Filing identity and reporting period
The supplied filing is a Form 10-Q for First American Group Inc., a Nevada development-stage company, for the quarter ended March 31, 2012—not Loop Industries, Inc. The period corresponds to the company’s second fiscal quarter. The filing describes a planned advertising-supported VoIP business; it also checks the “shell company” box.
Financial results and liquidity
- Revenue: None for the three or six months ended March 31, 2012, or since inception.
- Expenses and loss: Second-quarter operating expenses and net loss were both $7,589, versus $12,850 in the prior-year quarter. For the six months, expenses and net loss were $12,553, versus $15,229. In the six-month comparison, professional fees declined to $9,195 from $13,200, while general and administrative expenses increased to $3,358 from $2,029. No operating margin is meaningful because there was no revenue.
- Cash flow: Six-month net cash used in operations was $5,593, compared with $3,199 in the prior-year period. Financing provided $14,982 from stock sales; cash increased by $9,389 to $39,689.
- Balance sheet and liquidity: At March 31, cash was $39,689, prepaid expenses $1,000, and total assets $40,689. Current liabilities were $13,607, including $13,282 of accounts payable and accrued expenses and $325 due to a director. Stockholders’ equity was $27,082. The company stated its cash was insufficient to begin its plan or cover ongoing expenses beyond six months.
- Debt and capital: No conventional borrowing is reported. The $325 director advance is unsecured, non-interest-bearing, and payable on demand. The company issued 149,814 shares at $0.10 each during the six months, raising $14,982. It reported 2,511,264 shares outstanding as of May 10, 2012.
Changes, outlook, and risks
The six-month net loss narrowed by $2,676 from the prior-year period, and second-quarter loss narrowed by $5,261. The company remained pre-revenue and in the development stage. It was developing website content and evaluating VoIP platforms, with stated target dates of June 30 and July 15, 2012, respectively.
Management expected no sales revenue during the next 12–18 months of development and projected revenue would begin after the offering was completed and the business plan implemented. Illustrative projections showed $153,750 of revenue in Year 2 and $460,000 in Year 3, based on assumptions about advertising impressions, clicks, actions, chargeable minutes, product development, and customer and advertiser uptake. Management also projected $15,105 of losses from the first through last month of Year 2, with expenses exceeded by revenue by month seven. These are estimates, not reported results. The filing gives inconsistent revenue-start estimates: approximately 15–21 months in the overview and 10–16 months elsewhere.
The company disclosed substantial doubt about its ability to continue as a going concern, citing recurring losses, no revenue, limited cash, and dependence on additional financing. It planned to seek funding through its registered equity offering but gave no assurance it could raise sufficient capital; failure to do so could prevent continued development and cause the business to fail. Further equity financing would dilute existing shareholders. Forward-looking results are also exposed to development, demand, competition, advertising-acceptance, and broader economic risks.
Management concluded disclosure controls were not effective as of March 31, 2012, due to lack of segregation of duties. No material changes in internal control over financial reporting were reported during the quarter. The company reported no pending legal proceedings likely to have a material adverse effect.
Important facts to verify
- Confirm the filing is for First American Group Inc.; the request metadata names Loop Industries, Inc.
- Reconcile the conflicting revenue-start estimates and assess the assumptions underlying the Year 2 and Year 3 projections.
- Verify subsequent financing and cash runway. The notes disclose an April 2012 sale of 10,000 shares for $1,000, while the MD&A states there were no subsequent events.
- Review the company’s ability to raise capital, potential dilution, and its going-concern disclosures.
- Assess remediation of the disclosed segregation-of-duties control weakness.