ensurge.htm

10-Q 1 ensurge.htm ENSURGE, INC. 10Q 2013-03-31 ensurge.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2013

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-54460

ENSURGE, INC.

(Exact name of registrant as specified in its charter)

Nevada	87-0431533
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1046 East University

Mesa, Arizona 85203

(Address of principal executive offices)

(480) 459-5833

(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X ] No [ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

There were 34,038,726 shares of common stock, $0.001 par value, issued and outstanding as of May 21, 2013.

ENSURGE, INC.

FORM 10-Q

QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS

		Page

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

	Consolidated Balance Sheets (Unaudited) as of March 31, 2013 and December 31, 2012	3

	(Unaudited) for the Three Months Ended March 31, 2013 and 2012 and from inception of exploration stage to March 31, 2013	4

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2013 and 2012 and from inception of exploration stage to March 31, 2013	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		9

Item 3. Quantitative and Qualitative Disclosures About Market Risk. ………………………		10

Item 4. Controls and Procedures		10


PART II - OTHER INFORMATION

Item 1. Legal Proceedings		11

Item 1A. Risk Factors		11

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		11

Item 3. Defaults Upon Senior Securities		11

Item 4. Mine Safety Disclosure		11

Item 5. Other Information		11

Item 6. Exhibits		11

Signatures		12

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ENSURGE, INC.

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

	March 31, 2013			December 31, 2012
ASSETS	(Unaudited)
Current Assets
Cash	$	614		$	15,252

Total Current Assets		614			15,252

Fixed assets (net of depreciation)		47,166			49,451

Total Other Assets		47,166			49,451

Total Assets	$	47,780		$	64,703

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable	$	186,471		$	171,750
Accrued liabilities		267,202			171,875
Accrued interest		56,333			14,771
Notes payable		1,662,500			1,662,500
Proceeds for common stock to be issued		1,360,000			1,360,000
Warrants derivative liability		76,438			903,142

Total Current Liabilities		3,608,944			4,284,038

Stockholders' Deficit
Common stock - $0.001 par value; 100,000,000 shares authorized; 34,038,726 and 34,038,726 shares outstanding, respectively		34,038			34,038
Additional paid-in-capital		55,209,889			55,209,889
Accumulated deficit		(23,315,973	)		(23,315,973	)
Exploration stage deficit		(35,489,118	)		(36,147,289	)

Total Stockholders' Deficit		(3,561,164	)		(4,219,335	)

Total Liabilities and Stockholders' Deficit	$	47,780		$	64,703

The accompanying notes are an integral part of these condensed financial statements.

ENSURGE, INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 AND FROM

INCEPTION OF EXPLORATION STAGE JANUARY 1, 2010 THROUGH MARCH 31, 2013

(UNAUDITED)

							From Inception of
							Exploration Stage
	For the Three Months Ended						January 1, 2010
	March 31,						Through
	2013			2012			March 31, 2013

Sales	$	-		$	-		$	-

Expenses
General and administrative		126,972			960,206			29,776,607

Total Expenses		126,972			960,206			29,776,607

Operating Loss		(126,972	)		(960,206	)		(29,776,607	)

Other income (expense)

Gain (Loss) on derivative		826,704			8,090,003			7,986,241
Derivative day-one loss		-			-			(11,970,479	)
Interest expense		(41,562	)		(27,500	)		(1,731,832	)
Interest income		1			139			3,559

Net Income (Loss)	$	658,171		$	7,102,436		$	(35,489,118	)

Basic Net Gain Per Common Share	$	0.02		$	0.22
Basic Weighted Average Common Shares Outstanding		34,038,726			32,607,407
Diluted Net Gain Per Common Share	$	0.02		$	0.17

Diluted Weighted Average Common Shares Outstanding		42,368,726			40,678,506

The accompanying notes are an integral part of these condensed financial statements.

ENSURGE, INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(UNAUDITED)

							From Inception of
							Exploration Stage
	For the Three Months Ended						January 1, 2010
	March 31,						Through
	2013			2012			March 31, 2013
Cash Flows From Operating Activities
Net income (loss)	$	658,171		$	7,102,435		$	(35,489,118	)
Adjustments to reconcile net income to net cash used in operating activities:
Common stock and options issued for services		-			718,402			26,738,679
Warrant derivative liability		(826,704	)		(8,090,003	)		(7,986,242	)
Amortization of debt discount		-			-			110,000
Stock issued for interest		-			-			90,000
Non-cash interest expense		-			-			302,500
Derivative day-one loss		-			-			11,970,479
Depreciation expense		2,285			1,629			11,724
Changes in operating assets and liabilities:
Increase (decrease) in trade accounts payable		14,721			19,537			177,785
Increase (decrease) in accrued expenses		41,562			-			38,000
Increase (decrease) in accrued liabilities		95,327			27,500			270,797
Net Cash Used in Operating Activities		14,638			(220,500	)		(3,765,396	)

Cash Flows From Investing Activities
Investment in fixed assets		-			-			(58,890	)
Net Cash Provided (Used) by Investing Activities		-			-			(58,890	)

Cash Flows From Financing Activities
Proceeds from notes payable		-			-			1,750,000
Repayments of notes payable		-			-			(500,000	)
Proceeds from exercise of warrants for common stock to be issued		-			-			1,360,000
Purchase treasury stock		-			-			(60,000	)
Proceeds from issuance of common stock		-			380,000			1,274,900
Net Cash Provided (Used) by Financing Activities		-			380,000			3,824,900

Net Increase (decrease) in Cash		(14,638	)		159,500			614
Cash at Beginning of Period		15,252			214,517			-
Cash at End of Period	$	614		$	374,017		$	614
Non-Cash Investing and Financing Activities:
Cash paid for interest	$	-		$	-
Cash paid for taxes	$	-		$	-

The accompanying notes are an integral part of these condensed financial statements.

ENSURGE, INC.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2013

NOTE 1–ORGANIZATION AND BASIS OF PRESENTATION

Organization and Liquidation – On October 16, 2000, iShopper.com, Inc. changed its name to Ensurge, Inc., which is referred to herein as the Company. On January 1, 2002, the Company began liquidation of its assets. During 2009 the Company started a new phase of operations with the mining industry; accordingly, the accompanying financial statements are presented on a GAAP basis of accounting, rather than on a liquidation basis.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, these financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. These unaudited condensed financial statements should be read in conjunction with the Company’s annual financial statements and the notes thereto for the year ended December 31, 2012, included in the Company’s annual report on Form 10-K, especially the information included in Note 1 to those financial statements, “Summary of Significant Accounting Policies.” In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to fairly present the Company’s financial position as of March 31, 2013, and its results of operations and cash flows for the three months ended March 31, 2013 and 2012. The results of operations for the three months ended March 31, 2013, may not be indicative of the results that may be expected for the year ending December 31, 2013.

Business Condition – The Company has suffered losses from operations, and the Company had a working capital deficit in the amount $3,608,330 at March 31, 2013.

During the month of October 2011 the Company entered into two twelve month convertible Notes Payable for $605,000 each, for a total funding of $1,210,000, with an initial issue discount of 10% and total proceeds of $1,100,000, which are collateralized by all the assets of the Company. These notes may be converted at a fixed price of $0.50 per share of the Company’s common stock, which may be converted at the option of the lender. These notes also include 950,000 warrants each for a total of 1,900,000 warrants at an exercise price of $1.00 per share and have a cashless exercise provision. The warrants have a 5 year term. In case of default, the Note may be converted into common stock at $0.50 per share. During November 2012, the Company negotiated an extension of these two notes payable, which are due on March 15, 2013 and are currently in default. The principal was increase from $550,000 per note to $756,250, or a total of $1,512,500. As part of this negotiation to extend the note, the Company agreed to pay a total of 900,000 shares of common stock.

Effective March 2, 2012, the Company accepted $380,000 in private placement funds from accredited investors in exchange for units consisting of seven hundred sixty thousand (760,000) shares of the Company’s common stock, plus three hundred eighty thousand (380,000) warrants with an exercise price of $1.00.

During November 2012 the Company entered into several 12 month notes payable for an aggregate of $150,000.

The proceeds of the financing are being used by the Company to fund the exploration for gold mines or to acquire relating mining assets, either directly or through one or more partnerships or joint ventures, in Brazil or elsewhere in South America.

Principles of Consolidation – The financial statements have been consolidated with its wholly owned subsidiary, Ensurge Brazil, LTDA., which was incorporated in Sao Paulo, Brazil on April 18, 2011. Currently the Brazil entity has no assets, liabilities, revenues or expenses.

Basic and Diluted Earnings Per Share – Basic earnings per common share is computed by dividing net gain by the weighted-average number of common shares outstanding during the period. Diluted gain 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. As of March 31, 2013, the Company had a total of 8,330,000 warrants outstanding which all have a 5 year term. As of March 31, 2013, the Company had a total of 7,500,000 options of which 7,500,000 have vested and none have been exercised. The options are all 10 year options with an exercise price ranging from $0.14 to $0.50.

Warrants:

The Company has granted warrants to purchase shares of Common Stock.

Warrants outstanding and exercisable at March 31, 2013 are as follows:

Range of exercise price		Number Outstanding		Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Aggregate Intrinsic Value

$	0.14 to $1.00		8,330,000	3.12 years	$	0.49	$	(3,998,400	)

Recently-Enacted Accounting Standards

Accounting Standards Update (“ASU”) No. 2011-09 through ASU No. 2013-07 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

NOTE 2 – COMMITMENTS AND CONTINGENCIES

As part of our notes payable agreement, the lending parties are entitled to royalty payments per the terms of each agreement. These royalties are based upon the contract between the wholly owned subsidiary, Ensurge Brasil, LTDA, and the mine owner in Brazil. However, this contract has currently expired and the Company feels there is no further obligation or liabilities to either the mine owner or the note holders for these royalties.

NOTE 3 – ISSUANCE OF STOCK

There has been no stock transactions for the quarter ending March 31, 2013.

NOTE 4 – LEGAL ISSUES

On March 25, 2013 a Complaint was filed against Ensurge, by Randall K. Edwards and Gaia, Silva, Gaede & Associates in the amount of $74,924 and $18,627, respectively. These are liabilities for services performed, however, due to lack of funding the Company has not been able to pay these amount owed. These liabilities are booked as part of accounts payable.

NOTE 5 – SUBSEQUENT EVENTS

During April 2013, the Company entered into a 60 day note payable in the amount of $15,000, with an annual interest rate of 10%. This note is with a related party.

On May 8, 2013, in order to more fully devote his time and attention to the funding and opportunities of the Company’s Brazilian subsidiary, Ensurge Brasil LTDA, the Company has accepted the resignation of Jordan Estra as the Company’s Director and President/CEO and caused his appointment to the Board of Directors of its subsidiary Ensurge Brasil LTDA. The Company’s CFO, Jeff Hanks, shall be the Company’s acting President until replacement.

On May 9, 2013, the Company entered into a 6 month note payable in the amount of $23,000, with Workhorse Capital Leasing, LLC, with an annual interest rate of 22%.

On May 15, 2013, the Company entered into an agreement with Next View Capital, LP and Zadar, LLC, which have notes payable with an aggregate total of $ $1,512,500. As part of this agreement, these two notes will be moved to the Company’s wholly owned subsidiary, Ensurge Brasil, LTDA, thereby releasing Ensurge, Inc. of this Liability. As part of this agreement the Company will issue 1,000,000 shares of common stock to each note holder.

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued, and has determined there are no other events to disclose.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

When used in this discussion, the words “expect(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-Q.

Recent Development and Business Plan

The Company is pursuing opportunities in the gold mining industry, with emphasis on opportunities in South America. Though several mining opportunities have been reviewed and rejected by the Company, research and investigation of mining opportunities is on-going.

Despite the Company’s efforts in seeking opportunities in the gold mining industry, the Company does not yet have definitive agreements in place, and there can be no assurance that its efforts to enter this industry will ultimately prove successful.

Results of Operations

The Company had no revenues for the three months ended March 31, 2013 and 2012. It continues to search out other opportunities or joint ventures to create operations and revenues.

General and administrative expenses for the three months ended March 31, 2013 and 2012 were $126,972 and $960,206, respectively. These costs are made up of engineering and drilling costs for projects, audit, legal, and consulting fees, along with travel expenses incurred while performing due diligence on current projects and looking for acquisitions or other business opportunities in Brazil.

Interest expense was $41,562 and $27,500 for the three months ended March 31, 2013 and 2012, respectively. The interest expense is loan interest from the notes payable the Company has incurred.

Interest income for the three months ended March 31, 2013 and 2012 were, respectively, $1 and $139. This income is from interest bearing cash bank accounts.

The warrant derivative income for the three months ended March 31, 2013 and 2012 were, respectively, a gain of $826,704 and $8,090,003. This income is due to change in value of the warrants derivative liability, which is determined, from a valuation model that uses the stock price as one of its input variables, from January to March 2013 and 2012.

Liquidity and Capital Resources

March 2, 2012, the Company accepted $380,000 in private placement funds from accredited investors in exchange for units consisting of seven hundred sixty thousand (760,000) shares of the Company’s common stock, plus three hundred eighty thousand (380,000) warrants with an exercise price of $1.00. The Company believes the sale is exempt from registration, pursuant to Section 4(2) of the Securities Act of 1933 (as amended), as a private transaction not involving a public offering.

During November 2012 the Company entered into several 12 month notes payable for an aggregate of $150,000, with an annual interest rate of 10%.

The Company has financed its operations to date primarily through private placements of equity securities and convertible debt instruments. The Company has been unprofitable since inception (1998) and has incurred net losses in each quarter and year. From the beginning of 2010 through March 31, 2013 the Company sold an aggregate of 8,941,000 warrants and 3,860,000 shares of common stock for $2,765,000. As part of this transaction the warrants have been paid for and exercised, but the common stock has not been requested, thus the Company has booked a current liability of $1,360,000 and a warrant derivative liability of $76,438, which valuation is determined on a quarterly basis based partially on the price of the common stock. This has created a working capital deficit in the amount of $3,608,330.

If the Company is unable to obtain additional funds to operate it will decrease its operations until such time that it is able to obtain additional financing for its operations.

The Company has made progress in creating relationships with Corporate and Tax Council, Banks, and Engineering firms within Brazil. The Company is continuing to look for appropriate opportunities in Brazil and South America. We will have to raise additional capital to fund current and future projects and would anticipate dilution to current investors as we close on additional equity capital.

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has sustained net losses from operations since it adopted its new business plan in January 2010, and it has limited liquidity. Management anticipates that the Company will be dependent, for the near future, on additional capital to fund its operating expenses and business operations. Management anticipates that the Company will need additional funding in order to continue its business operations. While the Company is continuing to look for new financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable to the Company. Failure to generate significant revenues or to raise additional capital would have an adverse impact on the Company’s ability to achieve its longer-term business objectives, and would adversely affect its ability to continue operating as a going concern.

Item 3. Qualitative and Quantitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures:

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2013. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

Changes in Internal Control:

During the most recently completed fiscal quarter, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2012, the Company entered into a contract with Andrew Barwicki, Inc. for investor relation consulting services. The Company paid Andrew Barwicki a one-time payment of 30,000 shares of the Company’s common stock.

Effective March 2, 2012, the Company accepted private placement funds from accredited investors. A total of $380,000 was received in exchange for units consisting of seven hundred sixty thousand (760,000) shares of the Company’s common stock, plus three hundred eighty thousand (380,000) warrants with an exercise price of $1.00.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosure

We have not engaged in any mining activities except for taking core samples, which were taken by a 3rd party consulting firm and consequently we have no mining safety issues.

Item 5. Other Information

On May 8, 2012 the Company issued a press release concerning the signing of a non-binding Heads of Agreement with Amery Trading to mine gold in Suriname.

On May 8, 2013, the Company issued a press release concerning the resignation of Jordan Estra as the Company’s Director and President/CEO and caused his appointment to the Board of Directors of its subsidiary Ensurge Brasil LTDA. The Company’s CFO, Jeff Hanks, shall be the Company’s acting President until replacement.

Item 6. Exhibits.

(a) Exhibits.

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

101.INS	XBRL Instance

101.XSD	XBRL Schema

101.CAL	XBRL Calculation

101.DEF	XBRL Definition

101.LAB	XBRL Label

101.PRE	XBRL Presentation

* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

SIGNATURES

Pursuant to the requirements 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 21, 2013	By:	/s/ Jeff A. Hanks
		Jeff A. Hanks, Chief Executive Officer (Principal Executive Officer)
May 21, 2013	By:	/s/ Jeff A. Hanks
		Jeff A. Hanks, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)