-----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, MyM5bWVLmVUdkjWOLLuT7hutXwYjEWrN/nlYMA67HiGuHiJ/FjtxI6Bh+OkkCBGB s1j2I3DlIgDFMWaftDXQYw== 0001050234-02-000164.txt : 20021224 0001050234-02-000164.hdr.sgml : 20021224 20021223173936 ACCESSION NUMBER: 0001050234-02-000164 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENSURGE INC CENTRAL INDEX KEY: 0000789879 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870431533 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-03275-D FILM NUMBER: 02867749 BUSINESS ADDRESS: STREET 1: 435 WEST UNIVERSAL CIRCLE STREET 2: ------ CITY: SANDY STATE: UT ZIP: 84070 BUSINESS PHONE: 801-601-2765 MAIL ADDRESS: STREET 1: 435 WEST UNIVERSAL CIRCLE STREET 2: --- CITY: SANDY STATE: UT ZIP: 84070 FORMER COMPANY: FORMER CONFORMED NAME: SUNWALKER DEVELOPMENT INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ISHOPPER COM INC DATE OF NAME CHANGE: 20000301 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 EXCHANGEACT OF 1934 For the Quarterly Period Ended September 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) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes[ ] No[ ] Not Applicable [X] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: There were 100,000,000 shares of common stock, $0.001 par value, issued and outstanding as of December 18, 2002. Of this total, 2,164,600 are being held in escrow and are not considered issued or outstanding for financial reporting purposes. 1 EnSurge, Inc. FORM 10-QSB QUARTER ENDED SEPTEMBER 30, 2002 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2002 and December 31, 2001 3 Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2002 and 2001 4 Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the Nine Months Ended September 30, 2002 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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 14 Item 3. Controls and Procedures 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of matters to a vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements EnSurge, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2002 2001 ------------ ------------ ASSETS Current Assets Cash $ 3,076 $ 7,300 Investment in securities available for sale - 487,999 Other current assets 19,377 28,377 ------------ ------------ Total Current Assets 22,453 523,676 Property and Equipment, (net of $7,401 and $4,181 of accumulated depreciation, respectively) 11,077 14,297 ------------ ------------ Total Assets $ 33,530 $ 537,973 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Trade accounts payable $ 1,531,002 $ 1,789,827 Accrued liabilities 1,789,688 1,555,875 Notes payable 2,408,877 2,419,253 ------------ ------------ Total Current Liabilities 5,729,567 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 (21,974,147) (21,494,717) ------------ ------------ Total Stockholders' Deficit (5,696,037) (5,226,982) ------------ ------------ Total Liabilities and Stockholders' Deficit $ 33,530 $ 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 Nine Months Ended September 30, Ended September 30, ------------------------ ------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ------------ Sales $ 379 $ 2,949 $ 3,741 $ 47,095 Cost of Sales - - - 24,533 ----------- ----------- ----------- ------------ Gross Profit 379 2,949 3,741 22,562 ----------- ----------- ----------- ------------ Expenses General and administrative 41,404 474,385 154,854 1,491,888 Realized loss from sale of securities - 160,000 - 160,000 Impairment of Securities available for sale 90,000 - 394,999 - Gain on forgiveness of debt - - (199,595) - Interest expense 45,396 43,015 132,913 160,336 ----------- ----------- ----------- ------------ Total Expenses 176,800 677,400 483,171 1,812,224 ----------- ----------- ----------- ------------ Net Loss From Continuing Operations (176,421) (674,451) (479,430) (1,789,662) Discontinued Operations - Loss from Operations of Discontinued Operations - (5,351,954) - (6,177,903) ----------- ----------- ----------- ------------ Net Loss $ (176,421) $(6,026,405) $ (479,430) $ (7,967,565) =========== =========== =========== ============ Basic and Diluted Loss Per Share Continuing operations - (0.01) - (0.02) Discontinued operations - (0.07) - (0.09) ----------- ----------- ----------- ------------ Basic and Diluted Loss Per Share $ (0.00) $ (0.08) $ (0.00) $ (0.11) =========== =========== =========== ============ Weighted Average Basic and Diluted Common Shares Outstanding 97,835,400 80,272,771 96,353,173 72,358,851 =========== =========== =========== ============ COMPREHENSIVE LOSS Net Loss (176,421) (6,026,405) (479,430) (7,967,565) Other Comprehensive Loss Unrealized Loss on investment in securities - (3,080,065) - (3,158,134) ----------- ----------- ----------- ------------ Comprehensive Loss $ (176,421) $(9,106,470) $ (479,430) $(11,125,699) =========== =========== =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 EnSurge, Inc. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 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 - - - (479,430) (479,430) ------------ ----------- ------------ ------------ ------------ Balance - September 30, 2002 97,835,400 $ 97,835 $ 16,180,275 $(21,974,147) $ (5,696,037) ============ =========== ============ ============ ============
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 Nine Months Ended September 30, -------------------------- 2002 2001 ------------ ------------ Cash Flows From Operating Activities Net loss $ (479,430) $ (7,967,565) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 3,220 25,574 Gain on forgiveness of debt (199,595) - Services paid with securities available for sale 3,000 - Impairment loss on securities available for sale 394,999 - Impairment of goodwill and software to be sold - 4,966,382 Amortization of software costs - 450,000 Amortization of goodwill - 661,644 Realized loss on sale of investments and disposal of fixed assets - 166,309 Amortization of unearned compensation - 57,075 Services paid with common stock - 1,525,012 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) Changes in operating assets and liabilities: Accounts receivable - 500 Trade accounts payable and accrued liabilities 264,582 (190,780) Other current assets 9,000 11,514 ------------ ------------ Net Cash Used in Operating Activities (4,224) (288,683) ------------ ------------ 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 - 118,500 Principal payments on notes payable - (5,646) ------------ ------------ Net Cash Provided by Financing Activities - 297,013 Net Increase (Decrease) in Cash (4,224) 1,594 Cash at Beginning of Period 7,300 287 ------------ ------------ Cash at End of Period $ 3,076 $ 1,881 ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements. 6 enSurge, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Non-Cash Investing And Financing Activities: Issuance of 10,375,586 shares of common stock in settlement of notes payable of $10,375. Accounts payable settled with available for sale securities of $90,000. 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 and nine months ended September 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 September 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. Reclassification - The accompanying financial statements have been reclassified to present the operations of Uniq and Stinky Feet as discontinued for the three and nine months ended September 30, 2001, due to their ceasing operations in November 2001. Operating results of Uniq and Stinky Feet for the three and nine months ended September 30, 2001 were losses of $5,351,954 and $6,177,903, respectively and are included in the loss from discontinued operations in the accompanying statements of operations. Net sales by Uniq for the three and nine months ended September 30, 2001 were $6,145 and $79,644, respectively. Recently Enacted Accounting Standards - New 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 be 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 nine months ended September 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. 8 NOTE 2- ADOPTION OF SFAS NO. 142 The Company adopted the provisions of SFAS No. 142 in its entirety on January 1, 2002. Under the new standard, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Other intangible assets will continue to be amortized over their estimated useful lives. The Company's remaining goodwill and intangible assets were fully impaired during 2001. Accordingly, there was no impairment of goodwill or intangible assets upon adoption of SFAS No. 142. The carrying values of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that they may not be recoverable. Goodwill amortization expense was $220,548 and $661,644 during the three and nine months ended September 30, 2001, respectively. The effects on net loss and basic and diluted loss per share of excluding such goodwill amortization is as follows: For the Three For the Nine Months Ended Months Ended September 30, September 30, ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ----------- ---------- ----------- Net loss, as reported $ (176,421) $(6,026,405) $ (479,430) $(7,967,565) Add back goodwill amortization - 220,548 - 661,644 ---------- ----------- ---------- ----------- Net loss, excluding goodwill amortization (176,421) (5,805,857) (479,430) (7,305,921) ========== =========== ========== =========== Basic and diluted loss per share: Net loss, as reported $ (0.00) $ (0.08) $ (0.00) $ (0.11) ========== =========== ========== =========== Net loss, excluding goodwill amortization $ (0.00) $ (0.07) $ (0.00) $ (0.10) ========== =========== ========== =========== NOTE 3- 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 nine months ended September 30, 2002, the Company recorded an other-than-temporary impairment on marketable securities of $394,999. During the nine months ended September 30, 2002, the Company exchanged $90,000 of marketable securities in the settlement of debt as discussed in Note 7 and $3,000 of marketable securities in payment of services. NOTE 4 - NOTES PAYABLE September 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 1,709,931 1,720,307 12% Notes payable, due on demand, unsecured 80,622 80,622 13% Notes payable, due on demand, unsecured 285,811 285,811 18% Notes payable, due on demand, unsecured 18,000 18,000 Non-interest bearing obligations incurred in connection with acquisition of businesses, due on demand, unsecured 4,354 4,354 ----------- ----------- Total Notes Payable $ 2,408,877 $ 2,419,253 =========== =========== 9 NOTE 5 - 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 6 - 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 September 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 September 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 September 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 September 30, 2002, the Company has accrued the above liability. 10 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 September 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 September 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 September 30, 2002, the Company has accrued the $68,437 for this 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 12 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. NOTE 7 - 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. 12 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 2002 and through today's date the Company has discontinued operations of three subsidiaries and sold one entity. 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 September 30, 2002 and 2001 were respectively, $379 and $2,949. Sales for the nine months ended September 30, 2002 and 2001 were respectively, $3,741 and $47,095. 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. There was zero cost of sales for the three and nine months ended September 30, 2001, and $0 and $24,533 for the three and nine months ended September 30, 2002. Prior year 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 and nine months ended September 30, 2002 were $41,404 and $154,854, respectively, and $474,385 and $1,491,888 for the three and nine months ended September 30, 2001. 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., StinkyFeet.com, Inc. and Uniq Studio's, Inc. EnSurge and its' subsidiaries 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 dependent upon its ability to obtain additional financing. Furthermore, our funding of working capital and current operating losses will require additional capital investment. 13 Item 3. Controls and Procedures Within 90 days prior to the filing of this quarterly report, the Company's Chief Executive Officer and its Chief Financial Officer evaluated the Company's disclosure controls and procedures as required pursuant to Rule 13a-14 under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and its Chief Financial Officer determined that such controls and procedures were effective. There were no significant changes in internal controls that could significantly affect the disclosure controls and procedures since the date of the evaluation. PART II - OTHER INFORMATION Item 1. Legal Proceedings EnSurge and its' subsidiaries 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, 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 judgment remains unsatisfied. As of September 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 September 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 September 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 September 30, 2002, the Company has accrued the above liability. 14 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 September 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 September 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 September 30, 2002, the Company has accrued the $68,437 for this 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 15 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. 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 September 30, 2002, the Company has accrued the above liability. Item 4. Submission of Matters to a Vote of Security Holders None Item 6. Exhibits and Reports on Form 8-K (a) 99.1, 99.2 - 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. 16 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: December 20, 2002 /s/ Jeff A. Hanks -------------------- Jeff A. Hanks Chief Financial Officer, Secretary, Director 17 CERTIFICATION I, Scott R. Hosking, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of EnSuge, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of 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; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, base on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 20, 2002 /s/ Scott R. Hosking _____________________________________ Scott R. Hosking Chief Executive Officer 18 CERTIFICATION I, Jeff A. Hanks, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of EnSuge, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of 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; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, base on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 20, 2002 /s/ Jeff A. Hanks _____________________________________ Jeff A. Hanks Chief Financial Officer, Secretary, Director 19 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of EnSurge, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I (We), Scott R. Hosking, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Scott R. Hosking - ----------------------- Scott R. Hosking Chief Executive Officer December 20, 2002 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of EnSurge, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I (We), Jeff A. Hanks, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Jeff A. Hanks - ------------------ Jeff A. Hanks Chief Financial Officer, Secretary, Director December 20, 2002 20 -----END PRIVACY-ENHANCED MESSAGE-----