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: June 30, 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)
(Former Name emailthatpays.com, Inc., 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: August 12, 2002: 519,751 shares of
common stock, $.001 par value per share.
FORGE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED JUNE 30, 2002
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
As of June 30, 2002 (Unaudited) and December 31, 2001...................................3
Consolidated Statements of Operations and Deficit (Unaudited)
For the Three Months and Six Months Ended June 30, 2002 and June 30, 2001 ..............4
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2002 and June 30, 2001 ...............................5
Notes to Unaudited Consolidated Financial Statements ..........................................6-8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations ...............................................................9-11
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)
================================================================================================================
June 30, December 31,
2002 2001
----------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ - $ 24,387
Accounts receivable 323,970 87,195
Prepaid expenses 47,192 52,144
----------------------------------------------------------------------------------------------------------------
371,162 163,726
Property and equipment, less accumulated depreciation 93,058 97,335
----------------------------------------------------------------------------------------------------------------
$ 464,220 $ 261,061
================================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Bank indebtedness $ 7,146 $ -
Accounts payable and accrued liabilities 1,029,303 269,990
Accrued salaries 128,163 79,041
Unearned revenue - 259,369
Lease obligation - current portion 5,859 5,375
----------------------------------------------------------------------------------------------------------------
1,170,471 613,775
Due to related parties 566,650 498,322
Note payable 27,536 25,578
Lease obligation 7,443 10,041
----------------------------------------------------------------------------------------------------------------
Total liabilities 1,772,100 1,147,716
Stockholders' deficit:
Common stock 520 52,184
Additional paid-in capital 3,645,386 3,593,222
Deficit (4,917,393) (4,542,324)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (36,393) 10,263
----------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (1,307,880) (349,647)
----------------------------------------------------------------------------------------------------------------
$ 464,220 $ 261,061
================================================================================================================
See accompanying notes to unaudited financial statements
3
Forge, Inc.
Consolidated Statements of Operations and Deficit (unaudited)
================================================================================================================
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------
Revenue $ 744,853 $ 412,921 $ 1,292,724 $ 644,532
Cost of revenue (559,555) (360,724) (954,285) (549,618)
----------------------------------------------------------------------------------------------------------------
Gross profit 185,298 52,197 338,439 94,914
Operating expenses:
Depreciation 8,860 18,696 16,035 35,366
Salaries and fringe benefits 214,997 151,971 424,467 336,936
Stock-based compensation - 306,475 - 363,925
Legal and accounting 57,691 21,232 82,097 36,105
Consulting fees and
computer services 21,730 33,237 65,431 66,663
Phones and utilities 3,819 5,243 7,927 10,027
Rent 8,960 10,175 18,612 17,363
Advertising and promotion 10,112 443 33,486 2,232
Other selling, general
and administrative 13,892 7,212 37,535 21,983
----------------------------------------------------------------------------------------------------------------
340,061 554,684 685,591 890,600
----------------------------------------------------------------------------------------------------------------
Loss from operations (154,763) (502,487) (347,152) (795,686)
Other income (expenses):
Interest expense (6,188) (7,252) (27,917) (14,388)
----------------------------------------------------------------------------------------------------------------
(6,188) (7,252) (27,917) (14,388)
----------------------------------------------------------------------------------------------------------------
Net loss (160,951) (509,739) (375,069) (810,074)
Deficit, beginning of period (4,756,442) (3,308,373) (4,542,324) (3,008,038)
----------------------------------------------------------------------------------------------------------------
Deficit, end of period $(4,917,393) $(3,818,112) $(4,917,393) $(3,818,112)
================================================================================================================
Net loss per common share,
basic and diluted (0.31) (1.17) (0.72) (1.86)
Weighted average common
shares outstanding, basic
and diluted 517,588 435,201 518,682 435,683
See accompanying notes to the unaudited financial statements
4
Forge, Inc.
Consolidated Statements of Cash Flows (unaudited)
================================================================================================================
Six Months Ended
June 30, June 30,
2002 2001
----------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net loss $(375,069) $(810,074)
Items not involving cash:
Depreciation 16,035 35,366
Stock-based compensation - 363,925
Foreign exchange on subsidiary operations (46,156) (2,590)
Changes in operating assets and liabilities:
Change in accounts receivable (236,775) (144,818)
Change in prepaid expenses 4,952 5,848
Change in accounts payable and accrued liabilities 759,313 109,396
Change in unearned revenue (259,369) -
Change in accrued salaries 49,122 -
----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (87,947) (442,947)
Cash flows used in investing activities:
Purchase of property and equipment (11,758) (15,908)
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,758) (15,908)
Cash flows from financing activities:
Repayment of loans payable - (3,841)
Repayment of lease obligation (2,114) -
Proceeds from bank indebtedness 7,146 124,981
Proceeds from notes payable 1,958 -
Proceeds from (repayment of) advances from related parties 68,328 337,340
Issue of share capital - 375
----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 75,318 458,855
----------------------------------------------------------------------------------------------------------------
Decrease in cash (24,387) -
Cash, beginning of period 24,387 -
----------------------------------------------------------------------------------------------------------------
Cash, end of period $ - $ -
================================================================================================================
Supplementary information:
Interest paid 1,983 14,388
Income taxes paid 0 0
See accompanying notes to the unaudited financial statements.
5
FORGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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.
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 June 30, 2002, the Company has negative working capital
of $799,309. 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
June 30, 2002
3. Basis of Presentation:
The unaudited consolidated financial statements of the Company at June 30, 2002
and for the three month and six month periods 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 and six months ended June 30, 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.
On May 13, 2002, pursuant to the merger of email into the Company, the Company
effected a reverse stock split of email's outstanding common stock by exchanging
one share of the Company's common stock for 20 shares of email's common stock.
All earnings per share calculations have been retroactively restated to give
effect to this reverse stock split.
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
June 30, 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:
---------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Net loss $ 160,951 $ 509,739 $ 375,069 $ 810,074
Other comprehensive (income) / loss: 42,086 (21,093) 46,156 2,590
Foreign currency translation adjustment
---------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ 203,037 $ 530,832 $ 421,221 $812,664
---------------------------------------------------------------------------------------------------------------------
8
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 and Six Months Ending June 30, 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.
9
Revenues for the quarter ending June 30, 2002 was $744,853, an increase of 42%
over the first quarter of 2002 and a 55% increase over the quarter ending June
30, 2001. These increases reflect the return of two clients, an expansion of our
services into creative services and production, and seasonal fluctuations in
retail advertising, which typically are higher in the second and fourth
quarters. For the six months ending June 30, 2002, total revenues of $1,292,724
exceeded last year by 200%. This increase results from the return of previous
clients and an expansion of our services 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. Excluding these costs, our gross
profit margins have remained relatively constant.
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 $336,936 for the six months ending June 30,
2001 to $424,467 for the six months ending June 30, 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 and an increase in
legal and accounting fees due to the restructuring of the Company.
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 June 30, 2002, we have negative working capital of $799,309.
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 $87,947 and $442,947 for the six
months ending June 30, 2002 and 2001, respectively. Cash used in operations are
primarily the result of the net losses of $375,069 and $810,074, for the six
months ending June 30, 2002 and 2001, respectively.
Net cash used in investing activities was $11,758 and $15,908 for the six months
ending June 30, 2002 and June 30, 2001, respectively and relates to purchases
property and equipment.
10
Net cash provided by financing activities was $75,318 and $458,855 for the six
months ending June 30, 2002 and 2001, respectively. Cash provided by financing
activities for the period ending June 30, 2002 consists of an increase in bank
indebtedness of $7,146 and increased advances from related parties of $68,328.
Cash provided by financing activities for the six months ending June 30, 2001
consists of an increase in bank indebtedness of $124,981 and $337,340 in
advances from related parties.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On May 13, 2002 email merged into the Company, the effect of which was
was to:
(1) change the name from emailthatpays.com, Inc. to Forge, inc.;
(2) change the Company's state of incorporation from Florida to
Delaware; and
(3) effect a reverse stock split of email's outstanding common stock by
exchanging one share of the Company's common stock for 20 shares of
email's common stock.
The principal reasons for the change of the Company's state of
incorporation and a summary of the differences of the rights of a
shareholder under Florida law and Delaware law is contained in the
Definitive Proxy Statement, filed by email with the Securities and
Exchange Commission on April 9, 2002.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on May 2, 2002.
At the meeting three matters were voted on.
1. Election of three directors to serve a one-year term ending at the
2003 Annual Meeting. Daniel Hunter...Votes For: 6,432,853 Against:
0 Abstentions: 300 James MacKenzie...Votes For: 6,432,853 Against:
0 Abstentions: 300 Brian Cobbe...Votes For: 6,432,853 Against: 0
Abstentions: 300
2. Ratification of the selection of KPMG as independent auditors for
the fiscal year ending December 31, 2002.
Votes For: 6,432,853 Against: 0 Abstentions: 300
3. To approve the merger of email into the Company, the effect of
which was to:
o change the Company's name from emailthatpays.com, Inc. to Forge,
Inc.;
o change the Company's state of incorporation from Florida to
Delaware; and
o effect a reverse stock split of email's outstanding common stock
by setting an exchange ratio, as determined by email's Board of
Directors, in the merger of up to 20 shares of email's common
stock for one share of the Company's common stock.
Votes For: 5,674,423 Against: 425 Abstentions: 200
Broker non-votes: 785,305
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
Number Description
------ -----------
3.3 Certificate of Incorporation of Forge, Inc. *
3.4 Bylaws of Forge, Inc. *
3.5 Certificate of Meger for the State of Florida *
3.6 Certificate of Merger for the State of Delaware *
* Previously filed on Form 8-K12g3, filed on May 13, 2002.
12
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: August 13, 2002 By: /s/ Daniel Hunter
-----------------------------------
Daniel Hunter
Chief Executive Officer,
Principal Accounting and Financial
Officer and Director
13