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, 2003
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.)
Suite 610 - 375 Water Street
Vancouver, British Columbia V6B 5C6
(Address of Principal Executive Offices)
(604) 801-5566
(Issuer's Telephone Number, Including Area Code)
(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.
X Yes No
--- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: March 31, 2003: 519,751 shares of
common stock, $.001 par value per share.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying un-audited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' deficit in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the three
months ended March 31, 2003 are not necessarily indicative of the results that
can be expected for the year ending December 31, 2003.
Unaudited Consolidated Financial Statements of
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Quarter ended March 31, 2003 and 2002
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Balance Sheets (unaudited)
(expressed in United States dollars)
March 31, 2003 and December 31, 2002
=======================================================================
March 31, December 31,
2003 2002
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Assets
Current assets:
Cash and cash equivalents $ 34,860 $ 50,537
Accounts receivable 196,308 270,880
Prepaid expenses 6,405 523
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237,573 321,940
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Property and equipment, less
accumulated depreciation 79,380 80,983
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$ 316,953 $ 402,923
=====================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 1,031,848 $ 705,993
Accrued salaries 19,246 21,548
Unearned revenue - 455,633
Loan payable - current portion 85,161 160,327
Lease obligation - current portion 6,518 6,006
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1,142,773 1,349,507
Due to related parties 847,146 628,853
Note payable 30,280 28,016
Lease obligation 2,822 4,231
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Total liabilities 2,023,021 2,010,607
Stockholders' deficit:
Common stock 520 520
Additional paid-in capital 3,645,386 3,645,386
Deficit (5,238,089) (5,238,895)
Accumulated other comprehensive
income (loss) (113,885) (14,695)
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Total stockholders' deficit (1,706,068) (1,607,684)
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$ 316,953 $ 402,923
=====================================================================
3
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Statements of Operations
(expressed in United States dollars)
Three months ended March 31, 2003 and 2002
=========================================================================
March 31, March 31,
2003 2002
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Revenue $ 978,600 $ 547,871
Cost of revenue (721,138) (394,730)
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Gross profit 257,462 153,141
Operating expenses:
Depreciation 5,548 7,175
Remuneration 162,059 209,470
Legal and accounting 13,748 24,406
Consulting fees and computer services 13,752 43,702
Phones and utilities 4,353 4,108
Rent 23,574 9,652
Advertising and promotion 1,202 23,374
Other selling, general and administrative 20,900 23,643
245,136 345,530
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Income (loss) from operations 12,327 (192,389)
Other expense:
Interest expense (11,521) (21,729)
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Net income (loss) 806 (214,118)
Deficit, beginning of period (5,238,895) (4,542,324)
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Deficit, end of period $(5,238,089) $(4,756,442)
=======================================================================
Net income (loss) per common
share, basic and diluted $ 0.00 $ (0.41)
Weighted average common
shares outstanding,
basic and diluted 519,751 519,751
=======================================================================
4
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Statements of Cash Flows
(expressed in United States dollars)
Three month ended March 31, 2003 and 2002
=======================================================================
March 31, March 31,
2003 2002
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Cash provided by (used in):
Operations:
Net income $ 806 $(214,118)
Items not involving cash:
Depreciation 5,548 7,175
Changes in operating assets and liabilities:
Change in accounts receivable 95,938 (63,043)
Change in prepaid expenses (5,597) 5,054
Change in accounts payable and
accrued liabilities 249,121 464,753
Decrease in unearned revenue (478,212) (265,957)
Decrease in accrued salaries (4,149) 14,708
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Net cash used in operating activities (136,545) (51,428)
Cash flows used in investing activities:
Purchase of property and equipment (3,945) (7,459)
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Net cash used in investing activities (3,945) (7,459)
Cash flows from financing activities:
Repayment of lease obligation (897) -
Proceeds from (repayment of) loan payable (75,166) (1,304)
Proceeds from bank indebtedness - 9,053
Proceeds from notes payable 2,264 421
Proceeds from advances from
related parties 218,293 26,962
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Net cash provided by financing activities 144,494 35,132
Effect of exchange rate changes on cash (19,681) (632)
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Increase in cash and cash equivalents (15,677) (24,387)
Cash and cash equivalents,
beginning of year 50,537 24,387
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Cash and cash equivalents, end of year $ 34,860 $ -
=======================================================================
Supplementary information:
Interest paid $ 7,386 $ 12,562
Income taxes paid - -
=======================================================================
5
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
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.
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. On May 13,
2002, the Company declared a one-for-twenty reverse stock split whereby each
share of common stock issued and outstanding on May 13, 2002 was reclassified
and changed to one-twentieth of one share of common stock, rounded down to the
nearest whole share. As email owned 100% of the Company, this transaction has
been accounted for on a continuity-of-interests basis. In addition, on May 13,
2002, the Company's 1999 Equity Compensation Plan was effectively cancelled.
References to "the Company" refer to email for periods prior to May 13, 2002 and
Forge, Inc. thereafter.
2. Liquidity and future operations:
The Company had its first profitable quarter ending March 31, 2003 but has
sustained negative cash flows from operations since its inception. At March 31,
2003, the Company has negative working capital of $905,200. The Company's
ability to meet its obligations in the ordinary course of business is dependent
upon its ability to increase 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.
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
3. Basis of Presentation:
The unaudited consolidated financial statements of the Company at March 31, 2003
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 2003 are consistent with
those used in fiscal 2002. The results of operations for the three months ended
March 31, 2003 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2003. These interim financial statements should
be read in conjunction with the financial statements for the fiscal year ended
December 31, 2002 and the notes thereto.
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 income (loss) per share:
The Company computes net income (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 income (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 income (loss) per share is
computed using the weighted average number of common and potentially dilutive
common stock outstanding during the period. Basic and diluted net income (loss)
per share are the same as any exercise of options or warrants would be
anti-dilutive.
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
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:
--------------------------------------- -------- ---------
2003 2002
--------------------------------------- -------- ---------
Net (income) / loss $ (806) $214,118
--------------------------------------- -------- ---------
Other comprehensive (income) / loss:
Foreign currency translation adjustment 99,190 (4,070)
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Comprehensive loss $98,384 $210,048
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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:
- development of an e-commerce market;
- our ability to successfully execute our business model;
- our ability to obtain additional funding;
- growth in demand for Internet products and services; and
- 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, 2003 and 2002
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.
Total revenue for the three months ending March 31, 2003 was $978,600, an
increase of 78% over the quarter ending March 31, 2002. The increase over last
year reflects increased spending by existing clients, the addition of three new
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
Our operating expenses for the three months ending March 31, 2003 were $245,136,
compared to operating expenses of $345,530 in the same three month period of the
previous year. 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 decrease in salary costs from $209,470 for the three months ending March 31,
2002 to $162,059 for the three months ending March 31, 2003 reflects fewer
employees, no new staff additions and a reduction in employee benefits. Other
operating expenses also reflect a decrease in advertising and promotions due to
a one time cost associated with the re-branding of the operating entities, a
decrease in legal and accounting associated with the company merger and domicile
change, and an increase in rent resulting from our office move.
Liquidity and Capital Resources
We have sustained negative cash flows from operations since our inception;
however, a net income was generated for the first time this quarter. At March
31, 2003, we have negative working capital of $905,200. 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, the
overall increase in revenues and continued profitability.
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 $136,545 and $51,428 for the three
months ending March 31, 2003 and 2002, respectively. Cash used in operations
was primarily the result of decrease in unearned revenue of $478,212 for the
three months ending March 31, 2003 and net losses of $214,118 for the three
months ending March 31, 2002.
Net cash used in investing activities was $3,945 and $7,459 for the three months
ending March 31, 2003 and 2002, respectively and relates to purchases of
property and equipment.
Net cash provided by financing activities was $144,494 and $35,132 for the three
months ending March 31, 2003 and 2002, respectively. Cash provided by financing
activities for the period ending March 31, 2003 consists of an increase in
advances from related parties of $218,293. Cash provided by financing
activities for the three months ending March 31, 2002 consists of an increase in
bank indebtedness of $9,053 and $26,962 in increased advances from related
parties.
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-14 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, Mr. Daniel Hunter. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting management to material
information relating to us which is required to be included in our periodic SEC
filings. There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed our reports filed
or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
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.
EXHIBITS REQUIRED BY ITEM 601 OF REGULATION SB
Exhibit
Number Description of Exhibit
-------- ----------------------
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (1)
--------------------------------------------------------------------------------
(1) Filed as an Exhibit to this Quarterly Report on Form 10-QSB
--------------------------------------------------------------------------------
REPORTS ON FORM 8-K
We did not file any Current Reports on Form 8-K during the fiscal quarter ended
March 31, 2003.
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.
FORGE, INC.
Dated: May 16, 2003 By:
/s/ Daniel Hunter
Daniel Hunter
Chief Executive Officer
Principal Accounting and
Financial Officer, Director
CERTIFICATIONS
I, Daniel Hunter, CEO of Forge, Inc., hereby certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Forge, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I 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 me 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 my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and to 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. 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 my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 16, 2003 By: /s/ Daniel Hunter
Daniel Hunter
Chief Executive Officer,
Principal Accounting and
Financial Officer and Director