U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
Commission file number: 000-26047
Forge, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 65-0609891
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
428 West Sixth Avenue
Vancouver, British Columbia V5Y1L2
(Address of Principal Executive Offices)
(604) 801-5566
(Issuer's Telephone Number, Including Area Code)
emailthatpays.com,Inc.
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: May 10, 2002: 10,395,507 shares of
common stock, $.005 par value per share.
FORGE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED MARCH 31, 2002
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
As of March 31, 2002 (Unaudited) and December 31, 2001..............................................3
Consolidated Statements of Operations and Deficit (Unaudited)
For the Three Months Ended March 31, 2002 and March 31, 2001 .......................................4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2002 and March 31, 2001 .......................................5
Notes to Unaudited Consolidated Financial Statements ......................................................6-9
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations ..........................................................................10-11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ................................................................................12
Item 2 - Changes in Securities and Use of Proceeds..........................................................12
Item 3 - Defaults Upon Senior Securities....................................................................12
Item 4 - Submission of Matters to a Vote of Security Holders ...............................................12
Item 5 - Other Transactions.................................................................................12
Item 6 - Exhibits and Reports on Form 8-K ..................................................................12
Signatures .................................................................................................13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Forge, Inc.
Consolidated Balance Sheets (unaudited)
---------------------------------------------------------------------------------------------------------------
March 31, December 31,
2002 2001
---------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ - $ 24,387
Accounts receivable 148,474 87,195
Prepaid expenses 47,150 52,144
---------------------------------------------------------------------------------------------------------------
195,624 163,726
Property and equipment, less accumulated depreciation 97,619 97,335
---------------------------------------------------------------------------------------------------------------
$ 293,243 $ 261,061
===============================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Bank indebtedness $ 9,053 $ -
Accounts payable and accrued liabilities 722,245 269,990
Accrued salaries 92,753 79,041
Unearned revenue - 259,369
Lease obligation - current portion 5,511 5,375
---------------------------------------------------------------------------------------------------------------
829,562 613,775
Due to related parties 525,284 498,322
Note payable 25,999 25,578
Lease obligation 8,601 10,041
---------------------------------------------------------------------------------------------------------------
Total liabilities 1,389,446 1,147,716
Stockholders' deficit:
Common stock 52,184 52,184
Additional paid-in capital 3,593,722 3,593,222
Deficit (4,756,442) (4,542,324)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment 14,333 10,263
---------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (1,096,203) (886,655)
---------------------------------------------------------------------------------------------------------------
$ 293,243 $ 261,061
===============================================================================================================
See accompanying notes to unaudited financial statements.
3
Forge, Inc.
Consolidated Statements of Operations and Deficit (unaudited)
---------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
2002 2001
---------------------------------------------------------------------------------------------------------------
Revenue $ 547,871 $ 231,611
Cost of revenue (394,730) (188,894)
---------------------------------------------------------------------------------------------------------------
Gross profit 153,141 42,717
Operating expenses:
Depreciation 7,175 16,670
Remuneration including stock-based compensation 209,470 242,415
Legal and accounting 24,406 14,873
Consulting fees and computer services 43,702 33,426
Phones and utilities 4,108 4,784
Rent 9,652 7,187
Advertising and promotion 23,374 1,789
Other selling, general and administrative 23,643 14,772
---------------------------------------------------------------------------------------------------------------
345,530 335,916
---------------------------------------------------------------------------------------------------------------
Loss from operations (192,389) (293,199)
Other income (expenses):
Interest expense (21,729) (7,136)
---------------------------------------------------------------------------------------------------------------
(21,729) (7,136)
---------------------------------------------------------------------------------------------------------------
Net loss (214,118) (300,335)
Deficit, beginning of period (4,542,324) (3,008,038)
---------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (4,756,442) $ (3,308,373)
===============================================================================================================
Net loss per common share, basic and diluted (0.02) (0.03)
Weighted average common shares outstanding,
basic and diluted (10,351,758) (8,723,093)
See accompanying notes to unaudited financial statements.
4
Forge, Inc.
Consolidated Statements of Cash Flows (unaudited)
---------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
2002 2001
---------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net loss $ (214,118) $ (300,335)
Items not involving cash:
Depreciation 7,175 16,670
Stock-based compensation - 57,450
Foreign exchange on subsidiary operations 4,070 23,683
Changes in operating assets and liabilities:
Change in accounts receivable (61,279) (17,228)
Change in prepaid expenses 4,994 397
Change in accounts payable and accrued liabilities 452,255 (34,273)
Change in unearned revenue (259,369) -
Increase in accrued salaries 14,212 -
---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (52,060) (253,636)
Cash flows used in investing activities:
Purchase of property and equipment (7,459) (12,740)
---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,459) (12,740)
Cash flows from financing activities:
Repayment of loans payable - (3,775)
Repayment of lease obligation (1,304) -
Proceeds from bank indebtedness 9,053 84,609
Proceeds from notes payable 421 -
Proceeds from (repayment of) advances from related parties 26,962 185,542
---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 35,132 266,376
---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (24,387) -
Cash, beginning of period 24,387 -
---------------------------------------------------------------------------------------------------------------
Cash, end of period $ - $ -
===============================================================================================================
Supplementary information:
Interest paid 12,562 7,136
Income taxes paid - -
See accompanying notes to unaudited financial statements.
5
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
1. The Company and description of business:
Forge, Inc. (the "Company") is incorporated in the state of Delaware
and is a "permission-based" e-mail marketing and integrated advertising
strategies service. The Company's services include the design, delivery,
tracking, and analysis of targeted "one-to-one" e-mail campaigns, customized
loyalty programs, comprehensive list management/brokerage packages and the
creation, integration and execution of both online and traditional advertising
strategies.
As described in Note 7, "Subsequent Events", on May 13, 2002 emailthatpays.com,
Inc. ("email"), the Company's parent corporation, was merged into the Company in
order to, among other things, change email's domicile from Florida to Delaware
and to change its name. References to "the Company" refer to email for periods
prior to May 13, 2002.
On October 22, 1999, the Company, then named Realm Production and Entertainment,
Inc. ("Realm"), a public company listed on the Over-the-Counter Bulletin Board
in the United States, issued 6,572,000 shares of its common stock in connection
with the merger of a wholly owned subsidiary of Realm with and into
emailthatpays.com ("email Nevada"), a company incorporated in the state of
Nevada. This transaction was accounted for as a recapitalization of email
Nevada, effectively as if email Nevada had issued common shares for
consideration equal to the net monetary assets of Realm. On October 27, 1999
Realm changed its name to tvtravel.com, Inc. and subsequently on December 21,
1999 to emailthatpays.com, Inc.
The Company's historical financial statements reflect the financial position,
results of operations and cash flows of email Nevada since its inception and
include the operations of Realm from the date of the effective recapitalization,
being October 22, 1999. Stockholders' equity gives effect to the shares issued
to the stockholders of email Nevada prior to October 22, 1999 and of the Company
thereafter.
email Nevada (formerly Hotel Media Group Inc.) was incorporated on June 26,
1998. In August 1999, it acquired 100% of Coastal Media Group Ltd ("Coastal"), a
full-service advertising agency founded in May 1998. A common group of
shareholders controlled both Coastal and email Nevada. For accounting purposes,
the transaction was considered to be an acquisition by Coastal for consideration
equal to the net assets and liabilities of email Nevada. Accordingly, the assets
and liabilities of email Nevada have been recorded at their carrying values in
the Company's accounts.
2. Liquidity and future operations:
The Company has sustained net losses and negative cash flows from operations
since its inception. At March 31, 2002, the Company has negative working capital
of $633,938. The Company's ability to meet its obligations in the ordinary
course of business is dependent upon its ability to establish profitable
operations or to obtain additional funding through public or private equity
financing, collaborative or other arrangements with corporate sources, or other
sources. Management is seeking to increase revenues through continued marketing
of its services; however additional funding will be required.
Management is working to obtain sufficient working capital from external sources
in order to continue operations. There is however no assurance that the
aforementioned events, including the receipt of additional funding, will occur
and be successful.
6
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
3. Basis of Presentation:
The unaudited consolidated financial statements of the Company at March 31, 2002
and for the three month period then ended include the accounts of the Company
and its wholly-owned subsidiaries and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in these interim
statements under the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accounting policies used in fiscal 2002 are consistent with
those used in fiscal 2001. The results of operations for the three months ended
March 31, 2002 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2002. These interim financial statements should
be read in conjunction with the financial statements for the fiscal year ended
December 31, 2001 and the notes thereto included in the Company's Form 10-KSB
filed with the SEC on March 29, 2002.
4. Foreign currency:
The functional currency of the operations of the Company's wholly-owned Canadian
operating subsidiaries is the Canadian dollar. Assets and liabilities measured
in Canadian dollars are translated into United States dollars using exchange
rates in effect at the balance sheets date with revenue and expense transactions
translated using average exchange rates prevailing during the period. Exchange
gains and losses arising on this translation are excluded from the determination
of income and reported as foreign currency translation adjustment (which is
included in the comprehensive income (loss)) in stockholders' equity.
5. Net loss per share:
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic loss per share is computed
using the weighted average number of common stock outstanding during the
periods, and gives retroactive effect to the shares issued on the
recapitalization described in note 1. Diluted loss per share is computed using
the weighted average number of common and potentially dilutive common stock
outstanding during the period. As the Company generated net losses in each of
the periods presented, basic and diluted net loss per share are the same as any
exercise of options or warrants would be anti-dilutive.
7
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
6. Comprehensive income (loss):
Effective January 1, 1999, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" SFAS No. 130 which establishes standards for
reporting comprehensive income (loss) and its components in financial
statements. Other comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. Comprehensive loss
for each of the periods presented is as follows:
--------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------
Net loss $214,118 $300,335
Other comprehensive (income) / loss: (4,070) (23,683)
Foreign currency translation adjustment
--------------------------------------------------------------------
Comprehensive loss $210,048 $276,652
--------------------------------------------------------------------
8
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
7. Subsequent Events:
On May 2, 2002, at the annual meeting of the shareholders of emailthatpays.com,
Inc., a Florida corporation ("email"), the shareholders approved the merger of
email with and into the Company, a wholly owned subsidiary of email incorporated
in the State of Delaware. On May 13, 2002, an Agreement and Plan of Merger
between email and the Company was executed by an authorized signatory of each
corporation and Articles of Merger was filed with the Delaware Secretary of
State. The effect of the foregoing was to:
(1) change the name from emailthatpays.com, Inc. to Forge, Inc.;
(2) change emails state of incorporation from Florida to Delaware; and
(3) effect a reverse stock split of email's outstanding common stock by
establishing an exchange ratio of one share of the Company's common
stock for 20 shares of email's common stock.
Effective May 13, 2002, the Company's trading symbol on Nasdaq's
Over-the-Counter Bulletin Board changed from EMTP to FGRA.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
This Report includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and about our subsidiary companies,
including, among other things:
o development of an e-commerce market;
o our ability to successfully execute our business model;
o our ability to obtain additional funding;
o growth in demand for Internet products and services; and
o adoption of the Internet as an advertising medium.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Report might not occur.
Results of Operations
For the Three Months Ending March 31, 2002 and 2001
Revenue
We earn revenues by delivering online direct marketing, promotional, and
informational offers and by developing and implementing integrated marketing and
advertising strategies. We charge our advertisers based upon a number of
criteria including offers delivered, qualified leads generated, online
transactions executed and marketing services performed.
Revenue consists of the gross value of our billings to clients and includes the
price of the advertising that we purchase from offline and online suppliers.
Under marketing services contracts, we recognize the cost of the advertising we
purchase for our clients as an expense and the payments we receive from our
clients for this advertising as revenue. Under these arrangements, we are
ultimately responsible for payment to suppliers for the cost of the advertising
that we purchase.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising, which are typically higher
during the second and fourth calendar quarters. In addition, expenditures by
advertisers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns.
To date, the vast majority of our revenue has been generated from the provision
of integrated marketing and advertising strategies as our email delivery system,
relational database program and Canadian email marketing sales offices were not
fully operational until February 2000. With increased focus, time and
expenditure being directed to these online services, we anticipate proportionate
increases in revenue, both in absolute and percentage terms. However, if these
services do not continue to achieve market acceptance, we cannot assure you that
we will generate business at a sufficient level to support our continued
operations.
10
Total revenue for the three months ending March 31, 2002 was $547,871, an
increase of 136% over the quarter ending March 31, 2001. The increase over last
year reflects increased spending by existing clients and an expansion into
creative services and production.
Cost of revenue
Cost of revenue represents the cost of advertising purchased for clients. The
increase over last year corresponds to our increased revenue. As well, our
expansion into creative services and production involved less direct costs and
resulted in an increase in our overall margin.
Operating Expenses
Over the last two years we have substantially reduced our operating costs
through consolidation of our two western Canada offices into one location,
closure of our eastern Canada sales office, controlled use of professional
services and reduction of our internal technological staff, outsource the
maintenance and storage of our technological facilities and utilize IT
professionals on a project-by-project contract basis. On an on-going basis we do
not anticipate reducing our operating expenses any further.
The increase in salary costs from $184,965 for the three months ending March 31,
2001 to $209,470 for the three months ending March 31, 2002 reflects new staff
additions and an increase in employee benefits. Other operating expenses also
reflect an increase in advertising and promotions due to a one time cost
associated with the re-branding of the operating entities.
The decrease in stock-based compensation is due to the vested options being
fully amortized and recognized as at December 31, 2001.
Liquidity and Capital Resources
We have sustained net losses and negative cash flows from operations since our
inception. At March 31, 2002, we have negative working capital of $633,938.
Advances from a company controlled by a principal stockholder are funding our
current operations. Our ability to meet our current obligations is dependent
upon these advances.
We need to raise funds in order to continue operations and implement our
strategies of client realization and servicing, expansion and maintenance of
products, brand awareness, technological advancement and infrastructure
development. We cannot assure you that additional financing will be available on
terms favorable to us, or at all. If adequate funds are not available on
acceptable terms, our ability to continue operations, implement our strategies,
take advantage of unanticipated opportunities, or otherwise respond to
competitive pressures will be significantly limited.
Net cash used in operating activities was $52,060 and $253,636 for the three
months ending March 31, 2002 and 2001, respectively. Cash used in operations was
primarily the result of the net losses of $214,118 and $300,335, for the three
months ending March 31, 2002 and 2001, respectively.
Net cash used in investing activities was $7,459 and $12,740 for the three
months ending March 31, 2002 and 2001, respectively and relates to purchases of
property and equipment.
Net cash provided by financing activities was $35,132 and $266,376 for the three
months ending March 31, 2002 and 2001, respectively. Cash provided by financing
activities for the period ending March 31, 2002 consists of a increase in bank
indebtedness of $9,053 and increased advances from related parties of $26,962.
Cash provided by financing activities for the three months ending March 31, 2001
consists of an increase in bank indebtedness of $84,609 and $185,542 in
increased advances from related parties.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On February 11, 2002 a former employee exercised options granted to him
under the terms of the 1999 Equity Compensation Plan and purchased
93,750 shares of common stock at a price of $0.005 per share.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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.
EMAILTHATPAYS.COM, INC.
Dated: May 14, 2002 By: /s/ Daniel Hunter
--------------------------------------
Daniel Hunter
Chief Executive Officer
Principal Accounting and Financial
Officer, Director