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, 2005
o Transition Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act
For the
transition period from _____________ to _______________
Commission
File Number 33-119586
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
(Exact
Name of Small Business Issuer as Specified in Its Charter)
|
Delaware
(State
or Other Jurisdiction of Incorporation or
Organization)
|
87-0642448
(IRS
Employer Identification No.)
|
|
50
West Broadway, Suite 400
Salt
Lake City, Utah |
84101 |
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(877)
721-9627
(Issuer’s
Telephone Number, Including Area Code)
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 þ
No o
APPLICABLE
ONLY TO CORPORATE ISSUERS
The
number of shares of the issuer’s common equity outstanding as of May 16, 2005
was 10,610,301 shares of common stock, par value $.001.
Transitional
Small Business Disclosure Format: Yes o No
þ
INDEX
TO FORM 10-QSB FILING
FOR
THE QUARTER ENDED MARCH 31, 2005
TABLE
OF CONTENTS
|
PART
I. |
|
FINANCIAL
INFORMATION |
| |
Page
|
|
Item
1. Financial Statements |
|
| |
|
|
Condensed
Consolidated Unaudited Balance Sheet |
|
|
as
of March 31, 2005 |
1 |
| |
|
|
Condensed
Consolidated Unaudited Statements of Operations |
|
|
for
the Three-Month Periods Ended March 31, 2005 and |
|
|
March
31, 2004 |
2 |
| |
|
|
Condensed
Consolidated Unaudited Statements of Cash Flows |
|
|
for
the Three-Month Periods Ended March 31, 2005 and |
|
|
March
31, 2004 |
3 |
| |
|
|
Notes
to the Condensed Consolidated Unaudited Financial
Statements |
4 |
| |
|
|
Item
2. Management’s Discussion and Analysis |
7 |
| |
|
|
Item
3. Controls and Procedures |
11 |
| |
|
|
PART
II |
|
OTHER
INFORMATION |
| |
|
|
Item
6. Exhibits |
12 |
| |
|
|
SIGNATURES |
|
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED UNAUDITED BALANCE SHEET
as of
March 31, 2005
|
Assets |
|
|
|
| |
|
|
|
|
Current
assets: |
|
|
|
|
Cash
|
|
$ |
890,339 |
|
|
Accounts
receivable, net of allowance for doubtful
accounts
of $10,715 |
|
|
27,038 |
|
|
Prepaid
expenses |
|
|
3,524 |
|
|
Deposits |
|
|
43,000 |
|
| |
|
|
|
|
|
Total
current assets |
|
|
963,901 |
|
| |
|
|
|
|
|
Property
and equipment, net |
|
|
208,493 |
|
| |
|
|
|
|
|
Asset
held for sale |
|
|
44,744 |
|
| |
|
|
|
|
|
Total
Assets |
|
$ |
1,217,138 |
|
| |
|
|
|
|
|
Liabilities
and Stockholders’ Deficit |
| |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable |
|
|
589,571 |
|
|
Accrued
payroll and other liabilities |
|
|
499,541 |
|
|
Deferred
revenue |
|
|
301,112 |
|
|
Notes
payable including related parties |
|
|
1,074,266 |
|
| |
|
|
|
|
|
Total
current liabilities |
|
|
2,464,490 |
|
| |
|
|
|
|
|
Note
payable (net of discount of $1,352,774) |
|
|
72,226 |
|
| |
|
|
|
|
|
Stockholders'
deficit: |
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares
Authorized.
Of the amount authorized 4,500,000 shares have been
designated as
Series A, and 100,000 shares as Series B.
There are 3,821,197 shares
of Series A issued and outstanding.
The liquidation preference of the
Series A is $4,000. |
|
|
3,821 |
|
|
Common
stock, $.001 par value, voting, 100,000,000
shares
authorized, 10,501,240 shares
issued and outstanding |
|
|
10,610 |
|
|
Additional
paid-in capital |
|
|
17,374,864 |
|
|
Deferred
compensation |
|
|
(20,854 |
) |
|
Subscriptions
receivable |
|
|
(2,295 |
) |
|
Accumulated
deficit |
|
|
(18,685,724 |
) |
| |
|
|
|
|
| |
|
|
(1,319,578 |
) |
| |
|
|
|
|
|
Total
liabilities and stockholders' deficit |
|
$ |
1,217,138 |
|
See
accompanying notes to condensed consolidated financial
statements.
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
for the
three-month periods ended March 31, 2005 and March 31, 2004
| |
|
Three
Months Ended March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
Total
revenues |
|
$ |
52,588 |
|
$ |
67,011 |
|
| |
|
|
|
|
|
|
|
|
Cost
of sales |
|
|
(40,599 |
) |
|
(99,743 |
) |
|
Selling,
general, and administrative expense |
|
|
(1,617,965 |
) |
|
(482,331 |
) |
| |
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(1,605,976 |
) |
|
(515,063 |
) |
| |
|
|
|
|
|
|
|
|
Other
income |
|
|
869 |
|
|
— |
|
|
Interest
expense |
|
|
(301,392 |
) |
|
(343,797 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
(1,906,499 |
) |
|
(858,860 |
) |
| |
|
|
|
|
|
|
|
|
Imputed
preferred stock dividend |
|
|
(1,891,493 |
) |
|
—
|
|
| |
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders |
|
$ |
(3,797,992 |
) |
$ |
(858,860 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted |
|
$ |
(.39
|
) |
$ |
(1.74
|
) |
| |
|
|
|
|
|
|
|
|
Weighted
average shares - basic and diluted |
|
|
9,773,288 |
|
|
494,751 |
|
| |
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED UNAUDITED STATEMENTS OF CASHFLOWS
for the
three-month periods ended March 31, 2005 and March 31, 2004
| |
|
Three Months Ended March
31, |
|
| |
|
2005 |
|
2004 |
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
Net
loss |
|
$ |
(1,906,499 |
) |
$ |
(858,860 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
14,777 |
|
|
38,345
|
|
|
Stock
issued for services |
|
|
211,687 |
|
|
33,382
|
|
|
Amortization
of deferred compensation |
|
|
666,895 |
|
|
20,681
|
|
|
Amortization
of unearned revenue |
|
|
(19,787 |
) |
|
(8,760 |
) |
|
Amortization
of discount on long-term debt |
|
|
113,668 |
|
|
256,479
|
|
|
Decrease
(increase) in: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
3,967
|
|
|
(78,282 |
) |
|
Deposits
and prepaid expense |
|
|
(25,000 |
) |
|
(13,000 |
) |
|
Increase
(decrease) in: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
(61,399 |
) |
|
(26,506 |
) |
|
Accrued
liabilities |
|
|
38,849
|
|
|
17,456
|
|
|
Deferred
revenue |
|
|
—
|
|
|
31,700
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used in operating activities |
|
|
(962,842 |
) |
|
(587,365 |
) |
| |
|
|
|
|
|
|
|
|
Cash
flows used in investing activities - |
|
|
|
|
|
|
|
|
Purchase
of property and equipment |
|
|
(69,902 |
) |
|
(37,494 |
) |
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock |
|
|
542,517
|
|
|
—
|
|
|
Proceeds
from related party note |
|
|
—
|
|
|
3,000
|
|
|
Proceeds
from convertible short-term debt |
|
|
1,425,000
|
|
|
475,000
|
|
|
Proceeds
from note payable |
|
|
|
|
|
(3,537 |
) |
|
Payments
on related party note |
|
|
(3,366 |
) |
|
(4,108 |
) |
|
Payments
on convertible long-term debt |
|
|
(41,442 |
) |
|
(3,341 |
) |
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities |
|
|
1,922,709 |
|
|
467,014 |
|
| |
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents |
|
|
889,965 |
|
|
(157,845 |
) |
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period |
|
|
373 |
|
|
164,183 |
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period |
|
$ |
890,338 |
|
$ |
6,338 |
|
See
accompanying notes to condensed consolidated financial
statements.
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
NOTES TO
THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE
1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation. The
financial statements reflect the consolidated results of Endavo Media and
Communications and its wholly owned subsidiaries Susquina Inc. and New Planet
Resources, Inc. All material intercompany transactions have been eliminated in
the consolidation.
Reverse
Stock Split. In the
third quarter of 2004, the Company completed a reverse stock split whereby the
shareholders received 1 share of stock for every 16 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. Endavo Media and
Communications, 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, 2004 included in the Company’s Annual Report on Form 10-KSB.
Net
Loss Per Common Share. Basic
earnings per share is computed on the basis of the weighted average number of
common shares outstanding. Diluted earnings per share is 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, 2005 and 2004 have been
adjusted to give retroactive effect to the one-for-sixteen reverse stock split
effective September 23, 2004 as if the reverse stock split had occurred on
January 1, 2004. Options, warrants, convertible debt and convertible preferred
stock which if exercised or converted would require the company to issue
42,993,443 and 80,675 common stock equivalents are not included in the diluted
earnings per share calculation for March 31, 2005 and 2004, respectively, since
their effect 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.
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
NOTES TO
THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL
STATEMENTS
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. The Company granted no options
during the periods ending March 31, 2005 and 2004 to employees.
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 issued during the three months ended March
31, 2005 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.
Specifically, this transaction may ultimately result in gross proceeds to the
Company of $4,275,000 if both the additional investment rights are exercised in
full. In connection with these notes 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 $0.892 per
share and 1,597,529 warrants to purchase common stock with an exercise price of
$1.29 were issued with the debt. 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 March 31, 2005, $72,226 has
been amortized.
ENDAVO
MEDIA AND COMMUNICATIONS, INC.
NOTES TO
THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
Convertible
notes payable purchased by a funding group totaled $1,397,300 in 2004, for total
debt to the group of $2,261,300. During the 2004, $1,498,500 of these notes were
converted into 3,511,363, post-reverse split, shares of the Company’s common
stock, leaving $762,800 in convertible notes to the group outstanding as of
March 31, 2005. The notes are due on demand after 121 days past issuance 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. The
total debt discounts amortized during 2004 was approximately
$518,700.
NOTE
4—COMMON STOCK TRANSACTIONS
The
Company issued 48,440 shares of common stock for services valued at $64,687
during the three months ended March 31, 2005. A total of 812,389 shares of
common stock were issued for cash of $426,000. A total of 500,000 shares of
common stock were issued for cash of $116,000.
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, 2005, 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, 2004. 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 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
Endavo
Media and Communications, Inc. first incorporated under the name of CeriStar in
December of 1999 in Delaware, provides integrated broadband services, including
voice, video and data services, to residential, commercial and municipal
concerns through reliable, fast and intelligent IP (Internet Protocol) based
networks. The Company’s current principal offering is to provide residential
subscribers with integrated voice, video and data communications services over
Fiber-to-the-Premise (FTTP) infrastructure. These communications services
include a robust IP telephony package (VoIP), high-speed Internet connectivity,
broadcast and IP entertainment services such as video-on-demand, as well as
security services. Endavo also manages the quality of service (QoS) and provides
customer service and billing, as well as integration, engineering and management
support for its customer base and for its network.
On
September 10, 2002, Endavo 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 the issued and outstanding stock of Endavo, 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
Endavo being the accounting acquirer. On October 15, 2002, Planet Resources Inc.
was renamed CeriStar, Inc., now Endavo Media and Communications, Inc. Since
Planet had no operations for the two years prior to the merger, only Endavo’s
financial condition and results or operations will be discussed.
Until we
achieve substantial revenues or profitability over several quarters, we must be
considered as a start-up entity. Until that time, we remain dependent on
financing resources for cash flows to meet certain operating expenses and offer
no assurance of our financial success or economic survival.
Results
of Operations
Our
operating results showed a decrease in revenues and other areas of financial
performance for the three-month period ended March 31, 2005 as compared to the
same period in 2004.
Summary
of Operations |
|
Three
Months Ended March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
Revenues |
|
$ |
52,588 |
|
$ |
67,011 |
|
|
Cost
of Revenue |
|
|
40,599 |
|
|
99,743 |
|
|
Gross
(Loss) |
|
|
11,989 |
|
|
(32,731 |
) |
|
Selling,
General and Administrative Costs |
|
|
(1,617,965 |
) |
|
(482,331 |
) |
|
Operating
(Loss) |
|
|
(1,605,976 |
) |
|
(515,063 |
) |
|
Other
Income (Expense) |
|
|
869 |
|
|
— |
|
|
Interest
Expense |
|
|
(301,392 |
) |
|
(343,797 |
) |
| |
|
|
|
|
|
|
|
|
Net
(Loss) |
|
$ |
(1,906,499 |
) |
$ |
(858,860 |
) |
Our
revenues decreased 21.52% in the three months ended March 31, 2005 compared to
the same period in 2004. At the same time, our cost of revenues declined. Our
cost of revenues also declined as a percentage of our revenues in the same
comparative periods from 149% to 77%. Selling, general and administrative costs
increased significantly during the three months ended March 31, 2005 as compared
to the same period in 2004.
Revenues
Our
revenues decreased to $52,588 in the thee-month period ended March 31, 2005 from
$67,011 in the same period in 2004. This was due in large part to a general
decline in service revenue and the lack of any revenue from equipment or labor
sales. The first quarter of 2004 included $23,761 of commercial revenues from
customers that have discontinued services.
Cost
of Revenues and Gross Margins
Our cost
of revenues decreased to $40,599 in the three months ended March 31, 2005 from
$99,743 in the same period in 2004, a decrease of approximately 60%. This was
the result of discontinuing services to commercial customers and switching to a
new bandwidth provider in the fourth quarter of 2004. We also
discontinued our agreements with our telecommunications and network bandwidth
provider, which represented a significant percentage of our cost of revenues, as
we switched to a new lower cost bandwidth provider and began providing VoIP
services to our residential customers directly from our new local facility in
Orem, Utah.
Our
gross
margin on sales in three months ended March 31, 2005 was $11,989 compared to a
loss of $32,731 in the same period in 2004. This increased margin was primarily
due to decreased costs of sales, offset by a decrease in revenues.
Selling,
General and Administrative Costs
Selling,
general and administrative costs increased significantly to $1,617,965 in three
months ended March 31, 2005 compared to $482,331 in the same period in 2004. The
increase in these costs was attributable primarily to increases in costs
associated with payroll and consulting expenses. The
increase in contract labor and consulting expenses came largely in the form of
cash and non-cash compensation paid for services rendered in connection with our
corporate restructure and redirection of our business plan.
| |
|
Three Months Ended March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
Payroll
Expenses |
|
$ |
124,003 |
|
$ |
153,572 |
|
| |
|
|
|
|
|
|
|
|
Contract
Labor |
|
|
385,617 |
|
|
31,021 |
|
|
Deferred
Payroll Expense |
|
|
14,199 |
|
|
20,681 |
|
|
Office
Expense |
|
|
18,874 |
|
|
9,859 |
|
|
Professional
Services, including stock and options
issued
for services |
|
|
929,714 |
|
|
90,872 |
|
|
Travel |
|
|
59,776 |
|
|
58,033 |
|
|
Employee
Benefits |
|
|
5,030 |
|
|
14,769 |
|
|
Equipment
Expense |
|
|
12,618 |
|
|
14,632 |
|
|
Advertising |
|
|
30,519 |
|
|
2,498 |
|
|
Rent |
|
|
21,731 |
|
|
12,057 |
|
|
Depreciation |
|
|
14,777 |
|
|
38,345 |
|
|
Other |
|
|
1,107 |
|
|
35,992 |
|
| |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,617,965 |
|
$ |
482,331 |
|
Other
Income (Expense)
| |
|
Three Months Ended March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
Interest
expense |
|
$ |
301,392 |
|
$ |
343,797 |
|
|
Other
income |
|
|
869 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
Total |
|
$ |
300,523 |
|
$ |
343,797 |
|
Interest
expense decreased in the three-month period ended March 31, 2005 as compared to
the same period in 2004 largely due to the conversion of $1,498,500 short-term
notes payable into common stock in the second half of 2004.
Liquidity
and Capital Resources
In 2004,
we consolidated our operations in order to focus on our new business plan. As a
result, we do not yet currently have substantial revenues to fund ongoing
operations and, therefore, rely upon best-efforts third party funding from
individual accredited and institutional investors. We do not have any
significant credit facilities available with financial institutions or other
third parties. During 2004, 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, 2005 totaled $963,901 as compared to approximately $53,000
in the prior quarter ended December 31, 2004. During our first fiscal quarter
ended March 31, 2005, we received net proceeds of $1,425,000 through the
issuance of convertible promissory notes, $116,290 from the exercise common
stock warrants and $426,022 from the sale of common stock.
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 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. Until we achieve substantial revenues
or profitability over several quarters, we must be considered as a start-up
entity. 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 2005.
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
6. 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 |
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.
| |
|
|
| ENDAVO MEDIA AND
COMMUNICATIONS, INC. |
COMPANY NAME
CORPORATION |
|
|
|
| Dated: May 20, 2005 |
By: |
/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 |