BLUE LINE PROTECTION GROUP, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Fiscal Year Ended
December 31, 2010
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Transition Period from __________ to ___________
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Commission File Number:
000-52942
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THE ENGRAVING MASTERS, INC.
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(Name of small business issuer in its charter)
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Nevada
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20-5543728
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. employer identification number)
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3717 W. Woodside
Spokane, WA
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99208
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(Address of principal executive offices)
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(Zip code)
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Issuer’s telephone number:
(509) 599-2728
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Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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None
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None
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Securities Registered Pursuant to Section 12(g) of the Act:
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None
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(Title of class)
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(Title of class)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
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Smaller reporting company [X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes [X] No [ ]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the most recent price at which the common equity was sold:
$32,600 as of June 30, 2010.
The number of shares outstanding of each of the issuer's classes of common equity, as of March 31, 2010 was
7,630,000.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).
None.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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THE ENGRAVING MASTERS, INC.
FORM 10-K
For the year ended December 31, 2010
TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements about our business, financial condition and prospects that reflect our management’s assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand its customer base, managements’ ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this Report, words such as,
"believes,"
"expects," "intends,"
"plans,"
"anticipates,"
"estimates"
and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
DESCRIPTION
OF BUSINESS
Business Development and Summary
The Engraving Masters, Inc. was incorporated in the State of Nevada on September 11, 2006.
In January 2007, we entered into a Procurement Agreement with The Engravers, Inc., an engraving company founded in 1982 in Spokane, Washington, which is owned and operated by the family of our officers and directors. This Agreement provides us with access to the inventory, engraving equipment and facilities and expertise of The Engravers. We will not maintain any inventory. All items that will be listed on our proposed website will be acquired from the inventory of The Engravers, and are expected to be available on a just-in-time basis. When we receive an order, an order for the merchandise and engraving services will be placed concurrently with The Engravers, who will fulfill the order with their saleable inventory and engraved by their engraving equipment and personnel. We will not hire any engraving employees and will not own any capital equipment. Pursuant to the Procurement Agreement, all products purchased from The Engravers will be acquired at the wholesale cost of the item, calculated as the cost of the inventory, engraving costs, freight in and freight out.
In October 2007, we sold an aggregate of 1,630,000 shares of our common stock in an offering made under Regulation D, Rule 504 to 25 individuals, for net cash proceeds in the amount of $32,100, after deducting $500 in offering costs. Prior to, and up to the time of this offering, our operations were minimal and limited to forming our corporate identity, obtaining seed capital through sales of our equity, establishing our corporate hierarchy and began pursuit of our primary business plan.
Our administrative office is located at 3717 W. Woodside, Spokane, WA 99208.
Our fiscal year end is December 31.
Business of Issuer
Principal Products and Principal Markets
We plan on becoming an online retailer of engraved products and awards, consisting of trophies, plaques, medals, statuettes and other recognition awards capable of being engraved with various congratulatory or personal phrases, for the purpose of recognizing achievements in sports, academics or other celebrations. We have reserved the domain www.TheEngravingMasters.com, which will serve as our base of operations and the sole method through which sales will be initiated and realized. Currently, the site is under development and has not been published. Once the website is enabled as a sales channel, it will be expected to serve as our sole method of generating sales. Resultantly, until the website is published, we will be unable to begin to generate revenues.
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Our management believes that the best method for us to compete with online companies is to access the inventory and facilities of an established brick and mortar partner. Resultantly, we have entered into a Procurement Agreement with The Engravers, a related-party engraving company founded in 1982 and serving the Spokane, Washington region, whereby we will not incur the significant inventory and overhead investments that many of our competitors do. We will not carry any inventory of our own, nor will we own any engraving equipment or supplies.
Once we establish our website, customers will be able to view a selection of products available for sale. Customers will also be able to consider engraving options, such as font styles and sizes. Upon receiving an order online, we will confirm the accuracy of the order with the customer, then notify The Engravers of the items to be removed from The Engravers’ inventory and the engraving work to be done. We will maintain no inventory and will outsource all engraving work to The Engravers. We will rely solely upon The Engravers for all inventory and engraving services; thus we will maintain no inventory and will not own any engraving machinery or equipment.
Distribution Methods of the Products and Services
We expect to use general parcel and postal services as our distribution methods to fulfill customer orders. Such services include, without limitation, United Parcel Service, DHL, Federal Express and the United States Postal Service.
Industry Background and Competition
The market for engraving services and recognition awards in the United States is highly competitive and severely fragmented. Our management believes there are moderate barriers to entry, including relatively high start-up costs for engraving equipment and inventory. In the Spokane, Washington area, there are approximately three engraving companies, including The Engraver, with which we have a Procurement Agreement, listed in the Yellow Pages, all of which have only a local or regional presence. To our knowledge, Things Remembered is the largest engraving company with a nationally recognized brand and physical presence. There are also a number of regional engraving companies supplementing their business via the Internet. A simple web search retrieves approximately 854,000 references for the phrase “engraving companies.”
Our management believes that most of our competitors are larger and have greater financial, technical, marketing and other resources, significantly greater name recognition and more traffic to their web sites. Competition depends, to a large extent on clients' perception of the quality of the award products and engraving services we provide in comparison to those of our competitors. To the extent we lose clients to our competitors because of dissatisfaction with our products and services, or if our reputation is adversely impacted for any other reason, our ability to attract customers, and therefore our ability to generate revenues, will be reduced.
Principal suppliers
We will not directly procure any raw materials, nor will we produce or engrave any of the products we intend to sell. In accordance with our Procurement Agreement, all orders we receive will be fulfilled by The Engravers from start to finish. We will not maintain any inventory and we will not perform any engraving services. As a result, The Engravers are our sole method of completing customer orders. We have no alternate supply sources. Our business would be seriously harmed if our relationship with The Engravers were terminated or if we were unable to obtain sufficient quantities of merchandise on acceptable terms from The Engravers. Additionally, we may be unable to establish alternative sources of supply to ensure delivery of merchandise in a timely and efficient manner or on terms acceptable to us. If we cannot obtain and stock our products at acceptable prices and on a timely basis, we may lose potential sales.
Need for Government Approval of Principal Products
While we believe we are and will be in substantial compliance with the laws and regulations which regulate our business, and that we possess all the licenses required in the conduct of our business, the failure to comply with any of those laws or regulations, or the imposition of new laws or regulations could negatively impact our proposed business.
Number of total employees and number of full time employees
We presently have no employees. Instead, we rely on the efforts of David Uddman and Jolene Uddman, our executive officers. We believe that our operations are currently on a small scale that is manageable by these individuals on a part-time basis.
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Reports to Security Holders
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We will furnish shareholders with annual financial reports certified by our independent registered public accountants.
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We are a reporting issuer with the Securities and Exchange Commission. We file periodic reports, which are required in accordance with Section 15(d) of the Securities Act of 1933, with the Securities and Exchange Commission to maintain the fully reporting status.
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The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20002. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings will be available on the SEC Internet site, located at http://www.sec.gov.
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RISK
FACTORS
Our officers and directors work for us on a part-time basis. As a result, we may be unable to develop our business and manage our public reporting requirements.
Our operations depend on the efforts of David Uddman, our President and director, and Jolene Uddman, our Secretary, Treasurer and director. Neither Mr. nor Mrs. Uddman has experience related to public company management, nor as a principal accounting officer. Because of this, we may be unable to develop and manage our business. We cannot guarantee you that we will overcome any such obstacle.
Both Mr. and Mrs. Uddman are involved in other business opportunities and may face a conflict in selecting between The Engraving Masters and their other business interests. We have not formulated a policy for the resolution of such conflicts. If we lose either or both Mr. and Mrs. Uddman to other pursuits without a sufficient warning we may, consequently, go out of business.
Investors may lose their entire investment if we fail to implement our business plan.
The Engraving Masters, Inc. was formed in September 2006. We have no demonstrable operations record on which you can evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. These risks include, without limitation, competition, the absence of ongoing revenue streams, inexperienced management and lack of brand recognition. The Engraving Masters cannot guarantee that we will be successful in executing our proposed engraving services and merchandising business. To date, we have not generated any revenues, have not purchased any inventory, have not developed a marketing plan and expect to incur losses for the foreseeable future. If we fail to implement and create a base of operations for our proposed business, we may be forced to cease operations, in which case investors may lose their entire investment.
If we are unable to continue as a going concern, investors may face a complete loss of their investment.
We have yet to commence our planned merchandising operations. As of the date of this annual report, we have had only limited start-up operations and generated no revenues. Taking these facts into account, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern in the independent registered public accounting firm’s report to the financial statements included in the annual report. If our business fails, the investors in this offering may face a complete loss of their investment.
Investors will have limited control over decision-making because principal stockholders, officers and directors of The Engraving Masters control the majority of our issued and outstanding common stock.
David Uddman, an executive officer, employee and director, beneficially owns 78.64% of our issued and outstanding common stock. As a result of such ownership, investors in this offering will have limited control over matters requiring approval by our security holders, including the election of directors. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we enter into transactions that require stockholder approval. In addition, certain provisions of Nevada law could have the effect of making it more difficult or more expensive for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. For example, Nevada law provides that not less than two-thirds vote of the stockholders is required to remove a director, which could make it more difficult for a third party to gain control of our Board of Directors. This concentration of ownership limits the power to exercise control by the minority shareholders.
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The Engraving Masters may not be able to attain profitability without additional funding, which may be unavailable.
We have limited capital resources. To date, we have not generated cash from our operations. Unless we begin to generate sufficient revenues from our proposed business objective of selling engraved products and awards to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to go out of business if additional financing is not available. We have no intention of liquidating. In the event our cash resources are insufficient to continue operations, we intend to raise additional capital through offerings and sales of equity or debt securities. In the event we are unable to raise sufficient funds, we will be forced to go out of business and will be forced to liquidate. A possibility of such outcome presents a risk of complete loss of investment in our common stock.
Because of competitive pressures from competitors with more resources, The Engraving Masters may fail to implement its business model profitably.
The market for customers is intensely competitive and such competition is expected to continue to increase. Generally, our actual and potential competitors have longer operating histories, greater financial and marketing resources, greater name recognition and an entrenched client base. Therefore, many of these competitors may be able to devote greater resources to attracting customers and preferred vendor pricing. There can be no assurance that our current or potential competitors will not stock comparable or superior products to those we expect to offer. Increased competition could result in lower than expected operating margins or loss of market share, any of which would materially and adversely affect our business, results of operation and financial condition.
We may be unable to generate sales without sales, marketing or distribution capabilities.
We have not commenced our planned business of selling engraved recognition awards and do not have any sales, marketing or distribution capabilities. We cannot guarantee that we will be able to develop a sales and marketing plan or to develop an effective chain of distribution. In the event we are unable to successfully implement these objectives, we may be unable to generate sales and operate as a going concern.
We may not be able to generate sales because consumers may choose not to shop online.
We may not be able to attract potential customers who shop in traditional retail stores to shop on our proposed web site. Furthermore, we may incur significantly higher and more sustained advertising and promotional expenditures than anticipated to attract online shoppers and to convert those shoppers into purchasing customers. As a result, we may not be able to achieve profitability, and even if we are successful at attracting online customers, we expect it could take several years to build a substantial customer base. Specific factors that could prevent widespread customer acceptance of our e-commerce solution include:
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Customer concerns about buying products without physically viewing or handling them;
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Customer concerns about the security of online transactions and the privacy of their personal information; and
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Difficulties in returning or exchanging items purchased through the website.
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The Engraving Masters may lose its top management without employment agreements.
Our operations depend substantially on the skills and experience of David Uddman, our President and director, and Jolene Uddman, our Secretary, Treasurer and director. We have no other full- or part-time employees besides these individuals. Furthermore, we do not maintain key man life insurance on either of these two individuals. Without employment contracts, we may lose either or both of our officers and directors to other pursuits without a sufficient warning and, consequently, go out of business.
Both Mr. and Mrs. Uddman are involved in other business opportunities and may face a conflict in selecting between The Engraving Masters and their other business interests. We have not formulated a policy for the resolution of such conflicts. If we lose either or both Mr. and Mrs. Uddman to other pursuits without a sufficient warning we may, consequently, go out of business.
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Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the 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: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
The costs and expenses of SEC reporting and compliance may inhibit our operations.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. The costs of complying with such requirements may be substantial. In the event we are unable to establish a base of operations that generates sufficient cash flows or cannot obtain additional equity or debt financing, the costs of maintaining our status as a reporting entity may inhibit our ability to continue our operations.
Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
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Deliver to the customer, and obtain a written receipt for, a disclosure document;
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Disclose certain price information about the stock;
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Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
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Send monthly statements to customers with market and price information about the penny stock; and
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In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.
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Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
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UNRESOLVED
STAFF COMMENTS
None.
We use office space at 3717 W. Woodside, Spokane, Washington 99208. Our officers, David and Jolene Uddman, provide the office space at no charge to us. We believe that this arrangement is suitable given that our current operations are primarily administrative. We also believe that we will not need to lease additional administrative offices for at least the next 12 months. There are currently no proposed programs for the renovation, improvement or development of the facilities we use.
Our management does not currently have policies regarding the acquisition or sale of real estate assets primarily for possible capital gain or primarily for income. We do not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
LEGAL
PROCEEDINGS
No Director, officer, significant employee, or consultant of The Engraving Masters, Inc. has been convicted in a criminal proceeding, exclusive of traffic violations.
No Director, officer, significant employee, or consultant of The Engraving Masters, Inc. has been permanently or temporarily enjoined, barred, suspended, or otherwise limited from involvement in any type of business, securities or banking activities.
No Director, officer, significant employee, or consultant of The Engraving Masters, Inc. has been convicted of violating a federal or state securities or commodities law.
The Engraving Masters, Inc. is not a party to any pending legal proceedings.
No director, officer, significant employee or consultant of The Engraving Masters, Inc. has had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK
Market information
We have been approved for listing on the OTCBB under the symbol "EGRV". As of December 31, 2010, no public market in The Engraving Masters, Inc.'s common stock has yet developed and there can be no assurance that a meaningful trading market will subsequently develop. The Engraving Masters, Inc. makes no representation about the value of its common stock.
Holders
As of the date of this filing, The Engraving Masters, Inc. has 7,630,000 shares of $0.001 par value common stock issued and outstanding held by 26 shareholders of record. Our Transfer Agent is Holladay Stock Transfer, Inc., 2939 N. 67
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Place, Suite C, Scottsdale, Arizona 85251, phone (480) 481-3940.
Dividends
The Engraving Masters, Inc. has never declared or paid any cash dividends on its common stock. For the foreseeable future, The Engraving Masters intends to retain any earnings to finance the development and expansion of its business, and it does not anticipate paying any cash dividends on its common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including The Engraving Masters’ financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant.
Recent Sales of Unregistered Securities
Sales conducted under an exemption from registration provided under Section 4(2)
On October 5, 2006, we issued 6,000,000 shares of our common stock to David Uddman, an officer and director, as founders’ shares in exchange for cash in the amount of $10,000. We believe that this transaction is exempt from the registration provisions of Section 5 of the Securities Act as such exemption is provided under Section 4(2) because:
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This issuances did not involve underwriters, underwriting discounts or commissions;
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Restrictive legends were placed on all certificates issued;
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The distribution did not involve general solicitation or advertising; and
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The distributions were made only to insiders, accredited investors or investors who were sophisticated enough to evaluate the risks of the investment. Mr. Uddman was given access to all information about our business and the opportunity to ask questions and receive answers about our business prior to making any investment decision.
On the basis of the above facts we claim that the issuances of a total of 6,000,000 shares of its Common Stock in October 2006 qualified for the exemption from registration contained in Section 4(2) of the Securities Act of 1933.
Sales conducted under Regulation D
In October 2007, we completed an offering of shares common stock in accordance with Regulation D, Rule 504 of the Securities Act, registered by qualification in the State of Nevada, whereby we sold 1,630,000 shares of common stock, par value, at a price of $0.05 per share to 25 non-affiliated investors. All investors were, at the time of purchase, residents of the State of Nevada.
This offering was made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended, in accordance with Regulation D, Rule 504 of the Act. In addition, this offering was underwritten on a best efforts basis. In regards to the offering closed in October 2007, listed below are the factual circumstances which support the availability of Rule 504:
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At the time of the offering, we were not subject to the reporting requirements of section 13 or section 15(d) of the Exchange Act. Further, we are not now, nor were we at the time of the offering, considered to be an investment company. Finally, since inception, we have pursued a specific business plan, and continue to do so.
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We were issued a permit to sell securities by the State of Nevada, pursuant to our application for registration by qualification of offering of our common stock in that state. The application for registration by qualification was filed pursuant to the provisions of NRS 90.490, which requires the public filing and delivery to investors of a substantive disclosure document before sale. In October 2007, we completed an offering of shares of common stock pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as amended, and the registration by qualification of said offering in the State of Nevada, whereby we sold 1,630,000 shares of our common stock to a total of 25 shareholders. One of these purchasers is our sole officer and director, although at the time of purchase, he was not. The entire offering was conducted exclusively in the State of Nevada, pursuant to the permit issued by the State of Nevada.
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The net proceeds received from the offering closed in October 2007 was $32,100 after deducting offering costs of $500.
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MANAGEMENT’S
DISCUSSION AND PLAN OF OPERATIONS
Forward-Looking Statements
The statements contained in all parts of this document that are not historical facts are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: the Company's ability to secure necessary financing; expected growth; future operating expenses; future margins; fluctuations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
When used in this document, the words "anticipate," "estimate," "expect," "may," "plans," "project," and similar expressions are intended to be among the statements that identify forward-looking statements. The Engraving Masters, Inc.’s results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to the Company’s dependence on its ability to attract and retain skilled managers and other personnel; intense competition; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; its vulnerability to general economic conditions; accuracy of accounting and other estimates; the Company's future financial and operating results, cash needs and demand for services; and the Company's ability to maintain and comply with permits and licenses; as well as other risk factors described in this Annual Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
Management’s Discussion and Analysis
We plan on becoming an online retailer of engraved products and awards, consisting of trophies, plaques, medals, statuettes and other recognition awards capable of being engraved with various congratulatory or personal phrases, for the purpose of recognizing achievements in sports, academics or other celebrations. Since our inception, we have worked with the singular goal of executing our business plan and establishing a base of operations. Unfortunately, we generated no revenues in any period since our inception. We have no sources of revenues and cannot forecast the amount, if any, of revenues we will generate for the foreseeable future.
In the execution of our business, we incur depreciation expense related to our computer equipment, as well as various general and administrative costs. General and administrative expenses mainly consist of office expenditures and accounting and legal fees. During the year ended December 31, 2010, our expenses of $12,169, consisted of $507 in depreciation expense and $11,662 in general and administrative expenses. In the comparable period from the year ended December 31, 2009, our expenses of $10,974, consisted of $507 in depreciation expense and $10,467 in general and administrative expenses. Aggregate operating expenses from our inception on September 11, 2006 through December 31, 2010 were $56,842, of which $1,279 is related to depreciation expense and $55,563 in general and administrative expenses. No development related expenses have been or will be paid to our affiliates. We expect to continue to incur general and administrative expenses for the foreseeable future, although we cannot estimate the extent of these costs.
11
As a result of our minimal level of revenues and incurring ongoing expenses related to the implementation of our business, we have experienced net losses in all periods since our inception on September 11, 2006. In the year ended December 31, 2010, our net loss totaled $12,169, compared to a net loss of $10,974 in the prior year ended December 31, 2009. Since our inception, we have accumulated net losses in the amount of $56,842. We anticipate incurring ongoing operating losses and cannot predict when, if at all, we may expect these losses to plateau or narrow. We have not been profitable from our inception through the year ended December 31, 2010. There is significant uncertainty projecting future profitability due to our history of losses, lack of revenues, and due to our reliance on the performance of third parties on which we have no direct control.
Generating sales in the next 12 months is important to support our business. In order for us to achieve profitability and support our planned ongoing operations, we estimate that we must begin generating a minimum of $50,000 in sales in the next 12 months. However, we cannot guarantee that we will generate any sales, let alone achieve that target. As of the date of this annual report, we are a development stage company with no revenues and a limited operational history. We have a website located at www.theengravingmasters.com to serve as our sole method of attracting customers and generating sales. We intend to operate solely as an online company. All sales are expected to be realized through our web site. To date, we have not received any orders via the website.
Our management believes that most organizations are postponing or suspending purchasing engraved award products, such as we sell. As a result, we have decided to delay all marketing and promotional efforts. We intended to implement search engine placement and keyword submission optimization services to increase the visibility of our website. To date, we have not developed or implemented any marketing strategy.
As of December 31, 2010, we had $191 of cash on hand, which our management believes these funds are not sufficient to implement our planned strategies and establish a base of operations over the next 12 months. Our management expects that we will experience net cash out-flows for the fiscal year 2011, given the developmental nature of our business. We cannot predict the stability of current or projected overhead or that we will generate sufficient revenues to maintain our operations without the need for additional capital. Our management believes we may need to raise additional capital by issuing capital stock in exchange for cash in order to continue as a going concern. There are no formal or informal agreements to attain such financing. We cannot assure you that any financing can be obtained or, if obtained, that it will be on reasonable terms. As such, our principal accountants have expressed substantial doubt about our ability to continue as a going concern because we have limited operations and have not fully commenced planned principal operations. If our business fails, our investors may face a complete loss of their investment.
Our management does not anticipate the need to hire additional full- or part- time employees over the next 12 months, as the services provided by our current officers appear sufficient at this time. Our officers work for us on a part-time basis, and are prepared to devote additional time, as necessary. We do not expect to hire any additional employees over the next 12 months.
No development related expenses have been or will be paid to our affiliates.
Our management does not expect to incur research and development costs.
We do not have any off-balance sheet arrangements.
We currently do not own any significant plant or equipment that we would seek to sell in the near future.
We have not paid for expenses on behalf of our directors. Additionally, we believe that this fact shall not materially change.
We currently do not have any material contracts and or affiliations with third parties.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
12
FINANCIA
L STATEMENTS AND SUPPLEMENTARY DATA
The following documents (pages F-1 to F-12) form part of the report on the Financial Statements
|
PAGE
|
|
13
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Engraving Masters, Inc.
We have audited the accompanying balance sheets of Engraving Masters, Inc. (A Development Stage Company) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009 and from inception (September 11, 2006) to December 31, 2010. Engraving Masters, Inc. management is responsible for these financial statements. 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 the 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 evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Engraving Masters, Inc (A Development Stage Company) as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the period ended December 31, 2010 and 2009 and from inception (September 11, 2006) to December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty
.
De Joya Griffith & Company, LLC
/s/ De Joya Griffith & Company, LLC
Henderson, Nevada
March 25, 2011
2580 Anthem Village Drive, Henderson, NV 89052
Telephone (702) 563-1600 ● Facsimile (702) 920-8049
F1
14
The Engraving Masters, Inc.
(A Development Stage Company)
(Audited)
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash
|
$ | 191 | $ | 553 | ||||
|
Total current assets
|
191 | 553 | ||||||
|
Fixed assets, net
|
242 | 749 | ||||||
|
Total assets
|
$ | 433 | $ | 1,302 | ||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | - | $ | - | ||||
|
Total current liabilities
|
- | - | ||||||
|
Stockholders’ equity
|
||||||||
|
Preferred stock, $0.001 par value, 100,000,000 shares
|
||||||||
|
authorized, no shares issued and outstanding
|
- | - | ||||||
|
Common stock, $0.001 par value, 100,000,000 shares
|
||||||||
|
authorized, 7,630,000 shares issued and outstanding
|
||||||||
|
as of 12/31/10and 12/31/09
|
7,630 | 7,630 | ||||||
|
Additional paid-in capital
|
49,645 | 38,345 | ||||||
|
(Deficit) accumulated during development stage
|
(56,842 | ) | (44,673 | ) | ||||
|
Total stockholders’ equity
|
433 | 1,302 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 433 | $ | 1,302 | ||||
The accompanying notes are an integral part of these financial statements.
F2
15
The Engraving Masters, Inc.
(A Development Stage Company)
(Audited)
|
For the years ended
|
Inception
|
|||||||||||
|
December 31,
|
(September 11, 2006) to
|
|||||||||||
|
2010
|
2009
|
December 31, 2010
|
||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Expenses:
|
||||||||||||
|
Depreciation expense
|
507 | 507 | 1,279 | |||||||||
|
General and administrative expenses
|
11,662 | 10,467 | 55,563 | |||||||||
|
Total expenses
|
12,169 | 10,974 | 56,842 | |||||||||
|
Net loss
|
$ | (12,169 | ) | $ | (10,974 | ) | $ | (56,842 | ) | |||
|
Weighted average number of
|
||||||||||||
|
common shares outstanding - basic
|
7,630,000 | 7,630,000 | ||||||||||
|
Net loss per share - basic
|
$ | (0.00 | ) | $ | (0.00 | ) | ||||||
The accompanying notes are an integral part of these financial statements.
F3
16
The Engraving Masters, Inc.
(A Development Stage Company)
Statements
of Stockholders’ Equity
From Inception (September 11, 2006) to December 31, 2010
(Audited)
|
(Deficit)
|
||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||
|
Additional
|
During
|
Total
|
||||||||||||||||||
|
Common Stock
|
Paid-in
|
Development
|
Stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Stage
|
Equity
|
||||||||||||||||
|
September 14, 2006
|
||||||||||||||||||||
|
Additional paid-in capital
|
- | $ | - | $ | 175 | $ | - | $ | 175 | |||||||||||
|
September 25, 2006
|
||||||||||||||||||||
|
Additional paid-in capital
|
- | - | 100 | - | 100 | |||||||||||||||
|
October 5, 2006
|
||||||||||||||||||||
|
Founders shares
|
||||||||||||||||||||
|
issued for cash
|
||||||||||||||||||||
|
$0.001 per share
|
6,000,000 | 6,000 | 4,000 | - | 10,000 | |||||||||||||||
|
Net loss
|
||||||||||||||||||||
|
Inception (September 11, 2006)
|
||||||||||||||||||||
|
to December 31, 2006
|
- | - | - | (3,462 | ) | (3,462 | ) | |||||||||||||
|
Balance, December 31, 2006
|
6,000,000 | 6,000 | 4,275 | (3,462 | ) | 6,813 | ||||||||||||||
|
October 10, 2007
|
||||||||||||||||||||
|
Issued for cash
|
||||||||||||||||||||
|
$0.02 per share
|
1,630,000 | 1,630 | 30,470 | - | 32,100 | |||||||||||||||
|
Net loss
|
||||||||||||||||||||
|
For the year ended
|
||||||||||||||||||||
|
December 31, 2007
|
- | - | - | (8,297 | ) | (8,297 | ) | |||||||||||||
|
Balance, December 31, 2007
|
7,630,000 | 7,630 | 34,745 | (11,759 | ) | 30,616 | ||||||||||||||
|
Net loss
|
||||||||||||||||||||
|
For the year ended
|
||||||||||||||||||||
|
December 31, 2008
|
- | - | - | (21,940 | ) | (21,940 | ) | |||||||||||||
|
Balance, December 31, 2008
|
7,630,000 | 7,630 | 34,745 | (33,699 | ) | 8,676 | ||||||||||||||
|
Donated capital
|
- | - | 3,600 | - | 3,600 | |||||||||||||||
|
Net loss
|
||||||||||||||||||||
|
For the year ended
|
||||||||||||||||||||
|
December 31, 2009
|
- | - | - | (10,974 | ) | (10,974 | ) | |||||||||||||
|
Balance, December 31, 2009
|
7,630,000 | 7,630 | 38,345 | (44,673 | ) | 1,302 | ||||||||||||||
|
Donated capital
|
- | - | 11,300 | - | 11,300 | |||||||||||||||
|
Net loss
|
||||||||||||||||||||
|
For the year ended
|
||||||||||||||||||||
|
December 31, 2010
|
- | - | - | (12,169 | ) | (12,169 | ) | |||||||||||||
|
Balance, December 31, 2010
|
7,630,000 | $ | 7,630 | $ | 49,645 | $ | (56,842 | ) | $ | 433 | ||||||||||
The accompanying notes are an integral part of these financial statements.
F4
17
The Engraving Masters, Inc.
(A Development Stage Company)
(Audited)
|
For the year ended
|
Inception
|
|||||||||||
|
December 31,
|
(September 11, 2006) to
|
|||||||||||
|
2010
|
2009
|
December 31, 2010
|
||||||||||
|
Operating activities
|
||||||||||||
|
Net loss
|
$ | (12,169 | ) | $ | (10,974 | ) | $ | (56,842 | ) | |||
|
Adjustments to reconcile net loss to
|
||||||||||||
|
net cash (used) by operating activities:
|
||||||||||||
|
Depreciation
|
507 | 507 | 1,279 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
(Decrease) in accounts payable
|
- | - | - | |||||||||
|
Net cash (used) by operating activities
|
(11,662 | ) | (10,467 | ) | (55,563 | ) | ||||||
|
Investing activities
|
||||||||||||
|
Purchase of fixed assets
|
- | - | (1,521 | ) | ||||||||
|
Net cash (used) by investing activities
|
- | - | (1,521 | ) | ||||||||
|
Financing activities
|
||||||||||||
|
Donated capital
|
11,300 | 3,600 | 15,175 | |||||||||
|
Issuances of common stock
|
- | - | 42,100 | |||||||||
|
Net cash provided by financing activities
|
11,300 | 3,600 | 57,275 | |||||||||
|
Net increase (decrease) in cash
|
(362 | ) | (6,867 | ) | 191 | |||||||
|
Cash – beginning of the year
|
553 | 7,420 | - | |||||||||
|
Cash – end of the year
|
$ | 191 | $ | 553 | $ | 191 | ||||||
|
Supplemental disclosures:
|
- | - | - | |||||||||
|
Interest paid
|
||||||||||||
|
Income taxes paid
|
||||||||||||
The accompanying notes are an integral part of these financial statements.
F5
18
The Engraving Masters, Inc.
(A Development Stage Company)
Note
s to Audited Financial Statements
The Company was organized September 11, 2006 (Date of Inception) under the laws of the State of Nevada, as The Engraving Masters, Inc. The Company is authorized to issue up to 100,000,000 shares of its common stock and 100,000,000 shares of preferred stock, each with a par value of $0.001 per share.
The business plan of the Company is to sell engraved awards and collectibles via the Internet. The Company has limited or no operations and in accordance with FASB ASC 915-10, “Development Stage Entities,” the Company is considered a development stage company.
Year end
The Company has adopted December 31 as its fiscal year end.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
|
Cash and cash equivalents
|
The Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 2010 and 2009.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2010 and 2009. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the related assets. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized.
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Revenue recognition
The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the amount of fees to be paid by the customer is fixed or determinable; (3) the product has been provided to the customer; and (4) the collection of our fees is probable. The Company will record revenue when it is realizable and earned and the product has been shipped to the customer.
F6
19
The Engraving Masters, Inc.
(A Development Stage Company)
Notes to Audited Financial Statements
Advertising costs
The Company expenses all costs of advertising as incurred. There were no advertising costs included in selling, general and administrative expenses at December 31, 2010 and 2009.
General and administrative expenses
The significant components of general and administrative expenses consist solely of legal and professional fees.
Loss per share
Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic loss per share is computed by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. The Company had no dilutive common stock equivalents, such as stock options or warrants as of December 31, 2010 and 2009.
|
Dividends
|
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Income Taxes
The Company follows FASB ASC 740-10, “Income Taxes” for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of December 31, 2010, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material affect on the Company.
The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.
The Company classifies tax-related penalties and net interest as income tax expense. As of December 31, 2010 and 2009, no income tax expense has been incurred.
Recent pronouncements
The Company has evaluated the recent accounting pronouncements through ASU 2011-01 and believes that none of them will have a material effect on the company’s financial statements.
F7
20
The Engraving Masters, Inc.
(A Development Stage Company)
Notes to Audited Financial Statements
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company had an accumulated deficit of $56,842. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is contemplating conducting an offering of its debt or equity securities to obtain additional operating capital. The Company is dependent upon its ability, and will continue to attempt, to secure equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Fixed assets as of December 31, 2010 and 2009, consisted of the following:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Computer equipment
|
$ | 1,521 | $ | 1,521 | ||||
|
Accumulated depreciation
|
(1,279 | ) | (772 | ) | ||||
| $ | 242 | $ | 749 | |||||
During the years ended December 31, 2010 and 2009, the Company recorded depreciation expense of $507 and $507, respectively.
For the years ended December 31, 2010 and 2009, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2010 and 2009, the Company had approximately $56,842 and $44,673 of federal and state net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2026. The provision for income taxes consisted of the following components for the year ended December 31:
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31:
|
December 31
|
||||||||
|
2010
|
2009
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards
|
$ | 19,895 | $ | 15,636 | ||||
|
Valuation allowance
|
(19,895 | ) | (15,636 | ) | ||||
|
Total deferred tax assets
|
$ | - | $ | - | ||||
F8
21
The Engraving Masters, Inc.
(A Development Stage Company)
Notes to Audited Financial Statements
The valuation allowance for deferred tax assets as of December 31, 2010 and 2009 was $19,985 and $15,636, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2010 and 2009, and recorded a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31:
|
2010 & 2009
|
||||
|
Federal statutory tax rate
|
(35.0 | )% | ||
|
Permanent difference and other
|
35.0 | % | ||
The Company is authorized to issue 100,000,000 shares of $0.001 par value common stock and 100,000,000 shares of $0.001 par value preferred stock.
On September 14, 2006, the sole officer and director of the Company paid for expenses on behalf of the Company in the amount of $175. The entire amount was donated, is not expected to be repaid and is considered to be additional paid-in capital.
On September 25, 2006, the sole officer and director of the Company donated cash in the amount of $100. The entire amount is considered to be additional paid-in capital.
On October 5, 2006, the Company issued 6,000,000 shares of its no par value common stock as founders’ shares to an officer and director in exchange for cash in the amount of $10,000.
On October 10, 2007, the Company issued 1,630,000 shares of its par value common stock in a public offering for total gross cash proceeds in the amount of $32,600. Total offering costs related to this issuance was $500.
Through the year ended December 31, 2009, an officer and director of the Company donated cash in the amount of $3,600. The entire amount is considered to be additional paid-in capital.
Through the year ended December 31, 2010, an officer and director of the Company donated cash in the amount of $11,300. The entire amount is considered to be additional paid-in capital.
As of December 31, 2010, there have been no other issuances of common stock.
As of December 31, 2010 and 2009, there were no warrants or options outstanding to acquire any additional shares of common stock.
F9
22
The Engraving Masters, Inc.
(A Development Stage Company)
Notes to Audited Financial Statements
In September 2006, an officer, director and shareholder of the Company paid for incorporation expenses on behalf of the Company in the amount $175. The full amount has been donated and is not expected to be repaid and is thus categorized as additional paid-in capital.
Also, in September 2006, an officer, director and shareholder of the Company donated cash in the amount of $100 to the Company. The full amount has been donated and is not expected to be repaid and is thus categorized as additional paid-in capital.
In September 2007, the Company loaned an officer and director cash in the amount of $50. The loan bore no interest and was payable on demand. In October 2007, the loan was repaid in full.
Through the year ended December 31, 2009, an officer and director of the Company donated cash in the amount of $3,600. The entire amount is considered to be additional paid-in capital.
Through the year ended December 31, 2010, an officer and director of the Company donated cash in the amount of $11,300. The entire amount is considered to be additional paid-in capital.
The Company does not lease or rent any property. Office services are provided without charge by an officer and director of the Company. Such costs are immaterial to the financial statements and, accordingly, have not been reflected therein. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
As on February 2011, an officer and director of the Company donated cash in the amount of $6,000. The entire amount is considered to be additional paid-in capital.
F10
23
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
CONTROLS
AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, we concluded that our disclosure controls and procedures were effective for the period ended December 31, 2010.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
|
|
1.
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
|
|
|
2.
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
|
|
|
3.
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2010, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
24
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2010.
The aforementioned material weakness was identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2010. Management believes that the lack of a functioning audit committee did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
This annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Corporation's registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only the management's report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal year ended December 31, 2010, that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
OTHER
INFORMATION
None.
25
DIRECTORS
, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Engraving Masters, Inc.'s Directors are elected by the stockholders to a term of one (1) year and serve until their successors are elected and qualified. The officers are appointed by the Board of Directors to a term of one (1) year and serves until his/her successor is duly elected and qualified, or until he/she is removed from office. The Board of Directors has no nominating, auditing, or compensation committees.
The names and ages of our directors and executive officers and their positions are as follows:
|
Name
|
Age
|
Position
|
||
|
David A. Uddman
(2)
|
39
|
President and Director
|
||
|
Jolene M. Uddman
(2)
|
38
|
Secretary, Treasurer and Director
|
Notes:
|
|
(1)
|
All directors hold office until the next annual meeting of the stockholders, which shall be held in September of 2011, and until successors have been elected and qualified. Executive officers are appointed by the Board of Directors and hold office until they resign or are removed from office.
|
|
|
(2)
|
The officers and directors of The Engraving Masters have obligations to entities other than the Company. The Company expects each individual to spend approximately not less than 10 hours per week on the Company’s business affairs, or as needed.
|
Background of Directors, Executive Officers, Promoters and Control Persons
David A. Uddman, President, Chief Executive Officer and Director:
David Uddman has been a laser, computer, and pantograph engraver for approximately 27 years. He specializes in corporate awards and plaques, as well as nametags and trophies and is proficient in working with many varied engraving mediums. Mr. Uddman is also proficient in many engraving software programs, including E-Machine and Coral Draw. From 1982 to the present, Mr. Uddman has been employed as an engraving specialist at his family’s business, The Engraver, Inc.
Jolene M. Uddman, Secretary, Treasurer and Director:
From 2003 to the present, Jolene Uddman was employed by the Make-A-Wish Foundation, providing office support and managing volunteer files. Mrs. Uddman has also been employed by the family engraving business, The Engraver, Inc., where she is the office manger. Her responsibilities include maintaining accounts payable and receivable, preparing weekly payroll and monthly payroll taxes, managing customer accounts, and assisting with customer orders. From 1985 to 1988, Mrs. Uddman attended Spokane Community College in Spokane, Washington in pursuit of an Associates Degree as an Executive Secretary. From 1988 to 1989, she attended Trend College in Spokane, Washington, where she studied Computerized Information Processing.
Family Relationships
David Uddman and Jolene Uddman are married.
Involvement on Certain Material Legal Proceedings During the Last Five Years
No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.
No bankruptcy petitions have been filed by or against any business or property of any director, officer, significant employee or consultant of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers.
No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.
No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.
26
Audit Committee and Financial Expert
We do not have an Audit Committee. Our directors perform some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our director and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in beneficial ownership of our securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. As a company with securities registered under Section 15(d) of the Exchange Act, our executive officers and director, and persons who beneficially own more than ten percent of our common stock are not required to file Section 16(a) reports.
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions in that our sole officer and director serves in all the above capacities.
Corporate Governance
Nominating Committee
We do not have a Nominating Committee or Nominating Committee Charter. Our directors perform the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are a development stage company.
Director Nomination Procedures
Nominees for Directors are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:
|
|
1.
|
Whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to our affairs;
|
|
|
2.
|
Whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations;
|
|
|
3.
|
Whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to our current or future business, will add specific value as a Board member; and
|
|
|
4.
|
Whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing Board member to continue his service.
|
27
The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and make a determination regarding whether a candidate should be recommended to the stockholders for election as a Director. During 2008, we received no recommendation for Directors from our stockholders.
We will consider for inclusion in our nominations of new Board of Directors nominees proposed by stockholders who have held at least 1% of our outstanding voting securities for at least one year. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for our consideration a prospective nominee to serve on the Board of Directors may do so by giving the candidate’s name and qualifications in writing to our Secretary at the following address: 3717 W. Woodside, Spokane, WA 99208.
EXECUTIVE
COMPENSATION
Summary Compensation Table
The following table sets forth, for the last completed fiscal years ended December 31, 2009 and 2008 the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and, to the extent applicable, each of the two other most highly compensated executive officers of the Company in all capacities in which they served:
|
Summary Compensation Table
|
|||||||||
|
Name and
Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
|
Option Awards ($)
|
Non-Equity Incentive Plan Compen-sation ($)
|
Non-qualified Deferred Compen-sation Earnings ($)
|
All Other Compen-sation ($)
|
Total
($)
|
|
David Uddman
|
2010
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
President
|
2009
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Jolene Uddman
|
2010
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Secretary/Treasurer
|
2009
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Directors' Compensation
Our directors are not entitled to receive compensation for services rendered to us, or for each meeting attended except for reimbursement of out-of-pocket expenses. We have no formal or informal arrangements or agreements to compensate our director for services she provides as a director of our company.
Employment Contracts and Officers' Compensation
Since our incorporation, we have not paid any compensation to our officers, director and employees. We do not have employment agreements. Any future compensation to be paid will be determined by our Board of Directors, and an employment agreement will be executed. We do not currently have plans to pay any compensation until such time as we are cash flow positive.
Stock Option Plan And Other Long-term Incentive Plan
We currently do not have existing or proposed option/SAR grants.
28
Liability and Indemnification of Officers and Directors
Under our Articles of Incorporation, our directors are not liable for monetary damages for breach of fiduciary duty, except in connection with:
|
|
·
|
A breach of a director’s duty of loyalty to us or our stockholders;
|
|
|
·
|
Acts or omissions not in good faith or which involve intentional misconduct, fraud or a knowing violation of law;
|
|
|
·
|
A transaction from which a director received an improper benefit; or
|
|
|
·
|
An act or omission for which the liability of a director is expressly provided under Nevada law.
|
Our Articles of Incorporation and Bylaws require us to indemnify our officers and directors and other persons against expenses, judgments, fines and amounts incurred or paid in settlement in connection with civil or criminal claims, actions, suits or proceedings against such persons by reason of serving or having served as officers, directors, or in other capacities, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, in a criminal action or proceeding, if he had no reasonable cause to believe that his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of no contest or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to our best interests or that he or she had reasonable cause to believe his or her conduct was unlawful. Indemnification as provided in our Bylaws will be made only as authorized in a specific case and upon a determination that the person met the applicable standards of conduct. Insofar as the limitation of, or indemnification for, liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling us pursuant to the foregoing, or otherwise, we have been advised that, in the opinion of the SEC, such limitation or indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Director Independence
The Board of Directors has concluded that our directors, David Uddman and Jolene Uddman, are not independent in accordance with the director independence standards.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of the date of this offering with respect to the beneficial ownership of The Engraving Masters, Inc.’s common stock by all persons known by The Engraving Masters to be beneficial owners of more than 5% of any such outstanding classes, and by each director and executive officer, and by all officers and directors as a group. Unless otherwise specified, the named beneficial owner has, to our knowledge, either sole or majority voting and investment power.
|
Title Of Class
|
Name, Title and Address of Beneficial Owner of Shares
(1)
|
Amount of Beneficial Ownership
(2)
|
Percent of Class
|
|||
|
Common
|
David Uddman, President, CEO and Director
|
6,000,000
|
78.6%
|
|||
|
All Directors and Officers as a group (1 person)
|
6,000,000
|
78.6%
|
Notes:
|
|
1.
|
The address for David Uddman is c/o The Engraving Masters, Inc., 3717 W. Woodside, Spokane, WA 99208.
|
|
|
2.
|
As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security).
|
29
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In September 2006, David Uddman, an officer, director and shareholder, donated capital to us totaling $275. The full amount has been donated and is not expected to be repaid.
On October 5, 2006, we issued 6,000,000 shares of our $0.001 par value common stock as founders’ shares to David Uddman, our President and a director, in exchange for cash in the amount of $10,000.
On January 12, 2007, we entered into a Procurement Agreement with The Engravers, Inc., an engraving company in Spokane, Washington owned and operated by the family of our officers and directors. Through the Agreement, we will have access to the inventory and engraving equipment owned by The Engravers. In accordance with the Agreement, all items and services sold via our proposed website will be acquired and provided by The Engravers. We will not hire any engraving employees and will not own any capital equipment. Pursuant to the Procurement Agreement, all products purchased from The Engravers will be acquired at the wholesale cost of the item, calculated as the cost of the inventory, engraving costs, freight in and freight out.
In September 2007, we loaned David Uddman, an officer and director, cash in the amount of $50. The loan bore no interest and was payable on demand. In October 2007, the loan was repaid in full.
During year ended December 31, 2009, David Uddman, an officer and director, donated cash in the amount of $3,600. Mr. Uddman has donated the entire amount and does not expect to be repaid.
During year ended December 31, 2010, David Uddman, an officer and director, donated cash in the amount of $11,300. Mr. Uddman has donated the entire amount and does not expect to be repaid.
Additionally, we use office space and services provided without charge by Mr. and Mrs. Uddman, our directors and officers.
PRINCIPAL
ACCOUNTING FEES AND SERVICES
The following table sets forth fees billed to us by our independent auditors for the years ended 2010 and 2009 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
|
SERVICES
|
2010
|
2009
|
||||||
|
Audit fees
|
$ | 8,000 | $ | 7,325 | ||||
|
Audit-related fees
|
- | - | ||||||
|
Tax fees
|
325 | - | ||||||
|
All other fees
|
- | - | ||||||
|
Total fees
|
$ | 8,325 | $ | 7,325 | ||||
30
|
Exhibit Number
|
Name and/or Identification of Exhibit
|
|
3
|
Articles of Incorporation & By-Laws
|
|
(a) Articles of Incorporation
(1)
|
|
|
(b) By-Laws
(1)
|
|
|
31
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
32
|
Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350)
|
|
|
(1)
|
Incorporated by reference to the Registration Statement on Form 10-SB, previously filed with the SEC on November 28, 2007.
|
31
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
|
THE ENGRAVING MASTERS, INC.
|
|
(Registrant)
|
|
By:
/s/ David Uddman
|
|
David Uddman, President & CEO
|
In accordance with the requirements of the Securities Act of 1933, this Annual Report was signed by the following persons in the capacities and on the dates stated:
|
Signature
|
Title
|
Date
|
|
/s/ David Uddman
|
President, CEO and Director
|
March 31, 2010
|
|
David Uddman
|
||
|
/s/ Jolene Uddman
|
Chief Financial Officer
|
March 31, 2010
|
|
Jolene Uddman
|
||
|
/s/ Jolene Uddman
|
Chief Accounting Officer
|
March 31, 2010
|
|
Jolene Uddman
|
32
TABLE OF CONTENTS
Part IPart IINote 1 History and Organization Of The CompanyNote 2 Accounting Policies and ProceduresNote 2 Accounting Policies and Procedures (continued)Note 3 - Going ConcernNote 4 Fixed AssetsNote 5 Income TaxesNote 5 Income Taxes (continued)Note 6 Stockholders EquityNote 7 Warrants and OptionsNote 8 Related Party TransactionsNote 9 Subsequent EventsPart III