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: December 31, 2002
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.)
2425 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 December 31, 2002:
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
December 31, 2002 and September 30, 2002
ASSETS
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Dec 31, 2002 Sept 30, 2002
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CURRENT ASSETS:
Cash $1,859 $18,903
Accounts receivable 77,028 69,771
Deposits with customers 0
Inventory parts 14,964 12,700
Prepaid expenses 51,096 50,705
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Total current assets 144,947 152,079
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $156,752 and $125,339 respectively 385,774 422,670
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TOTAL ASSETS $530,721 $574,749
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LIABILITIES AND STOCKHOLDERS' EQUITY
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LIABILITIES
Accounts payable $66,523 $45,439
Accrued expenses 103,875 85,335
Capitalized leases - current 141,536 142,057
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Total current liabilities 311,934 272,831
Capitalized leases - non current 154,083 185,767
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TOTAL LIABILITIES 466,017 458,598
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 50,000,000 authorized,
12,568,866 and 12,229,966 shares issued and outstanding 12,569 12,569
Subscriptions receivable (25,308) (25,308)
Additional paid-in-capital 292,446 292,446
Accumulated deficit (215,003) (163,556)
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Total Stockholders' Equity 64,704 116,151
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $530,721 $574,749
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See accompanying notes to interim condensed financial statements F-1
ENDO NETWORKS, INC.
STATEMENT OF OPERATIONS
Three Months Ended December 31, 2002 and 2001
Three Months Three Months
Ended Ended
Dec 31, 2002 Dec 31, 2001
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Revenue $111,671 $57,924
Cost of Goods Sold 80,605
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Gross Profit 31,066 57,924
Operating Expense:
Depreciation and amortization 2,729 36,733
General and administrative 80,304 93,749
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Total Operating Expense 83,033 130,482
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NET INCOME ($51,967) ($72,558)
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Weighted average shares outstanding 12,565,866 12,091,401
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Loss per share - basic and diluted ($0.00) ($0.00)
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See accompanying notes to interim condensed financial statements F-2
ENDO NETWORKS, INC.
STATEMENT OF CASH FLOWS
Three Months Ended December 31, 2002 and 2001
Three Months Three Months
Ended Ended
Dec 31, 2002 Dec 31, 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($51,967) ($72,558)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Items not requiring cash - depreciation and amortization 36,896 36,733
Increase in accounts receivable (7,257) (27,072)
Decrease in deposits 10,376
Increase in parts inventory (2,264)
Increase in prepaid expenses (391) (320)
Increase in accounts payable & accrued expenses 39,624 25,299
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NET CASH (USED) BY OPERATING ACTIVITIES: 14,641 (27,542)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets (85,992)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 95,644
Subscriptions receivable 19,800
Proceeds from (payments on) lease financing (32,205) 44,898
Gain / loss from currency fluctuations 520 1,132
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Total cash flows from financing activities (31,685) 161,474
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NET INCREASE IN CASH ($17,044) $47,940
CASH, BEGINNING OF PERIOD 18,903 352
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CASH, END OF PERIOD $1,859 $48,292
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See accompanying notes to interim condensed financial statements F-3
ENDO NETWORKS, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
December 31, 2002
Note A - Presentation
The condensed balance sheet of the Company as of December 31, 2002, the related
condensed statements of operations for the three months ended December 31, 2002
and 2001, and the statement of cash flows for the three months ended December
31, 2002 and 2001 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 months ended December 31, 2002 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 month period ending December 31, 2002. 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 fifth 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 EVENT
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
includes:
A two potentially substantial projects in the Automotive industry
with international companies, both for deployment in the US
market
B an in-store Duty Free retail project, with an established partner
in the category and a plan for expansion
C the design phase of a total integrated food service solution for
a division of a Canadian food service company with more than 1000
locations
5
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.
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 December 31, 2002 were $111,671 compared
with $57,924 for the same three month period in 2001, with a gross profit of
$31,066 compared with $57,924 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 December 31, 2002. The
increase in deployments should increase our revenue stream in future periods.
OPERATING EXPENSE
Operating expenses exclusive of depreciation and amortization decreased from
$93,749 for the three months ended December 31, 2001 to $80,304 for the same
three months in 2002. Again, this was due to less salaries paid for service work
and more hardware deployments, as well as a decrease in depreciation and
amortization from $36,733 to $2,729 for the same three month periods.
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.
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.
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 decrease from a loss of $72,558 in the three months ended December 31,
2001 to $51,967 for the same three months in 2002.
6
RESEARCH AND DEVELOPMENT
The Corporation continues to receive substantial positive response from existing
clients with 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 timeline
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 similar to this quarter, in that it
is a period of 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.
7
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
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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: February 24, 2003
Mississauga, Ontario, Canada
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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: February 25, 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 December 31, 2002 (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
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Peter B. Day
Chief Financial Officer
Dated: February 25, 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.
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