UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 033-03275-D
enSurge, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0431533
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
8722 South 300 West, Suite 106
Sandy, UT 84070
(Address of principal executive offices)
(801) 984-9300
(Issuer's telephone number)
iShopper.com, Inc.
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934, during the preceding 12 months
(or such shorter period that the Registrant was required to file
such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
There were 13,791,344 shares of common stock, $0.001 par value,
outstanding as of November 14, 2000.
<PAGE>
enSurge, Inc.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) -
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three and Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited) for the Nine Months Ended September 30, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of matters to a vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures. 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
enSurge, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2000 1999
ASSETS ----------- -----------
Current Assets
Cash $ 13,380 $ 13,935
Certificate of deposit 88,387 -
Net securities available for sale 412,500 -
Trade accounts receivable (net of allowance
for doubtful accounts of $86,029 and
$138,028, respectively) 700,814 130,886
Prepaid expenses - 30,515
Deferred income tax benefit - 236,060
Inventory 187,870 -
Merchant reserve account 179,077 108,981
Other current assets 8,544 -
----------- -----------
Total Current Assets 1,584,572 520,377
----------- -----------
Property and Equipment, Net 279,535 141,983
----------- -----------
Other Assets
Deposit 30,914 -
Software to be sold and marketed (net
of accumulated amortization of $300,000) 2,700,000 -
Goodwill (net of accumulated amortization
of $1,007,382) 11,003,432 -
----------- -----------
Total Other Assets 13,734,346 -
----------- -----------
Total Assets $15,598,453 $ 662,360
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 1,394,967 $ 193,633
Bank overdraft 39,775 -
Accrued liabilities 2,520,819 156,762
Short-term debt - related party 70,000 -
Short-term debt 1,878,487 216,000
----------- -----------
Total Current Liabilities 5,904,048 566,395
----------- -----------
Stockholders' Equity
Common stock - $0.001 par value; 100,000,000
shares authorized; 13,791,344 and 7,854,377
shares issued and outstanding, respectively 13,791 7,854
Additional paid-in-capital 15,967,004 3,314,125
Receivable from shareholders (1,646,751) (2,150,900)
Unearned compensation (75,821) -
Unrealized loss on securities available for sale (118,700) -
Accumulated deficit (4,445,118) (1,075,114)
----------- -----------
Total Stockholders' Equity 9,694,405 95,965
----------- -----------
Total Liabilities and Stockholders' Equity $15,598,453 $ 662,360
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
enSurge, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 2,218,274 $ 980,026 $ 4,999,583 $ 3,537,266
Cost of Sales 1,028,271 30,249 2,597,129 227,120
----------- ----------- ----------- -----------
Gross Profit 1,190,003 949,777 2,402,454 3,310,146
----------- ----------- ----------- -----------
Operating Expenses
General and administrative 1,419,418 1,215,150 3,852,155 3,082,867
Bad debt 98,660 188,193 181,326 467,546
Depreciation 21,237 7,361 46,700 16,148
Amortization of software costs 150,000 - 300,000 -
Amortization of goodwill 602,761 - 1,007,382 -
----------- ----------- ----------- -----------
Total Operating Expenses 2,292,076 1,410,704 5,387,563 3,566,561
----------- ----------- ----------- -----------
Loss From Operations (1,102,073) (460,927) (2,985,109) (256,415)
----------- ----------- ----------- -----------
Other Income (Expense)
Other expense (73,778) - (74,045) -
Interest income - 12,471 14,674 24,411
Interest expense (55,511) (670) (89,464) (2,880)
----------- ----------- ----------- -----------
Total Other Income (Expense) (129,289) 11,801 (148,835) 21,531
----------- ----------- ----------- -----------
Loss Before Income Taxes (1,231,362) (449,126) (3,133,944) (234,884)
Income Tax Expense - - (236,060) -
----------- ----------- ----------- -----------
Net Loss $(1,231,362) $ (449,126) $(3,370,004) $ (234,884)
=========== =========== =========== ===========
Basic and Diluted Loss per Share $ (0.09) $ (7.23) $ (0.27) $ (3.78)
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation 13,515,483 62,114 12,261,691 62,114
=========== =========== =========== ===========
COMPREHENSIVE LOSS
Net Loss
$(1,231,362) $ (449,126) $(3,370,004) $ (234,884)
=========== =========== =========== ===========
Other Comprehensive Loss
Unrealized losses on investment
in securities (118,700) - (118,700) -
----------- ----------- ----------- -----------
Comprehensive Loss $(1,350,062) $ (449,126) $(3,488,704) $ (234,884)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
enSurge, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Additional Receivable Unearned Compre- Stock-
--------------------- Paid-in From Compen- Accumulated hensive holder
Shares Amount Capital Shareholders sation Deficit Income Equity
----------- -------- ----------- ----------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1999 7,854,377 $ 7,854 $ 3,314,125 $(2,150,900) $ - $(1,075,114) $ - $ 95,965
Conversion of notes payable 3,425,623 3,426 54,810 - - - - 58,236
Acquisition of StinkyFeet.com 7,500 8 33,592 - - - - 33,600
Acquisition of Uniq Studios, Inc. 1,550,000 1,550 6,942,450 - - - - 6,944,000
Acquisition of Totalinet.net.Inc. 150,000 150 671,850 - - - - 672,000
Acquisition of Atlantic
Technologies International, Inc. 238,200 238 1,074,962 - - - - 1,075,200
Acquisition of Internet Software
Solutions, Inc. 60,000 60 268,740 - - - - 268,800
Acquisition of KT Solutions, Inc. 500,000 500 3,583,500 - (116,667) - - 3,467,333
Collection of receivable from
shareholders - - - 504,149 - - - 504,149
Stock issued for services
September 2000 $3.20 - $5.60
per share 5,644 5 22,975 - - - - 22,980
Amortization of unearned
compensation - - - - 40,846 - - 40,846
Increase in net unrealized loss
on investment in securities - - - - - - (118,700) (118,700)
Net loss for the period - - - - - (3,370,004) - (3,370,004)
----------- -------- ----------- ----------- -------- ----------- --------- -----------
Balance - September 30, 2000 13,791,344 $ 13,791 $15,967,004 $(1,646,751) $(75,821) $(4,445,118) $(118,700) $ 9,694,405
=========== ======== =========== =========== ======== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
5
<PAGE>
enSurge, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
------------------------
2000 1999
----------- -----------
Cash Flows From Operating Activities
Net loss $(3,370,004) $ (234,884)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 46,700 14,942
Amortization of software costs 300,000 -
Amortization of goodwill 1,007,382 -
Amortization of unearned compensation 40,846 -
Marketing expense paid with note payable
and common stock 53,480 -
Marketable securities acquired for
services rendered (531,200) -
Deferred income tax expense 236,060 -
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (129,561) (401,311)
Other (105,282) (104,380)
Trade accounts payable 616,153 158,236
Accrued liabilities 486,791 160,645
----------- -----------
Net Cash Used in Operating Activities (1,348,635) (406,752)
----------- -----------
Cash Flows From Investing Activities
Payments to purchase businesses (10,000) -
Cash acquired in business purchases 9,410 -
Capital expenditures (98,002) (91,375)
----------- -----------
Net Cash Used in Investment Activities (98,592) (91,375)
----------- -----------
Cash Flows From Financing Activities
Proceeds from borrowing under notes payable 958,533 -
Principal payments on notes payable and
purchase obligations (55,195) -
Proceeds from borrowing under note payable
to related party 31,000 553,500
Payment on note payable to related party (31,000) -
Collections on receivable from shareholders 504,149 -
Bank overdraft 39,775 -
----------- -----------
Net Cash Provided by (Used in) Financing Activities 1,447,262 553,500
----------- -----------
Net Increase in Cash and Cash Equivalents 35 55,373
Cash and Cash Equivalents at Beginning of Period 13,345 20,468
----------- -----------
Cash and Cash Equivalents at End of Period $ 13,380 $ 75,841
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 58,678 $ 2,880
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
enSurge, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Non-cash Investing and Financing Activities:
StinkyFeet.com, Inc. was acquired on January 31, 2000 by the
payment of $10,000, by incurring liabilities of $30,000 and by
issuing 7,500 shares of common stock valued at $33,600.
TrafficX.com and enSurge.com were acquired on March 31, 2000 by
the payment of $5,500 and by incurring a $25,000 liability.
Uniq Studios, Inc. was acquired on April 4, 2000 by issuing
1,550,000 shares of common stock valued at $6,944,000.
Totalinet.net, Inc. was purchased on April 7, 2000 by the issuing
of 150,000 shares of common stock valued at $672,000.
Atlantic Technologies International, Inc. was acquired on June 1,
2000 by issuing 238,200 shares of common stock and stock options
to purchase 1,800 shares of common stock, both valued at
$1,075,200.
Internet Software Solutions, Inc. was acquired on June 1, 2000 by
issuing solely 60,000 shares of common stock valued at $268,800.
KT Solutions was acquired on June 1, 2000 by issuing 500,000
shares of common stock valued at $2,240,000 and by issuing
options to purchase 300,000 shares of common stock valued at
$1,344,000.
Notes payable in the amount of $58,236 were converted into
3,425,623 shares of common stock during the nine months ended
September 30, 2000.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
<PAGE>
enSurge, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Condensed Financial Statements-The accompanying condensed
consolidated financial statements are unaudited. In the opinion
of management, all necessary adjustments (which include only
normal recurring adjustments) have been made to present fairly
the financial position, results of operations and cash flows for
the periods presented. Certain information and disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted. Accordingly, these condensed consolidated financial
statements should be read in conjunction with the Company's
financial statements and notes thereto included in the Form 10-
KSB dated December 31, 1999. The results of operations for the
nine months ended September 30, 2000 are not necessarily
indicative of the operating results to be expected for the full
year.
Business Condition - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles, which contemplate continuation of the Company as a
going concern. However, the Company has suffered losses from
operations and has had negative cash flows from operating
activities for all periods since inception in 1998 and during the
nine months ended September 30, 2000, which conditions raise
substantial doubt about the Company's ability to continue as a
going concern. The Company's continued existence is dependent
upon its ability to obtain additional financing. Management's
plans include a private placement offering of up to $3,000,000
from the issuance of common stock and the collection of the
shareholder receivable of $1,646,751. There is no assurance that
additional financing will be realized.
Long Lived Assets - The realizability of long-lived assets which
includes software to be sold and marketed and goodwill is
evaluated periodically when events or circumstances indicate a
possibly inability to recover the carrying amounts. An
impairment loss is recognized for the excess of the carrying
amount over the fair value of the assets. Fair value is
determined based on estimated discounted net future cash flows or
other valuation techniques available in the circumstances. This
analysis involves significant management judgement to evaluate
the capacity of an asset to perform within projections. Based
upon this analysis, no impairment losses were recognized in the
accompanying financial statements.
On October 11, 2000, the Company's shareholders changed the
Company name from iShopper.com, Inc. to enSurge, Inc.
At December 31, 1999, the Company had receivables from
shareholders of $2,150,900. During the nine months ended
September 30, 2000, the Company collected $504,149 leaving a
balance of $1,646,751. Management anticipates collecting the
remaining receivable within six months.
NOTE 2 - ACQUISITIONS
The Company has issued restricted common stock in the following
acquisitions. The Company's common stock began trading over the
OTC Bulletin Board market in December 1999. Trading has consisted
of approximately 12,000 to 16,000 shares per month. Accordingly,
management of the Company does not believe the prices at which
the common stock was sold over the thinly traded OTC Bulletin
Board represent the fair value of the common stock. From January
through June 2000, the Company was seeking to offer up to 600,000
restricted shares of its common stock in a private placement
offering at $4.48 per share after offering costs. The offering
price was established by an independent brokerage firm and the
private placement offering was intended to be issued to several
investors. Although there were no shares issued under the
private placement offering, management believed the fair value of
8
<PAGE>
the restricted common shares was most clearly determined by the
price of the private placement offering. That price, $4.48 per
common share, was used to value the common shares issued in the
following acquisitions.
StinkyFeet.com, Inc.
On January 31, 2000, the Company completed the acquisition of
StinkyFeet.com, Inc. The acquisition was accomplished by the
Company issuing 7,500 shares of common stock and agreeing to pay
$40,000 at the rate of $10,000 per month over four months. The
common shares issued were valued at fair value of $33,600, or
$4.48 per share. The assets acquired and liabilities assumed were
recorded at their fair values with the excess of the purchase
price over the net assets acquired of $66,600 allocated to
goodwill, which is being amortized over three years by the
straight-line method.
TrafficX.com and enSurge.com
On March 31, 2000, the Company acquired the TrafficX.com and
enSurge.com Web domain names, proprietary computer code, software
and related products associated with those names by the payment
of $5,500 and an obligation to pay $25,000 in equal monthly
payments of $5,000 each from May 1, through September 1, 2000.
The domain names and software is an Internet banner network
service, which is provided either at no charge to customers or
bundled with other software sold. Accordingly, the cost of the
acquired domain names and software were accounted for as
marketing costs and were charged to general and administrative
expense when incurred. The Company has not made the required
payments for May through August.
Uniq Studios, Inc.
On April 4, 2000, the Company entered into a Stock Exchange
Agreement with Uniq Studios, Inc. ("Uniq") whereby the Company
agreed to acquire all of the outstanding capital shares of Uniq
in exchange for 1,500,000 restricted shares of the Company's
common stock. The Company granted options to the four
shareholders of Uniq, who are also key employees of Uniq, to
purchase 500,000 additional restricted shares of the Company's
common stock at a price equal to 80% of the market bid price for
the Company's common stock on April 4, 2000, the closing date of
the Stock Exchange Agreement. Two hundred fifty thousand options
are exercisable upon Uniq achieving annual revenue of $2,500,000
by April 2001 and upon Uniq achieving a breakeven income. The
remaining 250,000 options are exercisable upon Uniq achieving
annual revenue of $7,500,000 by April 2002 and continued
profitability. In addition, the Company issued 50,000 shares of
common stock as finder's fees, which are also included in the
purchase price. Uniq Studios, Inc. was formed immediately prior
to the exchange discussed above by the transfer of all rights,
title, assets and business interests of Uniq Studios, LLC and
Uniq Multimedia, LLC (formerly known as Uniq Enterprises, LLC) to
Uniq Studios, Inc.
The acquisition of Uniq was recorded using the purchase method of
accounting. The common shares issued were valued at fair value of
$6,944,000, or $4.48 per share. The 500,000 contingently issuable
options will be recorded at their fair value when the conditions
for their issuance are met, and will increase goodwill when
recorded. The assets acquired and liabilities assumed were
recorded at their fair values with the excess of the purchase
price over the net assets acquired of $5,460,273 allocated to
goodwill, which is being amortized over five years by the
straight-line method.
9
<PAGE>
Totalinet.net, Inc.
On April 7, 2000, the Company issued 100,000 shares of common
stock and agreed to issue an additional 100,000 shares of common
stock upon Totalinet.net, Inc. accomplishing four performance
criteria, in exchange for the common stock of Totalinet.net, Inc.
The acquisition was accounted for as a purchase business
combination. The 100,000 common shares issued were valued at
fair value of $448,000, or $4.48 per share. Fifty thousand of
contingently issuable common shares were issuable at June 30,
2000 from the Company, waiving the related performance criteria
and were valued at $224,000, or $4.48 per share. The remaining
50,000 contingently issuable common shares will be recognized as
an increase to goodwill based upon their fair value when they are
issued. The Company advanced Totalinet.net, Inc. $31,000 in March
2000 as a loan. The assets acquired and liabilities assumed were
recorded at their fair values with the excess of the purchase
price over the net assets acquired of $764,760 allocated to
goodwill, which is being amortized over five years by the
straight-line method.
Atlantic Technologies International, Inc.
On May 31, 2000, the Company entered into a Stock Exchange
Agreement with the shareholders of Atlantic Technologies
International, Inc. ("ATI") whereby the Company agreed to acquire
all of the outstanding capital shares of ATI in exchange for
397,000 restricted shares of the Company's common stock and
granted options to the shareholders of ATI, to purchase 3,000
additional restricted shares of the Company's common stock at
$0.10 per share. Of the 400,000 shares and options, 238,200
shares were issued and 1,800 options immediately vested. The
remaining 158,800 shares will be held in escrow and 1,200 options
will not vest until and upon satisfaction of the following
milestones:
79,400 shares and 600 options will be released and vest,
respectively, upon obtaining $6,000,000 in annual sales
and
79,400 shares and 600 options will be released and vest,
respectively, upon obtaining profitable operations within
twelve months.
The acquisition of ATI was recorded using the purchase method of
accounting. The 238,200 common shares issued and the 1,800 vested
options were recorded at their fair values totaling $1,075,200.
The remaining 158,800 common shares and 1,200 options will be
recorded as an increase to goodwill based upon their fair values
when they are issued. The assets acquired and liabilities assumed
were recorded at their fair values with the excess of the
purchase price in excess of the net assets acquired of $1,074,225
allocated to goodwill, which is being amortized over five years
by the straight-line method.
Internet Software Solutions, Inc.
On May 31, 2000, the Company entered into a Stock Exchange
Agreement with the shareholders of Internet Software Solutions,
Inc. ("ISSI") whereby the Company agreed to acquire all of the
outstanding capital shares of ISSI in exchange for 100,000
restricted shares of the Company's common stock. Of the 100,000
shares, 60,000 shares were issued and 40,000 shares will be held
in escrow until and upon satisfaction of performance milestones
similar to those for ATI.
The acquisition of ISSI was recorded using the purchase method of
accounting. The 60,000 common shares issued were recorded at fair
value of $268,800, or $4.48 per share. The remaining 40,000
common shares will be recorded as an increase to goodwill based
upon their fair value when they are issued. The assets acquired
and liabilities assumed were recorded at their fair values with
the excess of the purchase price over the net assets acquired of
$302,678 allocated to goodwill, which is being amortized over
five years by the straight-line method.
10
<PAGE>
KT Solutions, Inc.
On June 1, 2000, the Company entered into a Stock Exchange
Agreement with KT Solutions, Inc. ("KT") whereby the Company
agreed to acquire all of the outstanding capital shares of KT in
exchange for 500,000 restricted shares of the Company's common
stock and granted options to purchase 250,000 additional
restricted shares of the Company's common stock. In addition,
the Company issued warrants to purchase 50,000 shares of common
stock at $0.10 per share as a finders' fee, which are also
included in the purchase.
The acquisition of KT was recorded using the purchase method of
accounting. The 500,000 common shares issued and the 300,000
options and warrants issued were recorded at their fair values of
$2,240,000 ($4.48 per share) and $1,120,000, respectively. The
value of the options was determined using the Black-Scholes
option pricing model with the following assumptions: risk free
interest rate of 6.0%, expected dividend yield of 0%, volatility
of 577% and expected life of 5 years. These options vest over
three years and deferred compensation will be recognized over
that period. The assets acquired and liabilities assumed were
recorded at their fair values with the excess of the purchase
price over the net assets acquired of $4,342,278 allocated to
goodwill, which is being amortized over five years by the
straight-line method.
The following unaudited pro forma financial statement data
presents the results of operations of the Company as if the
acquisitions discussed above had occurred at January 1, 2000 and
1999, respectively. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of
future results or what would have occurred had the acquisitions
been made at January 1, 2000 and 1999, respectively.
For the Nine Months
Ended September 30,
------------------------
2000 1999
----------- -----------
Revenue $ 6,236,877 $ 5,790,911
Net loss (4,469,720) (1,856,587)
Basic and diluted loss per common share (0.33) (1.00)
=========== ===========
NOTE 3 - INVESTMENT IN SECURITIES
During the nine months ended September 30, 2000, the company
entered into and completed a contract with iBonzai.com. As
payment for services performed, the Company accepted 100,000
shares of iBonzai.com's stock. On the date of settlement, the
shares had a market value of $531,000 or $5.312 per share. The
shares are considered by management as available for sale
securities. On September 30, 2000, the share price had decreased
to $4.125 resulting in an unrealized loss of $118,700.
Marketable equity securities are classified as available-for-sale
and are stated at fair value. At September 30, 2000, available-
for-sale securities consisted of the following:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
Common Stocks $ 531,200 - $ 118,700 $ 412,500
11
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September
30, 2000 and December 31, 1999:
September 30, December 31,
2000 1999
---------- ----------
Furniture and fixtures $ 96,529 $ 49,884
Vehicles 28,500 -
Computer equipment 239,383 141,379
Software for internal use 1,170 -
---------- ----------
Total Property and Equipment 365,582 191,263
Less: Accumulated depreciation (86,047) (49,280)
---------- ----------
Net Property and Equipment $ 279,535 $ 141,983
========== ==========
Depreciation expense for the nine months ended September 30,
2000 and 1999 was $46,700 and $16,148, respectively.
NOTE 5 - SHORT TERM DEBT
Short term debt consists of the following:
September 30, December 31,
2000 1999
---------- ----------
6.06% Notes payable, due November 1997, in
default, secured by mining claims held previously
by Sunwalker $ 126,000 $ 126,000
5% Convertible debenture, converted into common stock - 60,000
8% Notes payable, due July 2001, unsecured 1,231,000 -
Non-interest bearing obligations incurred in
connection with acquisition of businesses, due
through March 2001, unsecured 521,487 30,000
---------- ----------
Total Short Term Debt $1,878,487 $ 216,000
========== ==========
Short Term Debt - Related Party $ 70,000 $ -
========== ==========
The Company assumed $60,000 of 5% convertible promissory notes in
October 1999 in connection with the acquisition of Sunwalker
Development, Inc. The notes are convertible at $0.017 per share.
On the date of the acquisition, the fair value of the Company's
common stock was $0.01 per share. During the nine months ended
September 30, 2000, the convertible promissory notes were
converted into 3,425,623 shares of common stock.
12
<PAGE>
NOTE 6 - PROVISION FOR INCOME TAXES
Including operating losses acquired in acquisitions, the Company
has operating loss carry forwards of approximately $3,854,000 at
September 30, 2000. The operating loss carry forwards expire from
2000 through 2015. Substantially all of the operating loss carry
forwards are limited in the availability for use by the
consolidated company. The net deferred tax asset consisted of the
following at September 30, 2000:
Deferred Tax Assets
Operating loss carry forwards $ 1,393,972
Allowance for doubtful accounts 32,089
Accrued liabilities 417,708
Unearned revenue 19,228
Unrealized loss on securities 44,275
Stock-based compensation 15,254
-----------
Total Deferred Tax Assets 1,922,526
-----------
Valuation Allowance (906,252)
-----------
Deferred Tax Liabilities
Property and equipment (9,174)
Software to be sold and marketed (1,007,100)
-----------
Total Deferred Tax Liabilities (1,016,274)
-----------
Net Deferred Tax Asset $ -
===========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In 1999, the Company entered into an operating lease for certain
office equipment. Future minimum lease payments under the
operating lease as of September 30, 2000 are as follows:
Year Ending December 31:
2000 $ 777
2001 1,290
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Total $ 2,067
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In April 2000, an unrelated third party filed a lawsuit against
the Company in the amount of $53,399 for goods and services
received by iShopper plus interest at 18%. The amount due under
the claim has been accrued in the accompanying consolidated
financial statements and included in trade account payable.
In April 2000, another unrelated third party filed a lawsuit
against iShopper in the amount of $10,136 for goods and services
received by iShopper. The Company intends to vigorously contest
this claim. In Management's opinion, loss under this claim is
unlikely and, accordingly, no provision has been made in the
accompanying financial statements.
13
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
When used in this discussion, the words "expect(s)", "feel(s)",
"believe(s)", "will", "may", "anticipate(s)" and similar
expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on
these forward-looking statements, and are urged to carefully
review and consider the various disclosures elsewhere in this
Form 10-QSB.
Results of Operations
Sales for the three months ended September 30, 2000 and 1999
were respectively, $2,218,274 and $980,026, which represents a
126% increase. Sales for the nine months ended September 30,
2000 and 1999 were respectively, $4,999,583 and $3,537,266, which
represents a 41% increase. The Company's principal source of
revenue during 1999 were sales from web sites and merchant
accounts sold. The Company's current quarter sources of revenue
have changed due to the acquisition of several companies.
Revenue sources for the three and nine months ending September
30, 2000 consisted of sales from web site development, merchant
accounts, software services, software and hardware sales.
Service revenues consist of fees for application development and
implementation. Sales per entity for the three and nine months
ended September 30, 2000 were respectively: enSurge, Inc. -
$531,200 and $531,200, Outbound Enterprises, Inc. - $552,849 and
$2,859,209, iShopper Internet Services, Inc. - $10,549 and
$28,005, Uniq Studio's, Inc. - $179,425 and $300,925,
Totalinet.net, Inc. - $92,094 and $142,373, Atlantic Technologies
International, Inc. - $625,870 and $820,975, and KT Solutions -
$226,287 and $344,600.
Cost of sales for the three months ended September 30, 2000 and
1999 were respectively, $1,028,271 and $30,249. Cost of sales
for the nine months ended September 30, 2000 and 1999 were
respectively, $2,597,129 and $227,120. The increase in cost of
sales is due to change in our sales direction. These costs were
mainly from commission expenses paid to a third party sales
group. As we acquire other companies, our cost of sales mixture
will change. The gross profit for the three months ended
September 30, 2000 and 1999 were respectively, $1,190,003 and
$949,777, which represents a 25% increase. The gross profit for
the nine months ended September 30, 2000 and 1999 were
respectively, $2,402,454 and $3,310,146.
General and administrative expenses for the three months ended
September 30, 2000 and 1999 were, respectively, $1,419,418 and
$1,215,150. General and administrative expenses for the nine
months ended September 30, 2000 and 1999 were respectively,
$3,852,154 and $3,082,867. Corporate overhead expenses for the
three and nine months ended September 30, 2000 consisted of
$467,882 and $1,417,566, respectively. The remaining general and
administrative expenses for the three and nine months ended
September 30, 2000 of $951,536 and $2,434,588 respectively, are
from operations and purchases of other companies.
Due to the Company's acquisitions, amortization expense has
increased dramatically. Depreciation and amortization expense
for the three months ended September 30, 2000 and 1999 were,
respectively, $773,999 and $7,361. Depreciation and amortization
expense for the nine months ended September 30, 2000 and 1999
were $1,354,083 and $16,148 respectively. For the three and
nine months ended September 30, 2000, amortization expense was
$752,761 and $1,307,381 respectively, which represents goodwill
due to acquisitions.
14
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Liquidity and Capital Resources
The Company has financed its operations to date primarily
through private placements of equity securities, loans, and
current sales. The Company has had net losses annually since
inception (1998) and we have incurred net losses through
September 30, 2000. However, on September 30, 2000, the Company
had capital equity of $9,738,680, due to several acquisitions.
The Company's growth strategy is through acquisitions, which has
inherent and expected overhead and transition costs for one to
six periods. Due to this, the Company has had continued losses,
however, through this continued growth, we expect this trend of
losses to level off and the overhead and costs will become more
manageable. The Company's financial statements have been prepared
in conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. The Company's losses from operations and negative cash
flows from operating activities raise substantial doubt about the
Company's ability to continue as a going concern. The Company's
continued existence is dependent upon its ability to obtain
additional financing. Management's plans include a private
placement offering of up to $3,000,000 from the issuance of
common stock and the collection of receivables from shareholders
of $1,646,751. There is no assurance that additional financing
will be realized or collection of the receivables from
shareholders.
We had negative working capital of $(4,275,199) on September
30, 2000 compared to $(357,331) at September 30, 1999. The
Company plans on converting some debt to equity and raising funds
through our private placement. We also currently have receivables
from shareholders in the amount of $1,646,751, which we expect to
collect in the next three months. This funding should be
sufficient to cover our operations and working capital
requirements for the next six months.
The direction of the Company continues to move toward
purchasing and acquiring Internet and technology based businesses
that will complement our current business activities. We are
currently in the process of raising approximately $3 million
through a private placement memorandum. This capital infusion
will be used for the above noted purchases and any future working
capital needs.
The Company's working capital and other capital requirements
for the foreseeable future will vary based upon the number of
companies acquired and if those acquisitions are cash or stock
related. The Company is working to obtain additional funding
from several sources, including the private placement. This
funding is moving forward, however, there can be no assurance
that additional funding will become available.
Through our operating subsidiaries, we are developing various
Internet-based services and we are executing an overall business
plan that requires significant additional capital for among other
uses:
acquisitions,
expansion into new domestic and international markets,
additional management and personnel.
Furthermore, our funding of working capital and current
operating losses will require some additional capital investment.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in various lawsuits, which are
incidental to the Company's business. Management, after
consultation with its legal counsel, believes that the ultimate
disposition of these matters will not have a material effect upon
the Company's consolidated results of operations or financial
position.
15
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Item 4. Submission of Matters to a Vote of Security Holders
On October 11, 2000, enSurge, Inc. held a special meeting of
shareholders to vote on the following items:
1. To consider and vote upon a name change of the Company from
"iShopper.com, Inc." to "enSurge, Inc."
2. To consider and vote upon the Company's 2000 Stock Option
Plan.
The outcome of each item was as follows:
Withhold or
For Against
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Item 1 - Name Change 10,924,237 250,475
Item 2 - 2000 Stock Option Plan 10,871,214 303,498
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule
601 of Regulation S-B or are incorporated by reference to
previous filings.
2.1 Agreement and Plan of Merger dated October 7, 1999,
by and between Sunwalker Development, Inc. and ECenter, Inc. (2)
2.2 Agreement and Plan of Merger dated January 31, 2000, by
and among iShopper.com, Inc. and StinkyFeet.com, Inc. (2)
2.3 Stock Exchange Agreement by and among iShoppers.com, Inc.,
and Uniq
2.4 Studios Inc.(2)
2.5 Stock Exchange Agreement by and among iShoppers.com, Inc.,
and Totalinet.net, Inc. (2)
2.6 Business purchase and stock acquisition agreement dated June
1, 2000 by and among iShopper.com,Inc. and Atlantic Technologies
International, Inc.(3)
2.7 Business Purchase and Stock Acquisition Agreement dated June
1, 2000 by and among iShopper.com, Inc., and Internet Software
Solutions, Inc. (3)
2.8 Stock Exchange Agreement dated June 1, 2000 by and among
iShoppers.com, Inc., and KT Solutions, Inc. (4)
3.1 Certificate of Incorporation for iShopper.com, Inc., as amended,
filed with the Form 10-Q dated September 30, 1999 (1)
3.2 Amended and Restated Bylaws of iShopper.com,Inc., filed with
the Form 10-Q dated September 30, 1999. (1)
10.1 Business Purchase and Stock Acquisition Agreement dated
November 1, 1999, by and among iShoppers.com.Inc., and
Nowseven.com, Inc.,(2)
10.2 Employment Agreement dated November 22, 1999, between iShopper.com,
Inc. and Douglas S. Hackett (2)
10.3 Memo of Understanding dated December 1, 1999, between iShopper.com.
Inc. and William E. Chipman, Sr. (2)
10.4 Memo of Understanding dated December 1, 1999, between iShopper.com.
Inc. and Lance King. (2)
27 Financial Data Schedule. (5)
(1) Incorporated by reference to the same numbered exhibits as
filed with the Company's September 30, 1999 Form 10-QSB filed
November 23, 1999
(2) Incorporated by reference to the same numbered exhibits as
filed with the Company's
1999 Annual Report on Form 10-KSB filed April 13, 2000.
(3) Incorporated by reference to the Company's Form 8-K filed
June 16, 2000 as amended on August 22, 2000.
(4) Incorporated by reference to the Company's Form 8-K filed
August 22, 2000.
(5) Filed herewith
(b) Reports on Form 8-K
During the period covered by this report, the Company filed the
following reports on Form 8-K:
On May 10, 2000, as amended on June 26, 2000, reporting the April
4, 2000 acquisition of Uniq Studios, Inc.
On June 16, 2000 as amended on August 22, 2000, reporting the
June 1, 2000 acquisitions of Atlantic Technologies International,
Inc and Internet Software Solutions, Inc.
On August 22, 2000 reporting the June 1, 2000 acquisition of KT
Solutions, Inc.
OTHER ITEMS
There were no other items to be reported under Part II of this
report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
enSurge, Inc.
Date: November 14, 2000 /s/ Douglas S. Hackett
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Douglas S. Hackett
President, Chief Executive
Officer and Director
