UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2006
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act
Commission File Number 33-119586
INTEGRATED MEDIA HOLDINGS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 76-0600966
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
10 Glenlake Parkway, Suite 130
Atlanta, Georgia 30238
(Address of Principal Executive Offices) (Zip Code)
(678) 222-3445
(Issuer's Telephone Number, Including Area Code)
Endavo Media and Communications, Inc.
(Former Name)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No ?
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer's common equity outstanding as of
May 15, 2006 was 5,908,667 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format: Yes |X| No ?
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED MARCH 31, 2006
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Unaudited Balance Sheet
as of March 31, 2006............................................................1
Condensed Consolidated Unaudited Statements of Operations
for the Three Months ended March 31, 2006 and 2005..............................2
Condensed Consolidated Unaudited Statements of Cash Flows
for the Three Months ended March 31, 2006 and 2005..............................3
Notes to the Condensed Consolidated Unaudited Financial Statements.................. 4
Item 2. Management's Discussion and Analysis......................................................8
Item 3. Controls and Procedures..................................................................14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings .......................................................................15
Item 6. Exhibits.................................................................................15
SIGNATURES
3
See accompanying notes to condensed consolidated financial statements.
PART I - FINANCIAL INFORMATION
ITEM 1...FINANCIAL STATEMENTS
INTEGRATED MEDIA HOLDINGS, INC.
(formerly ENDAVO MEDIA AND COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEET
as of March 31, 2006
(unaudited)
Assets
Current assets:
Cash $ 1,434
Deposits 16,214
-----------------------
Total current assets 17,648
Property and equipment, net 274,256
Asset held for sale 44,746
-----------------------
Total Assets $ 336,650
-----------------------
-------------------------------------------------------------------------- -----------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 900,340
Accrued liabilities 1,064,053
Notes payable including related parties 930,977
-----------------------
Total current liabilities 2,895,370
Stockholders' deficit:
Preferred stock, $.001 par value; 1,000,000 shares
authorized, 3,821,197 shares issued and outstanding 3,821
Common stock, $.001 par value, voting, 100,000,000 shares
authorized, 5,908,640 shares issued and outstanding 5,909
Additional paid-in capital 19,471,850
Accumulated deficit (22,040,299)
-----------------------
Total stockholders' deficit: (2,558,719)
-----------------------
Total liabilities and stockholders' deficit $ 336,650
-----------------------
INTEGRATED MEDIA HOLDINGS, INC.
(formerly ENDAVO MEDIA AND COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
for the three months ended March 31,
2006 2005
--------------------- ------------------
Total revenue $ 995 $ 52,588
Cost of sales (13,030) (40,599)
--------------------- ------------------
Gross profit (loss) $ (12,035) $ 11,989
Selling, general, and administrative expense (647,112) (1,617,965)
--------------------- ------------------
Income (loss) from
operations (659,147) (1,605,976)
Other income (expense) 16,780 869
Interest (expense) (239,320) (301,396)
--------------------- ------------------
Net income (loss) $ (881,687) $ (1,906,499)
Imputed preferred stock dividend (1,891,493) (1,891,493)
--------------------- ------------------
Net loss attributable to common shareholders $ (2,773,180) $ (3,797,922)
--------------------- ------------------
Loss per common share basic and diluted $ ( 1.42) $ (15.54)
--------------------- ------------------
Weighted average shares - basic and diluted 1,948,042 244,332
--------------------- ------------------
INTEGRATED MEDIA HOLDINGS, INC.
(formerly ENDAVO MEDIA AND COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASHFLOWS
for the three months ended March 31,
2006 2005
------------------ -----------------
Cash flows from operating activities:
Net loss $ (881,687) $ (1,906,499)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,832 14,777
Stock issued for services and interest 365,100 211,687
Amortization of deferred compensation - 666,895
Amortization of unearned revenue - (19,787)
Amortization of discount on long-term debt 177,637 113,668
Decrease (increase) in:
Accounts receivable - 3,967
Deposits and prepaid expenses - (25,000)
Increase (decrease) in:
Accounts payable 50,395 (61,399)
Accrued liabilities 177,999 38,849
------------------ -----------------
Net cash used in operating activities (88,724) (962,842)
--------------- --------------
Cash flows used in investing activities-
Purchase of property and equipment (1,300) (69,902)
---------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 542,517
Proceeds from issuance of notes payable 86,000 -
Proceeds on convertible short-term debt - 1,425,000
Payments on related party note - (3,366)
Payments on convertible long-term debt - (41,422)
------------------ -----------------
Net cash provided by financing activities 86,000 1,922,709
------------- -----------
Net (decrease) increase in cash
and cash equivalents (4,024) 889,965
Cash and cash equivalents at beginning of period 5,458 373
------------------ -----------------
Cash and cash equivalents at end of period $ 1,434 $ 890,338
---------------- -----------
INTEGRATED MEDIA HOLDINGS, INC.
(formerly ENDAVO MEDIA AND COMMUNICATIONS, INC.)
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
for three months ended March 31, 2006
6
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The financial statements reflect the
consolidated results of Integrated Media Holdings, Inc. and its wholly owned
subsidiaries Susquina Inc. and New Planet Resources, Inc. All material inter-
company transactions have been eliminated in the consolidation.
Reverse Stock Split. In the first quarter of 2006, the Company completed a
reverse stock split whereby the shareholders received 1 share of stock for every
40 that were previously owned. All share and per share amounts in prior periods
have been restated to reflect the reverse stock split.
Basis of Presentation. The accompanying condensed consolidated financial
statements are unaudited. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Integrated Media Holdings, Inc., (the "Company") believes that the
following disclosures are adequate to make the information presented not
misleading.
These condensed financial statements reflect all adjustments (consisting
only of normal recurring adjustments) that, in the opinion of management, are
necessary to present fairly the financial position and results of operations for
the periods presented.
Interim results are not necessarily indicative of the operating results to
be expected for the full year. These financial statements should be read in
conjunction with the company's financial statements and notes thereto for the
year ended December 31, 2005 included in the Company's Annual Report on Form
10-KSB.
Net Loss Per Common Share. Basic earnings per share are computed on the
basis of the weighted average number of common shares outstanding. Diluted
earnings per share are computed on the basis of the weighted average number of
common shares outstanding plus the effect of outstanding stock options using the
"treasury stock" method. The earnings per common share for the three months
ended March 31, 2006 and 2005 have been adjusted to give retroactive effect to
the one-for-forty reverse stock split effective March 13, 2006 as if the reverse
stock split had occurred on January 1, 2005. Options, warrants, convertible debt
and convertible preferred stock, which if exercised or converted would require
the company to issue approximately 37,356,039 shares of common stock, are not
included in the diluted earnings per share calculation for March 31, 2006 and
2005, respectively, since their effect on a net loss per share calculation is
anti-dilutive.
Revenue Recognition. Revenue is recognized when a valid contract or
purchase order has been executed or received, services have been performed or
product has been delivered, the selling price is fixed or determinable, and
collectibility is reasonably assured. Payments received prior to performance are
recorded as deferred revenue and amortized over the estimated service period.
Stock-Based Compensation. The Company accounts for stock options granted to
employees under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations, and
has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense is recognized in the financial statements
when options granted under those plans have an exercise price equal to or
greater than the market value of the underlying common stock on the date of
grant. In March 2006, the Company granted 2,750,000 options to employees with an
effective date of March 22, 2006. 4,399,665 options were adjusted for the
reverse split that occurred on our common stock on March 13, 2006, resulting in
an adjusted amount outstanding of 109,992. No options were retired during the
period due to employment termination without vesting.
Pro forma net loss and loss per share presented below reflect the results of the
Company for the first three months of the respective years as if the fair value
based accounting method described in SFAS No. 148 had been used to account for
stock and warrant-based compensation costs, net of taxes and forfeitures of
prior year grants:
Three Months
Ended March 31,
2006 2005
------------- -------------
Pro forma impact of fair value method (FAS 148)
Net loss attributable to common shareholders $(2,773,180) $(3,797,922)
Less: Reduction in variable option expense 0 0
Less: SFAS No. 148 employee compensation cost 0 0
------------- -------------
Pro forma net income (2,773,180) (3,797,922)
Loss per common share
Basic and Diluted as reported $ (1.42) $ (15.54)
Basic and Diluted - pro forma (1.42) (15.54)
Weighted average Black-Scholes fair value
Assumptions
Risk free interest rate 4% NA
Expected life 4 years NA
Expected volatility 3,000% NA
Expected dividend yield 0 0
Property and Equipment. Property and equipment are recorded at cost less
accumulated depreciation. Depreciation and amortization on property and
equipment are determined using the straight-line method over a five year
estimated useful life of the asset.
NOTE 2--GOING CONCERN
The Company has a working capital deficit, a stockholders' deficit, and
recurring net losses. These factors create substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustment that might be necessary if the Company is unable to continue as a
going concern.
The ability of the Company to continue as a going concern is dependent on
the Company generating cash from the sale of its common stock or obtaining debt
financing and attaining future profitable operations. Management's plans include
selling its equity securities and obtaining debt financing to fund its capital
requirements and ongoing operations; however, there can be no assurance the
Company will be successful in these efforts.
NOTE 3--SHORT-TERM NOTES PAYABLE
Notes payable and convertible notes payable outstanding as of March 31,
2006 consisted of the following:
On February 22, 2005, the Company consummated a private placement of
$1,425,000 principal amount of 8% Senior Secured Convertible Two Year Notes and
related securities, including common stock warrants and additional investment
rights. In connection with these securities, the Company has filed a
registration statement with the Securities and Exchange Commission registering
the shares of common stock issuable upon conversion of these notes, exercise of
the warrants, and the shares related to the additional investment rights if they
are exercised in the future. The Securities and Exchange Commission has declared
this filing effective.
The debt is convertible to common stock at a beneficial conversion rate of
$4.00 per share and1,597,529 warrants to purchase common stock were issued with
the noted. 1,121,072 warrants were exercised in June 2005 and 11,911 (adjusted
for reverse split) warrants remain outstanding with an exercise price of $5.70
(adjusted for reverse split) after giving effect to an amendment to the exercise
price that occurred in June 2005... All the Additional Investment Rights expired
unexercised in September 2005. The beneficial conversion feature and the
warrants resulted in a discount to the notes of $1,425,000 which is being
amortized over the two year term of the notes. As of September March 31, 2006,
$782,774 has been amortized.
Convertible Promissory Notes payable purchased by a private equity fund
totaled $2,361,300. To reduce long term debt outstanding $1,806,000 principal
amount of these notes were converted into the Company's Series A Preferred
shares or common stock during 2004 and 2005. In the quarter ended March 31,
2006, $194,500 principal amount was converted into 491,937 shares (adjusted for
reverse split), leaving $455,300 in principal amount outstanding as of March 31,
2006. The notes are due on demand and bear interest at 18% per year. The notes
are convertible into the Company's common stock under a beneficial conversion
rate that resulted in the notes being initially discounted in 2004 by $340,700
all of which was amortized in 2004.
In the first quarter ended March 31, 2006, the Company issued
Promissory Notes to the same private equity fund holding Convertible Promissory
Notes described above, in the amounts of $61,000 in exchange for proceeds in the
amount of $51,000. These Notes carry a simple interest rate of 6% per annum and
are payable on demand after 45 days from the issue date. As of March 31, 2006, a
total amount of $118,500 of these Promissory Notes remains outstanding.
On March 24, 2006, the company issued a Promissory Note in the principal
amount of $25,000 to AlphaWest Capital Partners, LLC, a related party, in
exchange for proceeds in the same amount. The Promissory note is payable on
demand, after May 8, 2006, non-convertible and bears an annual interest rate of
12%.
In March 2006, the company issued Promissory Notes in the principal amount
of $10,000 to an institutional investor in exchange for proceeds of the same
amount. The Promissory Note bears no interest, but accrues a repayment
percentage at a rate of .5% per month outstanding. The note may be converted
into common stock at a rate of $8.00 per share after adjusting for the reverse
split that occurred during the quarter.
NOTE 4--COMMON STOCK TRANSACTIONS
The Company issued 4,847,540 shares of common stock for services valued at
$1,242,500 in total during the three months ended March 31, 2006. The values of
the consulting contracts are being amortized over the length of the contracts.
For the first quarter ending March 31, 2006, we recorded $342,500 in consulting
services in exchange for common stock.
The company issued 37,724 (adjusted for reverse split) shares of common
stock in exchange for legal services rendered.
To reduce long term debt, we converted $194,500 in outstanding Promissory
Notes into 491,937 (adjusted for the reverse split) shares of common stock.
NOTE 5 - SUBSEQUENT EVENTS
During April 2006, we received purchase subscriptions for 18,000 shares of
common stock for proceeds of $90,000.
On April 20, 2006, the company changed its name from Endavo Media and
Communications, Inc. to Integrated Media Holdings, Inc. by board and shareholder
consent. During the same period, the company's operating subsidiary was renewed
and revived in the state of Delaware and the name was changed to Endavo Media
and Communications, Inc. Endavo will continue to operate as a wholly-owned
subsidiary of Integrated Media Holdings, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
For a description of our significant accounting policies and an understanding of
the significant factors that influenced our performance during the three months
ended March 31, 2006, this "Management's Discussion and Analysis" should be read
in conjunction with the Condensed Consolidated Unaudited Financial Statements,
including the related notes, appearing in Item 1 of this Quarterly Report, as
well as the Company's Annual Report on Form 10-KSB for the year ended December
31, 2005. The preparation of this Quarterly Report on Form 10-QSB requires us to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results reported in
the future will not differ from those estimates or that revisions of these
estimates may not become necessary in the future.
Forward-Looking Statements
This Quarterly Report on Form 10-QSB, includes statements that constitute
"forward-looking statements." These forward-looking statements are often
characterized by the terms "may," "believes," "projects," "expects," or
"anticipates," and do not reflect historical facts. Forward-looking statements
involve risks, uncertainties and other factors, which may cause our actual
results, performance or achievements to be materially different from those
expressed or implied by such forward-looking statements. Factors and risks that
could affect our results and achievements and cause them to materially differ
from those contained in the forward-looking statements include those to be
identified in our Annual Report on Form 10-KSB for the year ended December 31,
2005 in the section titled "Risk Factors," as well as other factors that we are
currently unable to identify or quantify, but may exist in the future.
In addition, the foregoing factors may affect generally our business, results of
operations and financial position. Forward-looking statements speak only as of
the date the statement was made. We do not undertake and specifically decline
any obligation to update any forward-looking statements.
Executive Overview
This section presents summary information regarding our industry and operating
trends only. For further information regarding the events summarized herein, you
should read "Management's Discussion and Analysis" in its entirety.
Company and Industry Overview
Integrated Media Holdings was originally founded and incorporated in 1999 as
CeriStar, Inc. by a group of technology entrepreneurs led by founder and former
CEO of Iomega Corporation. On September 10, 2002, we merged with a wholly owned
subsidiary of Planet Resources Inc., a non-operating publicly held company
(together referred to as "Planet") in which all of our issued and outstanding
stock, including Convertible Preferred Series A shares and the Convertible
Preferred Series B shares, were exchanged for shares of Planet common stock.
Series A and B preferred shares were exchanged at a rate of .757 shares for
every common share of Planet and the common stock of the Company were exchanged
into .322 shares of common stock of Planet. Just prior to the merger, Planet
authorized a 1 for 5.23 reverse stock split. The merger was accounted for as a
reverse merger with CeriStar being the accounting acquirer. On October 15, 2002,
Planet Resources Inc. was renamed CeriStar, Inc. The company changed its name to
Endavo Media and Communications, Inc. in September 2004 to reflect its
concentration on the distribution of content and services over the Internet and
broadband networks. We executed a consolidation of equity capital in order to
reposition the company to raise public capital. In September 2005, we
consolidated operations to reduce costs while we redirected the company's
business plan focus. In April 2006, we reorganized as a public holding company,
changing our name to Integrated Media Holdings, Inc., in order to pursue the
strategic objective of acquiring interest in broadband media and services
companies, along with new business plans. Endavo now operates as a wholly owned
subsidiary of Integrated Media Holdings, Inc. Endavo Media and Communications,
Inc. provides digital video delivery solutions and products to owners of video
and media content through Internet Protocol, or "IP," based networks.
After our September 2005 consolidation and under a newly refocused business plan
in the fourth quarter of 2005 and first quarter of 2006, we began testing and
launching specific new product designed to provide digital content distribution
and management solutions for content owners seeking to distribute online and
over broadband, or IP, networks. Specifically, our new solutions facilitate the
distribution of digital video and programming, on behalf of content owners, to
connected customers and broadband communities. Our systems reside on a national
fiber (IP) backbone network, allowing us to efficiently reach consumers over the
Internet and on local broadband networks through IP service providers. We call
our integrated content management & distribution system, content delivery
network and d-commerce platform the "EcoSystem". The initial phase of our
restructured business plan is to distribute digital video and programming to
certain targeted groups of broadband consumers through web-based portals, or
communities, and through the Windows Media Center Edition TM PC platform. Our
content delivery platforms enable the delivery of video, audio and other
services to networked personal computers, televisions and mobile devices.
Our initial content delivery products, launched commercially in late 2005, are
called "EnHance" and "EnGage". EnHance provides a cost effective method for
owners of web-based communities or portals to keep their users coming back to
their websites by pushing DVD-quality video content directly to the desktop of
each user. We target the EnHance solution toward content owners who have an
existing inventory of video content or programs that has a current audience,
whether radio, web or television. EnHance enables a content owner to increase or
strengthen their existing viewer or listener base by cost-effectively offering
programs to any broadband connected user worldwide. EnHance utilizes the latest
managed peer-to-peer (P2P) distribution platform technologies, integrated into
our distribution EcoSystem.
EnGage is our "Broadband TV" platform that allows content owners to deliver
"channels" of video content directly to viewers who have installed a simple to
use interface in their PC or Microsoft Media Center Edition PC. Once a viewer
subscribes to an EnGage-delivered service, offered through Media Center or
specific web portals, programs for each channel are regularly delivered to the
user in full screen, DVD quality for on-demand viewing.
After initial development and testing was successfully completed in late 2005,
we began marketing our EnHance and EnGage products to owners of independent film
libraries, TV programs and self-produced audio and video content. During the
first quarter of 2006, we developed and tested numerous web-community, online
video portal and "Broadband TV" projects for prospective customers to be
launched in the second and third quarters of this year.
Our business model is to generate revenues by providing managed content and
services delivery over the Internet and broadband networks, technical support,
d-commerce transaction processing and other specialized services. We also expect
to receive "set-up" fees for initial customization and integration of our
products to meet the specific needs of our content partners within their
existing websites or by developing new customer interfaces. Once our core
systems are in place and operational on our network, we expect to quickly
accelerate revenue growth and achieve greatly improved margins as our ongoing
operations are predominantly software driven. The key risk with our business
plan at this point is that we may not able to deliver our current pipeline of
broadband video projects for our customers, due to technological problems or
limited resources, or that our customers are not able to successfully market
their own content or services to a sufficient amount of targeted broadband users
to produce satisfactory revenues for themselves or for us to sustain operations.
We have not achieved substantial sales since launching new products and services
in late 2005 and, therefore, we are dependent on raising capital from financing
resources and we will ask some vendors to accept stock as payment for services
in order to meet our obligations and operating expenses. There can be no
guarantee that these efforts will be successful and we offer no assurance of our
financial success or economic survival.
In addition to launching new digital content delivery products and services in
2006, we also intend to develop merger and acquisition plans in order to support
the company's vision and business plan and to build shareholder value. As of the
date of this report, we were in discussions with two private companies that were
interested in being acquired by a public company in our industry and that
represent key strategic partners in our current business plan.
Recent Developments
By majority consent, our shareholders authorized the company's Board of
Directors to execute a reverse split of our outstanding common stock based on a
ratio of one-for-forty (1:40). All of our outstanding options, warrants and
convertible debt were also adjusted for the split, based on the terms of those
individual agreements. Series A Preferred shares however were not affected by
the split, pursuant to the terms of those shares in the Certificate of
Designation. The record date was March 13, 2006 and the reverse split became
effective after market close on Monday, March 13, 2006. Our common stock began
trading on the Electronic Bulletin Board (OTCBB) on a split-adjusted basis on
Tuesday, March 14, 2006.
Prior to the reverse split, the company asked the holders of all of our
outstanding convertible notes to agree to a minimum "Alternative Conversion
Price", as defined in their Securities Purchase Agreement or other agreements,
in the amount of $4.00 (adjusted for reverse split). The purpose of this action
was to allow our management the ability to determine the fully- diluted equity
capitalization of the company to facilitate financing or possible merger with or
acquisition of another operating company. All holders agreed to the proposed
fixed or minimum conversion price, which will be applied for a period beginning
February 22, 2006 until October 15, 2006 (180 days after the company filed its
2005 annual financial report on form 10-K).
The results of our operations during the first quarter, ended March 31,
2006, reflect a transition period of restructuring the company and our equity
and convertible debt capital and the initial launch of our new content delivery
products and services continuing in the business of IP-based network and
communications services.
Results of Operations
Excluding the effect of amortizing all of the previously recorded deferred
revenue, our operating results showed a decrease in revenues and other areas of
financial performance for the three- month period ended March 31, 2006 as
compared to the same period in 2005.
Three Months Ended March
Summary of Operations 31,
2006 2005
-----------------------------------------------------------------------------------------------------------
Revenues $ 995 $ 52,588
Cost of sales (13,030) 40,599
Gross profit (loss) (12,035) 11,989)
Selling, general and administrative costs (647,112) (1,617,965)
Income (loss) from operations (659,147) (1,605,976)
Other income (expense) 16,780 869
Interest (expense) (239,320) (301,392)
Net profit (loss) $ (881,687) $ (1,906,499)
-----------------------------------------------------------------------------=============--=============--
Our revenues decreased 98% in the three months ended March 31, 2006 compared to
the same period in 2005. Our cost of revenues also increased as a percentage of
our revenues in the same comparative periods from 77% to 1,300%. Selling,
general and administrative costs decreased significantly during the three months
ended March 31, 2006 as compared to the same period in 2005.
Revenues
Our revenues decreased to $995 in the three-month period ended March 31, 2006
from $52,588 in the same period in 2005. This decrease was mainly due to a
general decline in service revenue as a result of terminating our services to
residential communities in Utah during the third quarter of 2005. Although we
began launching new content delivery products and services on behalf of
customers in the first quarter of 2006, we did not achieve any significant
monthly revenue from these projects during the quarter. Our revenue for the
quarter consisted entirely of contract "set up" fees from one customer.
Cost of Revenues and Gross Margins
Our cost of revenues decreased to $13,030 in the three months ended March 31,
2006 from $40,599 in the same period in 2005, a decrease of approximately 62%.
This significant decrease was the result of a decline in network installations
for new residential customers in Utah and the operating costs associated with
proving broadband services to existing residential customers.
Our gross margin on sales in three months ended March 31, 2006 was loss of
$12,035 compared to a gross income of $11,989 in the same period in 2005. This
loss in the first quarter of 2006 was primarily due to the costs associated with
the development of broadband video projects for our new customers without
offsetting revenues being generated from those projects during the quarter. Once
we begin delivering video and services to users, on behalf of our content
partners and using our new content delivery products, we expect to achieve
significantly improved gross margins from revenues generated.
Selling, General and Administrative Costs
Selling, general and administrative costs decreased significantly to $647,112 in
three months ended March 31, 2006 compared to $1,617,965 in the same period in
2005. The decrease in these costs was attributable primarily to decreases in
costs associated with payroll, contract labor and consulting expenses after
consolidating the company's operations and personnel in the third quarter of
2005. We also reduced travel and office expenses as result of consolidation.
Three Months Ended March 31,
2006 2005
--------------------------------------------------------------------------------------------------------------------
Payroll expenses $ 115,898 $ 138,202
Contract labor 13,135 385,617
Office expense 4,601 18,874
Professional services, including stock and options
Is issued for services 423,227 929,714
Travel 17,414 59,776
Employee benefits 10,547 5,030
Equipment expense - 12,618
Advertising 2,410 30,519
Rent 6,380 21,731
Depreciation 21,832 14,777
Other 31,668 1,107
Total $ 647,112 $ 1,617,965
-----------------------------------------------------------------------------------==============--===============--
Other Income (Expense)
Three Months Ended March 31,
2006 2005
--------------------------------------------------------------------------------------------------------------------
Interest expense $ (239,320) $ (301,392)
Other income 16,780 869
--------------------------------------------------------------------------------------------------------------------
Total $ (222,540) $ (300,523)
-----------------------------------------------------------------------------------==============-================--
Interest expense decreased in the three-month period ended March 31, 2006 as
compared to the same period in 2005 largely due to the conversion of $194,000
short-term notes payable into common stock during the first quarter of 2006.
Liquidity and Capital Resources
We do not have any significant credit facilities available with financial
institutions or other third parties. During the first quarter ended March 31,
2006, we financed operations through the sale of equity and debt securities.
Though we have been successful at raising capital on a best efforts basis in the
past, we can provide no assurance that we will be successful in any future
funding efforts. If we are unable to either obtain financing from external
sources or generate internal liquidity from operations in the future, we may
need to curtail operations.
Current assets at March 31, 2006 totaled $17,648 as compared to approximately
$21,000 in the prior quarter ended December 31, 2005.
We expect that certain of our liabilities listed on the balance sheet under the
headings "Accounts Payable," "Accrued Liabilities" and "Note Payable" will be
retired by issuing stock versus cash during the next 12 months.
We anticipate that we will incur significantly less capital expenditures for
broadband fiber and network infrastructure as a result of our new emphasis as a
distributor of IP-based content and services to existing broadband network and
service providers. Historically, we built out fiber-to-the-premise networks,
thereby incurring significant capital resources. We have also reduced our
operations and SG&A costs as a result of consolidating our historical
operations. Going forward, however, we anticipate that we will incur
significantly more capital expenditures as we expect to procure new equipment
and software systems to be installed into existing network facilities that will
accommodate the delivery of content and services over our network or the network
of our partners. We anticipate acquiring credit or leasing facilities by a third
party in order to finance new equipment expenditures but can provide no
assurance that we will be successful. We also anticipate a significant increase
in operational and SG&A costs, as we accelerate the development and launch of
new operations in 2006. Until we achieve substantial revenues or profitability
over several quarters, we must be considered as a start-up entity that is
dependent on raising capital in order to remain in operation.
Going Concern
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States applicable to a going concern
that contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. Our general business strategy
is unproven, and we have only recently begun to record revenues. To date, we
have relied primarily on the sale of our equity and debt securities to fund our
operations. We have incurred losses since our inception and we continue to incur
legal, accounting, and other business and administrative expenses. Our auditor
has therefore recognized that there is substantial doubt about our ability to
continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed with an objective of ensuring
that information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Quarterly Report on Form
10-QSB, is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission. Disclosure controls also
are designed with an objective of ensuring that such information is accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, in order to allow timely consideration regarding
required disclosures.
The evaluation of our disclosure controls by our chief executive officer, who is
also our acting chief financial officer, included a review of the controls'
objectives and design, the operation of the controls, and the effect of the
controls on the information presented in this Quarterly Report. Our management,
including our chief executive officer, does not expect that disclosure controls
can or will prevent or detect all errors and all fraud, if any. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Also,
projections of any evaluation of the disclosure controls and procedures to
future periods are subject to the risk that the disclosure controls and
procedures may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Based on his review and evaluation as of the end of the period covered by this
Form 10-QSB, and subject to the inherent limitations all as described above, our
chief executive officer, who is also our acting chief financial officer, has
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) contain
material weaknesses and are not effective.
A material weakness is a significant deficiency, or a combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
The material weaknesses we have identified are the direct result of a lack of
adequate staffing in our accounting department. Currently, our chief executive
officer and a controller have sole responsibility for receipts and
disbursements. We do not employ any other parties to prepare the periodic
financial statements and public filings. Reliance on these limited resources
impairs our ability to provide for a proper segregation of duties and the
ability to ensure consistently complete and accurate financial reporting, as
well as disclosure controls and procedures. As we grow, and as resources permit,
we project that we will hire such additional competent financial personnel to
assist in the segregation of duties with respect to financial reporting, and
Sarbanes-Oxley Section 404 compliance.
We believe that we will be able to improve our financial reporting and
disclosure controls and procedures and remedy the material weakness identified
above.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 18, 2004, we filed a lawsuit in the Third Judicial District Court, Salt
Lake County, State of Utah against Parkway Crossing, Basin and Summit alleging
breach of contract, breach of the covenant of good faith and fair dealing,
conversion, fraudulent inducement and tortious interference with economic
relations. Parkway Crossing and Summit subsequently filed a motion to dismiss
the action, which was denied and the parties are currently in the discovery
phase.
In a related matter, On January 26, 2005, David Bailey, our former CEO and
former Chairman of the Board, filed a claim in the Fourth Judicial District
Court, Utah County, State of Utah against us, Basin and Summit alleging breach
of contract and unjust enrichment and seeking judgment against all parties in
the amount of $200,000, plus interest, as well as possession of the equipment
that was collateral for the note and fees and costs. To obtain equipment used in
the Parkway Crossing project, we entered into a loan transaction with Ridgeline,
LLC and executed a secured promissory note due August 1, 2004 in the principal
sum of $182,000. We also entered into a Collateral Assignment and Security
Agreement to secure repayment of the note. In addition, Mr. Bailey entered into
a personal guarantee with Ridgeline with respect to our obligations under the
note. As a result of our default on the promissory note with Ridgeline,
Ridgeline made demand upon us and Mr. Bailey for payment of the entire remaining
unpaid portion of the note. In September 2004, Mr. Bailey paid Ridgeline
$200,000 under his guarantee and took an assignment of all of Ridgeline's rights
and interest in the note and related Security Agreement. At the same time, Mr.
Bailey made a demand upon us for payment of the note and related obligation. We
expect that this lawsuit will be settled without any material adverse effect on
us; however, we cannot provide assurance that it will be settled on a basis that
it acceptable to us if at all or that such settlement will not have an adverse
effect on our business or operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits and Index of Exhibits
The following exhibits are either attached hereto or incorporated
herein by reference as indicated:
Exhibit Number
Description
31 Certification of Chief Executive and Chief
Financial Officer pursuant to SEC
Release No. 33-8238, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive and Chief
Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b). Reports on Form 8-K.
On March 22, 2006, the Company filed a current report on Form 8-K in
connection with a change in the Company's auditors to Ronald N Silberstein CPA
PLLC.
On March 24, 2006, the Company filed a current report on Form 8-K in
connection with a new stock trading symbol (EDAV). We have since changed our
symbol again to IMHI in conjunction with our corporate name change that occurred
thereafter.
On April 4, 2006, the Company filed a current report on Form 8-K in
connection with reverse stock split of 1 for 40 and in connection with a change
in the Company's name to Integrated Media Holdings, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTEGRATED MEDIA HOLDINGS, INC.
Dated: May 22, 2006 /s/ Paul D. Hamm
--------------------------------------------
Paul D. Hamm
Chief Executive Officer and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number
Description
31 Certification of Chief Executive and Chief
Financial Officer pursuant to SEC
Release No. 33-8238, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive and Chief
Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 31
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY
I, Paul D. Hamm, Chief Executive Officer and acting as Chief Financial Officer
of Integrated Media Holdings, Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Integrated Media
Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have;
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function);
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May, 22, 2006 /s/ Paul D. Hamm
----------------------------------
Paul D. Hamm
Chief Executive Officer and
Chief Financial Officer
Exhibit 32
CERTIFICATION OF THE
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul D. Hamm, the Chief Executive Officer and acting as Chief
Financial Officer of Integrated Media Holdings, Inc., certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that the Quarterly Report of Integrated Media Holdings, Inc. on
Form 10-QSB for the quarter ended March, 31, 2006 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in such Quarterly Report on Form 10-QSB fairly
presents in all material respects the financial condition and results of
operations of Integrated Media Holdings, Inc.
Date: May 22, 2006 /s/ Paul D. Hamm
---------------------------------
Paul D. Hamm
Chief Executive Officer and
Chief Financial Officer