Filing identity and reporting period
Important discrepancy: The supplied filing is for First American Group Inc., not Loop Industries, Inc. It is a Form 10-Q for the quarter ended June 30, 2012, filed August 8, 2012. The company describes itself as a development-stage company and checked the box indicating it was a shell company. Financial statements are unaudited.
Business context and financial performance
First American planned to develop and market VoIP calling services that would offer free calls in exchange for viewing or listening to advertising, alongside paid calls and potential software licensing. It reported no operations or revenue through June 30, 2012.
| Metric | Three months ended June 30, 2012 | Nine months ended June 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $8,060 | $20,613 | $1,146 and $16,375, respectively |
| Net loss | $8,060 | $20,613 | $1,146 and $16,375, respectively |
| Basic and diluted loss per share | $(0.00) | $(0.01) | $(0.00) and $(0.01), respectively |
For the nine months, professional fees were $15,413 and general and administrative expenses were $5,200. The filing does not report a meaningful operating margin because the company had no revenue.
Financial position, cash flow, and liquidity
- At June 30, 2012, cash and cash equivalents were $28,223, prepaid expenses $1,650, and total assets $29,873.
- Current liabilities totaled $9,851: accounts payable and accrued expenses of $9,526 and $325 due to a director. The director advance is unsecured, non-interest-bearing, and due on demand. No other debt is reported.
- Stockholders’ equity was $20,022, including an accumulated development-stage deficit of $47,796.
- Nine-month operating cash use was $18,059; financing provided $15,982 from common-stock sales. Cash declined $2,077 from $30,300 at September 30, 2011.
- The company said its cash was insufficient to start its plan or cover operating expenses beyond six months. It had no financing arranged and warned that failure to obtain additional funding could prevent continued development and cause the business to fail.
Changes, outlook, and risks
- Nine-month net loss rose to $20,613 from $16,375 in 2011; quarterly net loss was $8,060 versus $1,146. Professional fees and general and administrative costs increased in both comparisons.
- During the nine months, the company sold 159,814 registered shares for $15,982. It reported raising $16,000 in private offerings to its two officers and directors and $50,000 through its registered offering from inception through June 30, 2012.
- Management reported that website development was delayed from its earlier June 2012 target to October or November 2012 as it expanded the planned content. It had selected and integrated open-source Asterisk VoIP and a2billing software and was customizing them; management expected to hire a programmer.
- The company projected no revenue in its first development year and estimated revenue of $153,750 in year two and $460,000 in year three. These were management estimates based on assumptions about product completion, customer demand, traffic, advertising, and financing—not established results. The filing gives inconsistent timing estimates for first revenue: approximately 15–21 months in one passage and 10–16 months in another.
- Management anticipated spending the next 9–15 months developing its website and product, building a reseller network, and establishing the brand. It stated that additional equity financing would likely be needed and could dilute existing shareholders.
- The financial statements and MD&A raise substantial doubt about the company’s ability to continue as a going concern. Management also concluded disclosure controls were not effective at June 30, 2012 because of a lack of segregation of duties. No material control changes during the quarter were reported.
- No pending legal proceedings considered materially adverse were reported; no subsequent events were reported through the filing date.
Key facts investors should verify
- Confirm the intended issuer and filing: this document identifies First American Group Inc., not Loop Industries, Inc.
- Verify current cash runway, subsequent financing, and whether the company was able to fund and continue its development plan.
- Assess whether the stated development milestones and projected launch and revenue timing were achieved; the filing itself gives conflicting first-revenue timelines.
- Verify the assumptions behind projected advertising and calling revenue, given the company had no operating revenue or demonstrated customer demand.
- Review the going-concern disclosure, potential equity dilution, officer/director control, and the disclosed weakness in segregation of duties.