Item 1.
BUSINESS
We were formed as a line of business by Actuarial Ideas, Inc., a New York corporation formed in September 1982 and owned by our president, Mark Cohen, and became a separate legal entity on March 19, 2007 upon our incorporation in Delaware in order to succeed the pension writing segment of Actuarial Ideas, Inc. which has been in the actuarial and pension planning business since 1982. We prepare and draft all of the pension plans and the amendments and modifications to those plans for the clients of Actuarial Ideas, Inc. In other words, we write and provide the written plan agreement and amendments to clients. At the time that we became a separate legal entity, we entered into an agreement with Actuarial Ideas, Inc. under which we will continue to write and edit all the pension and retirement plans for its clients. Actuarial Ideas will continue to provide all actuarial calculations and planning for clients. Prior to being a separate legal entity, we were structured as a line of business of Actuarial Ideas, Inc. which allocated a portion of all of its combined costs to us based on the relationship of our actual revenues to total Actuarial Ideas, Inc. revenues. These costs of sales consisted primarily of salaries, rent, communications and travel costs. Commencing July 1, 2007, these allocations ceased, and we began paying a management fee to Actuarial Ideas, Inc. equivalent to $1,500 per month plus 5% of revenues collected for us from customers by Actuarial Ideas, Inc. The management fee covers the costs of rent, administrative and computerized recordkeeping costs, communications and other office costs. It does not include the salaries that we agreed to pay, professional fees and any separate marketing costs that we elect to incur. We also pay (i) Mr. Cohen an annual salary of $30,000 for which he devotes 15% of his time to us and (ii) Richard Cohen, our treasurer, devotes 10% of his time to us and has received an annual salary from us of $6,000.
We cannot take advantage of being an emerging growth company under the JOBS Act because it had gone public prior to December 8, 2011.
We currently perform work for approximately 150 plans that relate to Actuarial Ideas’ clients whose work has been referred to us. More than half of these plans are defined benefit plans. The remainder is split among defined contribution plans such as profit sharing plans, money purchase plans, and 401K plans. We estimate that, traditionally, approximately 50% of our revenue relates to drafting new plans, and the remaining 50% relates to editing and amending existing plans. Recessionary economic conditions tend to have a very depressing impact on being engaged to draft new plan documents.
The potential amount of work on editing and amending pension plans had increased because of recently issued laws and regulations. However, the impact of this potential was severely offset by the ongoing downturn in the economy. This downturn resulted in very few companies establishing new pension plans. Companies with existing pension plans made as few changes or reviews as possible because of the economic uncertainties. Our financial situation was severely impacted by the economic recession in 2008 and the period thereafter because of these uncertainties and conditions.
The Pension Protection Act of 2006 was the most significant overhaul of U.S. pension laws since the Employee Retirement Income Security Act (ERISA) was enacted in 1974 and has resulted in significant amendments to all existing plans. Passed by Congress and signed by President Bush in August 2006, the Pension Protection Act (PPA) rewrites almost all major aspects of pension law, requiring defined benefit and defined contribution plan sponsors to make a number of changes. The bill’s most significant changes include:
·
Establishing new funding targets for single-employer pension plans;
·
Imposing higher funding targets on at-risk plans;
·
Replacing the old discount rate with a modified yield curve of corporate bond rates;
·
Eliminating the full-funding limit for variable rate premiums;
·
Adding new requirements for multiemployer plans;
·
Clarifying hybrid pension plan rules; and
·
Establishing new rules for 401(k)s and other defined contribution plans.
Federal agencies are expected to continue to issue regulations that detail how employers must implement the act.
General Business
We write and amend all of the pension plans for the clients of Actuarial Ideas, Inc. Writing pension plans involves modifying templates to meet the specific needs of clients. We maintain computer files of templates for all major forms of pension plans. Many of these templates are available from commercial sources. We prepare templates covering new tax regulations or other laws affecting pension plans. We modify each of these templates to meet the known or specific needs of clients. The work on each engagement varies from several hours to several days depending on the complexity of the issues and availability of client data.
Actuarial Ideas, Inc. works with clients to define a pension plan which they feel best fits their needs. We write the plan to conform with the structure agreed to by the clients with Actuarial Ideas, Inc. as well as to comply with applicable laws and regulations issued by the Internal Revenue Service. Our typical client is a small, privately-held company or professional firm such as accountants and lawyers. In these cases the principal and the principal’s family tend to be the primary beneficiaries. Because of this breakdown, we are more involved with defined benefit plans than competitors that deal with larger or publicly-held companies.
We currently are responsible for working with approximately 150 plans. They are about equally split between defined benefit and defined contribution plans. We retain ongoing relationships with most clients because plans need ongoing amendments to:
§
Meet the ongoing business needs of clients, and
§
Comply with changes in tax and other laws governing pension plans.
A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and losses. Some examples of defined contribution plans include 401(K) plans, 403(b) plans, employee stock ownership plans and profit sharing plans.
A defined benefit plan promises the participant a specific monthly benefit at retirement and may state this as an exact dollar amount. Monthly benefits could also be calculated through a formula that considers a participants salary and service. A participant is generally not required to make contributions in a private sector fund but most public sector funds require employee contributions. Unlike defined contribution plans, the participant is not required to make investment decisions.
A defined benefit pension plan must be carefully designed. To accomplish this, sophisticated actuarial calculations are required to determine a benefit formula that is consistent with the employer's objectives and budget. In this regard, Actuarial Ideas, Inc. performs all of the actuarial assumptions and calculations as well as gathers the information to perform those assumptions and calculations. Our function is to write or amend the plan so that it conforms with the agreed-upon terms and structure as well as the applicable laws and regulations. In addition, plans for public companies and others that issue financial statements to third parties need to consider the requirements of the impacts of Codification Topic 715, Compensation-Retirement Benefits, as issued by the Financial Accounting Standards Board.
Our business is impacted by factors that cause clients to adopt, change or repeal plans. These factors include:
§
Changes in laws that make it harder or easier to administer plans;
§
Changes in tax rules and rates that change the real or perceived tax benefits of sponsoring a plan;
§
The economic climate which impacts the ability of a sponsor to fund and benefit from the plan funding; and
§
Establishment and changes in companies through formation, takeover and spinoffs.
Our clients tend to be small privately-held companies and professional firms. Most of these clients are interested in maximizing their retirement benefits and income tax benefits and are less concerned about the financial reporting issues. Therefore, we emphasize working on plans that result in the largest possible income tax deductions and provide the greatest amount of future benefits to recipients. If we worked on larger clients with a greater range of plan participants and public financial reporting obligations, such clients generally seek plans that result in lower annual costs.
We use a publicly available specialized software program for drafting and editing plans. We then modify and edit to meet the specific needs of each client. Use of the software program costs $500 per month.
Our fees for drafting a defined benefit plan generally range from $2,500 to $7,500 and fees for new defined contribution plans generally range from $2,500 to $5,000. Major amendments for defined benefit plans generally range from $1,000 to $2,500. Major amendments for defined contribution plans generally range from $750 to $2,000. Upon becoming a separate legal entity we began billing and collecting from our clients separately from Actuarial Ideas, Inc. on new engagements. Actuarial Ideas, Inc. continued to bill for ongoing engagements on our behalf through the middle of 2008 at which time we began billing all engagements performed by us.
Conflicts of Interest
Currently all of our revenue relates to preparing and editing all of the pension plans for the clients of Actuarial Ideas, a company controlled by our president. This trend is likely to continue for the immediate future. If the business of Actuarial Ideas, Inc. were to decline or experience problems, our business would be affected in a similar manner. In addition, Actuarial Ideas, Inc. could undertake to provide the services to its clients that we currently provide. If that happened, our business would be seriously and adversely affected.
Neither of our key personnel (two persons) is required to commit a specified amount of time to our affairs and, accordingly, these individuals, particularly our president, may have conflicts of interest in allocating management time among various business activities. In the course of other business activities, certain key personnel (particularly our president) may become aware of business opportunities which may be appropriate for presentation to us, as well as the other entities with which they are affiliated. As such, there may be conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our President, Mark Cohen, owns 92.3% of our issued and outstanding common shares. Additionally, Mr. Cohen deals with numerous other businessmen and professionals from whom he becomes aware of other business opportunities.
In an effort to resolve such potential conflicts of interest, we have entered into a written agreement with Mr. Cohen containing the following provisions:
·
any business opportunities that he may become aware of independently or directly through his association with us would be presented by him solely to us;
·
any business opportunities disclosed to him by the management of other entities would not be presented by him to us if so requested by them;
·
any business opportunities disclosed to him by us would not be presented by him to any other entity, unless and until we passed upon same; and
·
in the event that the same business opportunity is presented to him by both us and any other business entity, he shall only render his services to the business entity that first disclosed such business opportunity to him.
We cannot provide specific assurances that conflicts of interest will not result in significant problems for us.
We rely upon Actuarial Ideas, Inc. for all our revenue. We believe Actuarial Ideas has the ability to conduct and provide its services to us as needed. Should a conflict arise between us and Actuarial Ideas, it is expected that same will be resolved to the benefit of our Company partially due to the fact that our President owns 100% of Actuarial Ideas and 92.3% of our common stock, it being felt that in the event of conflict, a resolution in favor of a public entity would benefit its status.
Competition
Competition in our industry is intense and many of our competitors have greater financial and other resources than do we. Competition comes from a wide variety of consulting and accounting firms. Many of these firms have more employees, finances and other resources and greater name recognition than us.
Actuarial Ideas, Inc. targets small, privately-held companies and professional firms that tend not to be primary targets of the large pension consulting firms. We compete on the basis of providing quality products and personalized services on a timely basis. We also perform our services for what we believe to be very competitive fees. Mr. Cohen generally visits client offices and becomes familiar with their goals and needs. We do not advertise or use a website. Clients are referred to Actuarial Ideas, Inc. by existing clients and accounting and law firms that are familiar with our services.
We believe that being a public entity may provide us (and our President, Mark Cohen) benefits in visibility and the way that we are perceived by potential business referral sources and prospective customers. These sources may refer new business to us directly or to Actuarial Ideas, Inc. which also will result in additional revenue for us. Ultimately, the goal of this process will be to develop sources of business beyond Actuarial Ideas, Inc. However, we have not done any studies or performed any surveys to determine the likelihood that these shareholders will actually make referrals to use, and there can be no assurances that we will be successful in any of this regard.
No assurances can be given that our competitive strategy will be successful.
Intellectual Property
We have no patents or trademarks.
Employees
At April 17, 2013, we had three employees one of which is Mark Cohen, our president and chief financial officer. The second employee is Richard D. Cohen, our treasurer and son of our president. Additionally, Elizabeth Cohen, our Secretary, devotes approximately 5% of her time to us.
Since July 1, 2007, we have paid (i) Mr. Cohen an annual salary of $30,000 for which he devotes 15% of his time to us and (ii) Richard Cohen, our treasurer, who devotes 10% of his time to us, an annual salary of $6,000.
Both employees devote at least the same amount of time to our business as they did prior to our becoming a separate legal business. Therefore, we hope to continue being able to complete at least our historic levels of revenue. If the level of revenue increases, they will devote additional time to us or increase the number of employees.
Item 1A.
Item 1A.
RISK FACTORS
You should be aware that there are various risks to an investment in our common stock. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K, before you decide to invest in shares of our common stock.
If any of the following risks develop into actual events, then our business, financial condition, results of operations and/or prospects could be materially adversely affected. If that happens, the market price of our common stock, if any, could decline, and investors may lose all or part of their investment.
Risks Related to the Business
1.
AI has virtually no financial resources. Our independent registered auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
At December 31, 2012, we have an accumulated deficit, a working capital deficiency and no source of debt or equity financing. These factors raise substantial doubt about our ability to continue as a going concern which is dependent upon our ability to achieve profitable operations or obtain adequate financing. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the year ended December 31, 2012 that states that our lack of resources causes substantial doubt about our ability to continue as a going concern. No assurances can be given that we will generate sufficient revenue or obtain necessary financing to continue as a going concern.
2.
AI is and will continue to be completely dependent on the services of our founder and president, Mark Cohen, the loss of whose services may cause our business operations to cease. We will need to engage and retain qualified employees and consultants to further implement our strategy.
AI’s operations and business strategy are significantly dependent upon the knowledge and business contacts of Mark Cohen, our president. All of our business is referred to us by Actuarial Ideas, Inc., an actuarial firm controlled by Mr. Cohen. His personal relationships with clients and referral sources are a critical element of obtaining and maintaining engagements. He is under no contractual obligation to remain employed by us. If he should choose to leave us for any reason before we have hired additional personnel, our operations may fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described herein. We will fail without Mr. Cohen or an appropriate replacement(s). We intend to acquire key-man life insurance on the life of Mr. Cohen naming us as the beneficiary when and if we obtain the resources to do so, and Mr. Cohen remains insurable. We have not yet procured such insurance, and there is no guarantee that we will be able to obtain such insurance in the future. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel and independent contractors.
3.
Competition from firms with greater resources could result in loss of our market share that could reduce our profitability.
The markets for our services are highly competitive. Our competitors currently include other human resources consulting and actuarial firms, as well as the human resources consulting divisions of diversified professional services, insurance firms and accounting firms. Many of our competitors have greater financial, technical and marketing resources than we have, which could enhance their ability to respond more quickly to technological changes, and fund internal growth. New competitors or alliances among competitors could emerge and gain significant market share. In order to respond to increased competition and pricing pressure, we might have to lower our prices, which would have an adverse effect on our revenues and profit margin.
4.
We are impacted by new laws, income tax rulings and accounting and financial reporting requirements. Changes in some or all of these rules and regulations can reduce the demand for pension plans significantly.
Pensions are impacted significantly by Federal laws, income tax rulings and accounting and financial reporting requirements. These rules and regulations impact the timing of pension plan funding, the timing and amount of pension costs that are deductible for income tax purposes and the amount of pension costs and liabilities that must be reported in a pension sponsor’s financial statements. Changes in laws and regulations may make sponsoring or continuing to sponsor pension plans less attractive or affordable to plan sponsors. Reductions in plan sponsorship also reduce our potential client base. Significant reductions in client base would have a material adverse effect on our business and our operating results.
5.
Demand for our services may decrease for various reasons other than changes in laws and regulations, including a general economic downturn, a decline in a client’s or an industry’s financial condition that could adversely affect our operating results.
We can give no assurance that the demand for our services will continue to grow or that we will compete successfully with our existing competitors, new competitors or our clients’ internal capabilities. Our clients’ demand for our services also may change based on their own needs and financial conditions. When economic downturns affect particular clients or industry groups, companies frequently reduce their budgets for outside consultants, which could reduce the demand for our services and increase price competition. A simplification of regulations or tax policy also could reduce the need for our services.
6.
Our clients generally may terminate our services at any time, which could decrease our utilization of available hours.
Our clients generally may terminate our engagements at any time. If a client terminates the use of our services with little or no notice, our revenue will decline.
7.
We are subject to malpractice claims arising from our work, which could adversely affect our reputation and business, and we are subject to government inquiries and investigations.
Professional services providers are increasingly subject to claims from their clients. Clients and third parties who are dissatisfied with our services or who claim to suffer damages caused by our services may bring lawsuits against us. We draft and edit pension plan documents. The terms and structures set forth in these documents must comply with all laws and regulations as well as the terms described and agreed to by clients. If there are errors or items that are unclear in the pension documents, clients may seek to hold us responsible for the financial consequences of these errors or variances. The risks from such variances could be aggravated in an environment of declining pension fund asset values. In most cases, our exposure to liability on a particular engagement is substantially greater than the profit opportunity that the engagement generates for us.
Defending lawsuits arising out of our services could require substantial amounts of management attention, which could affect management’s focus on operations, adversely affect our financial performance and result in increased costs. In addition to defense costs and liability exposure, malpractice claims may produce negative publicity that could hurt our reputation and business. .
8.
All of our revenue was derived from performing work for clients referred to us by Actuarial Ideas, Inc., a related party.
Currently all of our revenue relates to preparing and editing all of the pension plans for the clients of Actuarial Ideas, Inc., a company controlled by our president. This trend is likely to continue for the immediate future. If the business of Actuarial Ideas, Inc. were to decline or experience problems, our business would be affected in a similar manner. We believe that being a public entity may provide us (and our president, Mark Cohen) benefits in visibility and the way that we are perceived by potential business referral sources and prospective customers. These sources may refer new business to us directly or to Actuarial Ideas, Inc. which also will result in additional revenue for us. Ultimately, the goal of this process will be to develop sources of business beyond Actuarial Ideas, Inc. However, we have not done any studies or performed any surveys to determine the likelihood that these shareholders will actually make referrals to us, and there can be no assurances that we will be successful in this regard.
9.
Mark Cohen, our Chief Executive Officer and Chief Financial Officer, has no meaningful financial accounting or financial reporting education or experience and, accordingly, our ability to timely meet Exchange Act reporting requirements is dependent to a significant degree upon the advice and counsel of others.
Mark Cohen, our chief executive and financial officer, has no meaningful financial reporting education or experience. He is heavily dependent on advisors and consultants to provide guidance and counsel in these areas. As such, there is risk about our ability to comply with all financial reporting requirements accurately and on a timely basis.
10.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which requires us to incur accounting and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to fund our operations and may prevent us from meeting our normal business obligations.
We are subject to file periodic reporting requirements of the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. In order to comply with these regulations, our independent registered public accounting firm has to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel has to review and assist in the preparation of such reports. The future costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys.
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
11.
We have only three directors, all of whom are related to each other, which limits our ability to establish effective independent corporate governance procedures and increases the control of our president.
We have only three directors, one of which is our president and chairman and the other two the wife and the son of our president. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like compensation or audit issues.
Until we have a larger board of directors which would include some independent members, if ever, there will be limited oversight of our president’s decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.
12.
There are significant potential conflicts of interest
Neither of our key personnel (two persons) is required to commit a specified amount of time to our affairs and, accordingly, these individuals, particularly our president, may have conflicts of interest in allocating management time among various business activities. In the course of other business activities, certain key personnel (particularly our president) may become aware of business opportunities which may be appropriate for presentation to us, as well as the other entities with which they are affiliated. As such, there may be conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our President, Mark Cohen, owns 92.3% of our issued and outstanding common shares. Additionally, Mr. Cohen deals with numerous other businessmen and professionals from whom he becomes aware of other business opportunities.
In an effort to resolve such potential conflicts of interest, we have entered into a written agreement with Mr. Cohen containing the following provisions:
·
any business opportunities that he may become aware of independently or directly through his association with us would be presented by him solely to us;
·
any business opportunities disclosed to him by the management of other entities would not be presented by him to us if so requested by them;
·
any business opportunities disclosed to him by us would not be presented by him to any other entity, unless and until we passed upon same; and
·
in the event that the same business opportunity is presented to him by both us and any other business entity, he shall only render his services to the business entity that first disclosed such business opportunity to him.
Risks Related to Our Common Stock
13.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares of our common stock.
We have no committed source of financing. Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized (99,000,000) but unissued (89,000,000) common shares. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of AI because the shares may be issued to parties or entities committed to supporting existing management.
14.
The Company’s outside counsel holds a $42,000 Convertible Note which can be converted, at his option, into up to 42,000,000 shares of our common stock.
The Company’s outside counsel holds a $42,000 Convertible Note which can be converted, at his option, into up to 42,000,000 shares of our common stock. If he elects to convert all or a significant portion of the Convertible Note, he will become our majority stockholder. The conversion would result in significant dilution to existing shareholders and give him control of the Company. His outlook and approach may not be consistent with the interests of other shareholders. We cannot predict the likelihood or timing of such a conversion.
15.
Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Our articles of incorporation and applicable Delaware law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person's written promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we may never be unable to recoup.
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors are likely to materially reduce the market and price for our shares, if such a market ever develops.
16.
Currently, there is no public market for our securities, and there can be no assurances that any public market will ever develop or that our common stock will be quoted for trading and, even if quoted, it is likely to be subject to significant price fluctuations.
There has not been any trading market for our common stock, and there is currently (and never has been) any public market whatsoever for our securities. Notwithstanding the fact that a trading symbol (AIDC) had been assigned to our common stock by FINRA (and subsequently OTCBB quoting and trading privilege were lost for failure to file timely this Form 10-K and other required periodic filings), there can be no assurance that:
·
the OTCBB quoting and trading privilege will be recovered;
·
any market for our shares will develop;
·
the prices at which our common stock will trade; or
·
the extent to which investor interest in us will lead to the development of any active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
Also, failure to remain current in our future periodic reports with the SEC would lead to loss of OTCBB quoting privileges if they are recovered following the filing of all currently delinquent filings.
In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of AI and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
Because of the anticipated low price of the securities, many brokerage firms may not be willing to effect transactions in our securities.
17.
Without a public market there is no liquidity for our shares of common stock, and our shareholders may never be able to sell their shares, which may result in a total loss of their investment.
Our common shares are not listed on any exchange or quotation system. There currently is no market for our shares. Consequently, our shareholders will not be able to sell their shares in an organized market place and may have to sell their shares privately. If this happens, our shareholders might not receive a price per share which they might otherwise have received had there been a public market for our shares.
18.
Legislation, including the Sarbanes-Oxley Act of 2002, may make it more difficult for us to retain or attract officers and directors.
The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934. We are required to comply with the Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
19.
Any market that develops in shares of our common stock will be subject to the penny stock regulations and restrictions which will create a lack of liquidity and make trading difficult or impossible.
The trading of our securities, if any, will be in the over-the-counter market which is commonly referred to as the OTCBB as maintained by FINRA. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of our securities.
Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects the market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
·
the basis on which the broker or dealer made the suitability determination, and
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our shareholders will, in all likelihood, find it difficult to sell their securities.
20.
The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.
We believe that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
·
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
·
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
·
"Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales persons;
·
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
·
wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
21.
If our common stock is quoted on the OTCBB and a public market for our common stock develops, short selling could increase the volatility of our stock price.
Short selling occurs when a person sells shares of stock which the person does not yet own and promises to buy stock in the future to cover the sale. The general objective of the person selling the shares short is to make a profit by buying the shares later, at a lower price, to cover the sale. Significant amounts of short selling, or the perception that a significant amount of short sales could occur, could depress the market price of our common stock. In contrast, purchases to cover a short position may have the effect of preventing or retarding a decline in the market price of our common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on over-the-counter bulletin board or any other available markets or exchanges. Such short selling if it were to occur could impact the value of our stock in an extreme and volatile manner to the detriment of our shareholders.
22.
Our shares may not become eligible to be traded electronically which would result in brokerage firms being unwilling to trade them.
If we become able to have our shares of common stock quoted on the OTCBB, we will then try, through a broker-dealer and its clearing firm, to become eligible with the Depository Trust Company ("DTC") to permit our shares to trade electronically. If an issuer is not “DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (especially the OTCBB), means that shares of a company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all companies on the OTCBB. What this boils down to is that while DTC-eligibility is not a requirement to trade on the OTCBB, it is a necessity to process trades on the OTCBB if a company’s stock is going to trade with any volume. There are no assurances that our shares will ever become DTC-eligible or, if they do, how long it will take.
23.
Any trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws which prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell shares in those states.
There is no established public market for our common stock, and there can be no assurance that any established public market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because our securities have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit the secondary trading of our common stock. Accordingly, investors should consider the secondary market for our securities to be a limited one.
24.
Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over AI.
Our articles of incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
25.
The ability of our president to control our business may limit or eliminate minority shareholders’ ability to influence corporate affairs.
Our President owns 92.3% of our outstanding common stock. Because of his stock ownership, our president will be in a position to continue to elect our board of directors, decide all matters requiring stockholder approval and determine our policies. The interests of our president may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. The minority shareholders would have no way of overriding decisions made by our president. This level of control may also have an adverse impact on the market value of our shares because our president may institute or undertake transactions, policies or programs that result in losses, may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.
26.
We do not expect to pay dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
27.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than necessary, we have not yet adopted these measures.
Because none of our directors are independent directors, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations. We intend to comply with all corporate governance measures relating to director independence as
, if
and when required.
28.
You may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.
We currently are trying to file all delinquent filings. However, our reporting obligations are automatically suspended by operation of statute under Section 15(d) of the Securities Exchange Act of 1934 if we have less than 300 shareholders or have not filed a registration statement on Form 8A. If this occurs after the year in which our Registration Statement became effective, we may file periodic reports voluntarily with the SEC, but will no longer be obligated to file those periodic reports with the SEC and your access to our business information would then be even more restricted. We are not required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners are not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Securities Exchange Act of 1934 until we have both 500 or more security holders and greater than $10 million in assets and are required to register our shares under Section 12 of the Exchange Act. This means that your access to information regarding our business will be limited.
For all of the foregoing reasons and others set forth herein, an investment in the Company’s securities in any market which may develop in the future involves a high degree of risk. Any person considering an investment in such securities should be aware of these and other risk factors set forth in this Form 10-K.
Item 1B.
Item 1B.
UNRESOLVED STAFF COMMENTS
None
Item 2.
Item 2.
PROPERTIES
Our office and mailing address is 25 Robert Pitt Drive, Suite 201, Monsey, NY 10952. We share the office with Actuarial Ideas, Inc. Actuarial Ideas, Inc. charges us a management fee which covers the costs of rent, administrative and computerized recordkeeping costs, communications and other office costs. There are no separate lease agreements.
Item 3.
Item 3.
LEGAL PROCEEDINGS
We are not a party to any pending, or to our knowledge, threatened litigation of any type.
Item 4.
Item 4.
MINE SAFETY DISCLOSURES
N/A
Part II
Item 5.
Item 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES
There is no current market for the shares of our common stock despite the fact that a symbol has been assigned for our securities (AIDC). We subsequently received an OTCBB Delinquency Notification which advised us that, pursuant to NASD Rule 650, unless the delinquency (failure to file our Form 10-K and other required filings on a timely basis) was cured, our securities would not be eligible for OTCBB quotation. The delinquency was not cured by the date required. We are currently in the process of preparing and filing all delinquent periodic filings required under the Securities Exchange Act of 1934, as amended. When and if we are current with all required periodic filings, we will seek a broker-dealer to make the necessary 211 filings to permit our common stock to be quoted on the OTCBB. We cannot predict the likelihood of finding a broker-dealer to make the filing or, if the filing is made, the likelihood of FINRA permitting our shares of common stock to be quoted on the OTCBB.
There can be no assurance that a liquid market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities or blue sky laws of certain states and foreign jurisdictions. Consequently, investors may not be able to liquidate their investments and should be prepared to hold the common stock for an indefinite period of time.
We have never paid any cash dividends on shares of our common stock and do not anticipate that we will pay dividends in the foreseeable future. We intend to apply any earnings to fund the development of our business. The purchase of shares of common stock is inappropriate for investors seeking current or near term income.
As of the close of business on January 28, 2013, there were 28 shareholders of record of our common stock (exclusive of 12 minors whose shares are being held by their respective parents on their behalf) and 10,000,000 shares were issued and outstanding.
On March 19, 2007 (our incorporation date), 9,230,000 shares were issued to Mark Cohen, our president and founder, who agreed that the Company will write all of the pension plans for his clients served by Actuarial Ideas, Inc. On March 26, 2007, an additional 770,000 common shares were issued to 28 additional shareholders (exclusive of 12 minors whose shares are being held by their respective parents on their behalf) at $.001 per share for $770 in cash.
No underwriter participated in the foregoing transactions, and no underwriting discounts or commissions were paid, nor was any general solicitation or general advertising conducted. The securities bear a restrictive legend, and stop transfer instructions are noted on the stock transfer records of our Company.
The foregoing issuances of securities were affected in reliance upon the exemption from registration provided by section 4(2) under the Securities Act of 1933, (the “Act”) as amended.
We have never repurchased any of our equity securities.
Blue Sky Considerations
Because our securities have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. Accordingly, investors should consider any secondary market for the Company’s securities to be a limited one.
Item 6
Item 6
SELECTED FINANCIAL DATA
We are considered to be a smaller reporting company, as defined by Rule 229.10(f)(1), and, therefore, are not required to provide the information required by this Item.
NOTES REGARDING FORWARD LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-K involve risks and uncertainties, including statements as to:
·
our future operating results;
·
our business prospects;
·
our contractual arrangements and relationships with both third parties and related parties;
·
the dependence of our future success on the general economy;
·
our possible financings; and
·
the adequacy of our cash resources and working capital
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe," “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Annual Report on Form 10-K, and we undertake no obligation to publicly update such forward-looking statements other than as may be required by applicable law, to reflect subsequent events or circumstances.
Item 7.
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We were formed as a line of business by Actuarial Ideas, Inc. in January 2005 and became a separate legal entity on March 19, 2007. We write all of the pension plans for the clients of Actuarial Ideas, Inc., an actuarial and consulting firm controlled by our president, Mark Cohen. At the time that we became a separate legal entity, we entered into an agreement with Actuarial Ideas, Inc. under which we continue to write and edit all the pension and retirement plans for its clients. Prior to being a separate legal entity, we were structured as a line of business of Actuarial Ideas, Inc. which allocated a portion of all of its combined costs to us based on the relationship of our revenues to total Actuarial Ideas, Inc. revenues. The revenues represented specifically identified revenue for our business line and are not allocations. Actuarial Ideas, Inc. maintained all of its records based on the nature of each type of revenue producing activity. All of the revenue associated with writing pension plans was segregated and specifically identified. Costs of sales consist primarily of salaries, rent, communications and travel costs. Actuarial Ideas, Inc. believes that the allocation was consistent with the percentage of time and resources devoted to us during each period and conforms to guidelines described in SAB Topic 1B1.
Commencing July 1, 2007, cost allocations from Actuarial Ideas, Inc. ceased, and we began paying a management fee to Actuarial Ideas, Inc. equivalent to $1,500 per month plus 5% of revenues collected for us from customers by Actuarial Ideas, Inc. The management fee covers the costs of rent, administrative and computerized recordkeeping costs, communications and other office costs. It does not include the salaries that we agreed to pay, professional fees and any separate marketing costs that we elect to incur. We also pay (i) Mr. Cohen an annual salary of $30,000 for which he devotes 15% of his time to us (ii) Richard Cohen, our treasurer, devotes 10% of his time to us and receives an annual salary of $6,000.
For the immediate future, Actuarial Ideas, Inc. will refer business to us by advising its clients that the project will be completed more efficiently be engaging us than by engaging any entity other than us to complete a portion of the required tasks. It will provide us the basic information and background. We will use this information to draft or amend pension plans. We will be completely dependent on these referrals from Actuarial Ideas, Inc. for our revenue for at least the next 18 to 24 months. When resources permit in the future, we will seek business from other sources in addition to Actuarial Ideas, Inc.
This work will be performed or supervised by Mr. Cohen. More than 60% of our revenues are generally earned in November and December. While operating in this manner, we will have fixed costs limited to the salary due to Mr. Cohen and the fixed portion of the management fee ($1,500 per month). We are not aware of any material changes to our operations for the next 12 months compared to the level of operations during the past 12 months. The third paragraph in Liquidity below summarizes what our overall expenses will be if this level of operations takes place.
We believe that being a public entity may provide us (and our president, Mark Cohen) benefits in visibility and the way that we are perceived by potential business referral sources and prospective customers. These sources may refer new business to us directly or to Actuarial Ideas, Inc. which also will result in additional revenue for us. Ultimately, the goal of this process will be to develop sources of business beyond Actuarial Ideas, Inc. However, we have not done any studies or performed any surveys to determine the likelihood that these shareholders will actually make referrals to us and there can be no assurances that we will be successful in any of this regard.
Operations
December 31 2012 and 2011
A summary of operations is:
We currently perform work for approximately 150 plans that relate to Actuarial Idea’s clients whose work has been referred to us. More than half of these plans are defined benefit plans. The remainder is split among defined contribution plans such as profit sharing plans, money purchase plans, and 401(k) plans.
Our revenue and operations were severely hurt by the ongoing downturn in the economy. This downturn resulted in very few companies establishing new pension plans. Companies with existing pension plans made as few changes or reviews as possible because of the economic uncertainties. Our financial situation was severely impacted because of these uncertainties and conditions.
Commencing July 1, 2007, we began paying a management fee to Actuarial Ideas, Inc. equivalent to $1,500 per month plus 5% of revenues collected for us from customers by Actuarial Ideas, Inc. The management fee covers the costs of rent, administrative and computerized recordkeeping costs, communications and other office costs. It does not include the salaries that we agreed to pay, professional fees and any separate marketing costs that we elect to incur.
We also pay Mr. Mark Cohen an annual salary of $30,000 for which he devotes approximately 15% of his time to us and Mr. Richard Cohen an annual salary of $6,000 for which he devotes approximately 10% of his time to us. The salary expenses are included in cost of sales. The management fee and the 5% fee are included in general and administrative fees.
Of the amounts reported in 2012 and 2011:
Cost of sales - consists entirely of the salaries to Mark and Richard Cohen.
General and administrative expenses consist principally of:
Management fee ($18,000); payroll taxes ($2,674), and customer service fee ($1,002)
Management fee ($18,000); payroll taxes ($2,754), and customer service fee ($1,469)
Liquidity
In September 2012, we received an unsolicited cash contribution of capital from business associates of our President in the amount of $12,500 which was used to pay accrued obligations.
As a corporate policy, we will not incur any cash obligations that we cannot satisfy with known resources, as are described below and/or elsewhere herein. We believe that the perception that many people have of a public company make it more likely that they will accept securities from a public company as consideration for indebtedness to them than they would from a private company. We have not performed any studies of this matter. Our conclusion is based on our own observations. However, there can be no assurances that we will be successful in any of those efforts. Additionally, issuance of shares would necessarily dilute the percentage of ownership interest of our stockholders.
Issuing restricted shares of our common stock to independent subcontractors or others who may be in a position to refer business or customers to us would enable us to operate and expand our business more effectively. Having shares of our common stock may also give such entities a greater feeling of identity with us which may result in more referred business. Conversely, such issuances of our shares would necessarily dilute the percentage of ownership interest of our existing stockholders.
Despite the fact our president is willing to consider providing us with a loan or advance to us on a case by case basis his resources are not unlimited. We do not believe that we can rely on the likelihood of any significant advance if we are unable to pay standard operating costs. AI does not have any credit facilities or other commitments for debt or equity financing. No assurances can be given that advances when needed will be available. We do not believe that we need funding to undertake our operations at our current level because we do not have a capital intensive business or a significant amount of fixed costs. We do no advertising.
We currently are unaware of any required material cash requirements over the next 12 months other than for professional fees. We believe that we can meet these requirements given the loan commitment from our president provided that revenues over the next 12 months do not decrease over those from the prior 12 months.
We incurred $42,000 of legal costs in connection with our decision to become publicly reporting. In December 2009, we entered into a convertible note payable with our outside counsel, Gary B. Wolff, to satisfy the obligation. The convertible note is payable on demand, is bears interest at 2% per annum, and is convertible into shares of our common stock at a price per share equal to par value. Conversion can be in whole or in any portion of the outstanding principal balance at the option of the holder.
Private capital, if sought, will be sought from former business associates of our president or private investors referred to us by those business associates. To date, we have not sought any funding source and have not authorized any person or entity to seek out funding on our behalf. If a market for our shares ever develops, of which there can be no assurances, we may use shares of our common stock to compensate employees/consultants and independent contractors.
By having become a public company we have incurred and will continue to incur additional significant expenses for legal, accounting and related services. By being subject to the reporting requirements of the Exchange Act of '34, we will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses. We estimate that these costs will range up to $50,000 per year for the next few years and will be higher if our business volume and activity increases but lower during the immediate future because our overall business volume may be lower. These obligations will reduce our ability and resources to fund other aspects of our business. We hope to be able to use our status as a public company to increase our ability to use noncash means of settling day-to-day business obligations and compensate any independent contractors who provide professional services to us, although there can be no assurances that we will be successful in any of those efforts. We will reduce the cash compensation levels paid to our president if there is insufficient cash generated from operations to satisfy these costs. If we reduce the cash paid to our president, the unpaid balance, without interest, will be accrued as a liability until paid. We may also seek outside investments or credit facilities to meet levels of obligations that exceed our cash flow. However, we can provide no assurances that we will be successful in obtaining financing or satisfying all required costs.
There are no current plans to seek private investment. We do not have any current plans to raise funds through the sale of securities. We hope to be able to use our status as a public company to enable us to use noncash means of settling obligations and compensate persons and/or firms providing services or products to us We believe that issuing shares of our common stock to such persons instead of paying cash to them may enable us to obtain and perform more and larger engagements because performance of those engagements will not require larger amounts of cash expenditures to the extent that shares are used to satisfy obligations. Our belief is based on personal observations and is not supported by any formal studies or polls. Having shares of our common stock may give persons a greater feeling of identity with us and our president, Mark Cohen, which may result in referrals to us directly by other actuarial firms or to Actuarial Ideas, Inc. which also will result in additional revenue for us. However, we have not done any studies or performed any surveys to determine the likelihood that these shareholders will actually make referrals to us, and, there can be no assurances that we will do so or will be successful in any of these efforts.
Off Balance Sheet Arrangements
We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in swap agreements, or outsourcing of research and development services, that could expose us to liability that is not reflected on the face of our financial statements.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Critical Accounting Policies
The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 3 to the financial statements, included elsewhere in this Annual Report on Form 10-K, includes a summary of the significant accounting policies and methods used in the preparation of our financial statements.
Seasonality
A majority of our revenues are generally earned in November and December. During these two months, many companies are considering tax planning strategies including adopting or modifying retirement plans.
Item 7A.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item.
Item 8.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements as of December 31, 2012 and the year then ended start on page 35.
Item 9.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
Item 9A.
Item 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our principal executive officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, the Company recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Evaluation of disclosure and controls and procedures
Based on his evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report on Form 10-K the Company's principal executive officer has concluded that the Company's disclosure controls and procedures did operate in an effective manner as of December 31, 2012.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting is defined, under the Exchange Act, as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer'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 generally accepted accounting principles and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
The Company's principal executive officer has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2012. In making this assessment, the Company's principal executive officer was guided by the releases issued by the SEC and to the extent applicable the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's principal executive officer has concluded that based on his assessment, as of December 31, 2012, the Company's procedures of internal control over financial reporting were operating in an effective manner.
Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Item 9B
Item 9B
OTHER INFORMATION
None.
PART III
Item 10.
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our executive officers and directors are as follows:
Mark Cohen - has been president since our inception. He also founded (in 1982) and is president of Actuarial Ideas, Inc., from which we receive our business referrals. Mr. Cohen is an enrolled actuary and is also enrolled to appear before the Internal Revenue Service. He is a graduate of Yeshiva University. Mr. Cohen will devote the time necessary for us to perform our engagements. He estimates that for the next 12 months that will require 15% of his time.
Richard C. Cohen - became treasurer and a director in March 2007. He has worked at Actuarial Ideas, Inc. since May 2005 and is currently an actuarial administrator. Mr. Cohen, who is the son of Mark Cohen and Elizabeth A. Cohen, received a BA from Touro College in 2005. Mr. Cohen will devote the time necessary for us to perform our engagements. He estimates that for the next 12 months that will require 10% of his time.
Elizabeth A. Cohen - has been secretary and a director since March 2007. She has been a psychologist in the East Ramapo School District since 1992. She received a BA from Yeshiva University, an MA from College of New Rochelle and a Ph.D from Nova Southeastern University. Ms. Cohen is the wife of Mark Cohen and the mother of Richard C. Cohen. Ms. Cohen will devote approximately 5% of her time to us.
The term of office of each director expires at our annual meeting of stockholders or until their successors are duly elected and qualified. No officer or director has any prior history with a blank check company.
Possible Potential Conflicts
The OTCBB on which our shares of common stock may be quoted does not have any director independence requirements.
No member of management is or will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officers and directors in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his fiduciary duties to us.
Currently we have only three officers, all of whom are related to each other and also serve as directors, and are in the process of seeking to add additional officer(s) and/or director(s) as and when the proper personnel are located and terms of employment are mutually negotiated and agreed.
Board of Directors
All directors hold office until the completion of their term of office, which is not longer than one year, or until their successors have been elected. All officers are appointed annually by the board of directors and, subject to existing employment agreements (of which there are currently none), serve at the discretion of the board. Currently, directors receive no compensation for their role as directors but receive compensation for their role as officers. The terms of office of our directors expire on December 31, 2013.
Involvement in Certain Legal Proceedings
Except as described below, during the past five years, no present director, executive officer or person nominated to become a director or an executive officer of AI:
1.
had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
2.
was convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any of the following activities:
i.
acting as a futures commission merchant, introducing broker, commodity trading advisor commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
engaging in any type of business practice; or
iii.
engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or
4.
was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of an federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3) (i), above, or to be associated with persons engaged in any such activity; or
5.
was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and for which the judgment has not been reversed, suspended or vacated.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, the AI board of directors will establish an audit committee and a compensation committee. We believe that we will need a minimum of five directors to have effective committee systems. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will manage our stock option plan and review and recommend compensation arrangements for the officers. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees.
All directors will be reimbursed by AI for any expenses incurred in attending directors' meetings provided that AI has the resources to pay these fees. AI will consider applying for officers and directors liability insurance at such time when it has the resources to do so.
Code of Business Conduct and Ethics
In December 2009 we adopted a Code of Ethics and Business Conduct which is applicable to our future employees and which also includes a Code of Ethics for our CEO and principal financial officers and persons performing similar functions. A code of ethics is a written standard designed to deter wrongdoing and to promote:
·
honest and ethical conduct,
·
full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements,
·
compliance with applicable laws, rules and regulations,
·
the prompt reporting violation of the code, and
·
accountability for adherence to the code.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
The following table shows for the periods ended December 31, 2009 and 2008, compensation awarded to or paid to, or earned by, our Chief Executive Officer, Treasurer and Secretary (the “Named Executive Officers”).
Mark Cohen receives an annual salary from us of $30,000 for which he devotes 15% of his time to us. This obligation to pay our president an annual salary is in addition to our obligation to pay a management fee to Actuarial Ideas.
Richard Cohen, our treasurer, devotes 10% of his time to us and receives an annual salary from us of $6,000.
Mark Cohen and Richard Cohen will be paid their salaries set forth in the two preceding paragraphs by Actuarial Ideas. We will reimburse Actuarial Ideas for the amounts paid. We will reduce the cash compensation levels paid to our president if there is insufficient cash generated from operations to satisfy our costs. If we do this, we will advise Actuarial Ideas that we will not reimburse Actuarial Ideas for Mr. Cohen’s salary until further notice. If we reduce the cash paid to our president, the unpaid balance, without interest, will be accrued as a liability until paid.
Outstanding Equity Awards at Fiscal Year End
There are no outstanding equity awards at December 31, 2012.
Item 12
Item 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of April 17, 2013, we had 10,000,000 shares of common stock outstanding which are held by 40 beneficial shareholders (including 12 minors). The chart below sets forth the ownership, or claimed ownership, of certain individuals and entities. This chart discloses those persons known by the board of directors to have or to claim to have, beneficial ownership of more than 5% of the outstanding shares of our common stock as of April 17, 2013; of all directors and executive officers of AI; and of our directors and officers as a group:
Item 13.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
On March 19, 2007 (incorporation date), 9,230,000 shares were issued to Mark Cohen, our president and founder. We were formed as a line of business by Actuarial Ideas, Inc., a New York corporation formed in September 1982 and owned 100% by Mark Cohen. At the time that we became a separate legal entity, Mr. Cohen agreed that we will write all of the pension plans for his clients served by Actuarial Ideas, Inc. in exchange for which we issued him 9,230,000 of our common shares. The shares were recorded to reflect the $.001 par value and paid-in capital was recorded as a negative amount ($9,230). In other words, no net value was assigned to these shares.
The promoters of AI are our three officers, Mark Cohen, our President, Richard C. Cohen, our Treasurer and Elizabeth A. Cohen, our Secretary.
We write all of the pension plans for the clients of Actuarial Ideas, Inc., an actuarial and consulting firm controlled by our president, Mark Cohen. At the time that we became a separate legal entity, we entered into an agreement with Actuarial Ideas, Inc. under which we will continue to write and edit all the pension and retirement plans for its clients. Since July 1, 2007, we have paid a management fee of $1,500 per month plus 5% of revenues collected for us from customers by Actuarial Ideas, Inc. The management fee covers the costs of rent, administrative and computerized recordkeeping costs, communications and other office costs. It does not include the salaries that we agreed to pay, professional fees and any separate marketing costs that we elect to incur. For work performed we pay Mr. Cohen an annual salary of $30,000 for which he devotes 15% of his time to us. Richard Cohen, our treasurer, devotes 10% of his time to us and receives an annual salary from us of $6,000.
At December 31, 2012, we owed Actuarial Ideas, Inc. $60,578 for various expenses.
We incurred $42,000 of legal costs in connection with our decision to become publicly reporting. In December 2009, we entered into a convertible note payable with our outside counsel, Gary B. Wolff, to satisfy the obligation. The convertible note is payable on demand, bears interest at 2% per annum, and is convertible into shares of our common stock at a price per share equal to par value. Conversion can be in whole or in any portion of the outstanding principal balance at the option of the holder.
Our office and mailing address is 25 Robert Pitt Drive, Suite 201, Monsey, NY 10952. We share the office with Actuarial Ideas, Inc. Actuarial Ideas, Inc. charges us a management fee which includes our use of the office. There is no lease.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. Accordingly, we do not have an independent director.
Item 14.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees: Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services in connection with statutory and regulatory filings.
Audit-Related Fees: Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards and were not incurred for 2012.
Tax Services Fees: Tax fees consist of fees billed for professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance. Tax fees were not incurred during the calendar year ended December 31, 2012.
All Other Fees: Other fees, which were not incurred, would include fees for products and services other than the services reported above.
PART IV
Item 15.
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a.
Exhibits
31.1
Certification of Chief Executive Officer
31.2
Certification of Chief Financial Officer
b.
Financial Statements and Schedules
Financial Statements:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AI Document Services, Inc.
Monsey, New York
We have audited the accompanying balance sheets of AI Document Services, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluation 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 AI Document Services, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has sustained significant losses in 2012, and has a working capital deficiency and stockholders’ deficit at December 31, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
PMB Helin Donovan, LLP
/s/ PMB Helin Donovan, LLP
www.pmbhd.com
Houston, Texas
April 17, 2013
AI DOCUMENT SERVICES, INC.
Balance Sheets
December 31, 2012 and 2011
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICS, INC.
Statements of Operations
For the Years Ended December 31, 2012 and 2011
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICS, INC.
Statement of Stockholders’ Deficit
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICS, INC.
Statements of Cash Flows
For the Years Ended December 31, 2012 and 2011
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICES, INC.
December 31, 2012 and 2011
Notes to the Financial Statements
NOTE 1 -
ORGANIZATION AND OPERATIONS
AI Document Services, Inc. (the “Company”) was formed as a line of business by Actuarial Ideas, Inc. in 1982 and became a separate legal entity, incorporated in the State of Delaware, on March 19, 2007. The Company writes all of the pension plans for the clients of Actuarial Ideas, Inc., an actuarial and consulting firm controlled by the Company’s president. At the time that it became a separate legal entity, the Company entered into an agreement with Actuarial Ideas, Inc. under which it continued to write and edit all pension and retirement plans for Actuarial Ideas, Inc.’s clients. On July 1, 2007, the allocation of expenses from Actuarial Ideas ceased, and the Company began paying a management fee to Actuarial Ideas, Inc. equivalent to $1,500 per month plus 5% of revenues collected for us from customers by Actuarial Ideas, Inc. The Company also pays its President an annual salary of $30,000 for which he devotes approximately 15% of his time to the Company. Richard Cohen, the Company’s Treasurer, devotes approximately 10% of his time to the Company and receives an annual salary of $6,000 for the Company.
The Company cannot take advantage of being an emerging growth company under the JOBS Act because it had gone public prior to December 8, 2011.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may be material to the financial statements and accompanying notes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense is included in general and administrative expenses, if any.
Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure to its customers.
Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company’s customer was to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has made reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable
Accounts receivable are presented net of allowances. The following is a summary of changes in the allowance for doubtful accounts:
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
The carrying amounts of the Company’s financial assets and liabilities, such as cash, and accrued expenses loan payable from related party, approximate their fair values because of the short maturity of these instruments.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at December 31, 2012 and 2011, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the years ended December 31, 2012 and 2011.
Revenue Recognition
The Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101 Revenue Recognition, as amended by SAB No. 104 for revenue recognition. The Company recognizes revenues when it has completed the writing or amending of a pension plan and the amount earned is fully determinable and realizable, and the collectability is reasonably assured.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets 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 the statements of operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.
Loss Per Common Share
Basic (loss) per common share is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated similarly but includes potential dilution from the exercise of stock options, stock awards and other convertible instruments, except when the effect of such potential dilution would be anti-dilutive. There were no options or share grants outstanding as of December 31, 2012.
The Company had no issuances of common stock during the years ended December 31, 2012 and 2011. Therefore, the basic and diluted weighted average number of common shares outstanding used to compute earnings per common share was unchanged at 10,000,000 for the years ended December 31, 2012 and 2011.
There are no shares included in the earnings per share calculation related to the Company's convertible note outstanding because the Company’s average stock price did not exceed the conversion price and, accordingly, there is no conversion spread.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 -
GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At December 31, 2012, the Company had an accumulated deficit of $177,710, a working capital deficiency of $155,210 and no source of debt or equity financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern which is dependent upon the Company’s ability to achieve profitable operations or obtain adequate financing. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
While the Company, together with Actuarial Ideas, Inc., is attempting to increase the number of its engagements to write or amend pension plans in order produce additional revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. There are no assurances that current engagements will be extended or new engagements will be obtained.
NOTE 4 -
STOCKHOLDERS’ DEFICIT
The Company was incorporated on March 19, 2007 at which time it issued 9,230,000 common shares of the Company to its founder and president who advised it that it will continue to write all of the pension plans for his clients served by Actuarial Ideas, Inc. The shares were recorded to reflect the $.001 par value and paid-in capital was recorded as a negative amount ($9,230). In other words, no net value was assigned to these shares.
Stock Option Plan
Pursuant to a March 27, 2007 Board of Directors approval and subsequent stockholder approval, the Company adopted its 2007 Non-Statutory Stock Option Plan (the “Plan”) whereby it reserved for issuance up to 1,500,000 shares of its common stock. The purpose of the Plan is to provide directors, officers and employees of, consultants, attorneys and advisors to the Company with additional incentives by increasing their ownership interest in the Company. Directors, officers and other employees of the Company are eligible to participate in the Plan. Options in the form of Non-Statutory Stock Options (“NSO”) may also be granted to directors who are not employed by the Company and consultants, attorneys and advisors to the Company providing valuable services to the Company. In addition, individuals who have agreed to become an employee of, director of or an attorney, consultant or advisor to the Company and/or its subsidiaries are eligible for option grants, conditional in each case on actual employment, directorship or attorney, advisor and/or consultant status. The Plan provides for the issuance of NSO’s only, which are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, as amended.
The Board of Directors of the Company or a Compensation Committee (once established) will administer the Plan with the discretion generally to determine the terms of any option grant, including the number of option shares, exercise price, term, vesting schedule and the post-termination exercise period. Notwithstanding this discretion (i) the term of any option may not exceed 10 years and (ii) an option will terminate as follows: (a) if such termination is on account of termination of employment for any reason other than death, without cause, such options shall terminate one year thereafter; (b) if such termination is on account of death, such options shall terminate 15 months thereafter; and (c) if such termination is for cause (as determined by the Board of Directors and/or Compensation Committee), such options shall terminate immediately. Unless otherwise determined by the Board of Directors or Compensation Committee, the exercise price per share of common stock subject to an option shall be equal to no less than 10% of the fair market value of the common stock on the date such option is granted. No NSO shall be assignable or otherwise transferable except by will or the laws of descent and distribution or except as permitted in accordance with SEC Release No.33-7646 as effective April 7, 1999.
The Plan may be amended, altered, suspended, discontinued or terminated by the Board of Directors without further stockholder approval, unless such approval is required by law or regulation or under the rules of the stock exchange or automated quotation system on which the common stock is then listed or quoted. Thus, stockholder approval will not necessarily be required for amendments which might increase the cost of the Plan or broaden eligibility except that no amendment or alteration to the Plan shall be made without the approval of stockholders which would (a) increase the total number of shares reserved for the purposes of the Plan or decrease the NSO price (except as provided in paragraph 9 of the Plan) or change the classes of persons eligible to participate in the Plan or (b) extend the NSO period or (c) materially increase the benefits accruing to Plan participants or (d) materially modify Plan participation eligibility requirements or (e) extend the expiration date of the Plan. Unless otherwise indicated the Plan will remain in effect for a period of ten years from the date adopted unless terminated earlier by the board of directors except as to NSOs then outstanding, which shall remain in effect until they have expired or been exercised.
No options have been granted and outstanding under the Plan.
Capital Contribution
In September 2012, the Company received a cash contribution of capital from business associates of its President in the amount of $12,500 which was used to pay accrued obligations.
NOTE 5 -
CONVERTIBLE NOTE PAYABLE
The Company incurred $42,000 of legal costs in connection with its decision to become publicly reporting. In December 2009, the Company entered into a convertible note payable with its outside counsel, Gary B. Wolff, to satisfy the obligation. The convertible note is payable on demand, bears interest at 2% per annum and is convertible into shares of the Company’s common stock at a price per share equal to the par value of $0.001. Conversion can be in whole or in any portion of the outstanding principal balance at the option of the holder.
NOTE 6 -
RELATED PARTY TRANSACTIONS
Substantially all of the Company’s revenues are and will continue to be derived by writing and amending all of the pension plans for the clients of Actuarial Ideas, Inc., an actuarial and consulting firm controlled by the Company’s President.
At December 31, 2012 and 2011, Actuarial Ideas, Inc. was owed $60,578 and $22,474 for expenses paid for the Company.
The Company began paying a management fee to Actuarial Ideas, Inc. equivalent to $1,500 per month plus 5% of revenues collected for us from customers by Actuarial Ideas, Inc. The Company also pays its President an annual salary of $30,000 for which he devotes approximately 15% of his time to the Company. Richard Cohen, the Company’s Treasurer, devotes approximately 10% of his time to the Company and receives an annual salary of $6,000 for the Company. The cost of salaries is included as Cost of Sales in the accompanying Statement of Operations.
NOTE 7 -
INCOME TAXES
The Company was a line of business of Actuarial Ideas, Inc., until March 19, 2007 during which time the Company was treated as a part of Actuarial Ideas, Inc. for Federal income tax purposes.
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In accordance with FASB ASC 740, the Company applies the "more likely than not" threshold to the recognition and derecognition of tax positions for its financial statements. Using that guidance, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements as of December 31, 2011 or 2010.
At December 31, 2012 the Company had net operating loss carry-forwards of $177,710 that may be offset against future Federal taxable income through 2031. No tax benefit has been recognized with respect to these net operating loss carry-forwards in the accompanying financial statements because the Company believes that realization is not likely. Accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowance.
All differences between operating results for financial reporting purposes and operating results for income tax purposes are de minimis.
NOTE 8 -
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company recorded a liability of $36,092 for professional services in 2009 which is included the caption "Accrued Expenses." The amount remained unchanged as of December 31, 2012. The Company believes that the amount billed was excessive and is exploring its options with respect to this item.
Accounts payable and accrued expenses at December 31 were:
NOTE 9 -
SUBSEQUENT EVENTS
The Company has evaluated all events that occurred after the balance sheet date of December 31, 2012 through April 17, 2013, the date when the financial statements were issued. The Management of the Company determined that there were no reportable events that occurred during that subsequent period to be disclosed or recorded.