MODAVOX INC - Summary of MODAVOX INC
Form 10QSB for MODAVOX INC--------------------------------------------------------------------------------
24-Oct-2005
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OUR OPERATIONS SHOULD BE READ IN CONJUNCTION WITH FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REFLECTING OUR CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF EVENTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THESE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE DISCUSSED ELSEWHERE IN THIS REPORT.
OVERVIEW
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OUR OPERATIONS SHOULD BE READ IN CONJUNCTION WITH FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REFLECTING OUR CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF EVENTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THESE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE DISCUSSED ELSEWHERE IN THIS REPORT.
Modavox Inc. (the "Company") produces weekly talk radio content programs that are distributed 24/7 on the Internet through our flagship "Voice America" channel at WWW.VOICEAMERICA.COM. Currently, the Company derives its revenues through Production fees received from hosts featured on the talk radio content programs and recently Sponsor fees received from sponsors of certain of these programs. Production fees are generally sold in 13-week segments and are generally prepaid. Sponsor fees are generally split with the Host. The Company has developed an E-commerce technology that will now allow Host and Sponsors to sell products and services on their programs. In future periods the Company expects to earn revenues through the use by Hosts and Sponsors of this E-commerce technology. The Company has also recently begun to market its patented "Metaphor" technology on a platform that will allow business and specialty and affinity groups to communicate live and stored voice and video content to intended audiences over secure internet channels. The Company believes that it will obtain future revenues from this marketing initiative.
Cash is generally received by the Company at the time of contract closing and is amortized into revenues over the production period. An increase or decrease in contract closings will initially affect available cash and, thereafter, reported revenues.
During fiscal 2005, the Company's new management determined that the Company's programming, sales practices, web sites, content delivery system and streaming capabilities were inconsistent with the Company's goal to provide long term value to its listeners, hosts and potential sponsors. Management felt that as a result of these issues, the Company was experiencing low contract renewals and early contract terminations.
In July 2004, to rectify the issues perceived by the management, the Company initiated a number of corrective actions that focused on improving the Company's technology platform, web sites, show production capabilities and programming. These corrective actions included developing a new content management system, new web sites, improving broadcast quality and consistency, and outsourcing certain key functions, including web site design and development, audio and video streaming and production. In addition, the Company reorganized its sales team based on a pay for performance model, reducing the sales staff from 20 to six.
In the short term, the corrective actions taken by the Company negatively impacted productivity, reducing cash available to fund operations and diminishing the amount of new and renewal business generated in the third and fourth quarters of fiscal 2005. This had a corresponding reduction in the amount of deferred revenue amortized to income in the fourth quarter of fiscal 2005 and the first quarter of fiscal 2006.
The Company believes that the corrective actions taken by management have had a positive effect and will accrue to the Company's benefit in fiscal 2006. Currently, the Company is experiencing increased contract renewals, greater customer satisfaction and strong sales growth.
Sustainable revenues are dependent upon the ability of the Company to attract new Host programs and to maintain a high level of contract renewals from existing Hosts. Sustainable revenue growth is dependent upon a continuation of this trend and the development of e-commerce and Metaphor Technology base revenues.
General and administrative expenses consist primarily of salaries and related expenses for sales, marketing, advertising, accounting, personnel and other general corporate expenses such as rent, telecommunications and bandwidth. Theses costs include commissions for sales personnel and fees paid to third parties. Service costs consist primarily of network operations, call center, leads procurement and fees paid to third parties, including communication services providers.
Research and development expenses are included in general and administrative expenses and consist primarily of salaries, related personnel expenses and consultant fees for the design, development, testing and enhancement of the company's products and services, Metaphor technology and proprietary back-end systems. W expense all research and development costs as incurred.
Historically and currently, the Company's revenues have been and are less than its expenses and capital costs. As a result, the Company has been dependent on raising capital to continue its operations and continuation of operations is dependent upon the Company's ability to raise sufficient capital to fund its operating deficiency and overdue payables (see liquidity and capital resources).
RESULTS OF OPERATIONS
The discussion of the results of operations compares the three months ended August 31, 2005 with the three months ended August 31, 2004, and the six months ended August 31, 2005 with the six months ended August 31, 2004.
2005 VS. 2004 QUARTER ENDING AUGUST 31ST
Revenues for the quarter ending August 31, 2005 were $289,699 an increase of $9,997 or 4% from the comparable quarter of the previous year. This increase was due to increased contract closings in the months preceding the start of the quarter due principally to the re-organization of the company that was being finalized at that time. Subsequently, contract closings have increased and the company anticipates increased revenues in future quarters.
General and administrative expenses were $1,141,268, an increase of $268,192 of 31% from the comparable period of the prior year. This increase results principally from an increase in payroll expenses as a result of the re-organization previously discussed.
Interest expense was $213,776 an increase of $97,728 due to the interest cost of the convertible notes.
The net loss of $(1,080,586) in 2005 was greater than the net loss of $(773,113) in 2004 because of the increased interest expense offset the net benefit from expense reductions in 2005 arising from the re-organization.
2005 VS. 2004 SIX MONTHS ENDING AUGUST 31ST
Net revenues for the six months ended August 31, 2005 were approximately $530,000, a decrease of 10% from the approximately $590,000 reported for the same period of the prior fiscal year. We attribute this revenue decrease primarily to growth in sales of our Internet radio networks. At August 31, 2004, the Company delivered, through VoiceAmerica Radio and BusinessAmerica Radio, approximately 150 hours of live programs and scheduled replays weekly. As of August 31, 2004, the Company had contracts with a total of approximately 75 talk show hosts compared to approximately 25 talk show hosts at the close of comparable 2003 period.
General and administrative expenses and cost of production were approximately $1,759,000 for the six months ended August 31, 2005, compared to approximately $1,687,000 for the comparable 2004 period, an increase of approximately 4%. This expense increase compares to the corresponding 10% revenue decrease.
Other income of $273,026 in 2004 arose from the return of common stock. There was no comparable transaction in 2005.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended August 31, 2005, cash used in operations was $275,055 an improvement over the $577,436 used in operations in the comparable period of the prior year. This improvement resulted from cash generated from increased contract closings in the quarter and a reduction in expenses arising from the previously discussed re-organization. However, cash from the contract closings and other revenues was not adequate to cover operating costs.
The $275,055 cash used in operations in the period was funded through the issuance of $150,000 of convertible notes payable less $35,000 in commissions paid as well as the receipt of $200,000 less $20,000 in commissions paid from the sale of common stock. As of August 31, 2005, the Company had notes payable convertible into common stock aggregating $530,000. $379,000 of Notes, together with related accrued interest, due in fiscal 2006 are anticipated to automatically convert into common stock in October 2005. The remaining Notes, aggregating $114,000 are not due until after the 2006 fiscal year, are also anticipated to be converted into common stock. The Company also has a bank loan aggregating $20,000 which is due on demand and has been guaranteed by a former officer, and an equipment financing obligation of $6,653, which is due monthly through 2007.
The Company believes that its required capital expenditures for fiscal 2006 will not exceed $100,000.
As noted above, the Company does not have adequate cash or projected cash flow to fund its operations and continuation of its operations is dependent upon its ability to raise additional capital through equity and debt issuances.
CRITICAL ACCOUNTING ESTIMATE
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management's initial estimates as reported. A summary of our significant accounting policies are detailed in the notes to the financial statements which are an integral component of this filing.
Management evaluates the probability of the utilization of the deferred income tax asset related to the net operating loss carryforwards. We have estimated a ----- deferred income tax asset of which ----- relates to net operating loss carryforwards at August 31, 2005. Management determined that because have yet to generate taxable income and that the generation of taxable income in the short term is uncertain, it was approximate to provide a valuation allowance for the total deferred income tax asset.
0 Comments:
Post a Comment
<< Home