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: March 31, 2003
Commission file number: 333-42640
ENDO NETWORKS, INC.
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(exact name of registrant as specified in its charter)
Nevada 75-2882833
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(State of Incorporation) (IRS ID No.)
2624 Dunwin Drive, Unit #3, Mississauga, Ontario, Canada L5L 3T5
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(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 March 31, 2003:
12,568,866
TABLE OF CONTENTS
PART I _ FINANCIAL INFORMATION Page Number
Item 1. Financial Statements 1 - 4
Item 2. Managements's Discussion and Analysis
of Financial Condition and Results of Operations 5 - 7
PART II _ OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Exhibits and Reports on Form 8-K 8
Signatures 9
Certifications Pursuant to 18 U.S.C. Section 1350 10
ENDO NETWORKS, INC.
BALANCE SHEETS
March 31, 2003 and September 30, 2002
ASSETS
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Unaudited
March 31, 2003 Sept 30, 2002
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CURRENT ASSETS:
Cash $8,698 $18,903
Accounts receivable 145,902 69,771
Inventory parts 15,383 12,700
Prepaid expenses 9,759 8,933
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Total current assets 179,742 110,307
PROPERTY AND EQUIPMENT, net of accumulated deprecaition 386,005 422,670
OTHER ASSETS
Deposits 44,980 41,772
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TOTAL ASSETS $610,727 $574,749
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LIABILITIES AND STOCKHOLDERS' EQUITY
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LIABILITIES
Accounts payable $109,697 $45,439
Accrued expenses 134,709 85,335
Capitalized leases - current 151,843 142,057
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Total current liabilities 396,249 272,831
Capitalized leases - non current 128,356 185,767
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TOTAL LIABILITIES 524,605 458,598
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 (218,893) (163,556)
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Total Stockholders' Equity 86,122 116,151
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $610,727 $574,749
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See accompanying notes to interim condensed financial statements F-1
ENDO NETWORKS, INC.
STATEMENT OF OPERATIONS
Three and Six Months Ended March 31, 2003 and 2002
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Mar 31, 2003 Mar 31, 2002 Mar 31, 2003 Mar 31, 2002
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Revenue $187,019 $53,973 $298,690 $112,423
Cost of Goods Sold 113,866 194,471
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Gross Profit 73,153 53,973 104,219 112,423
Operating Expense:
Depreciation and amortization 9,735 16,370 17,083 53,437
General and administrative 66,785 144,824 142,473 238,765
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Total Operating Expense 76,520 161,194 159,556 292,202
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NET LOSS ($3,367) ($107,221) ($55,337) ($179,779)
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Weighted average shares outstanding 12,565,866 12,070,966 12,565,866 12,150,466
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Loss per share - basic and diluted ($0.00) ($0.01) ($0.00) ($0.01)
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See accompanying notes to interim condensed financial statements F-2
ENDO NETWORKS, INC.
STATEMENT OF CASH FLOWS
Six Months Ended March 31, 2003 and 2002
(Unaudited)
Six Months Six Months
Ended Ended
Mar 31, 2003 Mar 31, 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($55,337) ($179,779)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Items not requiring cash - depreciation and amortization 17,083 53,437
(Increase) decrease in accounts receivable (76,131) (49,884)
(Increase) decrease in deposits (3,208) 8,166
(Increase) decrease in parts inventory (2,683)
(Increase) decrease in prepaid expenses (826) (1,297)
Increase (decrease) in accounts payable & accrued expenses 113,632 109,426
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NET CASH (USED) IN OPERATING ACTIVITIES: (7,470) (59,931)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) disposal of assets 19,582 (83,471)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 96,644
Subscriptions receivable 25,308
Proceeds from (payments on) lease financing (47,625) 55,679
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Total cash flows from financing activities (22,317) 152,323
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NET INCREASE IN CASH ($10,205) $8,921
CASH, BEGINNING OF PERIOD 18,903 352
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CASH, END OF PERIOD $8,698 $9,273
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See accompanying notes to interim condensed financial statements F-3
ENDO NETWORKS, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
March 31, 2003
Note A - Presentation
The condensed balance sheet of the Company as of March 31, 2003, the related
condensed statements of operations for the three and six months ended March 31,
2003 and 2002, and the statement of cash flows for the six months ended March
31, 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 six months ended March 31, 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 & Managements 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 and six month periods ending March 31, 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 sixth operating quarter
for the Corporation. In addition to continually fine-tuning its application
offering and strengthening its operational foundation, the company continues to
be engaged in aggressively securing new paid pilot projects the retail, event
and food service markets, primarily in Canada but with limited initiatives into
the United States, as well as expanding our existing deployments. The company
has changed its brief description to "Providing marketing and human resources
technology solutions to measurably increase sales and improve margins" which is
considered to be more understandable by target audiences than "aggregator of
public network applications". Technically, "aggregator of public network
applications" is an accurate description of our business.
RECENT EVENTS
None.
DEPLOYMENTS
Generally, the fall and winter is a slower season for new deployments, where we
focus more on managing our existing deployments and refining our applications
and solutions. This year is not unusual in this respect. Progress of note
include:
* two potentially substantial projects in the Automotive industry with
international companies, both for deployment in the US market
* an in-store Duty Free retail project, with an established partner in the
category and a plan for expansion
* the design phase of a total integrated food service solution for a division
of a Canadian food service company with more than 1000 locations
We continued to manage our existing retail deployments and field marketing
deployments with our current customers.
We are involved in the proposal stage of several significant projects for 2003
in all three categories of retail, food service and events.
5
There have been no deployments in the Government category this quarter; however,
negotiations with our partners in this space hold promise for 2003.
SPONSORSHIPS
We have promising results in securing third party corporate sponsorships to mine
the leads generated by our deployments. In the next quarter we will have several
pilot projects running with potential sponsors, with expansion to be based on
results.
PARTNERSHIPS
Several key application partnerships are anticipated in the near future.
Further, the company is in the process of formalizing several business
development partnerships.
REVENUES
Revenue are on-track with expectations for this period, and as usual were a mix
of hardware sale, hardware rental and professional services. Professional
services includes 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 March 31, 2003 were $187,019 compared with
$53,973 for the same three month period in 2002, with a gross profit of $73,153
compared with $53,973 a year earlier. The decrease in the percentage of gross
profit to revenue was due to more service being conducted in the same period
last year when there were more hardware deployments in the three months ended
March 31, 2003. The increase in deployments should increase our revenue stream
in future periods.
Revenues for the six months ended March 31, 2003 were $298,690 compared with
$112,423 for the same six month period in 2002, with a gross profit of $102,219
compared with $112,423 a year earlier. The decrease in the actual gross profit
and the percentage of gross profit to revenue was due to more service being
conducted in the same period last year when there were more hardware deployments
in the six months ended March 31, 2003. The increase in deployments should
increase our revenue stream in future periods.
OPERATING EXPENSE
For the three months ended March 31, 2003, operating expenses exclusive of
depreciation and amortization decreased $78,040 to $66,784 from $144,824 for the
same three months in 2002. Again, this was due to less salaries paid for service
work and more hardware deployments. Depreciation and amortization also decreased
from $16,370 to $9,736 for the same three month periods.
For the six months ended March 31, 2003, operating expenses exclusive of
depreciation and amortization decreased $96,292 to $142,473 from $238,765 for
the same three months in 2002. Again, this was due to less salaries paid for
service work and more hardware deployments. Depreciation and amortization also
decreased from $53,437 to $17,083 for the same six month periods.
Operating expenses include 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.
The d&a of rental equipment will increase in future quarters as deployments
increase, while the d&a on fixed equipment is expected to increase as the
requirement for additional network monitoring equipment increases.
6
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 decreased from a loss of $107,221 in the three months ended March 31,
2002 to a loss of $3,367 for the same three months in 2003. Net loss decreased
from a loss of $179,779 in the six months ended March 31, 2002 to a loss of
$55,337 for the same six months ended March 31, 2003.
RESEARCH AND DEVELOPMENT
The Corporation continues to receive substantial positive response from existing
clients with receipt of some contracts and the potential to consume more of the
Corporation's products and services, and potential new clients in similar and
new market categories. In order to meet the demand for Endo Networks' offering,
it continues to be necessary to invest substantially in research and
development. Clients and potential clients have been involved in meetings and
discourse to determine software requirements, and identify areas for further
development. Skilled software developers are involved in utilizing the results
of this research to for the improvement of existing applications as well as the
development of select new applications. New application development is tied to a
set time line based on expected development resources.
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 be greater than this quarter, in that
the Company has received new contracts as well as continuing new business
development which generally translates to strong revenue growth in later
quarters. Expenses are expected to remain static, with future expansion
subsequent to revenue growth. 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.
Item 3: CONTROLS AND PROCEDURES
Based on the evaluation by Messr. Peter Day, President and Chief Financial
Officer of the Company, of the effectiveness of the Company's disclosure
controls and procedures conducted as of a date within 90 days of the filing date
of this quarterly report, Messr. Day concluded that, as of the evaluation date,
(i) there were no significant deficiencies or material weaknesses of the
Company's disclosure controls and procedures, (ii) there were no significant
changes in the internal controls or in other factors that could significantly
affect internal controls subsequent to the evaluation date, and (iii) no
corrective actions were required to be taken.
7
PRT 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
8
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.
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(Registrant)
BY: /s/ Peter B. Day
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Peter B. Day
Its: President
DATE: May 19, 2003
Mississauga, Ontario, Canada
9
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: May 19, 2003
By: /s/ Peter B. Day
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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 March 31, 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: May 19, 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.
10