projecting because the basis upon which
we are making our revenue projections is subjective, and our reliance on
third-party data which is more than two years old may be unreliable because the
veracity of the third-party data cannot be verified.
While we will be focusing on video advertising, we may have display advertising
and network inventory.
Year 1 will be spent on developing our products and services and we expect zero
revenue during that period.
15
In Year 2, we anticipate revenues of $153,750. We anticipate that we will start
generating revenue in month 13 after we have completed the share sale outline.
We expect that revenue will continue to increase and exceed expenses by month
19. We anticipate that we will sustain $15,105 in losses between months 13-24.
In Year 3, we anticipate revenues of $460,000 and a profit of $105,884 between
months 25-36, and only at this point will our revenues exceed our costs.
We make the following assumptions in our projections above for Year 2:
* We anticipate we will earn $20 CPM ($0.02 every time a customer views
an advertising) on the basis of estimating 2 million impressions,
which represents approximately 167,000 impression per month.
* We anticipate we will earn $0.3 every time a customer clicks on
advertising, on the basis of estimating 200,000 clicks or
approximately 16,700 clicks per month.
* When a customer fills in a form or takes a survey or clicks through
and purchases a product, we will earn revenue. We are estimating a $1
per action and assuming that we will have 50,000 completions per year
or approximately 4,200 completions per month.
* We anticipate that many calls outside North America will incur cost to
the customer. We are estimating 750,000 minutes, which is
approximately 2000 customers making 300 chargeable minutes per month.
Since we are planning to provide this service as cheaply as possible
to customers, we are only assuming $0.005 (half a cent) per minute
profit.
While going to make a phone call, a customer is likely to see multiple
advertisements which will include a combination of banners and videos on the web
site, the advertiser's portal and our software phone. As well, people
investigating our service, but not necessarily register, will earn us revenue
because they will be viewing advertising.
We can offer no assurance that we will be successful in developing and offering
our products and services. Any number of factors may impact our ability to
develop our products and services, including our ability to obtain financing if
and when necessary; the availability of skilled personnel; market acceptance of
our products, if they are developed; and our ability to gain market share. Our
business will fail if we cannot successfully implement our business plan or if
we cannot develop or successfully market our products and services. Since there
is no minimum amount of shares that must be sold by the Company, we may receive
no proceeds or very minimal proceeds from the offering and potential investors
may end up holding shares in a company that:
* Has not received enough proceeds from the offering to begin
operations; and
* Has no market for its shares.
Our independent registered public accountant has issued a going concern opinion.
This means that there is substantial doubt that we can continue as an on-going
business for the next twelve months unless we obtain additional capital to pay
our bills. This is because we have not generated revenues and no revenues are
anticipated until we complete our initial business development. There is no
assurance we will ever reach that stage.
Our plan of operation for the twelve months following the date of filing of this
Form 10-K will be focused on the development of our website, the development of
a software phone and the establishment of our brand name. We do not expect to
earn any sales revenue during this time.
Since we are a development stage company, any estimates by management are
negligible at this time as actual project costs would likely exceed any such
estimates. To date, we have not commenced with any activities or operations of
any phase of our development program.
SUBSEQUENT EVENTS
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company," as defined in Rule 12b-2 of the Exchange Act,
we are not required to provide the information called for by this Item.
16
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
First American Group Inc
(A Development Stage Company)
Fountain Valley, California
We have audited the accompanying balance sheets of First American Group, Inc. (a
development stage company) (the "Company") as of September 30, 2012 and 2011,
and the related statements of expenses, stockholders' equity, and cash flows for
the years then ended and the period from March 11, 2010 (inception) through
September 30, 2012. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
2012 and 2011 and the related results of its operations and its cash flows for
the years then ended and the period March 11, 2010(inception) through September
30, 2012 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses from
operation since inception. This factor raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to this matter are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
--------------------------------
www.malone-bailey.com
Houston, Texas
December 21, 2012
17
FIRST AMERICAN GROUP INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, September 30,
2012 2011
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 21,738 $ 30,300
Prepaid expenses 1,379 1,000
-------- --------
Total assets $ 23,117 $ 31,300
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 11,933 $ 6,322
Due to director 325 325
-------- --------
Total current liabilities 12,258 6,647
-------- --------
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares authorized
2,521,264 and 2,361,450 issued and outstanding, respectively 2,521 2,361
Additional paid-in capital 65,296 49,475
Deficit accumulated during the development stage (56,958) (27,183)
-------- --------
Total stockholders' equity 10,859 24,653
-------- --------
Total liabilities and stockholders' equity $ 23,117 $ 31,300
======== ========
The accompanying notes are an integral part of
these audited financial statements
18
FIRST AMERICAN GROUP INC.
(A Development Stage Company)
STATEMENTS OF EXPENSES
Period From
Inception
Year ended Year ended (March 11, 2010) To
September 30, September 30, September 30,
2012 2011 2012
---------- ---------- ----------
OPERATING EXPENSES
Professional fees $ 13,413 $ 17,143 $ 34,231
General & administrative 16,362 5,439 22,727
---------- ---------- ----------
Total Operating Expense 29,775 22,582 56,958
---------- ---------- ----------
NET LOSS $ (29,775) $ (22,582) $ (56,958)
========== ========== ==========
Basic And Diluted Net Loss Per Share $ (0.01) $ (0.01)
========== ==========
Basic And Diluted Weighted Average
Number of Shares Outstanding 2,466,698 2,110,882
========== ==========
The accompanying notes are an integral part of
these audited financial statements
19
FIRST AMERICAN GROUP INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 11, 2010 (INCEPTION) TO SEPTEMBER 30, 2012
Deficit
Accumulated
Additional in the Total
Common Stock Paid In Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Inception, March 11, 2010 -- $ -- $ -- $ -- $ --
Initial Capitalization -
Sale of common stock 2,000,000 2,000 14,000 -- 16,000
Net loss -- -- -- (4,601) (4,601)
--------- ------- -------- --------- --------
Balance, September 30, 2010 2,000,000 2,000 14,000 (4,601) 11,399
Sale of common stock 361,450 361 35,475 -- 35,836
Net loss -- -- -- (22,582) (22,582)
--------- ------- -------- --------- --------
Balance, September 30, 2011 2,361,450 2,361 49,475 (27,183) 24,653
Sale of common stock 159,814 160 15,821 -- 15,981
Net loss -- -- -- (29,775) (29,775)
--------- ------- -------- --------- --------
Balance, September 30, 2012 2,521,264 $ 2,521 $ 65,296 $ (56,958) $ 10,859
========= ======= ======== ========= ========
The accompanying notes are an integral part of
these audited financial statements.
20
FIRST AMERICAN GROUP INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Period From
Inception
Year ended Year ended (March 11, 2010) To
September 30, September 30, September 30,
2012 2011 2012
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(29,775) $(22,582) $(56,958)
Adjustments to reconcile net loss to net
cash used in operating activities
Changes in operating assets and liabilities:
Prepaid expenses (379) 4,000 (1,379)
Accounts payable and accrued liabilities 5,611 4,822 11,933
-------- -------- --------
Net cash used in operating activities (24,543) (13,760) (46,404)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITY
Sale of common stock 15,981 35,836 67,817
Due to director -- -- 325
-------- -------- --------
Net cash provided by financing activity 15,981 35,836 68,142
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (8,562) 22,076 21,738
Cash - opening 30,300 8,224 --
-------- -------- --------
Cash - closing $ 21,738 $ 30,300 $ 21,738
======== ======== ========
The accompanying notes are an integral part of
these audited financial statements
21
FIRST AMERICAN GROUP INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2012
Note 1 - Nature of Operations
First American Group Inc. ("the Company") was incorporated in the state of
Nevada on March 11, 2010 under the name Radikal Phones Inc. We changed our name
to First American Group Inc. on October 7, 2010. The Company plans to engage in
the development, sales and marketing of voice-over-Internet-protocol ("VOIP")
telephone services to enable end-users to place free phones calls over the
internet in return for viewing and listening to advertising. We also plan to
license or sell our proprietary software to companies looking for similar
business opportunities. The company has limited operations and is conserved to
be in the development stage.
The company has limited operations and is considered to be in the development
stage under ASC 915-15.
As shown in the accompanying financial statements, we have incurred net losses
since. In addition, we have an accumulated deficit of $56,958 as of September
30, 2012. These conditions raise substantial doubt as to our ability to continue
as a going concern. In response to these conditions, we may raise additional
capital through the sale of equity securities, through an offering of debt
securities or through borrowings from financial institutions or individuals. The
financial statements do not include any adjustments that might be necessary if
we are unable to continue as a going concern
Note 2 - Significant Accounting Policies
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principle for financial information
and in accordance with Securities and Exchange Commission's Regulation S-X. They
reflect all adjustments which are, in the opinion of the Company's management,
necessary for a fair presentation of the financial position and operating
results as of and for the period March 11, 2010 (date of inception) to September
30, 2012.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are reported in the balance sheet at cost, which
approximates fair value. For the purpose of the financial statements, cash
equivalents include all highly liquid investments with maturity of three months
or less.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles of the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
The more significant areas requiring the use of estimates include asset
impairment, stock-based compensation, and future income tax amounts. Management
bases its estimates on historical experience and on other assumptions considered
to be reasonable under the circumstances. However, actual results may differ
from the estimates.
LOSS PER SHARE
The Company adopted ASC 260, Earnings per Share. Basic earnings (loss) per share
are calculated by dividing the Company's net income available to common
shareholders by the weighted average number of common shares outstanding during
the year/period. The diluted earnings (loss) per share are calculated by
dividing the Company's net income (loss) available to common shareholders by the
diluted weighted average number of shares outstanding for the period. The
diluted weighted average number of shares outstanding is the basic weighted
number of shares adjusted as of the first of the year for any potentially
dilutive debt or equity. There are no dilutive shares outstanding.
22
FIRST AMERICAN GROUP INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2012
Note 2 - Significant Accounting Policies (continued)
The Company has not adopted any policy regarding payment of dividends. No
dividends have been paid during the period shown.
INCOME TAXES
The Company adopted ASC 740, Income Taxes, at its inception. Under ASC 740,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carry-forwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. No deferred tax assets or liabilities were recognized as of September
30, 2012.
Note 3 - Income Taxes
The Company uses the liability method, where deferred tax assets and liabilities
are determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. During fiscal year 2012, Surf a Movie
incurred net losses and, therefore, has no tax liability. The net deferred tax
asset generated by the loss carry-forward has been fully reserved. The
cumulative net operating loss carry-forward is $56,958 at September 30, 2012,
and will expire in the year 2031.
As at September 30, 2012, deferred tax assets consisted of the following:
Deferred tax asset $ 19,366
Less: Valuation allowance (19,366)
--------
Net deferred tax asset $ --
========
Note 4- Related party
As of September 30, 2012, the Company has a balance of $325 due to the President
for advances. These advances bear no interest, are unsecured, and due on demand.
Note 5 - Stockholders' Equity
On March 11, 2010, the Company issued 2,000,000 of its $0.001 par value common
stock for $16,000 cash.
During the fiscal year ended September 30, 2011, the Company raised $35,836
through the issuance of 361,450 of its common shares at $0.10 per share
During the fiscal year ended September 30, 2012, the Company raised $15,981
through the issuance of 159,814 of its common shares at $0.10 per share.
23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and the principal financial officer, we are
responsible for conducting an evaluation of the effectiveness of the design and
operation of our internal controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the
fiscal year covered by this report. Disclosure controls and procedures means
that the material information required to be included in our Securities and
Exchange Commission ("SEC") reports is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms relating to
our company, including any consolidating subsidiaries, and was made known to us
by others within those entities, particularly during the period when this report
was being prepared. Based on this evaluation, our principal executive officer
and principal financial officer concluded as of the evaluation date that our
disclosure controls and procedures were effective as of September 30, 2012.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
As of September 30, 2012, management assessed the effectiveness of our internal
control over financial reporting. The Company's management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the supervision of, the Company's
Chief Executive Officer and Chief Financial Officer and effected by the
Company's Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP in the United States of America and includes those policies and procedures
that:
* Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and dispositions of our
assets;
* Provide reasonable assurance our transactions are recorded as
necessary to permit preparation of our financial statements in
accordance with GAAP, and that receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
* Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statement.
In evaluating the effectiveness of our internal control over financial
reporting, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control
- Integrated Framework. Based on that evaluation, completed only by Mazen Kouta,
our President, Secretary, Treasurer and Director, who also serves as our
principal financial officer and principal accounting officer, Mr. Kouta
concluded that, during the period covered by this report, such internal controls
and procedures were not effective to detect the inappropriate application of US
GAAP rules as more fully described below.
This was due to deficiencies that existed in the design or operation of our
internal controls over financial reporting that adversely affected our internal
controls and that may be considered to be material weaknesses. The matters
involving internal controls and procedures that our management considered to be
material weaknesses under the standards of the Public Company Accounting
Oversight Board were: (i) lack of a functioning audit committee due to a lack of
a majority of independent members and a lack of a majority of outside directors
on our board of directors, resulting in ineffective oversight in the
24
establishment and monitoring of required internal controls and procedures; (ii)
inadequate segregation of duties consistent with control objectives; and (iii)
ineffective controls over period end financial disclosure and reporting
processes. The aforementioned material weaknesses were identified by Mr. Kouta,
our President, Secretary, Treasurer and Director, who also serves as our
principal financial officer and principal accounting officer, in connection with
the review of our financial statements as of September 30, 2012.
Management believes that the lack of a functioning audit committee and the lack
of a majority of outside directors on our board of directors results in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures, which could result in a material misstatement in our
financial statements in future periods.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There were no changes in the Company's internal control over financial reporting
that occurred during the fourth quarter of the year ended September 30, 2012
that have materially affected, or that are reasonably likely to materially
affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our executive officer's and director's and their respective age's as of
September 30, 2012 are as follows:
Name Age Positions and Offices
---- --- ---------------------
Mr. Mazen Kouta 30 President, Treasurer and Director
Mr. Zeeshan Zajid 29 Secretary & Director
The directors named above will serve until the next annual meeting of the
stockholders or until their respective resignation or removal from office.
Thereafter, directors are anticipated to 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, of which none
currently exists or is contemplated.
Set forth below is a brief description of the background and business experience
of our executive officers and directors for the past five years.
MAZEN KOUTA
Mazen Kouta has served as President, Treasurer and Director since April 27,
2010. Since November 2008, Mr. Kouta has been working as a business development
consultant for Azzam Business Group where he was instrumental in the
restructuring of the company's technology product group. At the same time, he
has been operating a small chain of internet cafe in Lebanon. Between November
2005 and October 2009, he worked for Cyber Storm System Software (based in
Sharjah, United Arab Emirates) where he managed the company's IT infrastructure.
Between January 2003 and October 2005, Mr. Kouta worked for Azzam Business Group
as a sales executive. Mr. Kouta graduated from the Industrial Technical
Institute, Beirut, Lebanon, with a Diploma Superior in Airplane Maintenance in
August 2004. These experiences, qualifications and attributes have led to our
conclusion that Mr. Kouta should be serving as a member of our Board of
Directors in light of our business and structure.
25
ZEESHAN SAJID
Zeeshan Sajid has served as our Secretary and Director since April 27, 2010. In
July 2008, Mr. Sajid founded Xeeonix Technologies, a Pakistan-based software
development company, specialized in providing custom web development and VoIP
solutions. Between September 2006 and June 2008, Mr. Sajid was employed by Media
Routes. He worked on the development of highly scalable, high performance,
carrier grade software products for next generation IP networks. Between July
2005 and August 2006, he worked as a software developer for Altair Technologies
in Islamabad, Pakistan. In his job, he worked on the development of a product to
analyze Internet traffic. In 2006, he published a research paper in an
International Conference on Graphics Multimedia and Imaging and won the
all-Pakistan software development competition known as SIVCOM 2006. In June
2005, Mr. Sajid completed his Bachelor of Computer Science from the National
University of Computer & Emerging Sciences, NUCES (formerly FAST) in Islamabad,
Pakistan. These experiences, qualifications and attributes have led to our
conclusion that Mr. Sajid should be serving as a member of our Board of
Directors in light of our business and structure.
TERM OF OFFICE
All directors hold office until the next annual meeting of the stockholders of
the Company and until their successors have been duly elected and qualified. The
Company's Bylaws provide that the Board of Directors will consist of no less
than three members. Officers are elected by and serve at the discretion of the
Board of Directors.
DIRECTOR INDEPENDENCE
Our board of directors is currently composed of two members, neither of whom
qualifies as an independent director in accordance with the published listing
requirements of the NASDAQ Global Market. The NASDAQ independence definition
includes a series of objective tests, such as that the director is not, and has
not been for at least three years, one of our employees and that neither the
director, nor any of his family members has engaged in various types of business
dealings with us. In addition, our board of directors has not made a subjective
determination as to each director that no relationships exist which, in the
opinion of our board of directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director, though
such subjective determination is required by the NASDAQ rules. Had our board of
directors made these determinations, our board of directors would have reviewed
and discussed information provided by the directors and us with regard to each
director's business and personal activities and relationships as they may relate
to us and our management.
CERTAIN LEGAL PROCEEDINGS
No director, nominee for director, or executive officer of the Company has
appeared as a party in any legal proceeding material to an evaluation of his
ability or integrity during the past ten years.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
We have no employees. Other than our two officers and directors, we currently
have no independent contractors or consultants.
AUDIT COMMITTEE AND CONFLICTS OF INTEREST
Since we do not have an audit or compensation committee comprised of independent
directors, the functions that would have been performed by such committees are
performed by our directors. The Board of Directors has not established an audit
committee and does not have an audit committee financial expert, nor has the
Board of Directors established a nominating committee. The Board is of the
opinion that such committees are not necessary since the Company is an early
exploration stage company and has only two directors, and to date, such
directors have been performing the functions of such committees. Thus, there is
a potential conflict of interest in that our directors and officers have the
authority to determine issues concerning management compensation, nominations,
and audit issues that may affect management decisions.
26
There are no family relationships among our directors or officers. Other than as
described above, we are not aware of any other conflicts of interest with any of
our executive officers or directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, file reports of ownership and changes
in ownership with the SEC. Executive officers, directors and greater-than-ten
percent stockholders are required by SEC regulations to furnish us with all
Section 16(a) forms they file. Based on our review of filings made on the SEC
website, and the fact of us not receiving certain forms or written
representations from certain reporting persons that they have complied with the
relevant filing requirements, we believe that, during the year ended September
30, 2012, all of our executive officers, directors and greater-than-ten percent
stockholders complied with all Section 16(a) filing requirements.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
We have not implemented a formal policy or procedure by which our stockholders
can communicate directly with our Board of Directors. Nevertheless, every effort
has been made to ensure that the views of stockholders are heard by the Board of
Directors or individual directors, as applicable, and that appropriate responses
are provided to stockholders in a timely manner. We believe that we are
responsive to stockholder communications, and therefore have not considered it
necessary to adopt a formal process for stockholder communications with our
Board. During the upcoming year, our Board will continue to monitor whether it
would be appropriate to adopt such a process.
CODE OF ETHICS
The Company has not adopted a code of ethics that applies to its principal
executive officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company has not adopted
a code of ethics because it has only commenced operations.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information about compensation paid,
earned or accrued for services by our President and all other executive officers
(collectively, the "Named Executive Officers") in the fiscal years ended
September 30, 2012 and 2010:
SUMMARY COMPENSATION TABLE
The table below summarizes all compensation awarded to, earned by, or paid to
our Officers for all services rendered in all capacities to us for the fiscal
periods indicated.
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- --------
Mazen 2012 0 0 0 0 0 0 0 0
Kouta (1) 2011 0 0 0 0 0 0 0 0
Zeeshan 2012 0 0 0 0 0 0 0 0
Zajid (2) 2011 0 0 0 0 0 0 0 0
----------
(1) President, Treasurer and Director.
(2) Secretary and Director.
We currently do not pay any compensation to our directors serving on our board
of directors.
27
STOCK OPTION GRANTS
The following table sets forth stock option grants and compensation or the
fiscal year ended September 30, 2012:
Option Awards Stock Awards
--------------------------------------------------------------- ----------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Equity Number of Value of
Incentive Number Unearned Unearned
Plan Awards; of Market Shares, Shares,
Number of Number of Number of Shares Value of Units or Units or
Securities Securities Securities or Units Shares or Other Other
Underlying Underlying Underlying of Stock Units of Rights Rights
Unexercised Unexercised Unexercised Option Option That Stock That That That
Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not
Name Exercisable(#) Unexercisable(#) Options(#) Price($) Date Vested(#) Vested($) Vested(#) Vested(#)
---- -------------- ---------------- ---------- ----- ---- --------- --------- --------- ---------
Mazen
Kouta (1) -0- -0- -0- $ -0- N/A -0- -0- -0- -0-
Zeeshan
Zajid (2) -0- -0- -0- $ -0- N/A -0- -0- -0- -0-
EMPLOYMENT AGREEMENTS
The Company did not have any employment agreements with any of its officers or
directors during the year ended September 30, 2012.
DIRECTOR COMPENSATION
The following table sets forth director compensation or the fiscal year ended
September 30, 2012:
Fees Non-Equity Nonqualified
Earned Incentive Deferred
Paid in Stock Option Plan Compensation All Other
Name Cash($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
-------- ---------- --------- --------- --------------- ----------- --------------- --------
Mazen Kouta 0 0 0 0 0 0 0
Zeeshan Zajid 0 0 0 0 0 0 0
We currently do not pay any compensation to our directors for serving on our
board of directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table lists, as of September 30, 2012, the number of shares of
common stock of our Company that are beneficially owned by (i) each person or
entity known to our Company to be the beneficial owner of more than 5% of the
outstanding common stock; (ii) each officer and director of our Company; and
(iii) all officers and directors as a group. Information relating to beneficial
ownership of common stock by our principal shareholders and management is based
upon information furnished by each person using "beneficial ownership" concepts
under the rules of the Securities and Exchange Commission. Under these rules, a
28
person is deemed to be a beneficial owner of a security if that person has or
shares voting power, which includes the power to vote or direct the voting of
the security, or investment power, which includes the power to vote or direct
the voting of the security. The person is also deemed to be a beneficial owner
of any security of which that person has a right to acquire beneficial ownership
within 60 days. Under the Securities and Exchange Commission rules, more than
one person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he or
she may not have any pecuniary beneficial interest. Except as noted below, each
person has sole voting and investment power.
The percentages below are calculated based on 2,361,450 shares of our common
stock issued and outstanding as of September 30, 2012. We do not have any
outstanding warrant, options or other securities exercisable for or convertible
into shares of our common stock.
Number of
Name and Address Shares Owned Percent of
Title of Class of Beneficial Owner (1) Beneficially Class Owned
-------------- ----------------------- ------------ -----------
Common Stock: Mazen Kouta, President, 1,125,000 47.6%
Chief Executive Officer,
Treasurer and Director
Common Stock: Zeeshan Zajid, 875,000 37%
Secretary and Director
All executive officers and 2,000,000 84.6%
directors as a group
----------
(1) Unless otherwise noted, the address of each person or entity listed is, c/o
First American Group Inc., 11037 Warner Ave, Suite 132, Fountain Valley,
California 92708.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
For the year ended September 30, 2012 and 2011, the total fees charged to the
company for audit services, including quarterly reviews were $7,200 and $7,200,
for audit-related services were $0 and $0 and for tax services and other
services were $0 and $0, respectively.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following Exhibits, as required by Item 601 of Regulation SK, are
attached or incorporated by reference, as stated below.
Number Description
------ -----------
3.1.1 Articles of Incorporation*
3.1.2 Certificate of Amendment*
3.2 Bylaws*
31.1 Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and Principal
Financial Officer and pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
----------
* Incorporated by reference to the Registrant's Form S-1 (File No.
333-171091), filed with the Commission on December 10, 2010.
29
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST AMERICAN GROUP INC.
(Name of Registrant)
Date: December 27, 2012 By: /s/ Mazen Kouta
--------------------------------------
Name: Mazen Kouta
Title: President, Treasurer, and Director
(Principal Executive Officer,
Principal Accounting Officer, and
Principal Financial Officer)
Date: December 27, 2012 By: /s/ Zeeshan Sajid
--------------------------------------
Name: Zeeshan Sajid
Title: Secretary and Director
30
EXHIBIT INDEX
Number Description
------ -----------
3.1.1 Articles of Incorporation*
3.1.2 Certificate of Amendment*
3.2 Bylaws*
31.1 Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and Principal
Financial Officer and pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
----------
* Incorporated by reference to the Registrant's Form S-1 (File No.
333-171091), filed with the Commission on December 10, 2010.