SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-119586
ENDAVO MEDIA AND COMMUNICATIONS, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE 87-0642448
(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
50 WEST BROADWAY, SUITE 1100
SALT LAKE CITY, UTAH 84101
(Address of principal executive officers)
877-721-9627
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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__
State the number of shares outstanding of each of the issuer classes of
common equity as of November 19, 2004.
Common Stock, par value $.001 10,717,983
(Title of each class) (Number of shares)
ENDAVO MEDIA AND COMMUNICATIONS, INC.
TABLE OF CONTENTS
Special Note Regarding Forward Looking Statements
PART I - FINANCIAL STATEMENT
Item 1. Financial Statements
Condensed Consolidated Unaudited Balance Sheet at September 30, 2004
Condensed Consolidated Unaudited Statements of Operations for the three
and nine months ended September 30, 2004 and 2003
Condensed Consolidated Unaudited Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003
Notes to Condensed Consolidated Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Signatures
Exhibits
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements in the Form 10-QSB are
forward looking statements that involve risks and uncertainties. Words, such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and "views" are intended to identify forward-looking statements. Such statements
are based on current expectations and projections about our business and
assumptions made by the management and are no guarantee of future performance.
Therefore, actual events and results may differ materially from those expressed
or forecasted in the forward looking statements due to risk factors identified
in the Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ENDAVO MEDIA AND COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEET
September 30, 2004
(unaudited)
Assets
------
Current assets:
Cash $ 21,579
Accounts receivable, net of allowance for
doubtful accounts of $162,242 79,787
Prepaid expenses 27,668
Deposits 26,879
--------------
Total current assets 155,913
Property and equipment, net 613,109
Total Assets $ 769,022
--------------
--------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Accounts payable $ 457,814
Accrued payroll and other liabilities 439,130
Unearned revenue 359,536
Notes payable including related parties 1,698,740
--------------
Total current liabilities 2,955,220
Stockholders' deficit:
Preferred stock, $.001 par value; 1,000,000 shares
authorized, no shares issued and outstanding -
Common stock, $.001 par value, voting, 100,000,000 shares
authorized, 8,418,837 shares issued and outstanding 8,419
Additional paid-in capital 13,388,312
Deferred compensation (1,543,459)
Subscriptions receivable (36,432)
Accumulated deficit (14,003,038)
--------------
Total stockholders' deficit: (2,186,198)
--------------
Total liabilities and stockholders'deficit $ 769,022
--------------
See accompanying notes to condensed consolidated financial statements
1
ENDAVO MEDIA AND COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
-------------------------------------------------------------------------------------------------------------------
Service Revenue $ 42,509 $ 78,604 $ 153,741 $ 267,799
Cost of sales 89,806 145,466 283,845 396,109
Settlement expense 8,589 - 143,589 -
Selling, general, and administrative expense 415,291 1,012,732 1,399,885 2,981,691
------------ ------------ ------------- --------------
Loss from operations (471,177) (1,079,594) (1,673,578) (3,110,001)
Other income (expense) 913 - 913 731
Interest expense (177,399) (58,628) (854,277) (102,998)
------------ ------------ ------------- --------------
Loss before benefit for income taxes (647,663) (1,138,222) (2,526,942) (3,212,268)
Benefit for income taxes - - - -
------------ ------------ ------------- --------------
Net loss $ (647,663) $ (1,138,222) $ (2,526,942) $ (3,212,268)
============= ============ ============= ==============
Loss per common share basic and diluted $ (0.39) $ 2.47 $ (3.72) $ 10.00
============= ============ ============= ==============
Weighted average shares - basic and diluted 1,679,000 460,000 679,000 321,000
============= ============ ============= ==============
See accompanying notes to condensed consolidated financial statements
2
ENDAVO MEDIA AND COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF CASHFLOWS
For The Nine Months Ended September 30,
2004 2003
-------------- --------------
Cash flows from operating activities:
Net loss $ (2,526,942) $ (3,212,268)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 120,459 83,631
Equipment used in lawsuit settlement 11,554 -
Stock issued for services 81,726 451,585
Stock warrants issued for financing costs - 76,000
Amortization of deferred compensation 111,043 230,001
Amortization of unearned revenue (38,135) -
Stock subscription satisfied with services - 1,356,100
Amortization of discount on long-term debt 520,744 46,814
Bad debt expense 20,000 (8,200)
Decrease (increase) in:
Accounts receivable (31,217) (29,551)
Deposits and prepaid expenses (21,636) (41)
Increase (decrease) in:
Accounts payable 713 42,270
Accrued liabilities 228,446 173,299
Deferred revenue 161,162 45,780
-------------- --------------
Net cash used in operating activities (1,362,083) (744,580)
Cash flows used in investing activities-
Purchase of property and equipment (196,203) (92,690)
Cash flows from financing activities:
Cash over-draft 3,472
Proceeds from issuance of common stock 22,001 462,390
Proceeds from related party note 3,000 103,000
Proceeds on convertible short-term debt 1,412,300 197,000
Proceeds on note payable - 69,708
Payments on note payable (10,788) (17,488)
Payments on related party note (10,831) -
Payments on convertible long-term debt - (9,022)
-------------- --------------
Net cash provided by financing activities 1,415,682 809,060
-------------- --------------
Net (decrease) increase in cash
and cash equivalents (142,604) (28,210)
Cash and cash equivalents at beginning of period 164,183 28,210
-------------- --------------
Cash and cash equivalents at end of period $ 21,579 $ -
============== ==============
See accompanying notes to condensed consolidated financial statements
3
ENDAVO MEDIA AND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2004
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Name Change and Reverse Stock Split- The Board of Directors voted unanimously to
change the corporate name from CeriStar, Inc. to Endavo Media and
Communications, Inc. and to issue one for sixteen reverse stock split. Both
transactions became effective on September 24, 2004. All references to the
Company's common stock in this filing have been adjusted 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 regarding interim financial statements.
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, 2003 included in the Company's annual report on Form
10-KSB.
4
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 debt convertible into common stock and
outstanding stock options and warrants using the "treasury stock" method. Such
common stock equivalents are not included in diluted weighted average shares
when their effect is anti-dilutive. The earnings per common share for the three
and nine months ended September 30, 2004 and 2003 have been adjusted to give
retroactive effect to the one-for-sixteen reverse stock split effective
September 24, 2004 as if the reverse stock split had occurred on January 1,
2003.
At September 30, 2004, and 2003 there were outstanding options and warrants to
purchase 2,839,702 and 42,827 shares of common stock and debt conversion
features to purchase 1,249,111 and 34,113 shares of common stock that were not
included in the computation of diluted net loss per common share as their effect
would have been anti-dilutive, thereby decreasing the net loss per common share.
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. Sales related to long-term service contracts, which do
not meet this criteria, are deferred and are recorded as unearned revenue and
recognized ratably over the period of the contract.
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 September 30,
2004 and 2003 to employees.
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.
5
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 nine months ended
September 30, 2004 consisted of the following:
Convertible notes payable purchased by a funding group totaled $1,397,300 for
the nine months ended September 30, 2004, for total debt to the group of
$2,261,300. During August and September of 2004, $808,500 of these notes were
converted into 2,131,078 shares of the Company's common stock, leaving
$1,452,800 in convertible notes to the group outstanding as of September 30,
2004. 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 of which approximately $43,500 is unamortized at
September 30, 2004. The total discount and beneficial conversion feature
amortized on all notes during the nine months ended September 30, 2004 was
approximately $520,744.
NOTE 4 -- COMMON STOCK TRANSACTIONS
The Company issued 5,742,624 shares of common stock for services valued at
$1,338,366 during the nine months ended September 30, 2004, $1,256,640 of which
was recorded as deferred compensation. As noted above, 2,131,078 shares of
common stock were issued for the conversion of $808,500 of notes payable and
$93,189 of accrued interest, for a total value of $901,689. A total of 48,000
shares of common stock were issued for cash of $22,000 and a subscription
receivable of $8,000.
NOTE 5 -- CASH FLOW INFORMATION
Actual amounts paid for interest for the nine months ended September 30, 2004
and 2003, were $201,700 and $8,300 respectively. No income taxes were paid for
the respective periods.
6
During the nine months ended September 30, 2004, the Company issued 5,712,000
shares of common stock for consulting services valued at $1,256,640, which was
recorded as deferred compensation.
During the nine months ended September 30, 2004, the Company issued 162,500
warrants for consulting services, with exercise prices from $.035 to $.65,
expiring March 26, 2005 and immediately exercisable. The fair value of the
warrants is $301,109, which was recorded as deferred compensation at September
30, 2004.
During the nine months ended September 30, 2004, the Company issued 2,131,078
shares of common stock for the conversion of $808,500 of notes payable and
$93,189 of accrued interest, for a total value of $901,689.
During the nine months ended September 30, 2004, 48,000 shares of common stock
were issued for cash of $22,000 and a subscription receivable of $8,000.
Effective September 23, 2004, the 16:1 reverse split reduced the outstanding
shares of common stock by 40,507,701, which reduced common stock by $40,508 and
increased additional paid-in-capital by the same amount.
During the nine months ended September 30, 2003, the Company received a
commission, which reduced its deferred purchase obligation and was recorded as
an increase of $27,900 to deferred revenue.
During the nine months ended September 30, 2003, the Company reacquired 6,000
shares of its common stock for a reduction in deferred compensation of $149,333
and subscriptions receivable of $9,317. During the nine months ended September
30, 2004, the Company amortized $111,043 of deferred compensation into selling,
general and administrative expense.
During the nine months ended September 30, 2003, the Company disposed of
equipment in exchange for extinguishments of an accrued liability of $12,540.
During the nine months ended September 30, 2004, the Company disposed of $11,554
in satisfaction of a lawsuit.
During August 2003, the Company obtained a note payable to a funding group for
$182,000 bearing interest at 15% per annum. The note is payable in monthly
installments of $5,500 beginning February 1, 2004 through August 1, 2004 at
which time the remaining unpaid principal and interest balance is due. The note
includes 100,000 warrants. The total discount related to these warrants is
$63,000, of which all has been amortized at September 30, 2004. A total of
$45,509 of the discount was amortized to interest expense during the nine months
ended September 30, 2004. The note is guaranteed by the former Chairman of the
Board of Directors and is secured by equipment of the Company.
NOTE 6 - SETTLEMENT EXPENSE
On July 1, 2004, the Company settled the lawsuit with Wired, LC. Pursuant to the
terms of the settlement, the Company paid Wired $90,000 through October 2004,
and return certain equipment to Wired. The Company had to replace approximately
$54,000 of equipment. The Company has recorded a settlement expense and accrued
liability of approximately $144,000 as of September 30, 2004.
NOTE 7 - SUBSEQUENT EVENTS
On October 28, 2004, $792,975 of convertible short-term notes and accrued
interest were converted to 1,380,285 shares of Endavo common stock.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
for Operations
Name Change and Reverse Stock Split
The Board of Directors voted unanimously to change the corporate name from
CeriStar, Inc. to Endavo Media and Communications, Inc. and to issue one for
sixteen reverse stock split. Both transactions became effective on September 23,
2004.
Critical Accounting Policies
In Note 1 to the financial statements for the fiscal year ended December 31,
2003 included in our 10-KSB discuss those accounting policies that are
considered to be significant in determining the results of operations and our
financial position. We believe that the accounting principles utilized by us
conform to generally accepted accounting principles in the United States of
America.
The preparation of consolidated financial statements requires management to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. By their nature, these judgments are subject
to an inherent degree of uncertainty. On an on-going basis, we evaluate our
estimates, including those related to bad debts, inventories, intangible assets,
warranty obligations, product liability, revenue, and income taxes. We base our
estimates on historical experience and other facts and circumstances that are
believed to be reasonable, and the results form the basis for making judgments
about the carrying value of assets and liabilities. The actual result may differ
from these estimates under different assumptions or conditions.
With respect to revenue recognition, stock based compensation, and allowance for
doubtful accounts we apply the following critical accounting policies in the
preparation of our financial statements:
Revenue Recognition
We derive revenue primarily from the sale of communications services and sales
of related communication equipment. 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. Sales related to long-term service
contracts, which do not meet this criteria, are originally deferred and are
recorded as unearned revenue and recognized ratably over the period of the
contract.
Accounting for Stock-based Compensation
We account for stock-based compensation issued to employees and directors under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Under APB No. 25, compensation
related to stock options, if any, is recorded if an option's exercise price on
the measurement date is below the fair value of the company's common stock and
amortized to expense over the vesting period. Compensation expense for stock
awards or purchases, if any, is recognized if the award or purchase price on the
8
measurement date is below the fair value of the common stock and is recognized
on the date of award or purchase. Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation," requires pro forma
information regarding net loss and net loss per common share as if the company
had accounted for its stock options granted under the fair value method.
We account for stock-based compensation issued to persons other than employees
using the fair value method in accordance with SFAS No. 123 and related
interpretations. Under SFAS No. 123, stock-based compensation is determined as
either the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. The
measurement date for these issuances is the earlier of either the date at which
a commitment for performance by the recipient to earn the equity instruments is
reached or the date at which the recipient's performance is complete.
Allowance for Doubtful Accounts
We must make estimates of the collectibility of accounts receivables. In doing
so, we analyze accounts receivable and historical bad debts, customer
credit-worthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of the allowance for doubtful accounts.
Forward-Looking Statements
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
related notes included in Item 1 of this Form 10-QSB. This discussion contains
forward-looking statements. These statements are based on our current
expectations, assumptions, estimates and projections about our business and our
industry, and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's results, levels of activity, performance or
achievement to be materially different from any future results, levels of
activity, performance or achievements expressed or implied in or contemplated by
the forward-looking statements. Our actual results and the timing of selected
events could differ materially from those anticipated in these forward-looking
statements as a result of selected factors identified in the Item 2 and Form
10-QSB.
Endavo undertakes no obligation to update forward-looking statements to reflect
events or circumstances occurring after the date of this Form 10-QSB.
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 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 IP telephony (VoIP), high-speed Internet connectivity, analog broadcast
television and IP entertainment services, such as video-on-demand. Endavo
manages the quality of service (QoS) and provides customer service and billing,
as well as operations, engineering and network management support for its
customer base network.
9
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.
During the past quarter, Endavo has made some significant changes in the
Company's business plan and objectives, along with changes that have occurred in
the Company's executive management team and Board of Directors in August 2004.
While the company plans to continue delivering IP voice, video and data services
to its current residential customer base in Utah and continue operating and
supporting its network facilities in the local market, the Company plans to
develop an IP services delivery system that will enable the distribution of
digital entertainment and communications services and applications over a
nationwide IP/MPLS network. Once the technologies and products are sufficiently
developed and tested, the Company plans to market IP services and content, on a
wholesale and retail basis, to defined groups of customers in targeted
geographical markets that are located within close proximity of or already
connected to the national fiber backbone we plan to utilize and that have
existing local or metropolitan fiber network loops.
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
FOR THE COMPARATIVE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
Total revenue declined in the first nine months of fiscal 2004 to $154,000 from
$268,000 in the first nine months of fiscal 2003. The overall decrease is
primarily due to the Company's transition to residential services and the loss
of a significant commercial customer from which revenues of $124,000 were
recognized in the first nine months of 2003. For the nine months ended September
30, 2004 revenue was primarily generated from sale of communications services
with existing equipment owned by the Company.
Endavo had a net loss in the first nine months of 2004 of $2,526,942 compared
with a net loss in the first nine months of 2003 of $3,212,268.
Cost of revenue was $284,000 in the first nine months of 2004, compared to
$396,000 in the first nine months of 2003. This decrease in cost of sales in
2004 is primarily due to decreased sales related labor costs as we move away
from engineering labor and design sales to residential service sales and reduced
bandwidth charges relating to commercial customers.
Gross margins to date 2004 were a negative $130,000 compared to a negative
$128,000 in 2003. Thus far, Endavo has not generated a large enough customer
base to cover its fixed bandwidth and service costs. As Endavo began the
transition to an operating company, additional labor, engineering and bandwidth
costs have been necessary to meet the needs of customers in a variety of
locations. As Endavo acquires new customers in those areas where the Company's
existing facilities are located, it can do so with lower cost of acquisition and
can spread fixed costs associated with operating the network and facility over a
larger base of subscribers, thus increasing the overall profitability of the
Company's operations.
Selling, general and administrative expenses decreased by $1,582,000 to
$1,400,000 in the first nine months of 2004 compared to $2,982,000 in 2003
primarily due to the decrease in fees paid to consultants incurred in 2003
including approximately $452,000 paid through the issuance of common stock and
approximately $1.36 million paid through elimination of stock subscription
receivable.
The Company settled the lawsuit with Wired, LC. Pursuant to the terms of the
settlement, the Company paid Wired $90,000 through October 2004, and returned
certain equipment to Wired. The Company had to replace approximately $54,000 of
equipment. The Company has recorded a settlement expense of approximately
$144,000 for the nine months ended September 30, 2004.
10
Interest expense increased to $854,000 in the first nine months of 2004 from
$103,000 in 2003 as a significant amount of debt was add in late 2003 and 2004.
A majority of the increase in 2004, $521,000, was the amortization of debt
discount during 2004.
FOR THE COMPARATIVE THREE MONTHS ENDED September 30, 2004 AND 2003
Endavo had a net loss in the third quarter of 2004 of $647,663, the loss in the
second quarter of 2003 was $1,138,222. Revenues were $43,000 in the third
quarter of 2004 compared to $79,000 in the third quarter of 2003. The decline in
revenues was primarily due to reduced commercial revenues.
Gross margins in the second quarter of 2004 were a negative $47,000 compared to
a negative $67,000 in 2003. As Endavo's residential customer base expands in our
current facility locations, excess bandwidth capacity is expected be able to
service significantly larger customer base with little or no significant
increase in fixed bandwidth costs.
Selling and administrative expense decreased by $597,000 as consulting and other
professional fees declined by $516,000 due to decreased dependence on
consultants employed to assist in developing business plans, partnering
opportunities and product positioning.
The Company settled the lawsuit with Wired, LC. Pursuant to the terms of the
settlement, the Company paid Wired $90,000 through October 2004, and returned
certain equipment to Wired. The Company had to replace approximately $54,000 of
equipment. The Company has recorded a settlement expense of approximately
$9,000 for the three months ended September 30, 2004.
Interest expense increased by $119,000 as additional debt was incurred to fund
operations and equipment purchases.
Liquidity and Capital Resources
Endavo's revenues are not capable of supporting its current operations. Endavo
will be dependent on the capital markets for funding its current operations. At
September 30, 2004 the Company has a working capital deficit of $2,799,000. To
meet its continuing funding needs, Endavo actively seeks funding through
issuance of debt securities. No assurance can be made that the Company will be
successful in raising sufficient capital.
Endavo believes that as the Company proves its technology and products through
its current customer base, it will be able to effectively and profitably deliver
a technically advanced communications product to a broader range of wholesale
and retail customers within defined target markets. Endavo will continue
developing and testing its technology and products until such time the Company
believes that the Company's products are scalable and marketable to a broader
market of potential customers. At that time, the Company expects to deploy a
sales and marketing plan, while continuing to develop and support its technology
and products. Expansion into new market areas will be limited by the amount of
investment capital and equipment financing that can be acquired, as well as by
the geographical reach of its network operating facilities and scalability of
its network facilities and operations. Endavo's current expansion plan will
11
require additional equity and debt capital to fund current and expanded
operations. A majority of this funding is intended to be raised in the equity
markets. It is anticipated that debt or lease financing of equipment will become
increasingly available as the Company's service offerings gain acceptance and
our markets expand, thus leveraging our investment capital. In the short term,
Endavo will remain dependent on new equity capital. No assurance can be made
that the Company will be successful in raising sufficient capital.
The Company's long-term liquidity and capital requirements will depend upon
numerous factors, including the Company's ability to achieve a level of demand
for its services that supports its business model and its cost structure,
securing significant long-term funding for expansion efforts, and the Company's
ability to find suitable funding sources to improve its capital structure. The
Company may require additional financing or seek to raise additional funds
through bank facilities, debt or equity offerings, or other sources of capital
to meet liquidity and capital requirements. Additional funds may not be
available when needed or on terms acceptable to the Company, which could have a
material adverse effect on the Company's business, financial condition, results
of operations, and cash flows. These are factors that indicate that the Company
may be unable to continue operations.
Risks Related to Our Business
Certain statements contained in this Form 10-QSB, and other written and oral
statements made from time to time by us, do not relate strictly to historical
facts. These statements are considered "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Words such as "anticipate," "believe," "could,"
"estimate," "expect," "forecast," "intend," "may," "plan," "possible,"
"project," and "should," or similar words or expressions, are intended to
identify forward looking statements. This forward looking information involves
important risks and uncertainties that could materially alter results in the
future from those expressed in any forward looking statements made by, or on
behalf of, us. We caution you that such forward-looking statements are only
predictions and actual events or results may differ materially. In evaluating
such statements, you should specifically consider the various factors that could
cause actual events or results to differ materially, including those factors
described below. It is not possible to foresee or identify all factors affecting
our forward-looking statements and you should not consider any list of such
factors to be exhaustive. We are under no duty to update any forward-looking
statements.
We have substantial losses and negative cash flow.
Since our inception in 1999, we have had substantial and recurring losses and
negative cash flow. We are at risk of continued losses until our revenues
increase. There is no assurance that we can increase our revenue sources and it
is unlikely that we can lower our expenses in our present mode of operations. We
may never earn profits. If we continue to lose money over a period of time, we
may be forced to discontinue our operations.
We required substantial capital to grow our business and sustain current
operations.
Since our inception, we have required substantial capital to fund our business
operations. Our future capital requirements will depend upon many factors,
including the adoption of integrated broadband services, requirements to
maintain adequate telecommunications capabilities, expansion of our marketing
and sales efforts, and the status of competitive products and services in the
marketplace.
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Our business operates at a loss and we require additional capital to fund
current operations.
Historically, our revenues have been less than our expenses and we have financed
our operations primarily through sales of equity and debt securities. We expect
to enter into additional financial transactions, which could result in
significant dilution or substantial indebtedness.
Our access to capital is uncertain.
We currently have no commitments, agreements or understandings regarding
additional financing and we may be unable to obtain additional financing on
satisfactory terms or at all. We expect to pursue additional financing through
the private placement of debt or equity. If additional funds are raised or
acquisitions made by issuing equity securities, dilution to the existing
stockholders will result. We may also incur or assume substantial indebtedness.
These arrangements may require us to relinquish rights to certain of our
existing or potential products or other assets. Accordingly, the inability to
obtain such financing could have a material adverse affect on our business,
financial condition and results of operations. Our future revenue and operating
results depend on a number of factors.
We are in a rapidly changing industry, which affects our ability to forecast
growth and revenues.
Our short operating history and the rapidly changing nature of the markets in
which we compete make it difficult to accurately forecast our revenues and
operating results. Our quarterly operating results are unpredictable and we
expect them to fluctuate in the future due to a number of factors. These factors
may include, among others things:
o The amount and timing of operating costs and capital expenditures
relating to the growth of our business;
o The costs to develop and introduce new products and services in
response to changing market conditions and customer preferences:
o The announcement or introduction of new or enhanced products or
services by our competitors; and
o The entrance of a large, better capitalized competitor into our
markets.
In view of such fluctuations, we believe that quarterly comparisons of our
financial results are not necessarily meaningful and should not be relied upon
as a measure of future performance.
We may not be able to attract customers for our services.
There is no assurance that we will be able to obtain adequate distribution of
our services to a large number of subscribers. We believe that our ability to
achieve revenues in the future will depend in significant part upon our ability
to build upon existing relationships with, and provide support toexisting
telephone and Internet service providers, school campuses, Broadband
Communities, real-estate developers and consumers. As a result, any
cancellation, reduction or delay may materially adversely affect our business,
financial condition and results of operations.
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If we make any acquisitions, we will incur a variety of costs and may never
realize the anticipated benefits.
We may attempt to acquire businesses, technologies or products that we believe
are a strategic fit with our business. If we undertake any transaction of this
sort, the process of integrating a business, technology or product may result in
operating difficulties and expenditures, which may absorb significant management
attention that would otherwise be available for ongoing development of our
business. Moreover, we may never realize the anticipated benefits of any
acquisition. Future acquisitions could result in potentially dilutive issuances
of equity securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangibles and the
incurrence of large immediate write-offs.
Our ability to attract and retain key management, employees and consultants is
uncertain.
We are dependent on our management staff. The loss of services of any of these
personnel could impede the achievement of our corporate goals and development
objectives. There can be no assurance that we will be able to attract and retain
personnel on acceptable terms given the competition among telecommunications
companies for experienced personnel. In addition, we do not maintain "key-man"
life insurance policies on any member of our management staff and do not expect
to obtain such policies in the near future.
ITEM 3. Controls and Procedures
As of September 30, 2004 (the "Evaluation Date"), our current Chief Executive
Officer evaluated our disclosure controls and procedures. Based on that
evaluation, he has concluded that as of the Evaluation Date, our disclosure
controls and procedures were effective in timely alerting them to material
information relating to our company required to be included in our reports filed
or submitted by us under the Exchange Act.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
The following exhibits are included as part of this report:
A) Exhibits:
31 Certification of Chief Executive and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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B) Reports on Form 8-K
1. The Company filed a Current Report on Form 8-K, dated January 13,
2004 announcing the resignation of David L. Bailey as Chairman of
the Board and member of our Board of Directors for personal
reasons.
2. The Company filed a Current Report on Form 8-K, dated January 21,
2004 announcing the resignation of Dane Goodfellow as a member of
our Board of Directors to pursue other endeavors.
3. The Company filed a Current Report on Form 8-K, dated March 5,
2004 as a shareholder update on progress in 2003 and Strategic
Plans.
4. The Company filed a Current Report on Form 8-K, dated June 28,
2004 announcing the filing of a breach of contract lawsuit against
Parkway Crossing, LLC, Basin Digital Media, LLC and Summit
Development and Management, LLC.
5. The Company filed a Current Report on Form 8-K, dated August 2,
2004 announcing the resignations of Fred Weismiller as Chief
Executive Officer, Robert Lester as Chief Financial Officer and
Michael Miller as Chief Operations Officer and the appointment of
Paul D. Hamm as interim Chief Executive Officer and Mark Hewitt as
Chief Technology and Operations Officer. Jerry Dunlap was named to
the Board of Directors to fill the remaining term of Mr. Lester.
6. The Company filed a Current Report on Form 8-K, dated September
23, 2004 announcing the resignation of Michael as a member of the
Board of Directors and the resignation of Fred Weismiller as
Chairman of the Board of Directors and also as a member of the
Board of Directors.
7. The Company filed a Current Report on Form 8-K, dated September
24, 2004 announcing the name change for CeriStar, Inc. to Endavo
Media and Communications, Inc. and 1 for 16 reverse stock split.
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.
Dated: November 23, 2004 /s/ Paul D. Hamm
----------------
Paul D. Hamm
Chief Executive Officer
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In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Dated: November 23, 2004 /s/ Paul D. Hamm
-------------------------------------
Paul D. Hamm
Chief Executive Officer and President
Dated: November 23, 2004 /s/ Mark S. Hewitt
-------------------------------------
Mark S. Hewitt
Chief Operations Officer and Chief
Technology Officer
Dated: November 23, 2004 /s/ Mark S. Hewitt
-------------------------------------
Mark S. Hewitt
Director
.
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