-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CeQnu1Lca94295HsQa1j3NxBiHhkPp3tjhRs2kXeHe0TYufhNltS2Q+RmJ3KUJK7 Z/HdnLIZwZExzfrI3KLMzw== 0001050234-01-500115.txt : 20010523 0001050234-01-500115.hdr.sgml : 20010523 ACCESSION NUMBER: 0001050234-01-500115 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISHOPPER COM INC CENTRAL INDEX KEY: 0000789879 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 870431533 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-03275-D FILM NUMBER: 1645871 BUSINESS ADDRESS: STREET 1: 8722 SOUTH 300 WEST STREET 2: SUITE 106 CITY: SANDY AKE CITY STATE: UT ZIP: 84070 BUSINESS PHONE: 8019849300 FORMER COMPANY: FORMER CONFORMED NAME: SUNWALKER DEVELOPMENT INC DATE OF NAME CHANGE: 19920703 10KSB 1 k100012.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________ Commission File Number 033-03275-D ____________ EnSurge, Inc. [Formerly, iShopper.com, Inc.] (Exact Name of Registrant as Specified in its Charter) Nevada 87-0431533 (State or Othe Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 8722 South 300 West, Suite 106 Sandy, UT 84070 (Address of Principal (Zip Code) Executive Offices) (801) 984-9300 (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.001 par value 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ] The registrant's revenues for its most recent fiscal year were $976,825. The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of May 16, 2001 was approximately $2,158,016. The registrant had issued and outstanding 71,933,875 shares of its common stock on May 16, 2001. /1/ EnSurge, INC. FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2000 PART I ITEM 1. BUSINESS 1 ITEM 2. PROPERTIES 6 ITEM 3. LEGAL PROCEEDINGS 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 7 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 7. FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT ACCOUNTANTS 16 CONSOLIDATED BALANCE SHEETS 17 CONSOLIDATED STATEMENTS OF OPERATIONS 18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 19 CONSOLIDATED STATEMENTS OF CASH FLOWS 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 31 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 32 ITEM 10. EXECUTIVE COMPENSATION 33 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 33 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 34 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 34 SIGNATURES 35 EXHIBIT INDEX 36 SUBSIDIARIES OF THE REGISTRANT Exhibit 22.1 POWER OF ATTORNEY Exhibit 24.1 /2/ PART I ITEM 1. BUSINESS EnSurges' strategy includes acquiring or taking strategic positions in companies that have synergies with EnSurges' portfolio of holdings. Current EnSurge holdings include: NowSeven.com, Inc., Stinkyfeet.com, Inc., Uniq Studios, Inc., iShopper Internet Services, Inc. and ZaiBon, Inc. EnSurge offers its portfolio companies two important products and services: 1) expert management and strategic advice and 2) synergies created by the network of companies in the EnSurge portfolio. General Development of Business Sunwalker Development, Inc. ("the Company") was incorporated in the State of Utah on March 28, 1985, and was subsequently changed to a Nevada Corporation on September 14, 1999. The Company was incorporated for the purpose of providing a business framework within which capital could be raised and business opportunities, with profit potential, could be sought. From the period of inception until December 31, 1989, the Company operated as a development stage corporation. Effective February 1, 1990, the Company began permanent operations in the mining industry with emphasis on decorative rock used in landscaping. In 1990 the Company acquired a mining property located in Morristown, (near Wickenburg) Arizona. In 1994 and 1995, the Company sold all of its assets and ceased active operations. Effective October 7, 1999 the Company merged with ECenter, Inc, a Utah corporation. Subsequently, the Company changed its name to iShopper.com, Inc. ("iShopper.com"). As a result of the merger, the Company had two wholly-owned subsidiaries: Outbound Enterprises, Inc. and iShopper Internet Services, Inc. A total of 125,000 shares of the Company's common stock were issued pursuant to the merger. Effective November 1999, the Company refocused its efforts into becoming an Internet holding company. In September 2000, Outbound Enterprises discontinued its operations. On November 1, 1999, the Company purchased NowSeven.com, Inc. for a total of 1,000,000 shares of the Company's common stock. NowSeven.com, Inc. is in the business of Internet and database marketing services. On January 31, 2000, the Company purchased Stinkyfeet.com, Inc. for 7,500 shares of the Company's common stock and cash of $40,000. Stinkyfeet.com is a freeware showroom where customers can create their own stores, get banners and web based e-mail at no cost. On April 4, 2000, the Company purchased Uniq Studios, Inc. for 1,500,000 shares of the Company's common stock and options to purchase 500,000 shares of common stock at $7.60 per share. In addition to its cutting edge web design, digital animation, and Flash work, Uniq has developed a proprietary technology, patent pending, that allows the Internet to be combined with CD-ROM technology in an isolated environment. This allows Uniq to create multimedia pieces on a CD-ROM that will interface with the web and update itself weekly or even hourly, to provide the user with a completely unique experience each time the CD is used. On April 7, 2000, the Company purchased Totalinet.net, Inc. for 200,000 shares of the Company's common stock. Effective December 5, 2000 Totalinet.net, Inc. discontinued its operations. On May 31, 2000, the Company purchased Atlantic Technologies International, Inc. for 238,200 shares of the Company's common stock. Effective April 27, 2001 Atlantic Technologies International, Inc. discontinued its operations. /3/ On May 31, 2000, the Company purchased Internet Software Solutions, Inc. for 100,000 shares of the Company's common stock. Effective April 27, 2001 Internet Software Solutions, Inc. discontinued its operations. On June 1, 2000, the Company purchased KT Solutions, Inc. for 500,000 shares of the Company's common stock and options to purchase 250,000 additional shares of the Company's common stock. Effective April 1, 2001, the Company sold KT Solutions Inc. to Knowledge Transfer Systems, Inc. for 8,000,000 shares of common stock. On October 18, 2000, the Company changed its name from iShopper.com, Inc to EnSurge, Inc. On February 5, 2001, the Company created a new subsidiary named ZaiBon, Inc. ZaiBon intends to acquire certain contracts from Virtual Market Solutions.com, Inc. for 125,000 shares of common stock during the second fiscal quarter. When the transaction is finalized, ZaiBon will be a wholesale internet service provider and provide prepaid internet services. On February 15, 2001, the company did a 5 for 1 forward split. Providing each shareholder five shares for every one shares with they owned. Prior to the split the company had 14,386,775 shares issued and outstanding and subsequent to the split the company had 71,933,875 issued and outstanding. EnSurges' executive management, board of directors and outside consultants have extensive contacts in the Technology business market. EnSurge is looking to expand its portfolio of business holdings with Technology based companies that have the following general characteristics 1) synergies with current EnSurge holdings, 2) positive or at least break-even cash flow, 3) need for investment and strategic positioning to achieve the next level of growth. Forward-Looking Statements and Associated Risks This Report, including all documents incorporated herein by reference, includes certain "forward-looking statements" within the meaning of that term in Section 13 or 15(d) of the Securities Act of 1934, and Section 21E of the Exchange Act, including, among others, those statements preceded by, followed by or including the words "believes," "expects," "anticipates" or similar expressions. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Our actual results could differ materially from these forward-looking statements. In addition to the other risks described in the "Factors That May Affect Future Results" discussion under Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of this Report, important factors to consider in evaluating such forward- looking statements include: . changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the market, . our ability to raise sufficient capital to meet operating requirements, . various competitive factors that may prevent us from competing successfully in the marketplace, and . changes in external competitive market factors or in our internal budgeting process which might impact trends in our results of operations. /4/ In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this Report will, in fact, occur. Strategy & Market Opportunity The EnSurge strategy is to create shareholder value by developing a portfolio of Technology based company holdings that either 1) become a permanent, cash-flow positive fixture in the companies holdings, 2) achieve the next level of growth and are the target of a strategic acquisition by a third-party, or 3) pursue an initial public offering and 4) assisting companies to be transformed into Internet related business. While the Company strives to create positive shareholder value from every holding in its portfolio, there will be some holdings that exceed expectations and some holdings that will not reach their full potential. EnSurges' corporate headquarters in Sandy, Utah provides the Company an excellent opportunity to pursue the many local deals in the Salt Lake City and Intermountain area. Utah is one of the ten fastest-growing states in the United States. A great deal of this growth is coming from the high-technology sector. The influx of technology companies in combination with the excellent universities and colleges in the Salt Lake City area make for a vibrant new technology business environment. Competitive Conditions Simply stated, EnSurges competition can be defined as those companies or organizations that will be competing for the deals in which EnSurge interested. Since EnSurge will not be looking to be the first or seed investor in a company, the Company does not believe it will be competing with the venture capital firms in Utah and elsewhere. Rather, EnSurge often receives deal flow from venture firms who understand the possible benefits of their company's inclusion in the EnSurge portfolio. Since EnSurge is pursuing companies in many different product and service sectors of the Technology sector, it is impossible to list all the possible competitors that may pose a serious future competitive threat to the companies in the growing EnSurge portfolio. Products & Services - Current EnSurge offers its portfolio companies two important products and services: 1) expert management and strategic advice and 2) synergies created by the network of companies in the EnSurge portfolio. The products and services of EnSurges wholly owned companies as of May 5, 2001 include the following: NowSeven.com, Inc., Stinkyfeet.com, Inc., Uniq Studios, Inc., iShopper Internet Servcies, Inc. and ZaiBon, Inc. Marketing Services NowSeven.com, Inc. specializes in business-to-business database lists and services that support direct marketing to Technology and Internet based companies. The Company owns electronic databases, mailing lists as well as offering electronic press release services and Internet marketing tools. Internet Browser and Commerce Tool Uniq Studios has developed revolutionary browser and multi- media technology that could potentially revolutionize the look and feel of the e-commerce experience. The market for such technology is enormous and growing at a staggering pace. /5/ Research & Development EnSurge understands that technological innovation is often a key to success in the Technology and Internet business market. Further, the pace of technological innovation in the Internet business market is incredibly rapid. It can be daunting for a single company to try to keep pace with technological change on all levels. This challenge is actually a market advantage for EnSurge, because it is continually bringing in new companies into its portfolio, these companies are bringing new tools and quite often, cutting edge technology that can be shared with the other companies in the EnSurge portfolio. However, because technology innovation is so central to success in the Technology and Internet business sector, EnSurge still expects its member companies to incur research and development expenses during the initial development phase of new products and services. Marketing and Sales EnSurge markets and sells the products of its portfolio companies through dedicated staff at the respective companies. EnSurge believes that its portfolio companies should maintain close relationships with their customers, an interaction facilitated through dedicated sales and marketing staff. Employees As of May 16, 2001, EnSurge and its subsidiaries employed a total of 10 persons. We believe our relations with our employees are good. None of our employees are associated with unions. Environmental Standards The Company is not involved in any project that would effect the environment. ITEM 2. PROPERTIES Our corporate facility is located at 435 West Universal Circle, Sandy, Utah 84070. This facility is leased on a month to month basis for $1,000. We believe that this property is suitable for our immediate needs, however, as the Company grows there will be a need for a larger facility. EnSurge, NowSeven, Stinkyfeet and ZaiBon are located and managed at the corporate facility. Uniq Studios, Inc. facility is located at 761 West 1200 North, Suite 100, Springville, Utah 84663. We believe that this property is suitable for our immediate needs. This facility is leased on a three-year basis, with the lease ending in February 2003, for $2,569 per month for the first year, $2,620 for the second year, and $2,673 for the third year. The lease is currently in its second year. /6/ ITEM 3. LEGAL PROCEEDINGS EnSurge and its' subsidiarys have several outstanding law suits against them and the company, which approximate, $771,937. Settlement arrangements are in the process, however due to lack of cash, any arrangements are uncertain. E-Commerce Exchange. v. Outbound Enterprises/iShopper. On December 18, 2000, E-Commerce brought suit against Outbound and iShopper Internet Services in four separate small claims actions filed in Salt Lake County, Sandy Department seeking recovery of amounts owed for services provided in the amount of $15,939. There was no dispute that the sums claimed were owed and judgment was entered against Outbound and iShopper Internet Services. The Company is attempting to settle the judgment from financed receivables available to Outbound. At this date, a settlement arrangement has been finalized to be paid out through receivables, however, until the obligation is paid in full the judgment remains unsatisfied. Media Source, Inc. v. iShopper Internet Services, Inc. In April 2000, Media Source, Inc brought suit in the Fourth Judicial District Court, Utah County, Utah, against iShopper Internet Services and the Company seeking recovery of amounts owed for promotional material and products furnished to iShopper Internet Services, Inc., in the amount of $53,399 plus interest and attorneys fees. The Company acknowledged that $43,429 was owed by iShopper Internet Services and an agreement was entered into to pay the undisputed sum, over time. As a result, Media Source dismissed the lawsuit. iShopper Internet Services made the first installment payment of $10,000 but has lacked funds to pay the balance. The obligation for the unpaid balance under the settlement agreement is undisputed. MediaBang. L.C. v. iShopper Internet Services, Inc. In April 2000, iShopper Internet Services was informed that MediaBang had filed suit in the Third Judicial District Court, Salt Lake County, Utah, against them in December 1999 seeking recovery of amounts owed for programming services furnished to iShopper Internet Services on an open contract in the amount of $10,136 plus interest and fees. Negotiations resulted in a settlement reduced to writing in November 2000, under which MediaBang agreed to accept installment payments against a $7,000 settlement amount, conditional on the Company's agreement to guarantee payments. The lawsuit was subsequently dismissed. An initial settlement installment of $2,000 was paid in November 2000 reducing the liability to $5,000, which amount is still outstanding. The Company remains committed to the settlement commitment but has been unable as of this date to satisfy the balance owed. MediaBang has reserved the right to reassert claims and to reinstitute the lawsuit against iShopper Internet Services in the event that the settlement amounts are not received. As of this date, however, no new lawsuit has been commenced. Positive Response, Inc. v. iShopper Internet Services, Inc. In July 2000, Positive Response brought suit in the Third Judicial District Court, Salt Lake City, Utah, against iShopper Internet Services seeking recovery of amounts owing for a data base on potential customer or customer contracts in the amount of $41,896. Settlement in the matter was reached in the compromised amount of $37,000, to be satisfied on installment payments. All required installment payments except a final payment of $10,000 due October 14, 2000 have been made. Positive Response has applied to the Court for judgment for the unpaid balance, plus interest from the date of judgment at the legal rate of 8.052%. IOS Capital, Inc. v. iShopper Internet Services, Inc. In January 2001, IOS Capital brought suit in the Third Judicial District Court, Salt Lake City, Utah, against iShopper Internet Services seeking replevin of leased copy machines and judgment for lease balances totaling $17,553, plus interest and attorneys fees. IShopper Internet Services filed its answer in February 2001 disputing plaintiff's claims in part and inviting the plantiff to retrieve both items of equipment. The lawsuit remains at that stage. /7/ OneSource.com v. Outbound Enterprises and enSurge, Inc. In October 2000, OneSource.com brought suit in the Third Judicial District Court, Salt Lake City, Utah, against Outbound seeking recovery for amounts owed for printing services and related products furnished between October 1999 and January 2000 in the amount of $76,157. Settlement was reached in December 2000, on terms that entitled OneSource to judgment against Outbound and Company, as its guarantor, if settlement installments were not made as required. The Company has defaulted in settlement payments and judgment against Outbound and the Company was entered on March 30, 2001, in the amount of $85,096, including interest costs and attorneys fees. The Company intends to attempt to settle judgment as funds become available. Pacific Media Duplication, LLC v. iShopper.com, Inc., TotaliNet.net, Inc. and Richard Scavia. In January 2001, Pacific Media brought suit in the Superior Court of California, San Diego County, against the Company, TotaliNet and Richard Scavia seeking recovery of balances owed under a sublease by TotaliNet of office space and equipment in the amount of $30,000 and $38,437, respectively. The plaintiff claims against the TotaliNet and the Company as guarantor on the office lease and against TotaliNet and Scavia, as its prior president and as guarantor, on the equipment lease. The Company does not dispute TotaliNet's obligations (nor its obligations as guarantor) under the office lease. TotaliNet does not dispute its obligations under the office lease or the equipment lease. While it remains interested in negotiating a resolution with Pacific Media, as it is able to do so, it has reserved all rights it may have to raise any defenses available in the event that Pacific Media seeks to enforce the judgment where the Company conducts business. Paychex, Inc. v EnSurge, Inc. and Subsidiaries. In March 2001, Paychex filed for arbitration with the American Arbitration Association in Syracuse, New York, against EnSurge and its subsidiaries for employee payroll and payroll taxes paid by Paychex. Paychex has filed arbitration separately for each company as follows: EnSurge, Inc. $45,146, iShopper Internet Services, Inc. $13,247, Totalinet.net, Inc. $17,416, Uniq Studios, Inc. $22,002, and Atlantic Technologies International, Inc. $28,079. All requested amounts are plus interest at 1.5% per month, plus costs and attorney's fees. All arbitrations are still in process and nothing has been resolved to date. As the Company obtains funds it will seek opportunity to resolve these matters. NCX Corporation v Atlantic Technologies International, Inc. In October 2000, NCX Corporation filed suit in the Superior Court of California, Los Angeles County, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $29,472. No further action has taken place at this time. Allison Ewrin Company v Atlantic Technologies International, Inc. On April 7, 1999, Allison Erwin Compnay filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $30,666. Settlement was reached for $12,000, with payments starting on May 25, 2001. No further action has taken place at this time. Scanport, Inc. v Atlantic Technologies International, Inc. On March 9, 2001, Scanport, Inc. filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $59,212. No further action has taken place at this time. Avnet Electronics Marketing, Inc. v Atlantic Technologies International, Inc. On March 27, 2001, Avnet Electronics Marketing, Inc. filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $32,856. No further action has taken place at this time. /8/ US Drive Technology Corporation v Atlantic Technologies International, Inc. On March 24, 1999, US Drive Technology Corporation filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $39,199. Settlement was reached for $39,199 and payments have been made paying down the amount to $24,199, which is currently outstanding. No further action has taken place at this time. Trogon Computer Corporation v Atlantic Technologies International, Inc. On June 15, 1999, Trogon Computer Corporation filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $16,771. Settlement was reached for $6,825, with ten monthly payments at $682.50 starting on October 10, 2000. No further action has taken place at this time. Suntrust Bank, N.A. v Atlantic Technologies International, Inc. In April 2001, Suntrust Bank filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for a past due line of credit in the amount of $184,415. All assets of Atlantic Technologies International, Inc. are in the process of either being turned over to the bank or liquidated to pay down this balance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 11, 2000 the Company held a special stockholder meeting and held a vote for the following two items: 1. To change the corporate name from iShopper.com, Inc to EnSurge, Inc. Votes For - 10,924,237 Votes Abstain - 0 Votes Against - 250,475 2. For the Company to adopt a stock option plan. Votes For - 10,871,214 Votes Abstain - 15,875 Votes Against - 287,623 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock Our common stock trades on the OTC Bulletin Board under the symbol [ENSG]. The following table sets forth the range of the high and low sales prices per share of our common stock for the fiscal quarters indicated, as reported by OTC. Prior to December 23, 1999, there was no known public trading in our common stock. Quotations represent inter-dealer prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions. /9/ HIGH LOW -------------------------------------------- 1999 -------------------------------------------- First Quarter $N/A $ N/A Second Quarter N/A N/A Third Quarter N/A N/A Fourth Quarter 1/8 1/8 2000 -------------------------------------------- First Quarter $12.00 $ 1/8 Second Quarter 10.65 7.00 Third Quarter 8.06 4.00 Fourth Quarter 6.25 1.75 Approximate Number of Equity Security holders On May 16, 2001, there were 298 shareholders of record of our common stock. Because many of such shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. Dividends We do not presently pay dividends on our common stock. We intend for the foreseeable future to continue the policy of retaining earnings, if any, to finance the development and growth of our business. ISSUANCE OF SECURITIES During the fourth quarter and to date the following securities were issued: . On October 30, 2000, the Company issued 57,653 shares to James W. Corcoran in payment for debt of $230,612. This debt was paid down by the Company for and on behalf of KT Solutions, Inc. The shares were issued at a value of $4.00 per share. We issued the shares to accredited investors only in reliance upon Section 4(2) of the 1933 Act. . On October 30, 2000, the Company issued 30,805 shares to Theodore F. Belden in payment for debt of $123,219. This debt was paid down by the Company for and on behalf of KT Solutions, Inc. The shares were issued at a value of $4.00 per share. We issued the shares to accredited investors only in reliance upon Section 4(2) of the 1933 Act. /10/ . On November 3, 2000, the Company issued 10,000 shares to HCS Financial, Inc. for services of the Corporation as a "Public Relations" firm. The shares were issued at a value of $4.00 per share. We issued the shares to accredited investors only in reliance upon Section 4(2) of the 1933 Act. . In a private placement conducted in December, 2000, the Company issued 29,421 shares of its restricted common stock at $2.36 for consideration of $69,418. We issued the shares to accredited investors only in reliance upon Section 4(2) of the 1933 Act. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements and Associated Risks This Report, including all documents incorporated herein by reference, includes certain "forward-looking statements" within the meaning of that term in Section 13 or 15(d) of the Securities Act of 1934, and Section 21E of the Exchange Act, including, among others, those statements preceded by, followed by or including the words "believes," "expects," "anticipates" or similar expressions. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Our actual results could differ materially from these forward-looking statements. In addition to the other risks described in the "Factors That May Affect Future Results" discussion under Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of this Report, important factors to consider in evaluating such forward- looking statements include: . changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the market, . our ability to raise sufficient capital to meet operating requirements, . various competitive factors that may prevent us from competing successfully in the marketplace, and . changes in external competitive market factors or in our internal budgeting process which might impact trends in our results of operations. In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this Report will, in fact, occur. Results of Operations The following discussions should be read in conjunction with the Company's Consolidated Financial Statements contained herein under Item 7 of this Report. /11/ Year Year Ended Ended Dec. 31, Dec. 31, 2000 1999 ----------- ---------- Revenue: $ 976,825 $ 0 Expenses (including selling, general and administrative) 3,669,216 312,964 ----------- ---------- Net loss $ 7,147,511 $ 914,051 =========== ========== During the fiscal year 2000 and through today's date the Company has discontinued operations of three subsidiaries, sold one entity and is in the process of selling another. The Company maintains four subsidiaries and the parent holding Company. The following discussion of the results of operations and numbers presented represent operations from those subsidiaries which have not been discontinued. Sales for the twelve months ended December 31, 2000 and 1999 were respectively, $976,825 and $0. The Company's principal source of revenue for 2000 was from web design, digital animation and flash work sales. Uniq Studios, Inc. and Ziabon, Inc. are the only two remaining companies with sales and operations. Cost of sales for the twelve months ended December 31, 2000 and 1999 were, respectively, $453,461 and $0. These costs were mainly the labor costs to develop the web designs, digital animation, and flash used for customer projects and sales. General & Administrative expenses for the twelve months ended December 31, 2000 and 1999 were, respectively, $2,290,164 and $75,054. These costs were mainly to keep operations of the parent and other companies viable. Bad Debt expense for the twelve months ended December 31, 2000 and 1999 were, respectively, $47,325 and $0. The balance of this expense is write-offs of account receivables, which were sales financed for a period of twelve months. Some of these clients have not continued with their payment plan. These receivables are turned over to a collection agency after 90 days of no payment and were written off at that time. If there is a collection on the receivable, then the sale will be recorded at that time. During 2000 the Company purchased the following companies, which included goodwill as stated: Totalinet.net, Inc. $764,760, Uniq Studio's, Inc. $5,460,273, Atlantic Technologies International, Inc. $1,074,225, Internet Software Solutions, Inc. $302,678, and KT Solutions, Inc. $4,342,278. All of these subsidiaries were either sold or discontinued except for Uniq Studio's, which had amortization expense of $1,289,391. Included in revenue is a service contract which was completed and was paid for with stock. The total contract was for $531,000 and was valued the current stock price at completion of the contract. Subsequent to year end that stock has dramatically dropped in value, and it is managements opinion that this drop in stock price is permanent. Thus, the company has written off the difference in value from when the stock was obtained and subsequent to year end for a total write-off of $500,000. At year end December 31, 1999, the Company recorded a tax benefit of $236,060 due to plans of being profitable and to use the tax loss carry forward and the tax benefit. However, due to continued losses from operations, it was determined that the company would not be able to use the tax benefit and has written off the benefit of $236,060 to be used at some later date. /12/ The Company has discontinued the following subsidiaries and their operations: Outbound Enterprises, Inc., Totalinet.net, Inc., Atlantic Technologies International, Inc., Internet Software Solutions, Inc. Also, the Company has or is in the process of selling the following subsidiaries: iShopper Internet Solutions, Inc. and KT Solutions, Inc. The total loss from discontinued operations or selling of subsidiaries and disposal of discontinued operations was $3,082,069 and $382,586, respectively. EnSurge and its' subsidiarys have several outstanding law suits against them and the company, which approximate, $771,937. Settlement arrangements are in the process, however due to lack of cash, any arrangements are uncertain. Liquidity and Capital Resources The Company has financed its operations to date primarily through private placements of equity securities and current sales. We have been unprofitable since inception (1998) and we have incurred net losses in each year. We had negative working capital of $4,161,526 at December 31, 2000 compared to $155,008 on December 31, 1999. The direction of the Company is going toward purchasing and acquiring Technology and Internet based businesses which will complement our current business activities. The Company currently has no letters of intent or plans for the purchase of other subsidiaries. We are continually searching for ways of raising capital through private placement of the company's stock or notes secured by stock. This capital infusion will be used for working capital needs. The Company's working capital and other capital requirements have decreased due to the closure and sale of several of its subsidiary's. However, there is still a large need for capital due to accounts and notes payable. Furthermore, our funding of working capital and current operating losses will require additional capital investment. There can be no assurance that additional funding will become available. FACTORS THAT MAY AFFECT FUTURE RESULTS We Have No Significant Operating History. As a newly emerging company commencing business in the rapidly changing Technology and e-commerce industries, we are subject to all the substantial risks inherent in the commencement of a new business enterprise. We can provide no assurance that we will be able to successfully generate revenues, operate profitably, or make any distributions to the holders of our securities. Additionally, we have no significant business history. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of development. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. We can provide no assurance that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business. We Incurred Operating Losses for the Current Year, but Plan on Profits for the Coming. At December 31, 2000, our accumulated deficit since inception was $8,736,459. For the twelve months ended December 31, 2000, we incurred a net loss of $7,147,511. We have incurred a net loss in each year of our existence, and have financed our operations primarily through sales of equity securities. Our current expense levels are approximately $60,000 per month. Also, through further sales of our subsidiaries, we expect our revenue will exceed our expenses, thus we are planning for a profitable year. /13/ We Have Significant Funding Needs. We require capital funds to continue in our growth plans and acquisitions. We have a few avenues which we are pursuing to obtain the needed funds for growth. These funds will be given to the Company in exchange for equity, note payables or sale of investment equities. However, we can provide no assurance that the proceeds from the offerings will be sufficient to cover our cash requirements. If adequate funds are unavailable, we may delay, curtail, reduce the scope of or eliminate the expansion of our operations, acquisitions and/or our marketing and sales efforts which could have a material adverse effect on our financial condition and business operations. As a Start-Up Company, Our Quarterly Operating Results May Fluctuate. Based on our business and industry and as a start-up company, we expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors, many of which are outside our control. Factors that may adversely affect our quarterly operating results include: . our ability to attract new customers at a steady rate and maintain customer satisfaction, . the demand for the products and services we intend to market, . the amount and timing of capital expenditures and other costs relating to the expansion of our operations, . the introduction of new or enhanced services by us or our competitors, and . economic conditions specific to the Technology, internet, e-commerce or all or a portion of the technology market. As a Technology Based Company, We are in an Intensely Competitive Industry. The Internet and e-commerce industries are highly competitive, and have few barriers to entry. Although there are few competitors who offer the same or similar services of the type we offer, we can provide no assurance that additional competitors will not enter markets that we intend to serve. We believe that our ability to compete depends on many factors both within and beyond our control, including the following: . the timing and market acceptance of our business model, . our competitors' ability to gain market control, . the success of our marketing efforts, . acquisitions of companies with new internet models or technology, . refocusing companies to internet based models, . using current relations to extend all business sales and marketing. /14/ The Future Success of Our Business Depends on Our Ability to Acquire Profitable, Growing Companies. Our success depends in large part upon our ability to attract new business mergers and acquisitions. The inability to acquire high growth companies could have a material adverse impact on our results of operations. It is not difficult to locate new and growing companies, but there is no guarantee the companies we feel are high growth, technology related will meet our expectations. However, we have an acquisition formula we feel is appropriate for our growth plans. Our Business is Dependent on the Maintenance of the Public Internet Infrastructure. Our success will depend, in large part, upon the maintenance of the public Internet infrastructure as a reliable network backbone with the necessary speed, data capacity, and security. To the extent that the Internet continues to experience increased numbers of users, frequency of use, or increased requirements of users, we can provide no assurance that the Internet infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Internet will not be adversely affected. In addition, the Internet could lose its viability as a form of media due to delays in the development or adoption of new standards and protocols that can handle increased levels of activity. We Are Dependent on the Continued Growth of Online Commerce. Our success is substantially dependent upon the widespread acceptance and use of the Internet and other online services as an effective medium of commerce. We can provide no assurance that acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt, and continue to use, the Internet and other online services as a medium of commerce. Demand and market acceptance for recently introduced services over the Internet are subject to a high level of uncertainty and there exist few proven services or business models. We Must Develop, Produce and Establish New Products and Services That Keep Up With Rapid Technological Change. The market for Internet services and business-to-business e- commerce is characterized by rapid technological changes, frequent software changes, frequent new products and service introductions and evolving industry standards. The introduction of services embodying new processes and technologies and the emergence of new industry standards can rapidly render existing services obsolete and unmarketable. Our success in adjusting to rapid technological change will depend on our ability to: . develop and introduce new services that keep pace with technological developments and emerging industry standards; and . address the increasingly sophisticated and varied needs of customers. Due to inadequate technical expertise, insufficient finances or other reasons, we may be unable to accomplish these tasks. Such failure would have a material adverse effect on our operating results and financial condition. /15/ Our Operations May be Significantly Impaired by Changes in or Developments under Domestic or Foreign Laws, Regulations, Licensing Requirements or Telecommunications Standards. We are not currently subject to direct regulation by any governmental agency, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet covering issues such as user privacy, pricing, content, copyrights, distribution, and characteristics and quality of products and services. The adoption of such laws or regulations may decrease the growth of the Internet, which could, in turn, decrease the demand for our services and increase our cost of doing business. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws to the Internet could have a material adverse affect on our business. The Volatility of Our Securities Prices May Increase. The market price of our common stock has in the past been, and may in the future continue to be, volatile. A variety of events may cause the market price of our common stock to fluctuate significantly, including: . quarter to quarter variations in operating results, . adverse news announcements, . the introduction of new products and services, and . market conditions in the Internet-based professional services, business, and business-to-business e-commerce. In addition, the stock market in recent years has experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many companies in our business and that often have been unrelated to the operating performance of such companies. These market fluctuations may adversely affect the price of our common stock. We May be Required to Issue Stock in the Future That Will Dilute the Value of Our Existing Stock. We currently have 1,253,000 outstanding options. The exercise of all of the outstanding options would dilute the then- existing shareholders' percentage ownership of our common stock, and any sales in the public market could adversely affect prevailing market prices for our common stock. Moreover, our ability to obtain additional equity capital could be adversely affected since the holders of outstanding options will likely exercise the options when we probably could obtain any needed capital on terms more favorable than those provided by these securities. We lack control over the timing of any exercise or the number of shares issued or sold if exercises occur. Our Failure to Manage Future Growth Could Adversely Impact Our Business Due to the Strain on Our Management, Financial and Other Resources. /16/ Because our business is in an early development stage, our ultimate success depends on our ability to manage growth. In the future, we may have to increase staff rapidly and integrate new personnel into our operations without affecting productivity. We will have to ensure that our administrative systems and procedures are adequate to handle such growth. It is unclear whether our systems, procedures or controls will be adequate to support our operations or that our management will be able to achieve the rapid execution necessary to exploit our business plan. If our systems, procedures or controls are inadequate, our operations and financial condition may suffer. Outlook The EnSurge strategy is to create shareholder value by developing a portfolio of Technology based company holdings that either 1) become a permanent, cash-flow positive fixture in the companies holdings, 2) achieve the next level of growth and are the target of a strategic acquisition by a third-party, or 3) pursue an initial public offering and 4) assisting companies to be transformed into Internet related business. While the Company strives to create positive shareholder value from every holding in its portfolio, there will be some holdings that exceed expectations and some holdings that will not reach their full potential. EnSurges' management believes that there is tremendous market opportunity for the Company's strategy. EnSurge believes that many of the Technology based companies, which have struggled this past year will find it difficult to achieve their growth goals on their own. They will be looking to reap the synergistic rewards of being a member company in an attractive portfolio of companies. As many young companies can see, the network of privileged relationships afforded to companies who are part of a larger portfolio can often make the difference between success and failure of the business venture. EnSurges' corporate headquarters in Sandy, Utah provides the Company an excellent opportunity to pursue the many local deals in the Salt Lake City and Intermountain area. Utah is one of the ten fastest-growing states in the United States. A great deal of this growth is coming from the high-technology sector. The influx of technology companies in combination with the excellent universities and colleges in the Salt Lake City area make for a vibrant new technology business environment. Inflation Our business and operations have not been materially affected by inflation during the periods for which financial information is presented. ITEM 7. FINANCIAL STATEMENTS The following constitutes a list of Financial Statements included in Part II of this Report beginning at page 16 of this Report: PART II ITEM 7. FINANCIAL STATEMENTS enSURGE, INC. INDEX TO FINANCIAL STATEMENTS Page Report of Independent Certified Public Accountants (Hansen, Barnett & Maxwell) F-2 Report of Independent Auditors (Crouch, Bierwolf & Chisholm) F-3 Consolidated Balance Sheets - December 31, 2000 and 1999 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2000 and 1999 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 2000 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 F-7 Notes to Consolidated Financial Statements F-8 F-1 HANSEN, BARNETT & MAXWELL A Professional Corporation CERTIFIED PUBLIC ACCOUNTANTS (801) 532-2200 Member of AICPA Division of Firms Fax (801) 532-7944 Member of SECPS 345 East 300 South, Suite 200 Member of Summit International Associates Salt Lake City, Utah 84111-2693 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and the Shareholders enSurge, Inc. We have audited the accompanying consolidated balance sheets of enSurge, Inc., a Nevada corporation, and Subsidiaries (the Company) as of December 31, 2000 and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of enSurge, Inc. and Subsidiaries as of December 31, 2000 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operating activities, and at December 31, 2000, had negative working capital. In addition, the Company has defaulted on several liabilities and is a defendant in several resulting lawsuits. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Hansen, Barnett & Maxwell ----------------------------- HANSEN, BARNETT & MAXWELL Salt Lake City, Utah May 15, 2001 F-2 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of enSurge, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of enSurge, Inc. (a Nevada Corporation) and subsidiaries as of December 31, 1999 and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express and opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of enSurge, Inc. and subsidiaries at December 31, 1999 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company's recurring operating losses and lack of working capital raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to those matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Crouch, Bierwolf & Chisholm Salt Lake City, Utah March 28, 2000 F-3 enSURGE, INC. CONSOLIDATED BALANCE SHEETS December 31, ------------------------ 2000 1999 ----------- ----------- ASSETS Current Assets Cash $ 287 $ 13,935 Investment in securities available for sale 81,840 - Trade accounts receivable (net of allowance for doubtful accounts of $19,625 and $138,028, respectively) 500 130,886 Deferred income tax benefit - 236,060 Notes receivable 60,000 - Other current assets 4,276 30,515 ----------- ----------- Total Current Assets 146,903 411,396 Property and equipment (net of $16,981 and $49,280 of accumulated depreciation, respectively) 73,609 141,983 Deposits 3,841 108,981 Software to be sold and marketed (net of accumulated amortization of $450,000) 2,550,000 - Net assets of discontinued operations 2,978,162 - Goodwill (net of accumulated amortization of $839,391) 3,527,174 - ----------- ----------- Total Assets $ 9,279,689 $ 662,360 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 633,417 $ 304,654 Bank overdraft 35,675 - Accrued liabilities 1,934,958 45,741 Notes payable - related party 123,258 - Notes payable 1,584,122 216,000 Liabilities of discontinued operations 1,090,184 - ----------- ----------- Total Current Liabilities 5,401,614 566,395 Stockholders' Equity ----------- ----------- Common stock - $0.001 par value; 100,000,000 shares authorized; 12,952,080 and 6,915,091 shares outstanding, respectively 12,952 6,915 Additional paid-in-capital 14,538,345 1,668,313 Receivable from stockholders - (504,149) Unearned compensation (57,075) - Unrealized gain on investment in securities available for sale 20,640 - Accumulated deficit (10,636,787) (1,075,114) ----------- ----------- Total Stockholders' Equity 3,878,075 95,965 ----------- ----------- Total Liabilities and Stockholders' Equity $ 9,279,689 $ 662,360 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-4 enSURGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEAR ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- Sales $ 976,825 $ - Cost of Sales 453,461 - ----------- ----------- Gross Profit 523,364 - ----------- ----------- Expenses General and administrative 2,382,458 83,251 Amortization of software costs 450,000 - Amortization of goodwill 839,391 - Impairment of goodwill 1,160,308 229,713 Interest expense 81,059 2,621 Write down of marketable security 500,000 - ----------- ----------- Total Expenses 5,413,216 315,585 ----------- ----------- Loss From Continuing Operations Before Income Taxes (4,889,852) (315,585) Income Tax Benefit (Expense) (236,060) 86,386 ----------- ----------- Loss From Continuing Operations (5,125,912) (229,199) ----------- ----------- Discontinued Operations Loss from operations of discontinued operations (net of income tax benefit of $0 and $147,424, respectively) (4,053,175) (684,852) Loss on disposal of discontinued operations (382,586) - ----------- ----------- Loss from Discontinued Operations (4,435,761) (684,852) ----------- ----------- Loss Before Extraordinary Item (9,561,673) (914,051) Extraordinary Item Loss on casualty (net of income tax benefit of $2,050) - (13,450) ----------- ----------- Net Loss $(9,561,673) $ (927,501) =========== =========== Basic and Diluted Loss Per Common Share Continuing Operations $ (0.47) $ (0.06) Discontinued Operations (0.41) (0.62) Extraordinary Loss - (0.01) ----------- ----------- Net Loss $ (0.88) $ (0.69) =========== =========== Basic and Diluted Weighted Average Common Shares Outstanding 10,914,527 1,349,234 =========== =========== Comprehensive Loss Net loss $(9,561,673) $ (927,501) Unrealized gain on investment in securities available for sale 20,640 - ----------- ----------- Comprehensive Loss $(9,541,033) $ (927,501) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-5 enSURGE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
Unrealized Gain on Total Common Stock Additional Receivable Unearned Investment Stockholders' ---------------------- Paid-in From Compen- In Accumulated Equity Shares Amount Capital Stockholders sation Securities Deficit (Deficit) ----------- --------- ----------- ----------- --------- ---------- ------------ ----------- Balance - December 31, 1998 62,114 $ 62 $ 126,438 $ - $ - $ - $ (147,613) $ (21,113) Acquisition of E-Center, Inc. 62,886 63 127,937 (3,000) - - - 125,000 Acquisition of Sunwalker Development, Inc. 89,377 89 (230,360) - - - - (230,271) Expenses paid by shareholder - - 1,350 - - - - 1,350 Shares issued for exercise of stock options at $0.01 per share 2,600,000 2,600 23,400 - - - - 26,000 Shares issued for purchase of Now Seven, Inc. at $0.01 per share 1,000,000 1,000 9,000 - - - - 10,000 Shares issued for services at $0.01 per share 1,000,000 1,000 9,000 - - - - 10,000 Shares issued for cash at $0.75 per share 2,000,000 2,000 1,498,000 (397,500) - - - 1,102,500 Shares issued for cash at $1.75 per share 1,000,000 1,000 1,749,000 (1,750,000) - - - - Net loss - - - - - - (927,501) (927,501) ----------- --------- ----------- ----------- --------- ---------- ------------ ----------- Balance - December 31, 1999 as previously reported 7,814,377 7,814 3,313,765 (2,150,500) - - (1,075,114) 95,965 Adjustments for Restatement Write off uncollectible subscriptions receivable (939,286) (939) (1,645,812) 1,646,751 - - - - Shares issued for exercise of stock options at $0.01 per share 40,000 40 360 (400) - - - - ----------- --------- ----------- ----------- --------- ---------- ------------ ----------- Balance - December 31, 1999 as Restated 6,915,091 6,915 1,668,313 (504,149) - - (1,075,114) 95,965 Shares issued for cash - December $1.75 - $2.36 per share 46,564 46 99,373 - - - - 99,419 Stock issued for services: per share 5,644 5 22,977 - - - - 22,982 October - $4.00 per share 88,458 89 353,743 - - - - 353,832 November - $4.00 per share 10,000 10 39,990 - - - - 40,000 December - $2.00 per share 30,000 30 59,570 - - - - 60,000 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. 75,000 75 335,925 - - - - 336,000 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 Amortization of unearned compensation - - - - 59,592 - - 59,592 Unrealized gain on investment in securities - - - - - 20,640 - 20,640 Net loss - - - - - - (9,561,673) (9,561,673) ----------- --------- ----------- ----------- --------- ---------- ------------ ----------- Balance - December 31, 2000 12,592,080 $ 12,952 $14,538,345 $ - $ (57,075) $ 20,640 $(10,636,787) $ 3,878,075 =========== ========= =========== =========== ========= ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 enSURGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- Cash Flows From Operating Activities Net loss $(9,561,673) $ (927,501) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of goodwill 1,491,495 - Amortization of software costs 450,000 - Amortization of unearned compensation 59,592 - Depreciation 28,854 23,643 Loss from write down of goodwill 3,170,447 229,713 Loss on disposal of equipment 61,369 - Marketable securities acquired for services (561,200) - Marketing expense paid with note payable and common stock 153,482 11,350 Write down of marketable securities 500,000 - Royalty expense paid with common stock 353,832 - Write down of inventory due to obsolescence 37,910 - Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 381,417 (89,438) Other 40,687 (17,911) Deferred income taxes 236,060 - Merchant financing deposit 108,981 - Trade accounts payable 1,117,031 183,382 Accrued liabilities 284,929 (236,610) ----------- ------------ Net Cash Used by Operating Activities (1,638,312) (823,372) ----------- ------------ Cash Flows From Investing Activities Capital expenditures (66,321) (131,203) Cash acquired (deficiency) in business purchases 9,410 (5,508) Cash invested in discontinued operations (52,785) - Cash paid for deposits - (97,850) Payment to purchase businesses (10,000) - Purchase of goodwill - (226,000) Proceeds from sale of short term investments 82,387 - ----------- ------------ Net Cash Provided by (Used in) Investing Activities (37,309) (460,561) ----------- ------------ Cash Flows From Financing Activities Collection of receivable from shareholders 504,149 - Bank overdraft 61,153 - Gain on forgiveness of debt (75,000) - Principal payments on notes payable and purchase obligations (226,562) - Proceeds from borrowing under note payable to related part 123,258 - Proceeds from borrowing under notes payable 1,579,031 20,900 Proceeds from notes receivable (60,000) - Stock issued for cash 99,419 1,256,500 Redemption of common stock (336,000) - ----------- ------------ Net Cash Provided by Financing Activities 1,670,448 1,277,400 ----------- ------------ Net Decrease in Cash (13,648) (6,533) Cash and Cash Equivalents at Beginning of Year 13,935 20,468 ----------- ------------ Cash and Cash Equivalents at End of Year $ 287 $ 13,935 =========== ============ The accompanying notes are an integral part of these consolidated financial statements. F-7 enSURGE, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- Supplemental Disclosures of Cash Flow Information Cash paid during the year for interest $ 47,801 $ 542 Cash paid during the year for income taxes - 1,350 Supplemental Schedule of Noncash 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 75,000 shares of common stock valued at $336,000. 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 twelve months ended December 31, 2000. The accompanying notes are an integral part of these consolidated financial statements. F-7 enSURGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Outbound Enterprises Inc. (Outbound) was incorporated on July 8, 1998 under the laws of the State of Utah and began operations as a marketing company. On July 26, 1999, Outbound entered into an agreement and plan of merger with ECenter, Inc., a Utah corporation, (ECenter) whereby ECenter issued approximately 50% of its common stock to the Outbound stockholders in exchange for all of the outstanding common stock of Outbound. In addition, the officers and directors of Outbound became the officers and directors of ECenter. The business combination was accounted for using the purchase method of accounting. Due to the percentage of common stock received by the former Outbound shareholders and their control of the top management positions and the board of directors after the merger, Outbound was determined to be the acquiring corporation for financial reporting purposes. The net assets of ECenter were recorded at their fair value of $125,000 in exchange for the shares of common stock of ECenter that remained outstanding. The operations of ECenter are included in the accompanying financial statements from July 26, 1999. On October 7, 1999, ECenter entered into an agreement and plan of merger with Sunwalker Development, Inc., a Nevada corporation, (Sunwalker) that was completed on November 9, 1999, whereby Sunwalker issued 125,000 shares, or 58%, of its common stock to the ECenter stockholders in exchange for all of the outstanding common stock of ECenter. At the time of the transaction, Sunwalker had no operations and $230,271 of net liabilities. The transaction was accounted for as a recapitalization of ECenter at historical cost. The number of shares of common stock of ECenter previously outstanding were restated for all periods prior to the reorganization to reflect the effects of the 125,000 shares of common stock issued to the Ecenter stockholders on the date of the reorganization. The net liabilities of Sunwalker of $230,271 were recorded in exchange for 89,377 shares of Sunwalker common stock that remained outstanding. The operations of Sunwalker are included in the accompanying financial statements from October 7, 1999. On October 8, 1999, Sunwalker's name was changed to iShopper.com, Inc. On October 16, 2000, iShopper.com, Inc. changed its name to enSurge, Inc. enSurge, Inc. and its subsidiaries are referred to herein as the Company. Effective November 1999, the Company refocused its efforts into becoming an Internet holding company. Through its subsidiaries, the Company is engaged in the business of providing cost effective e-commerce development and support for all sizes of businesses. This includes low cost solutions for small businesses that would normally not have the resources to create an e-commerce solution, as well as, fully customized and specialized e-commerce sites for large organizations. Principles of Consolidation - The accompanying consolidated financial statements include the accounts of enSurge, Inc. and the accounts of its wholly-owned subsidiaries: NowSeven.com, Inc., StinkyFeet.com, Inc., and Uniq Studios, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations from Outbound Enterprises, Inc., iShopper Internet Services, Inc., TotaliNet.net, Inc., Atlantic Technologies International, Inc., Internet Software Solutions, Inc. and KT Solutions, Inc. have been reported as discontinued operations for all periods presented. Restatement - The accompanying consolidated financial statements as of December 31, 1999 and for the year then ended have been restated to eliminate uncollectible receivables from stockholders in the amount of $1,646,751 and to include the issuance of 40,000 shares of common stock during 1999 through the exercise of stock options in exchange for a $400 of receivable from a stockholder. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. Estimates that are particularly subject to change in the near term include the fair value of securities available for sale and the fair value of consideration to be received upon sale of discontinued operations. F-9 Business Condition - The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has suffered losses from operations, has had negative cash flows from operating activities for all periods since inception and has negative working capital at December 31, 2000. In addition, the Company has defaulted on several liabilities and is a defendant in several resulting lawsuits. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome should the Company be unable to continue as a going concern. The Company's continued existence is dependent upon its ability to obtain additional financing and to realize proceeds from the sale of KT Solutions, Inc. Management's plans include obtaining additional financing and selling Company assets. On April 25, 2000, the Company sold KT Solutions, Inc. in exchange for stock of Knowledge Transfer Systems, Inc., which management intends to sale. There is no assurance that any proceeds from additional financing or from the sale will be realized. Fair Value of Financial Instruments - The amounts reported as trade receivables, investment in securities, trade accounts payable, accrued liabilities and notes payable are considered to be reasonable approximations of their fair values. The fair value estimates were based on market information available to management at the time of the preparation of the financial statements. The reported fair values do not take into consideration potential expenses that would be incurred in an actual settlement. Investment in Securities - Investment in equity securities are classified as available for sale and are carried at fair value. Unrealized gains and losses are reported as a separate component of shareholders' equity except for declines in market value that are other than temporary, which are included in operations. Realized gains and losses on sales of securities are included in operations with the cost of securities sold determined on a specific cost basis. Property and Equipment - Property and equipment are recorded at cost and depreciated over their estimated useful lives ranging from five to seven years, using the straight-line method. Expenditures for repairs and maintenance are charged directly to expense. Renewals and betterments are capitalized. Long-Lived Assets - The realizability of long-lived assets, including property and equipment, software to be sold and marketed, net assets of discontinued operations and goodwill are evaluated periodically when events or circumstances indicate a possible 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 judgment to evaluate the capacity of an asset to perform within projections. Based upon this analysis, impairment losses of $1,160,308 and $229,713 were recognized during the years ended December 31, 2000 and 1999, respectively, relating to goodwill from acquired subsidiaries. Sales Recognition - Sales consist primarily of providing Internet services to customers including the sale of software. Revenue from the services and the sale of software is recognized upon completion and delivery of the services and acceptance by the customer. Stock-Based Compensation - Stock-based compensation relating to stock options granted to employees is measured by the intrinsic value method. This method recognizes compensation based on the difference between the fair value of the underlying common stock and the exercise price of the stock options on the date granted. Compensation relating to options granted to non-employees is measured by the fair value of the options, computed by the Black- Scholes option pricing model. F-10 Basic and Diluted Loss Per Share - Basic loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated to give effect to potentially issuable common shares which include stock options and stock warrants except during loss periods when those potentially issuable common shares would decrease loss per share. There were a total of 853,000 potentially issuable common shares which were excluded from the calculation of diluted loss per common share at December 31, 2000. Income Taxes - The Company recognizes an asset or liability for the deferred tax consequences of all temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the asset or liabilities are recovered or settled and for operating loss carryforwards. These deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse and the carryforwards are expected to be realized. Deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided as necessary. 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 consisted of approximately 400,000 shares per month through May 2000. 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 for the first part of 2000. 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 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 and is default of the acquisition agreement. 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. In addition, the Company issued 50,000 shares of common stock as a finder's fee, which is also included in the purchase price. The Company granted options to the four shareholders of Uniq, who are also key employees of Uniq, to F-11 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. Two hundred and fifty thousand options were exercisable upon Uniq achieving annual revenue of $2,500,000 by April 2001 and upon Uniq achieving a breakeven income. At April 4, 2001, Uniq had not met the requirements for exercising the 250,000 options and has forfeited these options. The remaining 250,000 options are exercisable upon Uniq achieving annual revenue of $7,500,000 by April 2002 and continued profitability. 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 remaining 250,000 contingently issuable options will be recorded at their fair value when and if the conditions for their issuance are met, and will increase goodwill when and if 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 $5,460,273 allocated to goodwill, which is being amortized over five years by the straight-line method. TotaliNet.net, Inc. - On April 7, 2000, the Company issued 50,000 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 50,000 common shares issued were valued at fair value of $224,000, or $4.48 per share. Twenty- five thousand contingently issuable common shares were issuable at June 30, 2000 from the Company waiving the related performance criteria and were valued at $112,000, or $4.48 per share. The remaining 75,000 contingently issuable common shares will be recognized as an increase to goodwill based upon their fair value when and if 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 acquired all of the outstanding capital shares of ATI in exchange for the issuance of 238,200 restricted shares of common stock and for options to purchase 1,800 restricted shares of common stock at $0.10 per share. 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 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 was amortized over five years by the straight-line method until December 31, 2000 when ATI's operations were discontinued. 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 acquired all of the outstanding capital shares of ISSI in exchange for 60,000 restricted shares of common stock. 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 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 was amortized over five years by the straight-line method until December 31, 2000 when ISSI's operations were discontinued. F-12 KT Solutions, Inc. - On June 1, 2000, the Company entered into a stock exchange agreement with KT Solutions, Inc. ("KT") whereby the Company acquired all of the outstanding capital shares of KT in exchange for 500,000 restricted shares of the Company's common stock and for options to purchase 250,000 additional restricted shares of the Company's common stock at $4.00 per share. In addition, the Company issued warrants to purchase 50,000 shares of common stock at $0.10 per share as a finder's fee, which is 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 $1,344,000, 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. 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 was amortized over five years by the straight-line method and will be until April 25, 2001 when KT Solutions, Inc. was sold. NOTE 3 - DISCONTINUED OPERATIONS KT Solutions, Inc. - During December 2000, the Company adopted a formal plan to sell KT Solutions, Inc. The transaction closed on April 25, 2001. Operating results of KT Solutions, Inc. for the seven months ended December 31, 2000 was a loss of $1,140,640 and is included in the loss from discontinued operations in the accompanying statements of operations. Net sales of KT Solutions, Inc. for the seven months ended December 31, 2000 were $677,520. Assets and liabilities of KT Solutions, Inc. are included in net assets of discontinued operations in the accompanying balance sheet and consisted of the following at December 31, 2000: Cash $ 22,144 Accounts receivable, net of $9,961 allowance for bad debts 121,598 Inventories 92,810 Property and equipment, net of $7,677 accumulated depreciation 36,508 Deposits 12,027 Goodwill, net of $506,599 accumulated amortization 3,835,679 ----------- Total assets 4,120,766 Payables and accruals (692,822) Notes payable (449,414) ----------- Net Assets to be Disposed $ 2,978,530 =========== Asset of KT Solutions, Inc. are shown at their historical cost as the Company expects to realize a gain on the sale of KT Solutions, Inc. and the gain has not been recognized. Notes payable are shown at their carrying amounts. TotaliNet.net, Inc. - During December 2000, the Company ceased the operations of TotaliNet, Inc. The estimated loss on the disposal of the discontinued operations of $55,756 represents the estimated loss on the disposal of the assets. Operating results of TotaliNet for the eight months ended December 31, 2000 was a loss of $198,389 and is included in loss from discontinued operations in the accompanying statements of operations. Net sales of TotaliNet for the eight months ended December 31, 2000 were $255,374. Liabilities of TotaliNet are included in liabilities of discontinued operations in the accompanying balance sheet and consisted of $79,244 of accounts payable and accrued liabilities at December 31, 2000. F-13 Outbound - In December 2000, the Company ceased operations of Outbound. The Company has not adopted a formal plan to sell Outbound. Operating results of Outbound for the years ended December 31, 2000 and December 31, 1999 were losses of $123,464 and $647,064 after tax, respectively, and are included in loss from discontinued operations in the accompanying statements of operations. Net sales of Outbound for the years ended December 31, 2000 and December 31, 1999 were $2,877,858 and 3,907,164, respectively. No gain or loss was recognized for the disposal of the discontinued operations. Assets and liabilities of Outbound consisted of the following at December 31, 2000: Cash $ 37,496 Accounts receivable, net of $74,068 allowance for bad debts 68,416 Property and equipment, net of $18,380 accumulated depreciation 58,536 Payables and accruals (374,730) --------- Net Liabilities to be Disposed $(210,282) ========= Asset are shown at their expected net realizable values and payables and accruals are shown at their face amounts. Net liabilities to be disposed of at their expected net realizable values, have been separately classified in the accompanying balance sheet at December 31, 2000 and 1999. iShopper Internet Services - During December 2000, the Company adopted a formal plan to sell iShopper Internet Services. Operating results of iShopper Internet Services for the year ended December 31, 2000 and for the six months ended December 31, 1999 were losses of $271,150 and $15,684, respectively, and are included in loss from discontinued operations in the accompanying statements of operations. Net sales of iShopper Internet Services for the year ended December 31, 2000 and the six months ended December 31, 1999 were $35,266 and $17,705,respectively. No gain or loss was recognized for the disposal of the discontinued operations. Assets and liabilities of iShopper Internet Services consisted of the following at December 31, 2000 Property and equipment, net of $3,692 accumulated depreciation $ 2,489 Payables and accruals (35,807) --------- Net liabilities to be disposed $ (33,318) ========= Asset are shown at their expected net realizable values and payables and accruals are shown at their face amounts. Net liabilities to be disposed of at their expected net realizable values, have been separately classified in the accompanying balance sheet at December 31, 2000. Atlantic Technologies, Inc. (ATI) - On April 27, 2001, the Company ceased the operations of ATI. Operating results of ATI for the seven months ended December 31, 2000 was a loss of $1,508,097 and is included in the loss from discontinued operations in the accompanying statements of operations. Net sales of ATI for the eight months ended December 31, 2000 were $1,301,459. An estimated loss for the disposal of ATI of $1,304,459 was recognized during the year ended December 31, 2000. Assets and liabilities of ATI consisted of the following at December 31, 2000: Property and equipment, net of $7,608 accumulated depreciation $ 45,944 Payables and accruals (362,351) Notes payable (301,923) ---------- Net liabilities to be disposed $ (618,330) ========== F-14 Assets are shown at their expected net realizable values and payables and accruals are shown at their face amounts. Net liabilities to be disposed of have been separately classified in the accompanying balance sheet at December 31, 2000. NOTE 4 - INVESTMENT IN SECURITIES During the year ended December 31, 2000, the Company entered into and completed a contract to provide services to iBonZai.com, Inc. As payment for services performed, the Company received 100,000 shares of iBonZai.com, Inc. stock. On the date of settlement, the shares had a market value of $531,200 or $5.31 per share. On December 31, 200, the shares had a market value of $94,000 or $0.94 per share. By April 6, 2001, the stock had a market value of $31,200 or $0.31 per share. Management considers the loss to be other than temporary. As a result, the investment in iBonZai.com, Inc. was written down to the April 6, 2000 value and a loss of $500,000 was recognized at December 31, 2000. During the year ended December 31, 2000, as part of a sales agreement, the Company received 60,000 restricted shares of Travel Dynamics, Inc. common stock valued at $0.50 per share as partial payment for services rendered. On the date of settlement, free trading shares of Travel Dynamics, Inc. had a market value of $1.00 per share. The restricted shares received by the Company were valued at $30,000, or $0.50 per share, due to their restricted nature. At December 31, 2000, the share had an undiscounted market value of $0.84 per share, resulting in an unrealized gain of $20,640. Marketable equity securities are classified as available for sale and are stated at fair value. Unrealized holding gains and losses are recognized as a separate component of stockholders' equity. At December 31, 2000, available for sale securities consisted of the following: Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- Common stocks $ 61,200 $ 20,640 $ - $ 81,840 ========== ========== ========== ========== NOTE 5 - NOTE RECEIVABLE In December 2000, the Company advanced $60,000 to iBonZai in which the Company owns stock. The principal was due in December 2001, together with interest at a rate of 8%. Subsequent to December 31, 2000, the Company converted the note to equity in iBonZai. NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31, 2000 and December 31, 1999: 2000 1999 ---------- ---------- Furniture and fixtures $ 41,594 $ 49,884 Computer equipment 48,996 141,379 ---------- ---------- Total Property and Equipment 90,591 191,263 Less: Accumulated depreciation (16,981) (49,280) ---------- ---------- Net Property and Equipment $ 73,609 $ 141,983 ========== ========== F-15 Depreciation expense for the year ended December 31, 2000 and 1999 was $17,357 and $23,543, respectively. NOTE 7 - NOTES PAYABLE 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 on demand, unsecured 1,359,000 - 12% Note payable, due on demand, unsecured 79,122 - Non-interest bearing obligations incurred in connection with acquisition of businesses, due on demand, unsecured 20,000 30,000 ---------- ---------- Total Notes Payable $1,584,122 $ 216,000 ========== ========== Notes Payable - Related Party $ 123,258 $ - ========== ========== 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 year ended December 31, 2000, the convertible promissory notes were converted into 3,425,623 shares of common stock. NOTE 8 - RELATED PARTY TRANSACTIONS During the year ended December 31, 2000, a former officer and director of the Company advanced the Company $123,258 to cover operations. These advances bare interest at eight percent, are due on demand and are unsecured. At December 31, 2000, no repayments have been made. NOTE 9 - COMMON STOCK ISSUANCES Common Stock Issued for Cash - In December 2000, the Company issued 46,564 shares of common stock for cash proceeds of $99,419 at prices ranging from $1.75 to $2.36 per share. In November 1999, the Company issued 2,060,714 shares of common stock for cash proceeds of $1,102,500 and subscriptions receivable of $500,749 at prices of $0.75 and $1.75 per share. The subscriptions receivable were settled during 2000. Common Stock Issued for Services - In January 2000, the Company entered into an agreement with a corporation for public relations services. As payment for these services, the Company agreed to pay 75% of the fees in cash and 25% is stock. In September 2000, the Company issued 5,644 shares of common stock for services valued at $22,982 or $3.20 to $5.60 per share. In October 2000, the Company, KT Solutions, Theodore Belden and James Corcoran entered into an agreement to settle the Royalty payable to Belden and Corcoran as recorded on KT Solutions books. The Companies agreed to pay Belden $237,603 and Corcoran $450,720 for past and future Royalty liabilities. As part of the F-16 agreement, the Company issued 88,458 shares of common stock to Belden and Corcoran. The shares were valued at $353,832 or $4.00 per share. In November 2000, the Company entered into an agreement with a corporation for public relations services. As partial payment for these services, the Company agreed to issue 10,000 shares of common stock upon signing of the agreement. These shares were valued at 40,000 or $4.00 per share. In October 1999, the Company issued 1,000,000 shares of common stock as a signing bonus to the Company's President. The shares were valued at $10,000 or $0.01 per share. In December 2000, the Company entered into an agreement with a corporation for promotional services. As payment for these services, the Company issued 30,000 shares of common stock valued at $60,000 or $2.00 per share. Common Stock Issued for Conversion of Notes Payable - The Company assumed $60,000 of 5% convertible promissory notes in October 1999 in connection with the acquisition of Sunwalker Development, Inc. The notes were convertible at $0.017 per share. During the year ended December 31, 2000, the convertible promissory notes were converted into 3,425,623 shares of common stock. Common Stock Issued in Connection with Acquisitions - As discussed in Note 2 Acquisitions, the Company issued 7,500 shares of common stock in the acquisition of StinkyFeet.com valued at $33,600; 1,550,000 shares of common stock in the acquisition of Uniq Studios, Inc. valued at $6,944,000; 75,000 shares of common stock in the acquisition of TotaliNet.net.Inc. valued at $336,000; 238,200 shares of common stock in the acquisition of Atlantic Technologies International, Inc. valued at $1,075,200; 60,000 shares of common stock in the acquisition of Internet Software Solutions, Inc. valued at $268,800; and 500,000 shares of common stock in the acquisition of KT Solutions, Inc. valued at $3,467,333. In 1999, the Company issued 1,152,263 shares of common stock in the acquisitions of ECenter, Inc., iShopper Internet Services, Inc., Outbound Enterprises, Inc., iShopper.com, Inc., and NowSaver.com, Inc. The shares were valued at $(95,271). Exercise of Stock Options - In 1999, the Company issued 2,640,000 shares of common stock for proceeds of $26,000 and a subscription receivable of $400. The subscription receivable was settled during 2000. NOTE 10 - STOCK OPTIONS The Company accounts for its stock options issued to directors, officers and employees under Accounting Principles Board Opinion No. 25 and related interpretations ("APB 25"). Under APB 25, compensation expense is recognized if an option's exercise price on the measurement date is below the fair value of the Company's common stock. The Company accounts for options and warrants issued to non-employees in accordance with SFAS No. 123, Accounting for Stock-Based Compensation" (SFAS 123) which requires these options and warrants to be accounted for at their fair value. Employee Grants - During the year ended December 31, 1999, the Company granted options to purchase 400,000shares of common stock to employees and directors of the Company. These options are exercisable at $1.75 per share which was equal to the fair value of the Company's common stock on the date of issuance. These options vested immediately and expire five years from the date of grant. F-17 Non Employee Options - As discussed in Note 2, in connection with the purchase of Uniq Studios, Inc., the Company issued options to purchase 500,000 shares of common stock at 80% of the bid price on April 4, 2000. The options are exercisable based upon performance of Uniq Studios, Inc. as to earnings. These contingent options will not be valued until the contingency has been met at which time the value of the options will be added to the purchase price. Until then, the options will only be disclosed. Also part of the purchase of Uniq Studios, Inc., the Company issued options to purchase 50,000 shares of common stock as a finders fee. The options were valued at $224,000 or $4.48 per share 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. The value of these options was included in the purchase price. The options vested upon issuance and expire five years from the date of issuance. As discussed in Note 2, in connection with the purchase of Atlantic Technologies International, Inc.(ATI), the Company issued options to purchase 3,000 shares of common stock. Of the 3,000 options issued, 1,800 vested immediately and 1,200 are exercisable based upon performance of ATI as to earnings. The 1,800 options were valued at $8,064 or $4.48 per share 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. The value of these options was included in the purchase price. The 1,200 contingent options will not be valued until the contingency has been met at which time the value of the options will be added to the purchase price. Until then, the contingent options will only be disclosed. As discussed in Note 2, in connection with the purchase of KT Solutions, Inc. (KT Solutions), the Company issued options to purchase 250,000 shares of common stock. The options were valued at $1,120,000 or $4.48 per share 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. Also part of the purchase of KT Solutions, Inc., the Company issued options to purchase 50,000 shares of common stock as a finders fee. The options were valued at $224,000 or $4.48 per share 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. The value of these options was included in the purchase price. The options vested upon issuance and expire five years from the date of issuance. Outstanding Stock Options - A summary of stock option activity for the years ending December 31, 2000 and 1999 is as follows: Weighted Exercise Average Options Price Exercise Price ---------- ---------- ---------- Balance, December 31, 1998 - $ - $ - Granted 400,000 1.75 1.75 Balance, December 31, 1999 400,000 1.75 1.75 Granted 853,000 0.10 - 7.60 6.08 Balance, December 31, 2000 1,253,000 0.10 - 7.60 6.08 Exercisable, December 31, 2000 541,670 1.75 - 7.60 2.31 F-18 A summary of stock options outstanding and exercisable as of December 31, 2000 follows:
Options Outstanding Options Exercisable ---------------------------------------------- --------------------------- Range of Number Weighted-Average Number Weighted- Exercise Outstanding Remaining Weighted-Average Exercisable Average Prices At 12/31/00 Contractual Life Exercise Price At 12/31/00 Exercise Price --------- ----------- ---------------- --------------- ----------- -------------- $1.75 400,000 4.0 years $1.75 400,000 $1.75 0.10 - 7.60 853,000 5.0 years 6.08 - 2.31 --------- --------- 1,253,000 1,253,000 ========= =========
Stock-based compensation charged to operations was $0 and $0 for the years ended December 31, 2000 and 1999, respectively, from options granted to employees and directors. Had compensation cost for the Company's options granted to employees been determined based on the fair value at the grant dates consistent with the alternative method set forth under Statement of Financial Accounting Standards No. 123, net loss and loss per share would have increased to the pro forma amounts indicated below: For the Years Ended December 31, ------------------------- 2000 1999 ----------- ----------- Net loss: As reported $(7,147,511) $ (927,501) Pro forma (7,147,511) (927,501) Basic and diluted loss per share: As reported $ (0.68) $ (0.69) Pro forma (0.68) (0.69) NOTE 11 - PROVISION FOR INCOME TAXES Including operating losses acquired in acquisitions, the Company has operating loss carry forwards of approximately $3,456,132 at December 31, 2000. The operating loss carry forwards expire from 2019 through 2020. 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 December 31, 2000 and 1999: 2000 1999 ----------- ----------- Deferred Tax Assets Operating loss carry forwards $ 1,289,140 $ 472,120 Allowance for doubtful accounts 7,320 - Accrued liabilities 721,758 - Unearned revenue 5,856 - Depreciation 387 - ----------- ----------- Total Deferred Tax Assets 2,024,460 472,120 ----------- ----------- Valuation Allowance (1,065,611) (236,060) ----------- ----------- Deferred Tax Liabilities Unrealized gain on securities (7,699) - Software to be sold and marketed (951,150) - ----------- ----------- Total Deferred Tax Liabilities (958,849) - ----------- ----------- Net Deferred Tax Asset $ - $ 236,060 =========== =========== The following is a reconciliation of the amount of tax benefit that would result from applying the federal statutory rate to pretax loss from continuing operations with the benefit (expense) from income taxes attributable to continuing operations: F-19 2000 1999 ----------- ----------- Benefit at statutory rate (34%) $(1,662,584) $ 107,299 Change in valuation allowance (1,953,509) (31,327) State tax benefit, net of federal tax effect 54,865 10,414 ----------- ----------- Net Benefit (Expense) From Income Taxes $ (236,060) $ 86,386 =========== =========== NOTE 12 - EXTRAORDINARY LOSS During 1999, the Company advanced funds for renovation on the anticipated acquisition of a building in Salt Lake City. During the construction phase, a tornado destroyed the building and was written off as a complete loss. The loss is presented as an extraordinary loss in the statement of operations. NOTE 13 - COMMITMENTS AND CONTINGENCIES E-Commerce Exchange. v. Outbound Enterprises, Inc. or iShopper.com, Inc. - In December 2000, E-Commerce brought suit against Outbound and iShopper Internet Services seeking recovery of amounts owed for services provided in the amount of $15,939. There was no dispute that the sums claimed were owed and judgment was entered against Outbound and iShopper Internet Services. The Company is attempting to settle the judgment from financed receivables available to Outbound. At this date, the settlement arrangements have been finalized to be paid out through receivables however, until the obligation is paid in full, the judgement remains unsatisfied. As of December 31, 2000, the Company has accrued the above liability. Media Source, Inc. v. iShopper Internet Services, Inc. - In April 2000, Media Source, Inc brought suit against iShopper Internet Services and the Company seeking recovery of amounts owed for promotional material and products furnished to iShopper Internet Services, Inc., in the amount of $53,399 plus interest and attorneys fees. The Company acknowledged that $43,429 was owed by iShopper Internet Services and an agreement was entered into to pay the undisputed sum, over time. As a result, Media Source dismissed the lawsuit. iShopper Internet Services made the first installment payment of $10,000 but has lacked funds to pay the balance. The obligation for the unpaid balance under the settlement agreement is undisputed. As of December 31, 2000, the Company has accrued the above liability. MediaBang. L.C. v. iShopper Internet Services, Inc. - In April 2000, iShopper Internet Services was informed that MediaBang had filed suit against them in December 1999 seeking recovery of amounts owed for programming services furnished to iShopper Internet Services on an open contract in the amount of $10,136 plus interest and fees. Negotiations resulted in a settlement reduced to writing in November 2000, under which MediaBang agreed to accept installment payments against a $7,000 settlement amount, conditional on the Company's agreement to guarantee payments. The lawsuit was subsequently dismissed. In November 2000 $2,000 was paid reducing the liability to $5,000. As of December 31, 2000, the Company has accrued the above liability. Positive Response, Inc. v. iShopper Internet Services, Inc. - In July 2000, Positive Response brought suit against iShopper Internet Services seeking recovery of amounts owing for a data base on potential customer or customer contracts in the amount of $41,896. Settlement in the matter was reached in the compromised amount of $37,000, to be satisfied on installment payments. All required installment payments except a final payment of $10,000 due October 14, 2000 was made. Positive Response has applied to the Court for judgment for the unpaid balance, plus interest from the date of judgment at the legal rate of 8.052%. As of December 31, 2000, the Company has accrued the above liability. F-20 IOS Capital, Inc. v. iShopper Internet Services, Inc. - In January 2001, IOS Capital brought suit against iShopper Internet Services seeking replevin of leased copy machines and judgment for lease balances totaling $17,553, plus interest and attorneys fees. IShopper Internet Services filed its answer in February 2001 inviting the plaintiff to retrieve both items of equipment. The leases were classified as operating leases and therefore, the Company did not include the asset or the liability on the books. At December 31, 2000, the Company was in default on the leases. As of December 31, 2000, the Company has accrued the above liability. OneSource.com v. Outbound Enterprises and enSurge, Inc. - In October 2000, OneSource.com brought suit against Outbound seeking recovery for amounts owed for printing services and related products furnished between October 1999 and January 2000 in the amount of $76,157. Settlement was reached in December 2000, on terms that entitled OneSource to judgment against Outbound and Company, as its guarantor, if settlement installments were not made as required. The Company has defaulted in settlement payments and judgment against Outbound and the Company was entered on March 30, 2001, in the amount of $85,096, including interest costs and attorneys fees. The Company intends to attempt to settle or otherwise resolve the judgment as funds become available. As of December 31, 2000, the Company has accrued the above liability. Pacific Media Duplication, LLC v. iShopper.com, Inc., TotaliNet.net, Inc. and Richard Scavia. - In January 2001, Pacific Media brought suit against the Company, TotaliNet and Richard Scavia seeking recovery of balances owed under a sublease by TotaliNet of office space and equipment in the amount of $30,000 and $38,437, respectively. The plaintiff claims against the TotaliNet and the Company as guarantor on the office lease and against TotaliNet and Scavia, as its prior president and as guarantor, on the equipment lease. The Company does not dispute TotaliNet's obligations (nor its obligations as guarantor) under the office lease. TotaliNet does not dispute its obligations under the office lease or the equipment lease. These leases were classified as operating leases and therefore, the Company did not include any asset or liability on the books. At December 31, 2000, the Company was in default on the leases. HBM proposes including the liability to Pacific Media in the amount of $68,437. As of December 31, 2000, the Company has accrued the above liability. Paychex, Inc. v enSurge, Inc. and Subsidiaries. - In March 2001, Paychex filed for arbitration with the American Arbitration Association in Syracuse, New York, against enSurge and its subsidiaries for employee payroll and payroll taxes paid by Paychex. Paychex has filed arbitration separately for each company as follows: enSurge, Inc.$45,146; iShopper Internet Services, Inc. $13,247; Totalnet, net, Inc. $17,416; Uniq Studios, Inc. $22,002, and Atlantic Technologies International, Inc. $28,079. All requested amounts are plus interest at 1.5% per month, plus costs and attorney's fees. All arbitrations are still in process and nothing has been resolved to date. As of December 31, 2000, the Company has accrued the above liabilities. NCX Corporation v Atlantic Technologies International, Inc. - In October 2000, NCX Corporation filed suit in the Superior Court of California, Los Angeles County, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $29,472. Allison Ewrin Company v Atlantic Technologies International, Inc. - - On April 7, 1999, Allison Erwin Company filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $30,666. Settlement was reached for $12,000, with payments starting on may 25, 2001. Scanport, Inc. v Atlantic Technologies, Inc. - On March 9, 2001, Scanport, Inc. filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $59,212. F-21 Avnet Electronics Marketing, Inc. v Atlantic Technologies International, Inc. - On March 27, 2001, Avnet Electronics Marketing, Inc. filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $32,856. US Drive Technology Corporation v Atlantic Technologies International, Inc. - On March 24, 1999, US Drive Technology Corporation filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $39,199. Settlement was reached for $39,199 and payments have been made paying down the amount to $24,199, which is currently outstanding. Trogon Computer Corporation v Atlantic Technologies International, Inc. - On June 15, 1999, Trogan Computer Corporation filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for past due accounts payable in the amount of $16,771. Settlement was reached for $6,825, with ten monthly payments at $682.50 starting on October 10, 2000. Suntrust Bank, N.A. v Atlantic Technologies International, Inc. - In April 2001, Suntrust Bank filed suit in the Circuit Court of Orange County, Florida, against Atlantic Technologies International, Inc. seeking recovery of balances owed for a past due line of credit in the amount of $184,415. All assets of Atlantic Technologies International, Inc. are in the process of either being turned over to the bank or liquidated to pay down this balance. NOTE 14 - SUBSEQUENT EVENTS On April 25, 2001, the Company consummated a Stock Exchange Agreement with GoThink!.com, Inc., whereby all of the issued and outstanding common stock of KT Solutions, Inc., was transferred to GoThink!.com, Inc. in exchange for 8,000,000 shares of GoThink!.com, Inc. common stock. The 8,000,000 shares will be accounted for as an investment and will be recorded at the fair market value on the date the transaction was consummated. Subsequent to December 31, 2000, the Company issued 462,865 shares of common stock for services provided at prices ranging from $0.47 to $1.11 per share. The Company also issued 498,910 shares of common stock to employees for salaries. The shares were valued at $1.11 per share. F-22 /18/ ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Companies Board of Directors approved the change in auditors from Crouch, Bierwolf and Chisholm to Hansen, Barnett, and Maxwell. This change was due to needing a larger firm to complete the needed accounting and audit work. There were no disagreements with the former accountant an any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedures. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The following sets forth certain information regarding our executive officers as of May 11, 2001: Name Age Position ---------------- ----- --------------------------- Scott R. Hosking 40 Chief Executive Officer and President Jeff A. Hanks 35 Chief Financial Officer, Secretary and Director George Denney 63 Chairman of the Board of Directors Scott R. Hosking, CEO: Mr. Hosking is President and Chief Executive Officer of EnSurge. Prior to working with EnSurge, he worked as a management and marketing consultant for several businesses in the US and Mexico. Mr. Hosking lived in Mexico for a number of years where he was able to pursue international opportunities. He has taken companies from startup and grown them into multi-million dollar organizations. He has served as an adjunct, on the teaching staff of three colleges and lectured at numerous other colleges and universities where he presented his personal economic model MoneyMax. Jeff A. Hanks, CFO: Mr. Hanks is Chief Financial Officer, Secretary and Director for EnSurge. Prior to working with EnSurge, Mr. Hanks was controller for the Slaymaker Group, Inc., a multimillion dollar consolidated restaurant group. He also worked with Deloitte & Touche, LLP. for five years providing consulting, accounting and auditing services to large and mid- size companies in several industries including high-tech, broadcasting and manufacturing. /19/ [CHAIRMAN OF THE BOARD] George Denney, Chairman: Mr. Denney is founder and Chairman Emeritus of Cole-Haan, a company of international footwear and accessories. In addition to his duties at Cole-Haan, Mr. Denney sits on the board of a number of companies and associations, such as Hathaway, Inc., Footwear Industries of America. All of the current executive officers and directors of the Company were delinquent in filing their Initial Statements of Beneficial Ownership on Form 3. ITEM 10. EXECUTIVE COMPENSATION Douglas S. Hackett served as CEO of EnSurge, Inc. during the last completed fiscal year and was compensated $87,500 during that time period. Subsequent to year end he resigned. No other officer of the company was compensated in excess of $100,000. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Common Douglas S. Hackett 7,725,000 10.74% Stock 1900 Alaqua Drive Former CEO Longwood, Florida 32779 Common George Denney 4,236,115 5.89% Stock 28 Woodside Lane Chair of the Board Freeport, Maine 04032 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 2.1 Stock Exchange Agreement by and among Atlantic Technologies International, Inc., Paul Sachdeva, and Robert Long. 2.2 Stock Exchange Agreement by and among Internet Software Solutions, Inc., Paul Sachdeva. 2.3 Stock Exchange Agreement by and among KT Solutions, Inc., Steve Burke. 2.4 Stock Exchange Agreement by and among Virtual Market Solutions.com, Inc. 21.1 Subsidiaries of EnSurge, Inc. 24.1 Powers of Attorney for Messrs. Denney, Hosking, and Hanks. (b). Reports on Form 8-K: /20/ SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EnSurge, Inc. May 16, 2001 By: /s/ Scott R. Hosking ------------------------------ SCOTT R. HOSKING, PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Scott R. Hosking - -------------------- President and Chief Executive May 16, 2001 SCOTT R. HOSKING Officer /s/ Jeff A. Hanks - -------------------- Chief Financial Officer, May 16, 2001 JEFF A. HANKS Secretary and Director /s/ George Denney - -------------------- Chairman of the Board May 16, 2001 GEORGE DENNEY /21/ EXHIBIT INDEX 2.1* Stock Exchange Agreement by and among Atlantic Technologies International, Inc., Paul Sachdeva, and Robert Long. 2.2* Stock Exchange Agreement by and among Internet Software Solutions, Inc., Paul Sachdeva. 2.3* Stock Exchange Agreement by and among KT Solutions, Inc., Steve Burke. 2.4 Stock Exchange Agreement by and among Virtual Market Solutions.com, Inc. 21.1 Subsidiaries of EnSurge, Inc. 24.1 Powers of Attorney for Messrs. Denney, Hackett, Chipman, and Maher. * Previously filed and incorporated herein by reference. /22/ EX-21 2 ex21.txt Exhibit 21.1 EnSurge, Inc. SUBSIDIARIES OF THE REGISTRANT Subsidiary Name State or Other Names Under Which Jurisdiction of Each Subsidiary Does Incorporation or Business Organization --------------------------- ---------------- ------------------- Outbound Enterprises, Inc. Utah Same iShopper Internet Services, Inc. Utah Same NowSeven.com, Inc. Delaware Same Stinkyfeet.com, Inc. Utah Same Uniq Studios, Inc. Nevada Same Totalinet.net, Inc. Nevada Same Atlantic Technologies Florida Same International, Inc. Internet Software Solutions, Inc. Florida Same KT Solutions, Inc. California Same ZaiBon, Inc. Nevada Same EX-24 3 ex24.txt Exhibit 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each officer and/or director of EnSurge, Inc. whose signature appears below constitutes and appoints Scott R. Hosking, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign in the name of or on behalf of the undersigned, as a director of said corporation, the Annual Report on Form 10-K of EnSurge, Inc. for the year ended December 31, 2000, and any and all amendments to such Annual Report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in- fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney this _____ day of ______________, 2001. - --------------------- Chairman of the Board ----------- GEORGE DENNEY Board of Directors - --------------------- President and Chief Executive ----------- SCOTT R. HOSKING Officer - --------------------- Chief Financial Officer, ------------ JEFF A. HANKS Secretary and Director -----END PRIVACY-ENHANCED MESSAGE-----