Business context and reporting period
Filing identity discrepancy: The supplied filing is for First American Group Inc., not Loop Industries, Inc. It is a Form 10-Q for the quarter ended March 31, 2013 (the company’s fiscal second quarter), filed May 8, 2013. The company describes itself as a development-stage company developing advertising-supported VoIP services and related software.
Financial results and liquidity
- Revenue: None in the three or six months ended March 31, 2013 or 2012, or from inception through March 31, 2013. Profit margins are not meaningful because there was no revenue.
- Expenses and loss: Q2 operating expenses and net loss were each $1,310, versus $7,589 a year earlier. Six-month operating expenses and net loss were each $4,508, down from $12,553. The filing reports loss per share of $0.00 for the quarter and six-month 2013 period.
- Cash flow: Cash used in operations was $10,836 in the six months, compared with $5,593 used in the prior-year period. No financing cash was raised in the current six-month period. Cash fell from $21,738 at September 30, 2012 to $10,902 at March 31, 2013.
- Balance sheet: Current assets were $11,227, including $10,902 cash; current liabilities were $4,876, yielding working capital of $6,351. Liabilities included $4,551 of accounts payable and accrued expenses and $325 due to a director. The director advance is unsecured, bears no interest, and is payable on demand. No other debt is reported in the supplied financial statements.
- Equity and shares: 2,521,264 common shares were outstanding at May 8, 2013. The filing reports $61,466 of accumulated development-stage losses.
Material changes versus the prior comparable period
Six-month net loss declined by $8,045, primarily alongside lower professional and general and administrative expenses. Operating cash use increased by $5,243, as the prior period included a favorable increase in accounts payable and accrued liabilities. Cash declined $10,836 during the current six months; the prior-year period ended with $39,689 in cash, versus $10,902 currently. No revenue was recorded in either period.
Outlook, risks, and unusual items
- Management said cash on hand was insufficient to begin the operating plan or cover ongoing expenses beyond four months. The company had no financing arranged and said inability to obtain funding could prevent continued development and cause the business to fail. Management and the financial statements cited substantial doubt about the company’s ability to continue as a going concern.
- Planned work included developing the website and VoIP product, building a reseller network, and establishing the brand. Website timing had been delayed to August 2013; directors were customizing open-source Asterisk and a2billing software.
- Management projected no sales revenue during the next nine months and anticipated revenue in approximately 10–16 months. Illustrative projections estimated $153,750 in Year 2 and $460,000 in Year 3; these depend on unproven development, customer adoption, website traffic, and advertiser demand and are not a guarantee of results.
- The company expected to seek funding through equity and other sources; additional equity could dilute existing holders. It had raised approximately $16,000 through private offerings and approximately $65,296 through registered share sales since inception.
- Management concluded disclosure controls were ineffective as of March 31, 2013 because of lack of segregation of duties. No material change in internal control over financial reporting was reported during the quarter. No pending material legal proceedings or subsequent events were reported.
Important facts for investors to verify
- Confirm the issuer and reporting period: the supplied document identifies First American Group Inc., not Loop Industries, Inc.
- Verify current cash runway, payables, and the status and terms of any financing after March 31, 2013.
- Assess whether the VoIP product and website were completed, whether customers or advertisers were secured, and whether projected revenue assumptions were achieved.
- Review subsequent filings for changes to going-concern disclosures, management’s revenue timeline, and the reported control weakness.