10QSB 1 ensurge10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 033-03275-D EnSurge, Inc. ------------- (Exact name of small business issuer as specified in its charter) Nevada 87-0431533 ------ ---------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 435 West Universal Circle Sandy, UT 84070 ------------------------- (Address of principal executive offices) (801) 601-2765 -------------- (Issuer's telephone number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes X No There were 100,000,000 shares of common stock, $0.001 par value, issued and outstanding as of September 20, 2002. (of this total, 2,164,600 are being held in escrow and are not considered issued or outstanding for financial reporting purposes.) EnSurge, Inc. FORM 10-QSB QUARTER ENDED JUNE 30, 2002 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2002 and December 31, 2001 3 Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2002 and 2001 4 Condensed Consolidated Statement of Stockholders' Deficit (Unaudited) for the Six Months Ended June 30, 2002 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2002 and 2001 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 4. Submission of matters to a vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures. 16 PART I - FINANCIAL INFORMATION Item 1. Financial Statements EnSurge, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 2002 2001 ------------ ------------ ASSETS Current Assets Cash $ 3,188 $ 7,300 Investment in securities available for sale 90,000 487,999 Other current assets 22,377 28,377 Total Current Assets 115,565 523,676 Property and Equipment, (Net of $6,328 and $4,181 of accumulated depreciation, respectively) 12,150 14,297 ------------ ------------ Total Assets $ 127,715 $ 537,973 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Trade accounts payable $ 1,528,662 $ 1,789,827 Accrued liabilities 1,709,792 1,555,875 Notes payable 2,408,877 2,419,253 ------------ ------------ Total Current Liabilities 5,647,331 5,764,955 ------------ ------------ Stockholders' Deficit Common stock - $0.001 par value; 100,000,000 shares authorized; 97,835,400 and 87,459,814 shares issued and outstanding, respectively 97,835 87,460 Additional paid-in-capital 16,180,275 16,180,275 Accumulated deficit (21,797,726) (21,494,717) ------------ ------------ Total Stockholders' Deficit (5,519,616) (5,226,982) ------------ ------------ Total Liabilities and Stockholders' Deficit $ 127,715 $ 537,973 ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements. 3 EnSurge, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------ ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Sales $ 2,728 $ 61,535 $ 3,362 $ 103,315 Cost of Sales - 44,590 - 47,949 ----------- ----------- ----------- ----------- Gross Profit 2,728 16,945 3,362 55,366 ----------- ----------- ----------- ----------- Expenses General and administrative 70,891 156,845 113,450 1,040,622 Amortization of software costs - 150,000 - 300,000 Amortization of goodwill - 220,548 - 441,096 Impairment of securities available for sale 61,000 - 304,999 - Interest expense 45,397 45,962 87,517 142,341 ----------- ----------- ----------- ----------- Total Expenses (177,288) (573,355) (505,966) (1,924,059) ----------- ----------- ----------- ----------- Gain on Forgiveness of Debt 199,595 - 199,595 - ----------- ----------- ----------- ----------- Net Income (Loss) From Continuing Operations 25,035 (556,410) (303,009) (1,868,693) Discontinued Operations - Loss on Disposal of Discontinued Operations - (35,697) - (64,704) ----------- ----------- ----------- ----------- Net Income (Loss) $ 25,035 $ (592,107) $ (303,009) $(1,933,397) =========== =========== =========== =========== Basic and Diluted Earnings (Loss) Per Share Operations $ - $ (0.01) $ (0.01) $ (0.03) Discontinued Operations - - - - ----------- ----------- ----------- ----------- Basic and Diluted Earnings (Loss) Per Share $ - $ (0.01) $ (0.01) $ (0.03) =========== =========== =========== =========== Weighted Average Number of Common Shares Used in Per Share Calculation 97,835,400 69,650,066 95,599,776 68,369,345 =========== =========== =========== =========== COMPREHENSIVE LOSS Net Income (Loss) 25,035 (592,107) (303,009) (1,933,397) Other Comprehensive Loss Unrealized loss on investment in securities - (52,789) - (79,069) ----------- ----------- ----------- ----------- Comprehensive Income (Loss) $ 25,035 $ (644,896) $ (303,009) $(2,012,466) =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 EnSurge, Inc. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
Total Total Common Stock Additional Stockholders Stockholders ------------------------ Paid-in Accumulated Equity Shares Amount Capital Deficit Deficit ----------- ----------- ----------- ------------ ----------- Balance - December 31, 2001 87,459,814 $ 87,460 $16,180,275 $(21,494,717) $(5,226,982) Issuance of common stock for payment of notes payable 10,375,586 10,375 - - 10,375 Net loss for the period - - - (303,009) (303,009) ----------- ----------- ----------- ------------ ----------- Balance - June 30, 2002 97,835,400 $ 97,835 $16,180,275 $(21,797,726) $(5,519,616) =========== =========== =========== ============ ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 EnSurge, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, ------------------------ 2002 2001 ----------- ----------- Cash Flows From Operating Activities Net loss $ (303,009) $(1,933,397) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,147 17,049 Gain on forgiveness of debt (199,595) - Services paid with securities available for sale 3,000 - Amortization of software costs - 300,000 Amortization of goodwill - 441,096 Amortization of unearned compensation - 57,075 Services paid with common stock - 1,083,012 Interest paid with common stock - 28,192 Options issued for consulting services - 10,500 Expenses paid with note payable - (20,300) Decrease in assets of discontinued operations - (12,740) Impairment loss on securities available for sale 304,999 - Changes in operating assets and liabilities: Accounts receivable - 500 Trade accounts payable and accrued liabilities 182,346 (268,473) Other current assets 6,000 8,513 ----------- ----------- Net Cash Used in Operating Activities (4,112) (288,973) ----------- ----------- Cash Flows From Investing Activities Capital expenditures - (6,736) ----------- ----------- Net Cash Used in Investment Activities - (6,736) ----------- ----------- Cash Flows From Financing Activities Proceeds from line credit - 184,159 Proceeds from borrowing under notes payable - 117,000 Principal payments on notes payable - (5,646) ----------- ----------- Net Cash Provided by Financing Activities - 295,513 ----------- ----------- Net Increase in Cash (4,112) (196) Cash at Beginning of Period 7,300 287 ----------- ----------- Cash at End of Period $ 3,188 $ 91 =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. 6 enSurge, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Supplemental Cash Flow Information: Cash paid for interest $ 0 $ 0 ----------- ----------- Supplemental Disclosure of Noncash Investing And Financing Activities Conversion of notes payable into common stock $ 10,375 $ 10,000 Accounts payable settled with available for sale securities 90,000 - Liabilities assumed by Company on behalf of KT Solutions subsequently converted to common stock - 896,636 Accrued liabilities converted into notes payable to related parties - 293,607 Bank overdraft converted to accounts payable - 35,675 Related party note payable assumed by discontinued entity to be disposed of - 25,000 Conversion of related party notes payable to notes payable - 391,865 Marketable securities received for wholly owned subsidiary - 3,862,538 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 enSurge, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Condensed Financial Statements - The accompanying condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) have been made to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Form 10-KSB dated December 31, 2001. The results of operations for the three months ended June 30, 2002 are not necessarily indicative of the operating results to be expected for the full year. Business Condition - The accompanying financial statements have been prepared in conformity with 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, and has had negative cash flows from operating activities for all periods since inception and has negative working capital at June 30, 2002. 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. Recently Enacted Accounting Standards - In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, this statement modifies the criteria for classification of gains or losses on debt extinguishments such that they are not required to classified as extraordinary items if they do not meet the criteria for classification as extraordinary items in APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Company has elected to adopt this standard during the six months ended June 30, 2002. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The Company will be required to apply this statement prospectively for any exit or disposal activities initiated after December 31, 2002. The adoption of this standard is not expected to have a material effect on the Company's financial position or results of operations. NOTE 2- INVESTMENT IN SECURITIES 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. During the six months ended June 30, 2002, the Company recorded other-than-temporary declines in the market value of its investment in securities of $304,999. See Note 6 for description of sales of investment in securities. These sales resulted in no gains or losses. At June 30, 2002, available-for-sale securities consisted of the following: Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ---------- ----------- ---------- ---------- Common stocks $ 90,000 $ - $ - $ 90,000 ========== =========== ========== ========== 8 enSurge, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3- NOTES PAYABLE June 30, December 31, 2002 2001 ---------- ---------- 6.06% Notes payable, due November 1997, in default, secured by mining claims held previously by Sunwalker $ 126,000 $ 126,000 Note payable to a bank, in default, secured by assets of Atlantic Technologies International, Inc. 184,159 184,159 8% Notes payable, due on demand, unsecured in default 1,709,931 1,720,307 12% Notes payable, due on demand, unsecured in default 80,622 80,622 13% Notes payable, due on demand, unsecured in default 285,811 285,811 18% Notes payable, due on demand, unsecured in default 18,000 18,000 Non-interest bearing obligations incurred in connection with acquisition of businesses, due on demand, unsecured, in default 4,354 4,354 ---------- ---------- Total Notes Payable $2,408,877 $2,419,253 ========== ========== NOTE 4 - STOCK HOLDERS' EQUITY Common Stock Issued for Payment of Notes Payable - In February 2002, the Company paid $10,375 of notes payable with common stock. The notes were converted into 10,375,586 shares of common stock at $0.001 per share. NOTE 5 - 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 June 30, 2002, 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 June 30, 2002, 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 June 30, 2002, 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 June 30, 2002, the Company has accrued the above liability. 9 enSurge, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 June 30, 2002, 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 June 30, 2002, 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. As of June 30, 2002, 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 June 30, 2002, 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. As of June 30, 2002, the Company has accrued the above liabilities. 10 enSurge, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. As of June 30, 2002, the Company has accrued the above liabilities. 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. As of June 30, 2002, the Company has accrued the above liabilities. 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. As of June 30, 2002, the Company has accrued the above liabilities. 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. As of June 30, 2002, the Company has accrued the above liabilities. 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. As of June 30, 2002, the Company has accrued the above liabilities. 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. As of June 30, 2002, the Company has accrued the above liabilities. NOTE 6 - FORGIVENESS OF DEBT During April 2002, the Company used available-for-sale securities to satisfy liabilities whereby the Company transferred 3,000,000 shares of Knowledge Transfer System, Inc. to two service providers in full satisfaction of $289,595 of accounts payable to the service providers. On the day of the exchange the shares were valued at $90,000 or $0.03 per share. The Company recognized a gain on forgiveness of debt totaling $199,595. In accordance with SFAS 145, the gain from debt forgiveness did not meet the conditions for being classified as extraordinary and therefore was included in continuing operations. The Company also exchanged 100,000 shares of Knowledge Transfer Systems, Inc. for consulting services valued at $3,000 or $0.03 per share. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations When used in this discussion, the words "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward- looking statements, and are urged to carefully review and consider the various disclosures elsewhere in this Form 10-QSB. 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. Results of Operations Sales for the three months ended June 30, 2002 and 2001 were respectively, $2,728 and $61,535. The Company's principal source of revenue for the three months ended, were from database marketing. NowSeven.com, Inc. is the only remaining company with sales. Cost of sales for the three months ended June 30, 2002 and 2001 were, respectively, $0 and $44,590. Prior years 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 three months ended June 30, 2002 and 2001 were, respectively, $70,891 and $156,845. These costs were mainly to keep operations of the parent and other companies viable. The Company has discontinued the following subsidiaries and their operations: Outbound Enterprises, Inc., Totalinet.net, Inc., Atlantic Technologies International, Inc., Internet Software Solutions, Inc. and Uniq Studio's, Inc. Also, the Company is in the process of selling the assets of iShopper Internet Solutions, Inc. EnSurge and its' subsidiarys have several outstanding law suits against them, 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. The Company has been unprofitable since inception (1998) and has incurred net losses in each quarter and year. The Company has no further stock for private placements. The cash availability will only come through the sale of its stock investments. The Company's financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. The Company's losses from operations and negative cash flows from operating activities raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is 12 dependent upon its ability to obtain additional financing. Furthermore, our funding of working capital and current operating losses will require additional capital investment. PART II - OTHER INFORMATION Item 1. 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%. 13 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. 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. 14 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. 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 None Item 6. Exhibits and Reports on Form 8-K (a) 99 Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C Section 1350) (b) Reports on Form 8-K During the period covered by this report, the Company filed no reports on Form 8-K. OTHER ITEMS There were no other items to be reported under Part II of this report. 15 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EnSurge, Inc. Date: September 20, 2002 /s/ Jeff A. Hanks ------------------ Jeff A. Hanks Chief Financial Officer, Secretary, Director 16 CERTIFICATION I, Scott Hosking, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of EnSurge, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; /s/ Scott Hosking ------------------------ Name: Scott Hosking Date: September 20, 2002 [EXPLANATORY NOTE REGARDING CERTIFICATIONS: Representations 4, 5 and 6 of the Certification as set forth in Form 10-QSB have been omitted, consistent with the Transition Provisions of SEC Exchange Act Release No. 34-46427, because this quarterly report of Form 10-QSB covers a period ending before the Effective Date of Rules 13a-14 and 15d-14.] I, Jeff Hanks, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of EnSurge, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; /s/ Jeff Hanks ------------------------ Name: Jeff Hanks Date: September 20, 2002 [EXPLANATORY NOTE REGARDING CERTIFICATIONS: Representations 4, 5 and 6 of the Certification as set forth in Form 10-QSB have been omitted, consistent with the Transition Provisions of SEC Exchange Act Release No. 34-46427, because this quarterly report of Form 10-QSB covers a period ending before the Effective Date of Rules 13a-14 and 15d-14.] 17