Business Context and Reporting Period
The submitted Form 10-Q is for Moving Box, Inc., a Delaware development-stage company, not Barfresh Food Group Inc. The report covers the three months ended June 30, 2011, with comparative information for the three months ended June 30, 2010. The company intended to acquire, produce, distribute, and license film and media products, including the motion picture A Box for Rob, completed April 20, 2011.
The filing identifies the company as a smaller reporting company and reports 6,500,000 common shares outstanding as of August 15, 2011.
Key Financial Metrics
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2010 |
|---|---|---|
| Revenue | $0 | $0 |
| Production costs | $14,650 | $226,778 |
| Professional fees | $0 | $1,750 |
| General and administrative expense | $4,701 | $8,950 |
| Total operating expenses | $19,351 | $237,478 |
| Net loss | $19,351 | $237,478 |
| Net cash used in operating activities | $17,153 | $236,078 |
| Cash at period-end | $9,618 | $6,595 |
At June 30, 2011, total assets were $9,618, while current liabilities were $291,639. These liabilities included a $110,200 related-party loan, $171,250 of related-party advances, and $10,189 of accrued interest. Stockholders’ deficit was $282,021. No cash income taxes or interest payments were reported.
Basic and diluted loss per share was reported as approximately $0.00 for the 2011 quarter, based on 6,500,000 weighted-average shares. The filing states that cumulative development-stage losses were $322,021 through June 30, 2011.
Material Changes Versus the Prior Comparable Period
- Production costs declined 93.5%, primarily because the principal film was being produced in the 2010 period and had been completed by April 2011.
- Professional fees declined from $1,750 to $0.
- General and administrative expenses declined 47.5%, including the elimination of reported payroll expense and a substantial reduction in office expense.
- Net loss decreased from $237,478 to $19,351, and operating cash use decreased from $236,078 to $17,153.
- Cash declined modestly from $9,771 at March 31, 2011 to $9,618 at June 30, 2011, while related-party advances increased by $17,000.
- The company issued no unregistered securities during the quarter. Common shares outstanding increased from 4,500,000 at March 31, 2011 to 6,500,000 at June 30, 2011, reflecting the prior issuance of 2,000,000 shares for $40,000.
The MD&A contains an apparent inconsistency, stating a net loss of $289,815 for a period from April 1, 2010 through June 30, 2011; that amount does not reconcile with the accompanying statements of operations.
Outlook, Risks, Contingencies, and Unusual Items
- The financial statements state that there is substantial doubt about the company’s ability to continue as a going concern because of cumulative losses and insufficient working capital.
- Management estimated approximately $2,000 of monthly cash needs for the following 12 months, up to $25,000 annually for maintaining public-company status, plus at least $30,000 for distribution and business-development costs.
- The company had no operating revenue through June 30, 2011 and had no specific external financing plan other than anticipated management funding.
- President and director Andreas Wilcken, Jr. agreed to provide additional funding when needed, subject to the terms described in the filing and related agreements. The company stated that this funding obligation had no stated limit, but its availability depends on management’s ability to provide funds.
- Under the March 21, 2011 agreement, as amended, future movie revenues are subject to priority payments and distributions, including a 40% royalty payment to investors, 30% to Moving Box Entertainment, LLC, and 30% to Uptone Pictures, Inc., after specified costs and repayments.
- A three-year distribution agreement with GMP Group for Brazil requires a $50,000 payment upon release of the movie by December 11, 2011, plus a 20% royalty on wholesale prices thereafter.
- The company entered into a consulting agreement with affiliated 7 Worldwide, Inc. providing for a $26,000 monthly fee, or $312,000 annually, plus incidentals, subject to cancellation and an optional renewal term.
- Management cited substantial competition, uncertain consumer demand, dependence on successful distribution, financing needs, regulatory and reporting obligations, and the risk that the movie may not generate sufficient revenue.
- The filing reports no legal proceedings, no defaults upon senior securities, and no material changes in internal control over financial reporting. Management concluded that disclosure controls were effective at June 30, 2011.
Most Important Facts to Verify
- Verify the issuer identity: the filing text is for Moving Box, Inc., while the request identifies Barfresh Food Group Inc.
- Reconcile the MD&A’s $289,815 loss reference with the financial statements’ reported quarterly loss of $19,351.
- Assess the going-concern disclosure, available cash, and reliance on related-party financing.
- Review the movie revenue waterfall and related-party agreements to determine how much future revenue could remain available to common shareholders.
- Confirm the enforceability and financial capacity supporting the president’s promised additional funding.
- Evaluate the $50,000 Brazil distribution payment, the 20% royalty obligation, and the timing of the anticipated movie release.
- Review the $312,000 annual affiliate consulting commitment relative to the company’s limited cash and absence of revenue.
- Confirm share issuance history and the effect of related-party and investor transactions on dilution and control.