Business Context and Reporting Period
Company: Format, Inc. (d/b/a Power Solutions International, Inc.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2009
Business Description: The Company provides transactional financial, corporate reporting, commercial, and digital printing services. It reprocesses client information for distribution in print, digital, or internet formats, serving clients in the United States, Canada, and China.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 |
Six Months Ended June 30, 2008 |
Three Months Ended June 30, 2009 |
Three Months Ended June 30, 2008 |
|---|---|---|---|---|
| Revenue | $42,766 | $62,218 | $25,884 | $39,110 |
| Net Income (Loss) | $(16,558) | $(12,830) | $3,674 | $2,104 |
| Operating Expenses | $58,524 | $74,248 | $22,210 | $37,006 |
| Cash Balance (End of Period) | $7,959 (as of June 30, 2009) | |||
| Total Assets | ||||
| Total Liabilities | $242,531 (as of June 30, 2009) | |||
| Working Capital | Deficit of $209,390 | |||
| Accumulated Deficit | $243,968 |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 31% for the six months ended June 30, 2009, compared to the prior year period. Management attributes this to performing less work during the period.
- Expense Reduction: Total operating expenses decreased by approximately 21% year-over-year for the six-month period. Significant reductions were seen in "Other general and administrative expenses" (down from $14,073 to $6,024) and compensation expenses.
- Profitability Volatility: While the Company reported a net loss of $16,558 for the six-month period, it achieved a net income of $3,674 for the quarter ended June 30, 2009, compared to $2,104 in the same quarter of 2008.
- Related Party Debt: Advances from a related party (Mr. Neely) increased from $149,928 to $167,197 during the six-month period, with an additional $17,269 advanced in the current period.
Outlook, Risks, and Management Commentary
- Going Concern: The filing explicitly states that the Company has an accumulated deficit and a working capital deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management plans to mitigate this through aggressive marketing strategies targeting small publicly reporting companies.
- Liquidity Constraints: Cash on hand ($7,959) is estimated to be insufficient to fund operations for the next twelve months. The Company relies on advances from its President to fund operations.
- New Contract: In July 2009, the Company entered a Services Agreement with Research Data Group, Inc. (RDG) to provide bulk edgarizing services. This is expected to generate monthly revenue of $8,194.44 for the first three months, followed by $3,750 monthly.
- Customer Concentration: One customer accounted for 20% of operating revenue during the six months ended June 30, 2009.
- Future Funding: If capital shortfalls occur, the Company intends to pursue public or private financing or further borrowings from officers and directors. There is no guarantee such funding will be available.
Investor Verification Checklist
- Related Party Dependence: Verify the sustainability of operations given the $167,197 debt owed to the President/Officer and the reliance on his continued advances.
- Cash Runway: Confirm the sufficiency of the $7,959 cash balance against upcoming legal, accounting, and operational costs for a public reporting company.
- Revenue Concentration: Assess the risk associated with the top customer representing 20% of revenue.
- Loan Receivable: Note that a $20,500 loan receivable from an outside party has been fully reserved against due to uncertain collectability.
- Going Concern Status: Review the "Going Concern" note in the financial statements for details on the substantial doubt regarding the Company's future viability.