SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(D) OF THE EXCHANGE ACT OF 1934
From the transition period from ___________ to ____________.
Commission File Number 0-29935
ENDO NETWORKS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 75-2882833
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
ororganization)
2425 Dunwin Drive, Unit #3, Mississauga, Ontario, Canada L5L 3T5
(Address of principal executive offices)
(905) 820-8800
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes : X No:
As of March 9, 2004, there were 12,568,866 shares of Common Stock of the issuer
outstanding.
TABLE OF CONTENTS
PART I FINANCIAL STATEMENTS
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 9
Item 3 Controls and Procedures 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 14
Item 3 Default upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
ENDO NETWORKS, INC.
BALANCE SHEET
DECEMBER 31, 2003
ASSETS
Current assets
Cash $ 7,100
Accounts receivable, net 57,042
Prepaid expenses 61,699
------------------
Total current assets 125,841
Property and equipment, net 490,239
------------------
TOTAL ASSETS $ 616,080
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 174,652
Accrued expenses 132,411
Capitalized leases - current 135,395
------------------
Total current liabilities 442,458
Capitalized leases - long term 190,745
------------------
Total liabilities 633,203
------------------
Commitments
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 50,000,000 shares authorized,
12,568,866 shares issued and outstanding 12,569
Additional paid-in capital 292,446
Accumulated deficit (320,308)
Other comprehensive income (1,830)
------------------
Total Stockholders' Deficit (17,123)
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 616,080
==================
ENDO NETWORKS, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
--------------------- ------------------
Revenues $ 56,744 $ 111,671
Cost of revenues 95,737 80,605
------------------- ------------------
Gross profit (38,993) 31,066
------------------- ------------------
Operating expense:
Depreciation and amortization 11,824 2,729
General, administrative and selling 85,030 80,304
------------------- ------------------
Total operating expenses 96,854 83,033
------------------- ------------------
Net loss $ (135,847) $ (51,967)
=================== ==================
Net loss per share:
Basic abd diluted $ (0.01) $ (0.00)
=================== ==================
Weighted average shares outstanding:
Basic and diluted 12,568,866 12,565,866
=================== ==================
ENDO NETWORKS, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (135,847) $ (51,967)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 52,535 36,896
Changes in assets and liabilities:
Accounts receivable 101,182 (7,257)
Prepaid expenses (2,557) (2,264)
Parts inventory - (391)
Accounts payable 18,976 39,624
Accrued expenses (1,699) -
----------------- -----------------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES 32,590 14,641
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets (16,537) -
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on lease financing (22,773) (31,685)
----------------- -----------------
Effect of exchange rate changes on cash (1,830) -
----------------- -----------------
NET CHANGE IN CASH (8,550) (17,044)
Cash, beginning of period 15,650 18,903
Cash, end of period $ 7,100 $ 1,859
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
NOTE 1: MANAGEMENT REPRESENTATION AND PRESENTATION
Operating results for the three months ended December 31, 2003 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2004. It is suggested that the financial statements be read in
conjunction with the audited financial statements and notes for the fiscal year
ended September 30, 2003 included in the Endo Network's Current Report on Form
10-KSB filed on February 6, 2004.
The balance sheet of ENDO Networks as of December 31, 2003, the related
statements of operations for the three months ended December 31, 2003 and 2002
and the statements of cash flows for the three months ended December 31, 2003
and 2002 included in the financial statements have been prepared by Endo
Networks without audit. In the opinion of management, the accompanying financial
statements include all adjustments (consisting of normal, recurring adjustments)
necessary to summarize fairly the Endo Network's financial position and results
of operations. The results of operations for the three months ended September
30, 2003 are not necessarily indicative of the results of operations for the
full year or any other interim period. Notes to the financial statements which
would substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year ended September 30, 2003 to be
reported in Form 10-KSB, have been omitted.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OUR BUSINESS
ENDO Networks, Inc. (ENDO) is an interactive media, promotion, application, and
advertising aggregator deploying through wireless capable public access portals
to event, retail and restaurant locations across North America. ENDO also
develops application software and client controlled media including television
and radio.
RISKS AND UNCERTAINTIES
All of the following risks may impair our business operations. If any of the
following risks actually occurs, our business, financial condition or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment. Additional risks include: We may not be able to adequately protect
and maintain our intellectual property. Our dependence on certain local third
parties may impact our ability to control certain aspects of our operations. We
may have difficulty competing with larger and better financed companies in our
sector. New legislative or regulatory requirements may adversely affect our
business and operations. We are dependant on certain key existing and future
personnel. We may be subject to product liability claims in the future. There
may not be sufficient liquidity in the market for our securities in order for
investors to sell their securities.
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
ACCOUNTING FOR STOCK-BASED COMPENSATION
Endo Networks accounts for stock-based compensation issued to employees and
advisors of Endo Networks using the intrinsic value based method as prescribed
by APB Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25").
Under the intrinsic value based method, compensation is the excess, if any, of
the fair value of the stock at the grant date or other measurement date over the
amount an employee must pay to acquire the stock. Compensation, if any, is
recognized over the applicable service period, which is usually the vesting
period.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This standard, if fully adopted, changes the method
of accounting for employee stock-based compensation plans to the fair value
based method. For stock options and warrants, fair value is determined using an
option pricing model that takes into account the stock price at the grant date,
the exercise price, the expected life of the option or warrant and the annual
rate of quarterly dividends. Compensation expense, if any, is recognized over
the applicable service period, which is usually the vesting period.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
ENDO Networks does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on ENDO's results of operations,
financial position or cash flow.
STOCK OPTION PLANS
There were no stock option issued during the three months ended December 31,
2003 and 2002. Thus, there are no adjustments to the net loss figures.
REVENUE RECOGNITION
ENDO recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. ENDO recognizes revenue from the sale of advertising
related products and services like interactive advertising, studio promotion,
and event management as the services are performed. ENDO maintains allowances
for doubtful accounts on all its accounts receivable for estimated losses
resulting from the inability of its customers and others to make required
payments. If the financial condition of ENDO's customers and others were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Form 10-QSB and in our
Form 10-KSB. This report contains forward-looking statements including, without
limitation, statements regarding trends, cyclicality, seasonality, volatility
and growth in the markets we sell into, our strategic direction, our future
effective tax rate and use of tax income from withholding, new product
introductions, our liquidity position, our ability to generate cash from
continuing operations, our expected order and revenue growth, the potential
impact of our adopting new accounting pronouncements, our financial results, the
impact and timing of our enterprise resource planning and customer relationship
management systems implementation, our obligations under our retirement and
post-retirement benefit plans, timing of, costs related to, and savings from our
restructuring programs, the existence or length of an economic recovery and our
ability to take advantage of a recovery that involve risks and uncertainties.
Our actual results could differ materially from the results contemplated by
these forward-looking statements due to various factors, including those
discussed below in "Factors That May Affect Future Results" and elsewhere in
this Form 10-QSB.
OVERVIEW
Endo Networks Inc. helps businesses acquire qualified new customers and
profitably build sales with existing customers. We use interactive technology
like touchscreen kiosks, handheld computers, wireless and websites, digital TVs
and background audio, combined with promotional marketing tactics to filter
large numbers of consumers, to find highly qualified prospects, and even
precondition them for the sales process.
Our services can be deployed within a businesses own retail environment, to
increase sales with their own customer base by increasing frequency of visit
and/or average spend with individual customers (onsite CRM), or they can be
deployed within the community, i.e. within a partner retailer or at a home or
trade show, to find and acquire qualified new customers. Our services can also
be deployed against employees or a business's sales channel, to achieve
increased sales and improved profitability through better channel performance.
Our solutions are:
- Permission based
- Easily integrated with legacy systems
- Highly-scaleable, easily tested
- Focused on immediate results
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
- Very measurable
- Real-time or near real time
- Conducive to brand partnerships
Our role is not to replace incumbent agencies/suppliers, but to integrate and
unlock untapped value and potential from existing initiatives, thereby
delivering substantial incremental value.
Our areas of expertise include: web, CDROM, kiosk, handheld, wireless, CRM, ERM,
loyalty, promotional marketing, direct marketing, point of sale, market
research, survey, incentive, sampling, and field and event marketing.
Our client base includes specialty retail, general retail, food service,
automotive, alcohol, tobacco, financial, energy, consumer packaged goods
entertainment, government, manufacturing, amateur sports, professional sports,
and telecommunications in both the United States and Canada.
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased from $759,253 at September 30, 2003 to $616,080 at
December 31, 2003. The decrease is primarily attributable to the negative gross
margin in the first quarter 2003 of 38,993.
From September 30, 2003 to December 31, 2003, our cash and cash equivalents
decreased by $8,550 as a result of an operating loss of $(135,847). The
operating loss was a result of negative gross margin of $38,993.
The general, administrative and selling expenditures were incurred primarily for
salaries and consulting fees.
We do expect to incur material capital expenditures for the next 12 months.
There is no assurance we will be able to generate sufficient revenues or obtain
sufficient funds when needed, or whether such funds, if available, will be
obtained on terms satisfactory to us. We do not have any long term or contingent
obligations that must be satisfied.
CRITICAL ACCOUNTING POLICIES
Our Unaudited Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base
our estimates on historical experience and on various other assumptions that are
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
believed to be reasonable under the circumstances, the results of which form the
basis of making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies, among others, affect our
more significant judgments and estimates used in the preparation of our
financial statements:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. The allowance for
doubtful accounts is based on specific identification of customer accounts and
our best estimate of the likelihood of potential loss, taking into account such
factors as the financial condition and payment history of major customers. We
evaluate the collectibility of our receivables at least quarterly. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. The differences could be material and could significantly impact cash
flows from operating activities.
VALUATION OF INTANGIBLES
From time to time, we acquire intangible assets that are beneficial to our
product development processes. We periodically evaluate the carrying value of
intangibles, including the related amortization periods. In evaluating acquired
intangible assets, we determine whether there has been impairment by comparing
the anticipated undiscounted cash flows from the operation and eventual
disposition of the product line with its carrying value. If the undiscounted
cash flows are less than the carrying value, the amount of the impairment, if
any, will be determined by comparing the carrying value of each intangible asset
with its fair value. Fair value is generally based on either a discounted cash
flows analysis or market analysis. Future operating income is based on various
assumptions, including regulatory approvals, patents being granted, and the type
and nature of competing products. If regulatory approvals or patents are not
obtained or are substantially delayed, or other competing technologies are
developed and obtain general market acceptance, or market conditions otherwise
change, our intangibles may have a substantially reduced value, which could be
material.
DEFERRED TAXES
We record a valuation allowance to reduce the deferred tax assets to the amount
that is more likely than not to be realized. We have considered estimated future
taxable income and ongoing tax planning strategies in assessing the amount
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
needed for the valuation allowance. Based on these estimates, all of our
deferred tax assets have been reserved. If actual results differ favorably from
those estimates used, we may be able to realize all or part of our net deferred
tax assets. Such realization could positively impact our operating results and
cash flows from operating activities.
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 TO THREE
MONTHS ENDED DECEMBER 31, 2002
REVENUE. During the three months ended December 31, 2003, we generated $56,744
from sales compared to revenues from sales for the three months ended December
31, 2002 of $111,671. This is decrease of $54,927 or 49% is primarily due to
costs leading up to a number of key projects which have required substantial
Endo resources, but whose costs will be recovered through invoicing in sections
over the remaining 9 months of the fiscal year.
GROSS PROFIT. Gross profit on sales for the three month ended December 31, 2003,
was $(38,993) compared to $31,066 for the three months ended December 31, 2002,
a decrease of $70,059. The decrease in gross profits during the three months
ended December 31, 2003, was due primarily due to costs leading up to a number
of key projects which have required substantial Endo resources, but whose costs
will be recovered through invoicing in sections over the remaining 9 months of
the fiscal year.
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES. We incurred General,
Administrative and Selling expenses of $96,854 for the three months ended
December 31, 2003, compared to $83,033 for the three months ended December 31,
2002, an increase of $13,821 or 17%. This increase in General, Administrative
and Selling expenses was primarily the result of increased expenses related to
costs leading up to a number of key projects which have required substantial
Endo resources, but whose costs will be recovered through invoicing in sections
over the remaining 9 months of the fiscal year.
NET LOSS AND LOSS PER SHARE.
As a result of the above, in the three months ended December 31, 2003, our net
loss was $(135,847). The net loss per share was $(0.1) compared to $(0.00) per
share in the same period during 2002. The Net Loss for the three months ended
December 31, 2003 was a result of the negative gross margin and increased
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
expenses related to selling and marketing of our products; expenses associated
with our public reporting status.
ASSETS AND LIABILITIES. At December 31, 2003, we had total assets of $616,080
compared to total assets of $759,253 at September 30, 2003. Cash was $7,100 as
of December 31, 2003, a decrease of $8,550 from $15,650 cash on hand as of
September 30, 2003. Cash generated from operations was a positive $32,590 due to
the collection of $101,182 of accounts receivable; cash used by financing
activities from the repayment of loans was $(22,773); and we used $16,537 to
purchase equipment during the quarter ended December 31, 2003.
Accounts receivable was $57,042 at December 31, 2003, a decrease of $101,182
from the $158,224 at September 30, 2003 due a decrease in sales. Total
liabilities at December 31, 2003 were $666,783, an increase of $28,084 from
$638,699 at September 30, 2003. Accounts payable and accrued liabilities were
$307,063 at December 31, 2003, an increase of $17,277 from the $289,786 at
September 30, 2003.
FORWARD LOOKING STATEMENTS. This Form 10-QSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements made by Endo Networks involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from the forward looking statements include, but are not limited to,
risks associated with lack of significant operating history, demand for the Endo
Network's products, international business operations, dependence on licensees,
governmental regulations, technological changes, intense competition and
dependence on management. Given these uncertainties, readers are cautioned not
to place undue reliance on such forward-looking statements. The Company's
management disclaims any obligation to forward-looking statements contained
herein to reflect any change in the Endo Network's expectation with regard
thereto or any change in events, conditions, circumstances or assumptions
underlying such statements.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation
of the Endo Network's management, including our Chief Executive Officer and
Chief Financial Officer, regarding the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934) as of December 31, 2003. As a result of their evaluation, our Chief
ENDO Networks, Inc.
Notes to Financial Statements
December 31, 2003
Executive Officer and Chief Financial Officer have concluded that the Endo
Network's disclosure controls and procedures are effective to ensure that
information required to be disclosed by Endo Networks in reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms. There were no changes in the Endo Network's
internal control over financial reporting that occurred during the quarter ended
December 31, 2003, that has materially affected and is reasonably likely to
materially affect, the Endo Network's internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. EMPLOYMENT AGREEMENTS
None
ITEM 3. RECENT SALES OF UNREGISTED SECURITIES
None
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as
part of this report.
Exhibit No. Document
31.1 Certification of Chief Executive Officer required by Rule
13a-14/15d-14(a) under the Exchange Act.
31.2 Certification of Chief Financial Officer required by Rule
13a-14/15d-14(a) under the Exchange Act.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports of Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: December 1, 2003 ENDO NETWORKS, INC.
By: /s/ Peter Day
------------------------
Peter Day
President and CEO
/s/ Peter Day
------------------------
Peter Day,
Chief Financial Officer