Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011, for Format, Inc. (referenced in metadata as Power Solutions International, Inc.). The Company provides EDGARizing services to commercial and corporate entities throughout the United States. The filing identifies the registrant as a smaller reporting company with 3,770,083 shares of common stock outstanding as of April 27, 2011.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $10,261 | $10,176 |
| Net Loss | $(4,151) | $(16,674) |
| Operating Expenses | $33,612 | $26,050 |
| Cash and Cash Equivalents | $69,111 | $55,489 |
| Total Assets | $74,291 | $53,769 |
| Total Liabilities | $271,914 | $247,241 |
| Working Capital Deficit | $(197,623) | $(193,472) |
| Accumulated Deficit | $(239,202) | $(235,051) |
Liquidity and Debt: The Company holds $69,111 in cash. Current liabilities include $114,156 due to a related party (the President) and $50,000 in accrued officer compensation. There are no long-term liabilities.
Material Changes vs. Prior Period
- Revenue: Increased slightly by $85 (0.8%) compared to the prior year quarter.
- Operating Expenses: Increased by $7,562 (29.0%), primarily driven by a rise in professional fees from $11,753 to $20,676.
- Net Loss: Improved significantly, decreasing from a loss of $16,674 to $4,151. This improvement was largely due to $20,000 in non-refundable merger-related fees recorded as other income, which offset operating losses.
- Cash Flow: Net cash provided by operating activities was $23,623, compared to a use of $996 in the prior year, largely due to increases in accounts payable and accrued compensation.
Outlook, Risks, and Management Commentary
Going Concern: Management has raised substantial doubt about the Company's ability to continue as a going concern. The Company has an accumulated deficit of $239,202 and a working capital deficit of $197,623. Cash on hand is estimated to be insufficient to fund operations for the next twelve months.
Strategy: Management's plan to mitigate financial distress involves seeking a viable merger candidate. The Company has engaged in merger-related activities, receiving $45,000 in payments through March 31, 2011, with an additional $12,500 received on April 1, 2011 (subsequent event).
Risks and Concentration:
- Customer Concentration: 100% of operating revenue for the three months ended March 31, 2011, was derived from a single customer.
- Related Party Dependence: Operations have been funded by advances from the President, who is also a stockholder. Total related party debt stands at $114,156.
- Asset Impairment: A loan receivable of $20,500 is fully reserved due to uncertain collectability.
Investor Verification Checklist
- Verify the status of the potential merger and the conditions under which the $25,000 held in attorney trust will be released.
- Confirm the sustainability of the single customer relationship representing 100% of revenue.
- Assess the likelihood of continued funding from the President given the $114,156 outstanding related party debt and accrued compensation.
- Review the Company's ability to generate sufficient cash flow to cover the $271,914 in current liabilities without further equity or debt financing.