Business Context and Reporting Period
Company: First American Group Inc. (formerly Radikal Phones Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 2012
Status: Development Stage Company / Shell Company / Smaller Reporting Company
The Company is engaged in the planned development, sales, and marketing of Voice-over-Internet-Protocol (VoIP) telephone services. The business model intends to enable end-users to place free or subsidized calls over the Internet in exchange for viewing or listening to advertising. As of the filing date, the Company has no employees, no physical property, and has not generated any revenue. Operations are currently limited to planning, fundraising, and initial product design.
Key Financial Metrics
| Financial Metric | Year Ended Sept 30, 2012 | Year Ended Sept 30, 2011 | From Inception (Mar 2010) to Sept 30, 2012 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(29,775) | $(22,582) | $(56,958) |
| Total Assets | $23,117 | $31,300 | N/A |
| Cash and Cash Equivalents | $21,738 | $30,300 | N/A |
| Total Liabilities | $12,258 | $6,647 | N/A |
| Shareholders' Equity | $10,859 | $24,653 | N/A |
| Shares Outstanding | 2,521,264 | 2,361,450 | N/A |
Operating Expenses (2012): Total operating expenses were $29,775, comprised of $13,413 in professional fees and $16,362 in general and administrative expenses.
Liquidity: The Company raised $15,981 in 2012 through the sale of 159,814 shares of common stock. Cash flow from financing activities provided $15,981, while operating activities used $24,543.
Material Changes vs. Prior Period
- Increased Losses: Net loss increased by approximately 32% from $22,582 in 2011 to $29,775 in 2012.
- Expense Composition: Professional fees decreased from $17,143 in 2011 to $13,413 in 2012, while general and administrative expenses increased significantly from $5,439 to $16,362.
- Capital Structure: The Company issued an additional 159,814 shares in 2012 compared to 361,450 shares in 2011, raising $15,981 versus $35,836 in the prior year.
- Liabilities: Total liabilities nearly doubled from $6,647 in 2011 to $12,258 in 2012, primarily due to an increase in accounts payable and accrued liabilities.
Guidance, Outlook, Risks, and Contingencies
Going Concern Warning
The independent auditor has expressed substantial doubt regarding the Company's ability to continue as a going concern. This opinion is based on the Company's history of losses, accumulated deficit of $56,958, and lack of revenue. The financial statements do not include adjustments that might result from the outcome of this uncertainty.
Outlook and Guidance
Management anticipates that operations will begin to generate revenue approximately 18 to 24 months following the filing of this report. The Company projects zero revenue for Year 1 (development phase). Projected revenues for Year 2 are $153,750, with a projected loss of $15,105. Year 3 projections include revenues of $460,000 and a profit of $105,884. These projections are based on subjective management estimates and unverified third-party data.
Risks and Contingencies
- Financing Dependency: The Company is highly dependent on raising additional capital through private placements of common stock or debt financing to continue operations. Failure to secure funding will result in the cessation of business.
- Internal Controls: Management identified material weaknesses in internal controls, including a lack of a functioning audit committee, inadequate segregation of duties, and ineffective controls over financial reporting.
- Competition: The VoIP market is highly competitive with established players (e.g., Skype, Google) possessing significantly greater resources.
- Revenue Assumptions: Revenue projections rely on unproven assumptions regarding customer adoption, advertiser demand, and advertising rates (CPM, CPC, CPA).
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to secure the additional financing required to survive the next 12 months, as explicitly stated as a risk by the auditor.
- Revenue Projections: Scrutinize the subjective assumptions used to project $153,750 in Year 2 revenue, noting the lack of historical data or signed contracts to support these figures.
- Internal Control Weaknesses: Assess the impact of the lack of an independent audit committee and segregation of duties on the reliability of future financial reporting.
- Management Concentration: Note that two individuals (Mazen Kouta and Zeeshan Sajid) control approximately 84.6% of the outstanding shares and serve as the only officers and directors.
- Product Development: Confirm the status of the software development and website launch, as the Company currently has no operational product or revenue stream.