Note 1 Nat
ure
of Operations
Nature of Operations and Discontinued Operations
Endeavor IP, Inc.
Endeavor IP, Inc. (f/k/a Finishing Touches Home Goods, Inc.) (the “Company”, “Endeavor”), was incorporated under the laws of the State of Nevada on December 8, 2009.
The Company historically provided consulting services, installation, and sales of accessibility and safety products for residential and commercial buildings that require access by handicapped individuals or individuals with limited joint mobility.
Finishing Touches Home Goods, Inc. – Canada – Discontinued Operations
On May 5, 2010, the Company formed a wholly owned subsidiary, Finishing Touches Home Goods Inc., an Ontario, Canada Corporation (“FTHG Canada”). FTHG Canada used the U.S. Dollar as its reporting currency as well as its functional currency. However, from time to time FTHG Canada incurred certain expenses in Canadian Dollars.
On June 14, 2012, the Company discontinued its operation in Canada and sold its 100% ownership in FTHG Canada in consideration for cash payment of $1.
Endeavour Principle Capital Limited – UK – Discontinued Operations
On January 13, 2012, Mark Hunter, the Company’s former officer and director, formed a private limited company Endeavour Principle Capital Limited (“Endeavour UK”), a corporation in the United Kingdom, on behalf of the Company and later transferred the 100% ownership to the Company at no charge.
On May 13, 2013, the Company decided to no longer operate Endeavor UK and is in the process of winding down all activities and expects this to occur within the next 12 months. As a result, this subsidiary is reported as a discontinued operation.
In accordance with ASC Topic 205-20 “Presentation of Financial Statements—Discontinued Operations” (ASC 205-20), the Company determined that the wind down of this entity should be classified as “to be disposed of other than by sale” at July 31, 2013.
A long-lived asset to be disposed of other than by sale (for example, by abandonment, in an exchange measured based on the recorded amount of the nonmonetary asset relinquished, or in a distribution to owners in a spinoff) shall continue to be classified as held and used until it is disposed of. The guidance on long-lived assets to be held and used in ASC No.’s 360-10-35, 360-10-45, and 360-10-50 shall apply while the asset is classified as held and used. If a long-lived asset is to be abandoned or distributed to owners in a spinoff together with other assets (and liabilities) as a group and that disposal group is a component of an entity, paragraphs 205-20-45-1 through 45-5 and 205-20-50-5 shall apply to the disposal group at the date it is disposed of.
The Company has classified the UK subsidiary as discontinued operations and its results of operations, financial position and cash flows are separately reported for all periods presented.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The assets and liabilities of the discontinued operations are presented separately under the captions "Assets of Discontinued Operations" and "Liabilities of Discontinued Operations," respectively in the accompanying condensed consolidated balance sheets at April 30, 2014 (unaudited) and October 31, 2013 and consists of the following:
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April 30, 2014
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October 31, 2013
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Assets of discontinued operations:
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Cash
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$
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-
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$
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-
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Other Assets
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$
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1,077
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$
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1,054
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Total assets of discontinued operations
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$
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1,077
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$
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1,054
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Liabilities of discontinued operations:
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Accounts payables and accrued liabilities
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$
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1,591
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$
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1,557
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Total liabilities of discontinued operations
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$
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1,591
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$
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1,557
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The summarized statements of operations for Endeavor UK is as follows:
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Period from
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May 13, 2013
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Three months ended
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Six months ended
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(Inception) to
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April 30, 2014
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April 30, 2013
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April 30, 2014
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April 30, 2013
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April 30, 2014
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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Loss from discontinued operations, net of tax
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$
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-
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$
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-
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$
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-
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-
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$
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(2,649
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)
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Name Change and Change in Business and Commencement of Development Stage
Effective May 15, 2013, the Company filed with the State of Nevada, a Certificate of Amendment to its Articles of Incorporation, changing its name from Finishing Touches Home Goods, Inc. to Endeavor IP, Inc.
On May 13, 2013, Endeavor, through its wholly owned subsidiary IP Acquisition I, Inc. purchased certain intellectual property rights from Mesh Comm, LLC (“Mesh”) under the terms of a patent purchase agreement. Mesh was incorporated in the State of Georgia on November 7, 2008. See below regarding the formation of MeshTech, Inc.
The Company is engaged in the protection of intellectual property in the United States. The Company actively pursues licensing revenues by providing a license to its intellectual property to those entities that wish to acquire a right to use the technology. The intellectual property was acquired from a third party and includes U.S. issued patents and applications. Concurrent with this transaction, the Company determined that they commenced the development stage.
Formation of Subsidiaries to Acquire Intellectual Property
On May 6, 2013, the Company formed its wholly-owned subsidiary in the State of Delaware, Endeavor MeshTech, Inc., (“MeshTech”). The Company owns the patents acquired in connection with the business acquisition of Mesh Comm, LLC.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On July 8, 2013, the Company formed its wholly-owned subsidiary in the State of Delaware, Endeavor Energy, Inc., (“Endeavor Energy”). The Company owns the patents acquired from Solid Solar Energy, Inc. See Note 4.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”).
Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is the Company’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended October 31, 2013 as filed with the SEC, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended October 31, 2013 and 2012. The financial information as of October 31, 2013 is derived from the audited financial statements presented in the Annual Report on Form 10-K for the year ended October 31, 2013. The accompanying unaudited interim condensed consolidated financial statements should also be read in conjunction with the Form 8-K and 8-K/A filed in May 2013 and July 2013, respectively, with respect to the acquisition of MeshTech. The interim results for the three and six months ended April 30, 2014 are not necessarily indicative of the results to be expected for the year ending October 31, 2014 or for any future interim periods.
Principles of Consolidation and Corporate Structure
The accompanying condensed consolidated financial statements include the accounts of Endeavor IP, Inc. and its wholly-owned subsidiaries. All significant intracompany balances and transactions have been eliminated in consolidation.
The Company's consolidated subsidiaries and/or entities are as follows:
Name of Subsidiary or
Consolidated Entity
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Place of Formation/Incorporation
(Jurisdiction)
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Date of Incorporation
(Date of Disposition,
if Applicable)
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Attributable
Interest
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FTHG Canada
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Canada
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May 10, 2010
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100
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%
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(June 14, 2012)
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0
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%
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Endeavour UK
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United Kingdom
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January 13, 2012
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100
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%
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(May 13, 2013)
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*
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Endeavor MeshTech, Inc
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Delaware
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May 6, 2013
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100
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%
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Endeavor Energy, Inc
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Delaware
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July 8, 2013
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100
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%
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*This entity is reflected as a discontinued operation as of May 13, 2013
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Development Stage
The Company’s condensed consolidated financial statements are presented as those of a development stage company. Activities during the development stage primarily include organizing the business, raising capital and acquiring additional intellectual property.
Risks and Uncertainties
The Company intends to operate in an industry that is subject to rapid change. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
Cash
The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company had no cash equivalents at April 30, 2014 and October 31, 2013, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
The Company recognizes accounts receivable based on billing for the revenue earned from their patent enforcement activities.
The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At April 30, 2014 and October 31, 2013, there was no allowance for bad debt.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 605, “Revenue Recognition.” Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed, (iii) amounts are fixed or determinable and (iv) collectability is reasonably assured.
The Company generally receives a one-time, final lump sum payment, in exchange for granting a non exclusive license. At the time of payment there are no further obligations for the Company or any licensee.
Revenues from patent enforcement activities accounted for 100% of revenues since the Company’s inception and were all from a single claim.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Cost of Revenues
Cost of revenue mainly includes expenses incurred in connection with the Company’s patent enforcement activities, such as legal fees, consulting costs, patent maintenance, royalty fees for acquired patents and other related expenses.
Cost of revenue does not include expenses related to product development, integration or support, as these are included in general and administrative expenses.
The Company pays a contingency fee of approximately 25%-45% of gross recoveries from litigation settlements. These fees are based upon a graduated scale as negotiated between the Company and its legal counsel.
Income Taxes
A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry-forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
For income tax benefits arising from uncertain income tax positions, a tax benefit arising from an uncertain tax position can only be recognized for financial reporting purposes if, and to the extent that, the position is more likely than not to be sustained in an audit by the applicable taxing authority.
Penalties related to uncertain tax positions are recorded as a component of general and administrative expenses. Interest relating to uncertain tax positions is recorded as a component of interest expense. The Company has not recorded any uncertain tax positions at April 30, 2014 or October 31, 2013.
The Company had no material adjustments to its financial statements for unrecognized income tax benefits at April 30, 2014 or October 31, 2013.
The Company has not yet filed its corporation income tax return for the period ended October 31, 2013 and 2012. The statute of limitations for the return will begin when the return is filed.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC No. 718, “Accounting for Stock-Based Compensation" (“ASC 718”), which established financial accounting and reporting standards for stock-based employee compensation. It defines a fair value based method of accounting for an employee stock option or similar equity instrument.
The Company accounts for compensation cost for stock option plans in accordance with ASC No. 718. The Company accounts for share based payments to non-employees in accordance with ASC No. 505-50 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Share based payments, excluding restricted stock, are valued using a Black-Scholes Pricing Model (“BSPM”). Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. Grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock based compensation expenses are included in selling, general and administrative expenses in the condensed consolidated statement of operations.
When computing fair value of share based payments, the Company has considered the following variables:
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The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.
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•
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The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
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•
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The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110.
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•
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The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%.
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•
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Expected volatility was determined based on the Company’s historical trading activity in a public market.
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Loss per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible debt, exercise of stock options and warrants by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had the following potential common stock equivalents for the three and six months ended April 30, 2014 and 2013:
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Three and six months
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Three and six months
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Ended
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Ended
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April 30, 2014
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April 30, 2013
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Stock options, exercise price ($0.75) – former related party
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10,000
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-
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Stock options, exercise price ($0.75)
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510,000
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-
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Stock options, exercise price ($0.69) – related party
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2,144,881
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-
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2,664,881
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-
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Since the Company reflected a net loss for the three and six months ended April 30, 2014, the inclusion of any common stock equivalents would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
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•
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Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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•
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Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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•
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Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
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The Company's financial instruments consisted primarily of cash, accounts payable and debt. The carrying amount of the Company's financial instruments generally approximates its fair value as of April 30, 2014 and October 31, 2013, respectively, due to the short-term nature of these instruments.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances, such as service discontinuance or technological obsolescence, indicate that the carrying amount of the long-lived asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that impairment is present, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the asset. There have been no impairments recorded during the three and six months ended April 30, 2014 and 2013, respectively.
Intangible Assets
Intangible assets, consisting of patent portfolios, were acquired from May to July 2013.
Intangible assets that have finite useful lives are amortized on the straight-line method over their useful lives ranging from 7 to 16 years. Costs incurred to acquire these patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.
Intangible assets that have indefinite useful lives are not amortized but are tested at least annually for impairment.
Each reporting period, the Company evaluates the remaining useful lives of intangible assets not being amortized to determine whether facts and circumstances continue to support an indefinite useful life. Intangible assets are considered impaired if the fair value of the intangible asset is less than its net book value. If quoted market prices are not available, the fair values of the intangible assets are based on present values of expected future cash flows or royalties avoided using discount rates commensurate with the risks involved.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Goodwill
Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired. In accordance with current accounting guidance, goodwill is not amortized and is tested at least annually for impairment at the reporting unit level.
The Company performs an annual analysis during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional analysis. Goodwill impairment reviews involve a two-step process. Goodwill is first evaluated for impairment by comparing management's estimate of the fair value of a reporting unit with its carrying value, including goodwill.
Management utilizes a discounted cash flow analysis, referred to as an income approach, to determine the estimated fair value of the reporting units. Significant judgments and assumptions including the discount rate, anticipated revenue growth rate and gross margins, estimated operating and interest expense, and capital expenditures are inherent in these fair value estimates, which are based on the operating and capital budgets and on the Company’s strategic plan. As a result, actual results may differ from the estimates utilized in the income approach. The use of alternate judgments and/or assumptions could result in a fair value that differs from the estimate and could result in the recognition of an impairment charge in the financial statements. As a result of these uncertainties, the Company utilizes multiple scenarios and assigns probabilities to each of the scenarios in the income approach.
The Company also considers indications obtained from market-based approaches. The Company compares market multiples derived from market prices of stock of companies that are engaged in a similar line of business to the corresponding measures of the Company. The Company also considers the combined carrying values of the reporting units to the market capitalization.
If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment. The amount of impairment is determined by comparing the implied fair value of the reporting unit's goodwill to the carrying value of the goodwill calculated in the same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill is less than its carrying value, the Company would record an impairment charge for the difference.
Foreign Currency Transactions
The condensed consolidated financial statements are presented in United States Dollars. The Company has bank accounts in foreign currency. The balance of these bank accounts were translated from its local currency (British Pounds) into the reporting currency, U.S. dollars, using period end exchange rates. The resulting translation adjustments were recorded as a separate component of accumulated other comprehensive loss. Revenues and expenses were translated using weighted average exchange rate for the period.
Transaction gains and losses resulting from foreign currency transactions were recorded as foreign exchange gains or losses in the condensed consolidated statement of operations. The Company did not enter into any financial instruments to offset the impact of foreign currency fluctuations.
Transactions from some of the bank accounts were from the entity that is being reflected as discontinued.
Reclassifications
To conform prior period amounts to current year classifications, the Company has reclassified assets, liabilities, revenues and expenses associated with the disposal of Endeavor UK to discontinued operations. These reclassifications had no impact on the Company’s previously reported financial condition, results of operations or cash flows.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Recent Accounting Pronouncements
There are no recent accounting pronouncements that have had a material impact on the unaudited condensed consolidated financial statements.
Note 3 Commitments and Contingencies
Commitments
Consulting Agreements
Effective May 13, 2013, the Company entered into a 2 year consulting agreement with the manager of Mesh; this individual will assist with all aspects of the acquired patent portfolio, including, among other things, maintenance of inventions, patent prosecutions and applications related to the patents. This individual will be paid $7,000 per month. The agreement is subject to cancellation.
On November of 2013, the Company entered into a placement agent agreement which notes a placement agent fee equal to 10% of the aggregate purchase price paid by each investor introduced, directly or indirectly by the finder. In addition, the Company agreed to pay up to $15,000 in additional expenses to the placement agent.
In November 2013, the Company entered into a 12 months investor relations consulting agreement which notes a monthly fee of $6,000 in addition to the issuance of 100,000 shares of the Company’s common stock of which 50,000 which vest on the date of issuance, 25,000 on the 121st day and the remainder on the 180th day. As of April 30, 2014, 50,000 shares have been issued.
In January 2014, the Company issued 50,000 shares of restricted common stock pursuant to an investor relations agreement. The Company recorded $21,400 as investor relations expense which is included in general and administrative expenses for the six months ended April 30, 2014.
Employment Agreements – Officers and Directors
On December 24, 2013, the Board of Directors of the Company appointed Franciscus Diaba as a director of the Company. In connection with the appointment, Mr. Diaba will receive monthly compensation of $1,000 and a one time share issuance of 50,000 shares of the Company’s common stock which vests 6 months from the date of grant.
In January 2014, the Board of Directors changed the monthly compensation of Andrew Uribe, a director, from $750 to $1,000. In addition, Mr. Uribe was granted a one time share issuance of 50,000 shares of the Company’s common stock which vests 6 months from the date of grant.
On January 3, 2014, Cameron Gray resigned from his positions as Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and director of the Company. Upon Mr. Gray’s resignation, Ravinder Dhat was appointed as the Company’s Chief Executive Officer and Chairman of the Board, effective January 3, 2014. Mr. Ravinder received the following in connection with his position:
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·
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Base salary of $125,000 with a $12,500 signing bonus
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·
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Option to purchase 2,144,881 common shares exercisable at $0.69 per share. The options expire on January 2, 2019 and vest at 12.5% every six months beginning on the 6 month anniversary of January 3, 2014.
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·
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1,072,441 shares of restricted common stock vesting at 12.5% every six months beginning on the 6 month anniversary of January 3, 2014.
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Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Lease Agreement
On January 16, 2014, the Company entered into a virtual office lease agreement for a period of one year which required an initial payment of $307 and monthly payments of $129.
Contingencies
In the ordinary course of business, the Company actively pursues legal remedies to enforce its intellectual property rights and to stop unauthorized use of its technology. Other than ordinary routine litigation incidental to the business, the Company knows of no material, active or pending legal proceedings against the Company, nor is the Company involved as a plaintiff in any material proceedings or pending litigation.
Following is a summary of the Company’s litigation efforts:
The Company, through its wholly-owned subsidiary, Endeavor Energy, Inc. (“Endeavor Energy”), filed a patent infringement lawsuit against Tucson Electric Power Company in the United States District Court of Arizona, Case No. 4:13-CV-2396-TUC-RCC. Endeavor Energy is asserting claims of patent infringement related to U.S. Patent No. 7,366,201 (the ‘201 patent), entitled “Remote Access Energy Meter System and Method.” The lawsuit alleges that the defendant has infringed, and continues to infringe, the claims of the ‘201 patent.
Endeavor Energy also brought a patent infringement lawsuit against Consolidated Edison Solutions, Inc. and Consolidated Edison Development, Inc. in the United States District Court for the Southern District of New York. The case was filed in the United States District Court for the Southern District of New York (13 CV 6528). Endeavor Energy, Inc. is asserting claims of patent infringement related to U.S. Patent No. 7,336,201 (the ‘201 patent), entitled “Remote Access Energy Meter System and Method.” The lawsuit alleges that the defendant has infringed, and continues to infringe, the claims of the ’201 patent. Subsequent to April 30, 2014, Consolidated Edison Solutions, Inc. and Consolidated Edison Development, Inc. paid Endeavor Energy to settle the lawsuit.
The Company’s wholly-owned subsidiary, Endeavor MeshTech, Inc. (“Endeavor MeshTech”) filed patent infringement lawsuits against two defendants in the United States District Court for the District of Delaware. The two defendants are Itron, Inc. and Elster Solutions, LLC, Case Nos. 1:13-cv-01343-and 1:13-cv-01344, respectively. Endeavor MeshTech, Inc. is asserting claims of patent infringement related to U.S. Patent No. 7,379,981 (the ‘981 patent), entitled “Wireless Communication Enabled Meter and Network.” The lawsuits allege that the defendants have infringed, and continue to infringe, the claims of the ’981 patent.
Endeavor MeshTech also filed patent infringement lawsuits against two additional defendants in the United States District Court for the District of Delaware. The two defendants are Aclara Technologies, Inc. and Sensus USA, Inc., 1-13-cv-01618 and 1-13-cv-01627, respectively. Endeavor MeshTech is asserting claims of patent infringement related to U.S. Patent No. 7,379,981 (the ‘981 patent), entitled “Wireless Communication Enabled Meter and Network.” The lawsuits allege that the defendants have infringed, and continue to infringe, the claims of the ’981 patent.
Note 4 Acquisition
On May 13, 2013, the Company, through its wholly owned subsidiary IP Acquisition Sub I, Inc. purchased certain intellectual property rights from Mesh under the terms of a patent purchase agreement.
Under the terms of the asset purchase from Mesh, in exchange for $800,000 and a 20% royalty on future net revenues associated with enforcement activities, Endeavor acquired from Mesh two U.S. patents and one pending patent application relating to wireless communication networks, as well as all right, title and interest in all related causes of actions and other enforcement rights under or on account of any of such acquired patents. Endeavor assumed all obligations of Mesh under that certain license agreement between Mesh and a third party licensor. Endeavor will now include these assets in its financial statements from the date of acquisition going forward.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the year ended October 31, 2013, the Company paid $10,000 in royalties, which was recorded as a component of cost of revenues.
The acquisition of these assets, deemed to be a business, resulted in a business combination under ASC No. 805
“Business Combinations”
, and the recording of intangible assets (patent portfolios).
The following table summarizes the purchase consideration for the Mesh acquisition:
Consideration
Cash
|
|
$
|
800,000
|
|
Fair value of total consideration transferred
|
|
$
|
800,000
|
|
The payment of the total purchase consideration of $800,000 shown above is classified as a use of cash under investing activities in the Condensed Consolidated Statements of Cash Flows.
The $800,000 is classified as intangible assets. In connection with this transaction, no other assets were acquired or liabilities assumed.
The Company paid approximately $66,000 in professional fees related to the acquisition; these fees were expensed as incurred and are included as a component of general and administrative expense.
The following unaudited consolidated pro forma information gives effect to the acquisition of Mesh as if the transaction had occurred on November 1, 2011, the first day of the prior fiscal year. The pro forma information presented is also for the current period in which the transaction occurred, which is November 1, 2012 to the acquisition date of May 13, 2013.
|
|
Actual
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
May 13, 2013 to
October 31, 2013
|
|
|
November 1, 2012 to
May 12, 2013
|
|
|
November 1, 2011 to
October 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Finishing Touches (now Endeavor, IP, Inc.)(Consolidated)
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
23,500
|
|
Mesh Comm, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Revenues
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
23,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Finishing Touches (now Endeavor, IP, Inc.)
|
|
$
|
(581,846
|
)
|
|
$
|
(236,401
|
)
|
|
$
|
(324,768
|
)
|
Mesh Comm, LLC
|
|
|
-
|
|
|
|
(1,805
|
)
|
|
|
(11,128
|
)
|
Total Earnings (Loss)
|
|
$
|
(581,846
|
)
|
|
$
|
(238,206
|
)
|
|
$
|
(335,896
|
)
|
Note 5 Intangible Assets
On May 13, 2013, the Company, through its wholly owned subsidiary IP Acquisition Sub II, Inc. purchased certain intellectual property rights from Solid Solar, n/k/a Spiral Energy Tech, Inc. under the terms of a patent purchase agreement.
In connection with this purchase of patents held by Spiral Energy Tech, Inc., the Company paid $100,000 in cash and issued 666,666 shares of common stock, having a fair value of $67 ($0.0001/share), for total consideration of $100,067. The purchase of these patents was treated as an asset purchase, and not deemed to be the acquisition of a business.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Intangible assets were comprised of the following at April 30, 2014:
|
|
Estimated Life
(years)
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Impairment
Charges
|
|
|
Net
|
|
Patent #1
|
|
|
7
|
|
|
$
|
800,000
|
|
|
$
|
(114,752)
|
|
|
$
|
-
|
|
|
$
|
685,248
|
|
Patent #2
|
|
|
16
|
|
|
$
|
50,034
|
|
|
$
|
(3,033)
|
|
|
$
|
-
|
|
|
$
|
47,001
|
|
Patent #3
|
|
|
11
|
|
|
$
|
50,034
|
|
|
$
|
(4,325)
|
|
|
$
|
-
|
|
|
$
|
45,709
|
|
Total
|
|
|
|
|
|
$
|
900,068
|
|
|
$
|
(122,110)
|
|
|
$
|
-
|
|
|
$
|
777,958
|
|
For the three and six months ended April 30, 2014, amortization expense related to the intangibles with finite lives totaled $30,874 and $62,789 and was included in general and administrative expenses in the condensed consolidated statement of operations.
There was no amortization expense recorded for the three and six months ended April 30, 2013.
At April 30, 2014, future amortization of intangible assets is as follows:
Year Ending October 31
|
|
|
|
2014 (remainder of year)
|
|
$
|
63,828
|
|
2015
|
|
|
126,616
|
|
2016
|
|
|
126.963
|
|
2017
|
|
|
126,616
|
|
2018
|
|
|
126,616
|
|
Thereafter
|
|
|
207,319
|
|
|
|
$
|
777,958
|
|
Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors.
Note 6 Debt
Prior to October 31, 2012, the Company executed notes for $400,000.
These notes had the following terms:
●
|
Maturity date is due on demand;
|
●
|
Interest rate is 16%; and
|
●
|
The loan was unsecured.
|
In May 2013, the Company executed a note for $1,500,000.
This note had the following terms:
●
|
Maturity date is October 2014;
|
●
|
Default interest rate is 18%; and
|
●
|
The loan was unsecured.
|
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The balance of the notes are reflected as current liabilities as of April 30, 2014 and October 31, 2013.
Interest expense for the three months ended April 30, 2014 and 2013 totaled $70,637 and $19,899, respectively. Interest expense for the six months ended April 30, 2014 and 2013 totaled $139,102 and $35,899, respectively.
Accrued interest as of April 30, 2014 and October 31, 2013 totaled $330,248 and $191,146, respectively.
Note 7 Stockholders’ Deficit
(A) Common Stock
During the six months ended April 30, 2014, the Company issued the following common stock:
Transaction Type
|
Quantity of
Shares
|
|
Valuation
|
|
|
Value per
Share
|
|
Services – related party – (1)
|
100,000
|
|
$
|
72,000
|
|
|
$
|
0.72
|
|
Services – related party – (2)
|
1,072,441
|
|
$
|
788,244
|
|
|
$
|
0.735
|
|
Services – (3)
|
50,000
|
|
$
|
52,500
|
|
|
$
|
1.05
|
|
Services – (4)
|
50,000
|
|
$
|
21,400
|
|
|
$
|
0.72
|
|
Services – (5)
|
100,000
|
|
$
|
11,813
|
|
|
$
|
0.28
|
|
Total
|
1,372,441
|
|
$
|
945,967
|
|
|
|
|
|
(1)
|
Two directors of the Company will each receive 50,000 shares of the Company’s common stock in connection with their appointment. The stock shall vest 6 months from the date of grant. The value of the stock was reflected as deferred compensation with the Company recognizing $36,000 and $42,000 in compensation expense; included in general and administrative expenses, for the three and six months ended April 30, 2014.
|
(2)
|
Ravinder Dhat was appointed as the Company’s Chief Executive Officer and Chairman of the Board, effective January 3, 2014. Mr. Ravinder received
1,072,441 shares of restricted common stock vesting at 12.5% every six months beginning on the 6 month anniversary of January 3, 2014. The value of the stock was reflected as deferred compensation with the Company recognizing $49,265 and $57,476 in compensation expense; included in general and administrative expenses, for the three and six months ended April 30, 2014.
|
(3)
|
In November 2013, the Company entered into a 12 months investor relations consulting agreement which notes a monthly fee of $6,000 in addition to the issuance of 100,000 shares of the Company’s common stock of which 50,000 which vest on the date of issuance, 25,000 on the 121
st
day and the remainder on the 180
th
day. The value of the stock was reflected as investor relations expense of $52,500; included in general and administrative expenses for the three and six months ended April 30, 2014.
|
(4)
|
In January 2014, the Company issued 50,000 shares of restricted common stock pursuant to an investor relations agreement. The agreement states that the shares will vest over a six month period. The value of the stock is reflected over this vesting period and the Company recorded $21,400 as investor relations expense which is included in general and administrative expenses for the three and six months ended April 30, 2014.
|
(5)
|
In February 2014, the Company granted 100,000 shares of restricted common stock pursuant to the consulting agreement signed in May 2013. The agreement states that the shares shall vest over a six month period. The value of the stock is reflected over this vesting period and the Company recorded $11,813 as professional fees which is included in general and administrative expenses for the three and six months ended April 30, 2014.
|
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the year ended October 31, 2013, the Company issued the following common stock:
Transaction Type
|
|
Quantity of Shares
|
|
|
Valuation
|
|
|
Value per Share
|
|
Services – related party – (May 2013) (6)
|
|
|
133,336
|
|
|
$
|
27,240
|
|
|
$
|
0.20
|
|
Settlement of payables (October 2013) (8)
|
|
|
47,619
|
|
|
$
|
40,477
|
|
|
$
|
0.85
|
|
Acquisition of patents (May 2013) (7)
|
|
|
666,666
|
|
|
$
|
67
|
|
|
$
|
0.0001
|
|
Total
|
|
|
847,621
|
|
|
$
|
67,784
|
|
|
|
|
|
The fair value of all stock issued above was based upon the agreed upon value per share on the day of issuance, which represented the best evidence of fair value.
(6)
|
Shares vest one year from issuance. For the year ended October 31, 2013, the Company recognized $12,485 in compensation expense which is included in general and administrative expenses. In January 2014, the CEO to whom the shares were granted resigned. As such, the shares issued never vested; the Company cancelled all of the outstanding shares issued to the CEO on March 7, 2014 and has reversed the expense of $12,485 as of January 31, 2014 in accordance with ASC 718.
|
(7)
|
Shares are fully vested. At the time of issuance, the Company lacked an active public trading market; therefore, a quoted closing trading price valuation would not best reflect the intent of the parties in connection with the valuation of these shares. Due to the lack of past, present or future specified financial or other operational data for the patents acquired; that could support a valuation in excess par, the Company believes this is the best evidence of fair value for this transaction.
|
(8)
|
In October 2013, the Company settled $25,000 of accounts payable for 47,619 shares valued at $40,477 ($0.85). The fair value of this stock award was based upon the quoted closing trading price.
|
In May 2013, the Company’s former Chief Executive Officer cancelled 84,000,000 shares of common stock having a fair value of $8,400 ($0.0001/share – par value) for $10, with an offset to additional paid in capital. The $10 is included in accounts payable.
On September 3, 2013, the Company executed a 14 for 1 forward stock split. All share and per share amounts have been retroactively restated to the earliest period presented.
During the three months ended April 30, 2014 and 2013, the Company expensed $118,488 and $0, respectively, pertaining to common stock issued for services. During the six months ended April 30, 2014 and 2013, the Company expensed $172,714 and $0, respectively, pertaining to common stock issued for services.
(B) Stock Options
The Company applied fair value accounting for all share based payments awards. The fair value of each option granted is estimated on the date of grant using the BSPM.
The assumptions used for options granted during the three and six months ended April 30, 2014 are as follows:
Exercise price
|
|
$
|
0.69
|
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
110
|
%
|
Risk free interest rate
|
|
|
0.8
|
%
|
Expected life of option
|
|
|
5 years
|
|
Expected forfeiture
|
|
|
0
|
%
|
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The assumptions used for options granted during the year ended October 31, 2013 are as follows:
Exercise price
|
|
$
|
0.75
|
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
48% - 69
|
%
|
Risk free interest rate
|
|
|
0.08%-0.61
|
%
|
Expected life of option
|
|
|
2 years
|
|
Expected forfeiture
|
|
|
0
|
%
|
The following is a summary of the Company’s stock option activity:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual Life (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance – October 31, 2013
|
|
|
520,000
|
|
|
$
|
0.75
|
|
|
1.29
|
|
|
$
|
-
|
|
Granted
|
|
|
2,144,881
|
|
|
|
0.69
|
|
|
|
3.97
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Cancelled/Modified
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance – April 30, 2014 – outstanding
|
|
|
2,664,881
|
|
|
|
0.70
|
|
|
|
3.97
|
|
|
|
-
|
|
Balance – April 30, 2014 – exercisable
|
|
|
520,000
|
|
|
$
|
0.75
|
|
|
|
1.04
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options held related party – April 30, 2014
|
|
|
2,144,881
|
|
|
$
|
0.735
|
|
|
|
4.92
|
|
|
$
|
-
|
|
Exercisable options held by related party – April 30, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding options held by former related party – April 30, 2014
|
|
|
510,000
|
|
|
$
|
0.75
|
|
|
|
1.04
|
|
|
$
|
-
|
|
Exercisable options held by former related party – April 30, 2014
|
|
|
510,000
|
|
|
$
|
0.75
|
|
|
|
1.04
|
|
|
$
|
-
|
|
The following is a summary of the Company’s stock options granted during the three and six months ended April 30, 2014
|
Options
|
|
|
Value
|
|
Purpose for Grant
|
Grant to related party
|
|
|
2,144,881
|
|
|
$
|
1,250,865
|
|
Services to be rendered
|
The following is a summary of the Company’s stock options granted during the year ended October 31, 2013:
|
Options
|
|
|
Value
|
|
Purpose for Grant
|
Grant to former related party
|
|
|
500,000
|
|
|
$
|
1,235
|
|
Services rendered
|
Grant to related party
|
|
|
10,000
|
|
|
$
|
922
|
|
Services rendered
|
Grant to consultant
|
|
|
10,000
|
|
|
$
|
922
|
|
Services rendered
|
All options granted were fully vested on the grant date.
On May 13, 2013, the Board of Directors approved the amendment and restatement of the Company’s Bylaws in order to, among other things, include revised provisions relating to board and stockholder meetings and indemnification of officers and directors.
Endeavor IP, Inc. and Subsidiaries
(F/K/A Finishing Touches Home Goods, Inc.)
(Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On May 13, 2013, the Board of Directors approved an Amended and Restated Articles of Incorporation to authorize (i) the change of the Company’s name to “Endeavor IP, Inc.” from “Finishing Touches Home Goods, Inc.,” (ii) increase the authorized capital stock to 225,000,000 shares, consisting of 200,000,000 shares of common stock and 25,000,000 shares of “Blank Check” Preferred Stock, and (iii) change the par value of the capital stock to $0.0001 per share from $0.001 per share. On May 15, 2013, the Company filed the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada.
In August 2013, the Company issued 10,000 fully vested stock options to its former Chief Executive Officer. The options are exercisable at $0.75 per share for a period of 2 years.
In August 2013, the Company issued 10,000 fully vested stock options to a consultant. The options are exercisable at $0.75 per share for a period of 2 years.
On January 3, 2014, the CEO of the Company was granted the option to purchase 2,144,881 common shares exercisable at $0.69 per share. The options expire on January 2, 2019 and vest at 12.5% every six months beginning on the 6 month anniversary of January 3, 2014.
During the three months ended April 30, 2014 and 2013, the Company expensed $69,492 and $0, respectively, pertaining to options issued. During the six months ended April 30, 2014 and 2013, the Company expensed $92,656 and $0, respectively, pertaining to options issued.
Note 8 Going Concern
As reflected in the accompanying condensed consolidated financial statements, the Company is in the development stage with minimal operations, used cash in operations of $287,313 and has a net loss from continuing operations for the six months ended April 30, 2014 of $1,043,285. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
Revenues have been insufficient to achieve positive cash flows. The Company’s plan to sustain operations include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, such as term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence.
The Company will most likely require the additional funding to finance the growth of its current operations, as well as to achieve its strategic objectives. The Company believes its current available cash, along with anticipated revenues, may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company.
Note 9 Subsequent Events
Subsequent to April 30, 2014,
Consolidated Edison Solutions, Inc
. and Consolidated Edison Development, Inc. paid the Company to settle the lawsuit.
During June 2014, the Company entered into an agreement for the issuance of a $68,000 convertible note. The note accrues interest at a rate of 8% and matures on March 17, 2015. The note is convertible into shares of common stock at a conversion price equal to approximately 58% of the average of the lowest 3 trading prices for the common stock during the 10 day trading period ending on the latest and complete trading day prior to the conversion.
During June 2014, the Company entered into an agreement for the issuance of two convertible notes to a third party lender totaling
$63,000
. Each note accrues interest at a rate of 8% and matures on June 10, 2015. The notes are convertible at the discretion of the lender after 180 days from execution of the agreement at a conversion price of approximately 55% of the average of the lowest trading price for the common stock during the 10 day trading period ending on the latest and complete trading day prior to the notice of conversion. The gross proceeds of $31,500 from the first note was received upon execution of the agreement. The remaining $31,500 or “back-end note” is due to the Company from the lender.
On June 11, 2014, the Company entered into a $335,000 convertible note agreement with a third party lender. The Company received $75,000 from the lender upon execution of the note. The note contains an original issue discount of 10% or $35,000. The note will remain interest free during the first 90 days after execution of the agreement, after that date, a one-time interest charge of 12% will be applied to the principal. The maturity date of the note is two years from the date of the agreement. The note can be converted into shares of common stock at any time at a conversion rate of the lesser of $0.05 per share of 60% of the lowest trade price in the 25 trading days previous to the conversion.