FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 2003
Commission file number:
ENDO NETWORKS, INC.
-------------------
(exact name of registrant as specified in its charter)
Nevada 75-2882833
----------------------- ----------
(State of Incorporation) (IRS ID No.)
2425 Dunwin Drive, Unit #3, Mississauga, Ontario, Canada L5L 3T5
-----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 905-820-8800
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past twelve 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 [ ].
Shares of common stock outstanding at June 30, 2003: 12,568,866
TABLE OF CONTENTS
PART I _ FINANCIAL INFORMATION Page Number
Item 1. Financial Statements 1 - 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 5 - 8
PART II _ OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Exhibits and Reports on Form 8-K 9
Signatures 10
Certifications Pursuant to 18 U.S.C. Section 1350 11
ENDO NETWORKS, INC.
BALANCE SHEETS
June 30, 2003 and September 30, 2002
ASSETS
------
Unaudited
June 30, 2003 Sept 30, 2002
-----------------------------------
CURRENT ASSETS:
Cash $10,353 $18,903
Accounts receivable 101,283 69,771
Inventory parts 22,832 12,700
Prepaid expenses 11,350 8,933
-----------------------------------
Total current assets 145,818 110,307
PROPERTY AND EQUIPMENT, net of accumulated depreciation 389,534 422,670
OTHER ASSETS
Deposits 48,049 41,772
-----------------------------------
TOTAL ASSETS $583,401 $574,749
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Accounts payable $176,268 $45,439
Accrued expenses 144,129 85,335
Capitalized leases - current 159,376 142,057
-----------------------------------
Total current liabilities 479,773 272,831
Capitalized leases - non current 82,285 185,767
-----------------------------------
TOTAL LIABILITIES 562,058 458,598
-----------------------------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 50,000,000 authorized,
12,568,866 shares issued and outstanding 12,569 12,569
Subscriptions receivable 0 (25,308)
Additional paid-in-capital 292,446 292,446
Accumulated deficit (283,672) (163,556)
-----------------------------------
Total Stockholders' Equity 21,343 116,151
-----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $583,401 $574,749
===================================
See accompanying notes to interim condensed financial statements F-1
ENDO NETWORKS, INC.
STATEMENTS OF OPERATIONS
Three and Nine Months Ended June 30, 2003 and 2002
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
--------------------------------------------------------------------
Revenue $202,125 $532,066 $500,814 $644,489
Cost of Goods Sold 151,835 306,337 346,305 306,337
--------------------------------------------------------------------
Gross Profit 50,290 225,729 154,509 338,152
Operating Expense:
Depreciation and amortization 3,816 59,558 9,706 112,995
General and administrative 111,254 122,120 264,920 372,396
--------------------------------------------------------------------
Total Operating Expense 115,070 181,678 274,626 485,391
--------------------------------------------------------------------
NET LOSS ($64,780) $44,051 ($120,117) ($147,239)
====================================================================
Weighted average shares outstanding 12,568,866 12,380,923 12,568,866 12,287,761
====================================================================
Loss per share - basic and diluted ($0.01) $0.00 ($0.01) ($0.01)
====================================================================
See accompanying notes to interim condensed financial statements F-2
ENDO NETWORKS, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2003 and 2002
(Unaudited)
Nine Months Nine Months
Ended Ended
June 30, 2003 June 30, 2002
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($120,117) ($147,239)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Items not requiring cash - depreciation and amortization 9,706 112,995
Common stock issued for services 3,312
(Increase) decrease in accounts receivable (31,512) (34,419)
(Increase) decrease in deposits (6,277) 40,345
(Increase) decrease in parts inventory (10,132) (9,872)
(Increase) decrease in prepaid expenses (2,417) (31,093)
Increase (decrease) in accounts payable & accrued expenses 189,623 145,066
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES: 28,874 79,095
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) disposal of assets (115,400)
Proceeds from sale of assets 23,431
-----------------------------------
Cash flows from investing activities 23,431 (115,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 96,644
Subscriptions receivable 25,308
Proceeds from (payments on) lease financing (86,163) 30,506
-----------------------------------
Cash flows from financing activities (60,855) 127,150
-----------------------------------
NET INCREASE (DECREASE) IN CASH (8,550) 90,845
CASH, BEGINNING OF PERIOD 18,903 352
-----------------------------------
CASH, END OF PERIOD $10,353 $91,197
===================================
See accompanying notes to interim condensed financial statements F-3
ENDO NETWORKS, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
June 30, 2003
Note A - Presentation
The condensed balance sheet of the Company as of June 30, 2003, the related
condensed statements of operations for the three and nine months ended June 30,
2003 and 2002, and the statement of cash flows for the nine months ended June
30, 2003 and 2002 included in the condensed financial statements include all
adjustments (consisting of normal, recurring adjustments) necessary to summarize
fairly the Company's financial position and results of operations. The results
of operations for the three and nine months ended June 30, 2003 are not
necessarily indicative of the results of operations for the full year or any
other interim period. The information included in this Form 10-QSB should be
read in conjunction with Management's Discussion and Analysis and Financial
Statements and notes thereto included in the Company's September 30, 2002 Form
10-KSB.
F-4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Plan of Operation & Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTRODUCTION
The following discussion is the quarterly management's discussion and analysis
for the three month period ending June 30, 2003. Endo Networks, Inc.,
incorporated in Nevada and its wholly owned subsidiary, Endo Networks, Inc.,
incorporated in Ontario are collectively referred to as "Endo Networks" or the
"Corporation". In this discussion, all amounts are expressed in US funds.
We wish to caution readers that this report includes certain forward-looking
information and statements within the meaning of US federal securities laws.
These forward-looking statements contain information that is generally stated to
be anticipated, expected or projected by Endo Networks, and involves known and
unknown risks, uncertainties and other factors which may cause the actual
results and performance of Endo Networks to be materially different from any
future results and performance expressed or implied by such forward-looking
information.
OVERVIEW
Endo Networks effectively commenced operations as an aggregator of public
network applications September 30, 2001, making this the Seventh operating
quarter for the Corporation. The company is occupied primarily with a balance
between securing revenue-generating business and investing in expanding its
software platform and business development capabilities. The revenue-generating
business continues to be primarily pilot in nature, as the company operates
existing pilots and begins new client pilots. The company offers solutions in
the Food Service, Retail, Event and Government markets, primarily in Canada but
5
with limited initiatives into the United States. The positioning statement of
the company has evolved into "Enabling Marketing's Last Mile", which refers to
Endo's competencies at enabling aggregated marketing, human resources and
technology solutions of both hardware and software at the point of interaction
between employee and customer, i.e. the retail store or the restaurant.
RECENT EVENT
The overall global political situation has negatively impacted our business
development initiatives this quarter, with certain primarily US initiatives
delayed pending a reduction in war-related concerns.
DEPLOYMENTS
Generally, the spring season is busy with new deployments for our clients where
the summer season is their strong selling period, i.e. brewers and food service.
This year showed strong results with our existing clients, as well as expansion
to include:
- interactive solutions at auto shows across the United States
- an interactive solution for a mobile movie theater used by a leading US
chain of theatres as part of their marketing initiatives
- a pilot for the largest adult safe hockey league in North America,
with potential expansion this fall
- our technology was also piloted in
a marketing program for a leading sports apparel manufacturer
There have been no deployments in the Government category this quarter.
6
SPONSORSHIPS
The focus for this quarter has been primarily on new deployments, and less on
sponsorships. Sponsorship development initiatives will renew in later quarters.
PARTNERSHIPS
No new partnerships in this period.
REVENUES
Revenues are strong for this period, and several of the projects have recurring
revenue components which will continue to benefit the company in future
quarters. As usual, revenues are a mix of hardware sale, hardware rental and
professional services. Professional services include content creation,
interactive design (on-premise touchscreens and websites), marketing consulting
and hardware support service contracts. Hardware rental includes both hardware
rented to clients short-term for use in events and field marketing, and
long-term rental equipment permanently deployed in client retail locations.
Revenues for the three months ended June 30, 2003 were $202,125 compared with
$532,066 for the same three month period in 2002, with a gross profit of $50,290
compared with $225,729 a year earlier. The decrease in gross profit was due to
more service being conducted in the same period last year when there were more
hardware deployments in the three months ended June 30, 2003 and there being a
greater margin in the services versus the hardware sales. The increase in
deployments should increase our revenue stream in future periods. We expect that
our fourth quarter will show an increase in service oriented sales and increase
our margin percentage in the final fiscal quarter.
OPERATING EXPENSE
An increase in expense resulted from securing a large contract where the expense
was incurred up front, but a large component of the revenue is spread over
future quarters. Operating expenses exclusive of depreciation and amortization
7
decreased from $122,120 for the three months ended June 30, 2002 to $111,254 for
the same three months in 2003. Although our gross margin was smaller, we were
spending on salaries and contract work to develop certain products which we
should realize the revenue from in the fourth fiscal quarter.
Operating expenses comprise depreciation and amortization ("d&a") on both rental
equipment and fixed assets, and current operating expenses comprising chiefly
salary, facility rental, interest on leases and professional fees. Significant
investments in growth continue to be made by the Corporation in the following
areas: business development, application development, business partnership
negotiation and network management. Operational expenses in this category are
expected to remain relatively static for the near future.
Net loss of $64,780 in the three months ended June 30, 2003 compared with a net
profit in the same three months in 2002 is again due to the fact that we
continue to expend funds for business development and product development, some
of which will benefit us in the next quarter and other developments will benefit
us in future quarters.
RESEARCH AND DEVELOPMENT
Endo Networks continues to invest heavily in research and development in both
our application suite, integration software, operating platform and pilot
projects. Actual resources invested in research and development depend on free
development capability, accordingly, there is less research and development in
busy deployment periods such as this quarter.
LIQUIDITY & CAPITAL RESOURCES
Based on cash on hand, contracts and accounts receivable, Endo Networks expects
current capital resources to be sufficient to fund existing operations going
forward.
OUTLOOK
Endo Networks expects the next quarter to show results that will offset most if
not all of our operating loss from previous quarters. However, there can be no
assurance that unforeseen revenue shortfalls or unanticipated expenses will not
occur. Profitability will be determined by management's decision on how much
revenue to re-invest in growth.
8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
ENDO NETWORKS, INC.
(Registrant)
BY: /s/ Peter B. Day
----------------
Peter B. Day
Its: President
DATE: August 14, 2003
Mississauga, Ontario, Canada
10
CERTIFICATIONS
I, Peter B. Day, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Endo Networks, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: August 14, 2003
By: /s/ Peter B. Day
-----------------------------
Name: Peter B. Day
Title: Chairman, Chief Executive Officer and Chief Financial Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned, Peter B. Day, the Chief Financial Officer of Endo Networks,
Inc., a Nevada Corporation, (the "Company), pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certifies that:
1. The Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
June 30, 2003 (the "Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Peter B. Day
------------
Peter B. Day
Chief Financial Officer
Dated: August 14, 2003
This certification accompanies this Report on Form 10-Q pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required
by the Act, be deemed filed by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.
11