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ELEVATE, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) This Quarterly Report on Form 10-Q contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects. These statements include, among other things, statements regarding: o our ability to diversify our operations; o our ability to implement our business plan as a provider of communications and digital services; o unavailability of funds for capital expenditures and/or general working capital; o the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain; o our ability to attract key personnel; o our ability to operate profitably; o our ability to incorporate the Elevate assets into our operations; o our ability to generate sufficient funds to operate the Elevate operations, as a result of completion of our merger; o deterioration in general or regional economic conditions; o changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; o adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; o inability to achieve future sales levels or other operating results; o the inability of management to effectively implement our strategies and business plans; as well as other statements regarding our future operations, financial condition and prospects, and business strategies. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the heading "Risk Factors" in Part II, Item 1A and those discussed in other documents we file with the Securities and Exchange Commission. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. References in the following discussion and throughout this quarterly report to "we", "our", "us", "Elevate", "ELEV", "the Company", and similar terms refer to Elevate, Inc. unless otherwise expressly stated or the context otherwise requires. 17 -------------------------------------------------------------------------------- Overview Elevate is an emerging alternative in the network services industry. We are pioneering a new paradigm which consists of three core components; Direct Service Model. Our DSM creates a new customer experience and eliminates the cliché that "Customer Service Stinks". Elevate owns and operates a cloud based billing and provisioning backbone allowing us to provide the latest advancements in broadband Internet, digital VoIP telephony, streaming entertainment, and mobile applications all protected by the first complete monitored security system to cover network services and traditional threats such as intrusion, medical emergency, fire and smoke, poison gas and weather related threats. We provide subscribers with an array of IP and wireless services for residential, small and medium business and enterprise customers. Elevate offers combined services combined with take rate incentives in product and service configurations we call "Stacks". At Elevate as you stack your services you save. Our customers typically save 20% off their existing spend for like services. We are able to deliver cost savings while increasing performance to the bottom-line through a variable cost of customer acquisition and fixed operating costs. Elevate is capable of building long-term value in each customer relationship through an unprecedented one-to-one, on-site, on demand "direct service" model. Every Elevate customer becomes a fan because, not only do they know the name of the guy who sold them on the services, they have his cell phone number. The Company is comprised of four key components that will contribute to our growth and sustainability: 1. THE STACK The Elevate Stack consists of five subscription-based services: 1. Elevate Broadband 2. Elevate Digital Voice (VoIP) 3. Elevate Entertainment (Retail relationships with top satellite entertainment companies) 4. Elevate Security 5. Elevate Mobile 6. Elevate Energy 7. Foxee Business Communications Suite (SMB + ENTERPRISE Subscribers) 8. Zipadi Digital Publishing + Content Management for iOS and Android (SMB + ENTERPRISE Subscribers) 2. ELEVATE SOAR Elevate SOAR is an intense, proprietary business development and personal improvement training series required to become an Elevate Certifiable Genius. SOAR consists of audio and video training courses combined with live training conferences, requisite continuing education and exclusive software tools. Every Elevate Certifiable Genius must pass through a rigorous career path to achieve the moniker of Certifiable Genius. 3. ELEVATE UP A proprietary customer relationship management and network services provisioning platform (CRM) developed to ensure a remarkable customer experience. Elevate Up enables Elevate to interact with customers, instantly verify credentials and credit worthiness and instantly provision network services to residential, SMB and Enterprise customers. Elevate UP consists of an Enterprise Cloud-based CEM ecosystem that enables the entire customer journey from point of sale, through installation and provisioning, customer education and initial satisfaction and instant ongoing communication with every customer. 18 -------------------------------------------------------------------------------- This cloud-based system is fully integrated with strategic partners, network service providers, our customer care network and call centers all the way through to the Elevate Care iPad app carried by every Certifiable Genius. Utilizing Elevate mobile applications, our local sales and support teams are able to identify a prospect, determine service availability and credit credentials and analyze their specific needs by performing a complete needs analysis we call the "Drawing Board". The Elevate Genius Dashboard for iPad enables the complete customer on-boarding process and automates dozens of complex integration requirements. Elevate is able to sell, subscribe, activate, install and provision all our services on the same day the customer finalizes the buying decision. Our business process is augmented with enterprise software tools that automate mission-critical tasks including the industry's leading cloud-based billing platform (Zuora) a robust compensation tracking, customer provisioning and billing. Elevate Up is a rich internet application (RIA) which leverages the very latest data management systems. 4. THE ELEVATE 4G NETWORK Elevate is working in partnership with the nation's emerging players in the evolution of 4G terrestrial networking. We are on pace to introduce a nationwide 4G network offering in 2012. The evolution of terrestrial network is gaining mass adoption as consumer demand for always on, mobile broadband increases at unprecedented scale. Elevate will announce significant partnerships in Q3 2012. The industry focus on LTE expansion is legendary as this disruptive technology becomes more pervasive and on its way to ubiquity. Mobile broadband is anticipated to revolutionize the entire communications and connectivity industry over the next decade. Pervasive and ubiquitous access to reliable broadband at home, at the office and on the go enable smart applications for energy conservation and management, connected and integrated monitored security and more open and consuming communications. Elevate is also working with development partners to create one of the first open IPTV network to combine over the air digital live programming with online content distributions for a whole new paradigm in subscription entertainment services including television, production style movies and music. Elevate is developing micro applications which are embedded within the entire Elevate experience and integrated with our network subscriptions services. Elevate is the first provider of it's kind to personally take each subscriber by the hand, discover their individual needs, design a network and provisioned services which are backed up by a one-on-one relationship with a dedicated account owner and a team of highly qualified professionals who can at a moment's notice visit with our customers, on site, in person and remain fully engaged to ensure total satisfaction. Our purpose is to articulate a comprehensive marketing plan together with actionable initiatives, that will enable us to reach more customers, inspire and engage in more meaningful customer relationships that are formed on trust created by real expertise and backed by an agile and dedicated team to ensure not one customer is ever unhappy. The Elevate experience breeds happiness and mutual satisfaction between subscribers and their dedicated Elevate team having their independent Certifiable Genius at its center. This Marketing Plan will serve as both a directive and as a method of measurement. Our primary objective is to improve brand awareness, increase new customer acquisition and achieve greater levels of profitability. Our marketing plan is focused on the following objectives: 19 -------------------------------------------------------------------------------- · Win new customers through an unprecedented engagement model, improved sales force automation tools and streamlined on boarding processes. · Retain existing customers through enhanced customer relationship management. · Add 1,000 Independent Elevate Direct Sales Representatives · Add 3,500 Independent Elevate Affiliate Sales Representatives · Create a strong brand presence by delivering in the brand promise. "To "elevate your digital experience. Expect More. · Elevate Defined: "To move or raise to a higher state, to exalt, to raise the voice." As a result of careful analysis of internal and external conditions, we have identified and articulated five fundamental marketing strategies, which will enable us to address the market. Success will depend on our ability to: · Execute the tactical measures defined in the plan · Be vigilant in operating customer management systems to streamline the customer on boarding process and provide complete transparency into the entire engagement process · Continuous investment to improve enterprise back-office systems to support the Elevate customer journey · Streamline recruiting processes · Complete the roll out of all remaining Elevate Products and Services · Create a strong brand presence. Consumers are adopting the "bundled services" concept at an ever-increasing rate. Demand for faster, more integrated services is one of the strongest advancing segments of the communications industry. The addressable market is large and demand is increasing at unprecedented rates. Capturing the "early adopters" presents the most significant opportunity over the next five years. Elevate has identified the need to be selective and to focus marketing initiatives toward "early adopter" segments. Significant markets exist among several demographics. Distribution The Company is using both direct and indirect ways to sell its products and services through direct sales representatives. Direct forms of distribution include door-to-door direct sales, B2B direct sales, B2B VAR Channels and Strategic Resellers. The Company utilizes a well-defined and managed social marketing system developed over the past ten years. Our customer rewards program offers unprecedented rewards for subscribers who actively engage in referrals. We have developed what we call a customer compensation plan that allows customers to achieve great rewards including free services and hardware. To support subscriber referrals, we have deployed a sophisticated call center where every call center representative is highly-trained in communication skills necessary to introduce the Elevate Stack and the subsequent benefits of being an Elevate subscriber. 20 -------------------------------------------------------------------------------- Direct Sales Living Room-to-Living Room Sales -The Company sells its products and services through door to door direct sales. This is one of the most effective and cost efficient means of marketing. A sales representative presents the services and savings in a comprehensive interview we call the Drawing Board. This needs analysis establishes trust and the perception of expertise immediately. The results are explosive sales with take rate around one in ten. All installation and activation services are purchased in the comfort of home where specific needs can be understood and addressed. Our logistics system allows us to be one of the only providers nationwide to offer same day installation and activation of services. The process is convenient and allows the user to "test drive" the benefits of the Company's products and services before even initiating the purchase. As all the products sold are branded, the Company does not incur significant advertisement and marketing expenses to build consumer awareness of the Company and its products and services. Online Direct Sales - Management also aims to build a strong presence in online marketing. The Company, through its internet website, www.goelevate.com, plans to directly sell its products and services. The website contains information about service promotions and facilitates quick and easy sign-up or enables the user to request contact later sales contact. This internet marketing strategy will complement other marketing strategies and serve as a means for customers to contact the Company as well as receive online technical support. Customer Rewards Sales Customer referral - Product awareness is created through customer references that assist the Company to sells products and services. The customer submits referrals online and our highly trained call center representatives, who are specifically trained to contact leads in compliance with all Federal and State mandated rules and regulations, later contact the referral and close the sale. Upon closing, the new subscriber is immediately assigned to a local Certifiable Genius to establish their ongoing relationship with the Company. RESULTS OF OPERATIONS Results of Operations for the Three Months Ended November 31, 2011 and 2010: Revenues. Sales revenues increased to $82,858 in the three months ended November 30, 2011 from $41,792 in the three months ended November 30, 2010, representing a 199% increase. The increase in revenues is a result of the implementation of the renewed sales channel. Total Cost of Services. Total direct cost of services increased $23,214, or 4,777%, to $23,700 in the three months ended November 30, 2011 from $486 for the three months ended November 30, 2010. The increase in the total cost of services is a result of the Company's need to maintain inventory rather than being a distributor of non-owned inventory. Legal and Professional. Legal and professional expenses increased $9,202, or 70%, to $22,502 in the three months ended November 30, 2011 from $13,300 for the three months ended November 30, 2010. The increase in legal and professional fees was the result of an increase in accounting and legal fees associated with public company filings. 21 -------------------------------------------------------------------------------- Selling, General and Administrative. Selling, general and administrative expenses increased $196,600, or 96%, to $402,387 for the three months ended November 30, 2011 from $205,787 for the three months ended November 30, 2010. The increase was the result of the addition of personnel, and increased insurance and marketing expenses as the Company pursued the expansion of the customer base to a larger geographical area. Stock Based Compensation. Stock option expense increased $305,430 or 100% in the three months ended November 30, 2011 from $0 for the three months ended November 30, 2010. The increase was the result of stock options being issued in the period ended November 30, 2011 and no stock options being issued in the period ended November 30, 2010. Consulting Expense. Consulting expense increased $296,037 or 100% in the three months ended November 30, 2011 from $0 for the three months ended November 30, 2010. The increase was the result of the use of outside investment advisory firms to expand the Company's ability to raise capital. Depreciation. Depreciation expense increased $1,565 or 100% in the three months ended November 30, 2011 from $0 for the three months ended November 30, 2010. The increase was the result of the addition of the assets and the commencement of depreciation for the assets acquired. Net (Loss) from Operations. The Company had $1,037,814 in net loss from operations in the three months ended November 30, 2011, as compared to net loss from operations of $177,780 during the three months ended November 30, 2010. The increase was the result of the increase in total cost of sales, the addition of personnel, increased marketing costs, accounting and legal fees, and stock based compensation. Interest Expense. Interest expense increased $47,481 or 100%, in the three months ended November 30, 2011 from $0 for the three months ended November 30, 2010. The increase was the result of an increase in notes payables with interest accruals. Net Loss. In the three months ended November 30, 2011, we generated a net loss of $1,083,500, an increase of $905,720 or 510%, from $177,780 for the three months ended November 30, 2010. This increase was attributable to the addition of personnel, increased marketing costs, accounting and legal fees and stock option expense. Results of Operations for the Six Months Ended November 31, 2011 and 2010: Revenues. Sales revenues increased to $185,200 in the six months ended November 30, 2011 from $84,670 in the six months ended November 30, 2010, representing a 119% increase. The increase in revenues is a result of the implementation of the renewed sales channel. Total Cost of Services. Total cost of services increased $72,099, or 4,044%, to $73,882 in the six months ended November 30, 2011 from $1,783 for the six months ended November 30, 2010. The increase in the total cost of services is a result of the Company's need to maintain inventory rather than being a distributor of non-owned inventory. Legal and Professional. Legal and professional expenses increased $123,541, or 351%, to $158,701 in the six months ended November 30, 2011 from $35,160 for the six months ended November 30, 2010. The increase in legal and professional fees was the result of an increase in accounting and legal fees resulting from the asset purchase agreements and reverse merger. 22 -------------------------------------------------------------------------------- Selling, General and Administrative. Selling, general and administrative expenses increased $590,765, or 217%, to $862,504 for the six months ended November 30, 2011 from $271,739 for the six months ended November 30, 2010. The increase was the result of the addition of personnel, and increased insurance and marketing expenses as the Company pursued the expansion of the customer base to a larger geographical area. Stock Based Compensation. Stock option expense increased $851,072 or 100% in the six months ended November 30, 2011 from $0 for the six months ended November 30, 2010. The increase was the result of stock options being issued in the period ended November 30, 2011 and no stock options being available in the period ended November 30, 2010. Consulting Expense. Consulting expense increased $486,784 or 100% in the six months ended November 30, 2011 from $0 for the six months ended November 30, 2010. The increase was the result of the use of outside investment advisory firms to expand the Company's ability to raise capital. Depreciation. Depreciation expense increased $2,835 or 100% in the six months ended November 30, 2011 from $0 for the six months ended November 30, 2010. The increase was the result of the addition of the assets and the commencement of depreciation for the assets acquired. Net (Loss) from Operations. The Company had $2,362,985 in net loss from operations in the six months ended November 30, 2011, as compared to net loss from operations of $224,012 during the six months ended November 30, 2010. The increase was the result of the increase in total cost of sales, the addition of personnel, increased marketing costs, accounting and legal fees, and stock based compensation. Interest Expense. Interest expense increased $50,400 or 100%, in the six months ended November 30, 2011 from $0 for the six months ended November 30, 2010. The increase was the result of an increase in notes payable and accounts payable due by the Company. Net Loss. In the six months ended November 30, 2011, we generated a net loss of $2,410,174, an increase of $2,186,162 or 976%, from $224,012 for the six months ended November 30, 2010. This increase was attributable to the addition of personnel, increased marketing costs, accounting and legal fees and stock option expense. Going Concern Our financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue in existence is dependent on our ability to develop additional sources of capital and achieve profitable operations. Management's plan is to pursue our business plan. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Liquidity and Capital Resources As of November 30, 2011, we had no cash or any cash equivalents. The following table provides detailed information about our net cash flow for the six months ended November 30, 2011 and 2010. To date, we have financed our operations through the issuance of stock, borrowings, and cash flows from operations. 23 -------------------------------------------------------------------------------- In summary, our cash flows were as follows: Six months Ended November 30, 2011 2010 Net cash used in operating activities $ (1,377,231 ) $ (220,743 ) Net cash used in investing activities (91,365 ) (95,331 ) Net cash provided by financing activities 1,468,596 346,478 Net increase/(decrease) in Cash (0 ) 30,403 Cash, beginning of year - 4,563 Cash, end of year $ (0 ) $ 34,966 Operating activities Net cash used in operating activities was $1,377,231 for the six months ended November 30, 2011, as compared to $220,743 used in operating activities for the same period in 2010. The increase in net cash used in operating activities was primarily due to an increase in net loss, prepaid expense and inventory. Investing activities Net cash used in investing activities was $91,365 for the six months ended November 30, 2011, as compared to $95,331 used in investing activities for the same period in 2010. The decrease in net cash used in investing activities was primarily due to the Company decreasing the purchase of equipment in the current period. Financing activities Net cash provided by financing activities for the six months ended November 30, 2011 was $1,468,596, as compared to $346,478 for the same period of 2010. The increase of net cash provided by financing activities was mainly attributable to issuance of common stock for cash. On a short-term basis, we have only generated revenues of $185,200 during the six months ended November 30, 2011 to cover operations. Based on prior history, we will continue to have insufficient revenue to satisfy current and recurring liabilities as we continue development activities. For short term needs, the Company will be dependent on private placement proceeds and funding from stockholders. Current assets consist of $9,038 in accounts receivable, $232,290 in prepaid expenses, and $30,749 in inventory. Total liabilities are $1,975,789 at November 30, 2011 representing mainly loan payable - related party, followed by loans payable and the remaining being accounts payable, accrued expenses and cash overdraft. We believe that cash flow from operations will meet only a part of our present and near term cash needs and thus we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months. We will require additional cash resources due to changed business conditions, implementation of our strategy to expand our sales and marketing initiatives as well as our current research and development programs, increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources and then current cash flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our stockholders. 24 -------------------------------------------------------------------------------- The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand business operations and could harm overall business prospects. Off-Balance Sheet Arrangements As of the date of this Report, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. |