U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ----------- to -----------
Commission file number 000-26047
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Forge, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 65-0609891
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Suite 610-375 Water Street, Vancouver, BC V6B 5C6
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(Address of Principal Executive Offices) (Zip Code)
(604) 801-5566
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock
(Title of Class)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $2,059,738.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates as of March 31, 2003 was $31,975, based on the average of
the closing bid and asked prices of the Registrant's common stock as reported by
the NASD OTC Bulletin Board.
As of March 31, 2003, the Registrant had outstanding 519,751 shares of common
stock.
Transitional Small Business Disclosure Format (check one).
YES NO X
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PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Report includes forward-looking statements as defined under US
securities law. 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:
- our ability to obtain additional funding;
- our ability to successfully execute our business model;
- development and growth in demand for permission-based
email marketing; and
- adoption of email strategies into integrated
advertising plans.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Report might not occur. Actual results could vary
materially from expectations.
ITEM 1. DESCRIPTION OF BUSINESS
CORPORATE STRUCTURE
Forge, Inc. (the "Company"), (formerly emailthatpays.com, Inc tvtravel.com, Inc.
and formerly Realm Production and Entertainment Inc.), was incorporated under
the laws of the State of Florida in May 1995.
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. All common shares and per share data have been
retroactively adjusted to reflect this stock split. In addition, on May 13,
2002, the Company's 1999 Equity Compensation Plan was effectively cancelled.
All common shares and per share data have been retroactively adjusted to reflect
this stock split.
OVERVIEW OF BUSINESS
This Overview of Business contains forward-looking statements. See our
Cautionary Statement Regarding Forward-Looking Statements.
GENERAL
We are an integrated advertising strategies and electronic direct marketing
company. Combining online direct marketing technology with promotional,
marketing and brand expertise, our infrastructure is set up to deliver a full
slate of innovative marketing solutions to a vast array of products and
organizations.
Our services include the creation, integration and execution of both online and
offline advertising strategies, the design, delivery, tracking and analysis of
targeted "one-to-one" e-mail campaigns, customized loyalty programs, and
comprehensive list management / brokerage packages.
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We believe permission-based electronic direct marketing (eDirect marketing)
utilizing the Internet, in particular email marketing, is revolutionizing the
direct marketing industry. We believe electronic direct marketing is a more
effective medium of delivering messages and tracking related activities. We
believe electronic marketing can generate results for marketers at a fraction of
traditional direct marketing costs. Through the integrated approach of our 100%
owned subsidiaries, Forge Marketing ("FORGE") and Ignite Communications Ltd.
("Ignite"), we are positioned to help businesses communicate and market more
effectively with their customers.
FORGE utilizes a relational database and custom delivery mechanisms that provide
the technology to deliver, track, and analyze highly targeted online
"one-to-one" marketing campaigns and custom loyalty programs. These
comprehensive email-marketing systems deliver a seamless end-to-end solution
that enables marketers to develop and sustain responsible, two-way relationships
with audiences while avoiding the problems associated with sending untargeted
messages. Our edirect marketing team represents over five years experience in
developing marketing strategies and technology.
Ignite, a full service advertising agency, supplies proven expertise in the
creation, integration and execution of both online and offline advertising
strategies. The Internet affects every company, whether it is competing in the
information arena or locally against international competition. With expertise
in both traditional advertising and e-commerce, we believe Ignite understands
how technology is changing the industry and can position clients to take
advantage of these changes now and in the future. Over the past year we have
strengthened our creative strategic abilities. We intend to continue to be
proactive and think out of the traditional agency box to create results.
THE MARKET
We feel that the Internet has emerged as a global medium, enabling millions of
people worldwide to communicate, share information and conduct business
electronically. This emergence, combined with the rapid growth and complexity
of the Internet as an advertising and marketing vehicle, has greatly expanded
the importance being placed by businesses on the use of the Internet to enhance
relationship management, expand brand development and cultivate new and existing
customers.
We believe that Electronic Direct Marketing is now recognized as an effective
way to enhance customer relationships, expand brand development, and cultivate
new and existing customers. Permission based email marketing in particular is
emerging as a valuable marketing strategy for all types of marketers.
We have found that EDirect Marketing represents a number of significant
advantages:
- Substantial cost savings over traditional Direct Marketing options
- Rapid customer feedback
- Development and execution of advertising campaigns in 48 hours compared
with a much longer time offline
- Data mining capabilities that allow messages to be tailored to customer
profiles, thereby generating higher response rates
- Interactive formats that enable a customer to purchase immediately
online
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BUSINESS DEVELOPMENT STRATEGY
We believe that the rapid growth and complexity of edirect marketing will lead
many companies to outsourced solutions. Therefore, we believe there is a
significant opportunity for a company who can demonstrate their experience and
capabilities in developing cost effective email marketing and integrated
advertising strategies. We intend to continue to implement the following
strategies:
- Build market awareness and recognition for EDirect Marketing
- Target industries and businesses that represent the greatest potential
for email marketing adoption and growth
- Develop and present case studies to organizations in other regions and
markets who could benefit from our experience
- Research and utilize emerging relevant technologies primarily from
application service providers (ASP's)
- Leverage our advertising contacts in pursuit of email marketing
opportunities
- Expand our email marketing relationships to include advertising agency
opportunities
- Pursue strategic acquisitions and alliances to access new geographic
markets and to add complimentary services
OUR PRODUCT
We believe that the future of marketing communications belongs to businesses
that can combine personalized one to one marketing strategies with the decoding
of consumer behavior through better research and profiling. We believe our
eDirect Marketing Approach provides comprehensive behavior tracking that is
valuable in building better strategies and stronger relationships. Our
advertising agency team represents broad experience in working with numerous
brands, retailers, and media.
Our team comes from the agency, client and media worlds. We believe that
together our team can build more powerful integrated marketing communications
with EDirect Marketing strategies.
Our products and services include:
1. Integrated (traditional/offline and online) marketing solutions.
2. Creative direction and production.
3. Innovative delivery technologies.
4. Multiple email deployment formats.
5. Permission-based email list access.
6. Customer profile and tracking systems.
7. Importing and cleansing email databases.
8. Customized content based on consumer behavior, demographics or
requests.
9. High-speed email delivery.
10. Auto responses and viral forwards.
11. Email surveys and polls.
COMPETITION
The market for Internet advertising and direct marketing is intensely
competitive, rapidly changing and highly fragmented. With no significant
barriers to entry and increasing attention being placed on the Internet as a
means of advertising and direct marketing, we expect that competition will
continue to increase. As we expand the scope of our product and service
offerings, we may compete with a greater number of media companies across a wide
range of advertising and direct marketing services. We may also face
competition from established online portals and community web sites, traditional
list brokers, banner advertising managers, online advertising technology
providers, customer management and retention service companies and traditional
advertising agencies.
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EDirect Marketing is in a high growth mode. Large direct marketing firms are
exploring edirect marketing but most are not currently providing sophisticated
capabilities. Some marketers are attempting to develop in-house edirect
marketing strategies and deployment with mixed success. Our ability to compete
and generate revenue from businesses will depend on our skill in utilizing the
expertise we possess and edirect technologies we employ to provide superior
strategies and execution and stay ahead of the pack.
CUSTOMERS
The Company generated $1,377,000 of revenue from three customers. These three
customers account for over 67% of total revenue.
SUPPLIERS
Our primary suppliers provide advertising media through television, radio,
outdoor and print. These sources of media are readily available to the Company
in the marketplace.
The Company's four largest suppliers of media are Pattison Outdoor, Rogers
Publishing, Corus Entertainment and Standard Radio.
PATENTS AND TRADEMARKS
None.
GOVERNMENT APPROVAL REQUIREMENTS
None.
GOVERNMENTAL REGULATIONS AFFECTING OUR BUSINESS MODEL
None.
EMPLOYEES
We currently have 12 employees.
RISK RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN AND FAILURE TO
OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO CONTINUE OPERATIONS AND
PURSUE FUTURE GROWTH
Advances from Daniel Hunter, our Chief Executive Officer and a company
controlled by Mr. Hunter 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. If additional funds are raised through the issuance of
equity or convertible debt securities, the percentage ownership of our
stockholders will be reduced and these securities might have rights, preferences
or privileges senior to those of our current stockholders.
WE HAVE A HISTORY OF OPERATING LOSSES AND FUTURE LOSSES ARE LIKELY
We incurred a net loss of $696,751 during the year ended December 31, 2002 and
$1,534,286 during the year ended December 31, 2001. We require further spending
and financing to implement our strategies of client realization and servicing,
expansion and maintenance of products, brand awareness, technological
advancement and infrastructure development. As a result, we may experience net
losses and negative cash flows for the next few quarters.
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The auditors' report on our December 31, 2002 consolidated financial statements
includes an additional explanatory paragraph that states that due to the
Company's need to generate cash from operations and obtain additional financing,
substantial doubt exists about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
You have limited information about us with which to evaluate our business
strategies and performance and an investment in our common stock. Our limited
operating history makes it difficult to forecast future operating results. We
cannot be certain that revenues will increase at a rate sufficient to achieve
and maintain profitability. Even if we were to achieve profitability in any
period, we might fail to sustain or increase that profitability on a quarterly
or annual basis.
OUR EXISTING CLIENT BASE IS CONCENTRATED AND THE LOSS OF A MAJOR CLIENT WOULD BE
DIFFICULT TO REPLACE
Three clients currently account for over 67% of our revenues. The loss of any
of these clients would significantly damage our revenue base and opportunities
for growth. We cannot guarantee that these clients will remain with us or that
we will be able to access new clients to replace them.
OUR SUCCESS DEPENDS UPON BROAD MARKET ACCEPTANCE OF PERMISSION EMAIL MARKETING
SERVICES AND WE ARE UNCERTAIN IF OR WHEN SUCH MARKET ACCEPTANCE WILL OCCUR.
We expect to derive an increasing portion of our revenues from electronic direct
marketing services. 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. The Internet has not existed long
enough as an advertising medium to demonstrate its effectiveness relative to
traditional advertising media. The market for permission email marketing
services is in its infancy, and we are not certain whether our target customers
will widely adopt and deploy this technology. Even if they do so, they may not
choose our products for technical, cost, support or other reasons. Adoption of
permission email marketing services, particularly by those entities that have
historically relied upon traditional means of direct marketing, such as
telemarketing and direct mail, requires the broad acceptance of a new and
substantially different approach to direct marketing. Enterprises that have
already invested substantial resources in other advertising methods may be
reluctant or slow to adopt our new approach.
COMPETITION FOR INTERNET ADVERTISING AND DIRECT MARKETING IS INTENSE AND COULD
ADVERSELY AFFECT OUR BUSINESS.
The market for Internet advertising and direct marketing is intensely
competitive, rapidly changing and highly fragmented. With no significant
barriers to entry and increasing attention being placed on the Internet as a
means of advertising and direct marketing, we expect that competition will
continue to increase in the near term. Our ability to compete and generate
revenue from businesses will depend on our skill in utilizing the expertise and
EDM technology we have to provide superior strategies and execution.
As we expand the scope of our product and service offerings, we may compete with
a greater number of media companies across a wide range of advertising and
direct marketing services. Many of these companies have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than we do. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products or services to
address the needs of our prospective advertisers and advertising agency
customers. As a result, we may not be able to compete effectively and
competitive pressures may result in price reductions, reduced gross margins and
an inability to gain market share.
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OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES EXERCISE SIGNIFICANT CONTROL
OVER OUR COMPANY.
Some of our directors and executive officers, and certain of their affiliates,
individually and as a group, effectively control us and direct our affairs and
business, including any determination with respect to the acquisition or
disposition of assets by us, future issuance's of common stock or other
securities by us, declaration of dividends on our common stock and the election
of directors. This concentration of ownership also may have the effect of
delaying, deferring or preventing a change in control of our company.
FAILURE TO SAFEGUARD MEMBER PRIVACY COULD AFFECT OUR REPUTATION AMONG CONSUMERS.
An important feature of our strategy is our ability to capture list member
profiles on behalf of our clients. Security and privacy concerns may cause
consumers to resist providing the personal data necessary to support this
profiling capability. Usage of the Forge Marketing program could decline if any
well-publicized compromise of security occurred. As a result of these security
and privacy concerns, we may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
IF WE ARE UNABLE TO MANAGE OUR EXPECTED GROWTH, OUR BUSINESS WILL SUFFER.
We are unable to assure that our revenues will continue to grow. However,
in the rapidly evolving market for permission edirect marketing services, our
ability to implement our business plan and successfully develop and offer our
products and services requires an effective planning and management process. We
anticipate that our future operations will place a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our operational, financial and managerial controls and our reporting
systems and procedures. We also will need to continue to expand, train and
manage our work force.
TO REMAIN COMPETITIVE, WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGES IN OUR
INDUSTRY
The Internet and our market are characterized by rapidly changing technologies,
frequent new product and service introductions, short development cycles,
evolving industry standards and intense competition. We must adapt to rapidly
changing technologies by maintaining and improving the performance features and
reliability of our services. We may experience technical difficulties that could
impact the operation of existing systems or delay the successful development,
introduction or marketing of new products and services.
CONTINUED DEVELOPMENT AND USE OF THE INTERNET INFRASTRUCTURE IS CRITICAL TO OUR
ABILITY TO OFFER OUR SERVICES
We depend heavily on third-party providers of Internet and related
telecommunication services to operate our online direct marketing service.
Internet service providers have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems. If outages or delays occur frequently in the future,
Internet usage and the usage of our products and services, could grow more
slowly or decline. If Internet usage grows, the Internet infrastructure may not
be able to support the demands placed on it by this growth and its performance
and reliability may decline.
GOVERNMENT REGULATION AND THE LEGAL UNCERTAINTIES OF DOING BUSINESS ON THE
INTERNET COULD NEGATIVELY IMPACT OUR BUSINESS.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the cost
of communicating on the Internet and negatively affect the demand for our direct
marketing solutions or otherwise harm our business. Laws and regulations may be
adopted covering issues such as user privacy, pricing, libel, acceptable
content, taxation and quality of products and services. This legislation could
hinder growth in the use of the Internet generally and decrease the acceptance
of the Internet as a communications, commercial and direct marketing medium.
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The laws governing the Internet remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. This may impose additional burdens on companies conducting
business over the Internet.
WE FACE RISKS ASSOCIATED WITH THIRD PARTY CLAIMS AND LITIGATION RELATING TO
INTELLECTUAL PROPERTY RIGHTS
Our business activities may infringe upon the proprietary rights of others, and
other parties may assert infringement claims against us. A successful claim of
product infringement against us and our failure or inability to license the
infringed or similar technology could harm our business. From time to time,
third parties may assert exclusive patent, copyright, trademark and other
intellectual property rights to technologies and related standards that are
important to us. Any claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, result in an injunction which would prohibit us from offering a
particular product or service or require the payment of monetary damages.
ITEM 2. DESCRIPTION OF PROPERTY
Under an operating lease with an expiration dated December 31, 2005 we lease
6,500 square feet of space at Suite 610-375 Water Street, Vancouver, British
Columbia at an annual cost of $86,198 for year 2003 and $99,644 for years 2004
and 2005.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded through the NASD Over-the-Counter Bulletin Board
Trading System. From April 1998 until October 1999 our common stock was listed
under the symbol "RMPE". In connection with our name change on October 27, 1999,
our trading symbol changed to "TVCM". In connection with our name change on
December 21, 1999, our trading symbol changed to "EMTP". In connection with our
name change on May 13,2002, our trading symbol changed to "FRGA".
The following table presents the range of high and low bid prices for our common
stock for the periods indicated. The quotations reflect inter-dealer prices and
do not include retail mark-up, mark-down or commissions, and may not represent
actual transactions. The quotations prior to June 30, 2002 have been adjusted
to retroactively reflect the Company's reverse stock split of one for twenty
shares.
High Low
January 1, 2001 - March 31, 2001 6.20 3.80
April 1, 2001 - June 30, 2001 5.00 3.60
July 1, 2001 - September 30, 2001 3.80 1.60
October 1, 2001 - December 31, 2001 14.00 2.00
January 1, 2002 - March 31, 2002 5.40 0.80
April 1, 2002 - June 30, 2002 0.80 0.25
July 1, 2002 - September 30, 2002 0.25 0.25
October 1, 2002 - December 31, 2002 0.25 0.15
As of December 31, 2002 the closing bid price of our common stock was $0.15. At
December 31, 2002, there were 80 holders of record of 519,751 shares of common
stock. There are approximately 228,018 shares held in street name.
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No cash dividends have been declared with respect to our common stock since
inception. We are not likely to pay any dividends in the foreseeable future. We
intend to reinvest any earnings in our operations.
The transfer agent for our securities is StockTrans, Inc., 44 West Lancaster
Avenue, Ardmore, Pennsylvania.
RECENT SALES OF UNREGISTERED SECURITIES
On March 5, 2000, the Company issued and sold an aggregate of 13,750 shares of
common stock at $100 per share pursuant to Rule 506 of the Securities Act of
1933, as amended. After deducting a commission / investment-banking fee of 8%
or $110,000 paid to LCP Capital Corp., the net consideration received for this
share issuance is $1,265,000. In connection with this share issuance, the
Company issued warrants to purchase 5,000 shares of common stock with an
exercise price of $100.00 and an expiry date of March 5, 2003.
On April 26, 2000, pursuant to Section 4(2) of the Securities Act of 1933, as
amended, the Company issued 1,000 shares of common stock in exchange for
promotional goods valued at $45,000.
On June 6, 2000, in connection with the March 5, 2000 share issuance, the
Company issued warrants to purchase a further 16,250 shares of common stock.
These warrants have an exercise price of $65.00 and an expiry date of June 6,
2003.
On June 15, 2001, a terminated employee exercised options, (which had been
granted to him under the terms of the 1999 Equity Compensation Plan), to
purchase 3,750 shares of common stock at a price of $.100 per share. The
issuance of the shares of common stock was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
On July 4, 2001, the Company completed a private placement of five units
pursuant to Regulation S of the Securities Act of 1933, as amended. The five
units were issued for an aggregate purchase price of $333,335 and consisted of
an aggregate of 83,333 shares of Common Stock and warrants to purchase an
aggregate of 83,333 shares of Common Stock; three units, consisting of an
aggregate of 49,999 shares and an equal number of warrants were issued to Camino
Enterprises Ltd., in exchange for the cancellation of $200,001 of debt owed to
Camino Enterprises Ltd.; one unit, consisting of 16,666 shares and an equal
number of warrants, was issued to a third party and the proceeds received by the
Company were used to repay $66,667 of debt owed to Camino Enterprises and Mr.
Hunter; one unit, consisting of shares and an equal number of warrants, was
issued to another third party partially in exchange for the cancellation of
$52,000 of debt owed to such third party and partially upon receipt of $14,667;
the $14,667 was used to repay $14,667 of debt owed to Camino Enterprises and Mr.
Hunter. The warrants had a term of six months, expired on January 4, 2002 and
were not exercised.
On February 11, 2002, a terminated employee exercised options, (which had been
granted to him under the terms of the 1999 Equity Compensation Plan), to
purchase 4,687 shares of common stock at a price of $.100 per share. The
issuance of the shares of common stock was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
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. All common shares and per share data have been
retroactively adjusted to reflect this stock split. In addition, on May 13,
2002, the Company's 1999 Equity Compensation Plan was effectively cancelled.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. See Cautionary
Statement Regarding Forward-Looking Statements.
The following discussion should be read in conjunction with our audited
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Report.
OVERVIEW
We are an integrated advertising strategies and permission-based edirect
marketing company. Combining online direct marketing technology with
promotional, marketing and brand expertise, our infrastructure is set up to
deliver a full slate of innovative marketing solutions to a vast array of
products and organizations.
Our services include the creation, integration and execution of both online and
offline advertising strategies, the design, delivery, tracking and analysis of
targeted "one-to-one" e-mail campaigns, customized loyalty programs, and
comprehensive list management / brokerage packages.
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. In the current attached financial statements,
all common shares and per share data have been retroactively adjusted to reflect
this stock split. The 1999 Equity Compensation Plan was effectively cancelled on
May 13, 2002.
RESULTS FROM OPERATIONS
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 opposed to our email
services which have grown over the past 2 years but represent less than 7% of
our overall billings. 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.
Revenues for the year ending December 31, 2002 were $2,059,738, an increase of
52% over the year ending December 31, 2001. This increase results from increased
spending from two major clients and the addition of one major client. This new
client and two recurring clients account for over 67% of our revenues.
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COST OF REVENUE
Cost of revenue represents the cost of advertising purchased for clients and
directly corresponds to our revenue levels. Additionally, during fiscal 2002 we
strengthened our creative strategic capabilities and consulting services
consequently generated appreciably more billings for these services than in the
previous year. As these services do not involve the purchase of advertising,
our cost of revenues as a percentage of revenue is 5% less than in 2001.
OPERATING EXPENSES
Operating expenses for the year ending December 31, 2002 totaled $1,191,980, a
decrease of $587,562 from the year ending December 31, 2001. Excluding
stock-based compensation, there was an overall increase in operating expenses
from last year of $46,672 (4%). As our creative and consulting revenue increases
so does the need for outsourcing consultants on a per project basis. We also
incurred an increase in general and administrative costs due to our office move
in October of 2002.
For the year ending December 31, 2002 we have no recorded non-cash stock
compensation expenses, a decrease of $634,324 over the year ending December 31,
2001. This decrease is the result of changes to the estimated service life of
the individuals holding the options. As the individuals holding the options are
no longer employees of the Company, the unamortized deferred compensation
applicable to their vested options has been fully amortized and recognized as an
expense in 2001. The unamortized deferred compensation applicable to the
unvested options has been written off to additional paid-in capital.
LIQUIDITY AND CAPITAL RESOURCES
We have sustained net losses and negative cash flows from operations since our
inception. As of December 31, 2002 we have negative working capital of
$1,027,567. Advances from Daniel Hunter, our Chief Executive Officer and a
company controlled by Mr. Hunter are funding our current operations. Our
ability to meet our current obligations is dependent upon these advances.
Our ability to meet our obligations in the ordinary course of business is
dependent upon our 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. We are seeking to
increase revenues through continued marketing of our services; nonetheless
additional funding will be required.
We are 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.
Net cash used in operating activities was $243,156 and $452,883 for the years
ending December 31, 2002 and 2001, respectively. Cash used in operations was
primarily the result of net losses.
Net cash used in investing activities was $14,452 and $16,027 for the years
ending December 31, 2002 and 2001, respectively and relates to purchases of
property and equipment.
Net cash provided by financing activities was $288,117 and $490,603 for the
years ending December 31, 2002 and 2001, respectively. Cash provided by
financing activities for the year ending December 31, 2002 consists of $130,531
in advances from related parties and $160,327 from a loan payable. Cash
provided by financing activities for the year ending December 31, 2001 consists
mainly of $718,857 in advances from related parties. These funds were utilized
in its entirety as working capital.
At December 31, 2002, we have no material capital commitments that will impact
expenditures in 2003.
--------------------------------------------------------------------------------
Page 12
ITEM 7. FINANCIAL STATEMENTS
Audited Consolidated Financial Reports for Years ended December 31, 2002 and
2001.
- Independent Auditors Report
- Consolidated Balance Sheets
- Consolidated Statements of Operations
- Consolidated Statement of Stockholders' Deficit and
Comprehensive
Income (Loss)
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH 16(A) OF THE EXCHANGE ACT.
Our directors and executive officers, their ages and positions are set forth
below:
Name Age Title
------------------------- --- ------------------------------------
Daniel Hunter 43 Chief Executive Officer, Chief
Financial Officer and Director
Donald James MacKenzie 44 President and Secretary, Director
Mr. Hunter was appointed our Chief Executive Officer and a Director in October
1999. Mr. Hunter was appointed Chief Executive Officer and a Director of email
Nevada in July 1999. Since September 1998, Mr. Hunter has been the Chief
Executive Officer and a Director of Coastal Media Group Ltd. From 1993 to 1998,
Mr. Hunter was an account executive and Partner at Canaccord Capital and has
participated in the financing of numerous private and public companies.
Mr. MacKenzie was appointed our President, Secretary, and a Director in October
1999. Mr. MacKenzie has been the Secretary, Treasurer, and a Director of email
Nevada since its inception in June 1998. From 1990 to 1998, Mr. MacKenzie was a
senior account executive at BCTV, a major local television station in Vancouver.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, certain of
our officers and persons who own more than ten percent of our common stock
(collectively the "Reporting Persons") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and to furnish us with
copies of these reports.
Based on representations received from Reporting Persons and upon review
of Form 3 and 4 filings, all filings required to be made by the Reporting
Persons for the year 2002 were made in a timely manner,
ITEM 10. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the cash compensation and
certain other components of the compensation received by (i) Daniel Hunter and
(ii) Donald James MacKenzie
--------------------------------------------------------------------------------
Page 13
Summary Compensation Table
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------
Awards Payouts
--------------------------------------------------------------------------------
Year Salary Bonus Other Restricted Securities LTIP All
Annual Stock Underlying Payouts Other
Compen Award Options/ Compen
sation SAR sation
------ -------- ------- ------ --------- -------- ------ -------
----------------------------------------------------------------------------------------------------------
Daniel Hunter 2002 $100,470
----------------------------------------------------------------------------------------------------------
Chief Executive Officer 2001 $145,311 - - - - - -
----------------------------------------------------------------------------------------------------------
2000 $146,455 - - - - - -
----------------------------------------------------------------------------------------------------------
1999 $ 89,584 - - - - - -
----------------------------------------------------------------------------------------------------------
Donald James MacKenzie. 2002 $ 88,650 $1,155 (1)
----------------------------------------------------------------------------------------------------------
President 2001 $134,045 - - - - $2,342 (1)
----------------------------------------------------------------------------------------------------------
2000 $122,700 - - - - - $2,448 (1)
----------------------------------------------------------------------------------------------------------
1999 $103,684 - - - - - $ 776 (1)
----------------------------------------------------------------------------------------------------------
(1) Term life insurance premiums paid by us.
The following Option / SAR Grants Table shows no information regarding grants of
stock options in any of the fiscal years to the executive officers named in the
Summary Compensation Table.
There were no stock options granted in this last completed fiscal year to the
executive officers named in the Summary Compensation Table.
The following Aggregate Options / SAR Exercises in and Fiscal Year-End Option /
SAR Value Table provides information concerning each exercise of stock options
(or tandem SARs) and freestanding SARs during the last completed fiscal year by
the executive officers named in the Summary Compensation Table and the fiscal
year-end value of unexercised options and SARs. The company effectively
cancelled their Equity Compensation Plan on May 13, 2002.
Aggregate Options / SAR Exercises in and Fiscal Year-End Option /
SAR Value Table
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs At In-the-Money Options/
Share FY-End (#) SARs at FY-End ($)
Acquired On Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
-------- -------- ------------- -------------
Daniel Hunter - - 0/0 0/0
------------------------------------------------------------------------------------
Donald James MacKenzie - - 0/0 0/0
------------------------------------------------------------------------------------
THE COMPANY EFFECTIVELY CANCELLED THE EQUITY COMPENSATION PLAN ON MAY 13, 2002.
--------------------------------------------------------------------------------
Page 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the latest fiscal year end, the stock
ownership of each named executive officer, directors, all executive officers and
directors as a group, and of each person known by us to be a beneficial owner of
5% or more of our common stock. Except as otherwise noted, each person listed
below is the sole beneficial owner of the shares and has sole investment and
voting power of such shares. No person listed below has any option, warrant or
other right to acquire additional securities of us except as otherwise noted.
Security Ownership Table
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Owner Percent of Class
---------------------- ----------------- ------------------
Daniel Hunter (2) 124,999 24.5
Donald James MacKenzie 75,000 14.4
All executive officers and 199,999 38.9
directors as a group (3)
(1) Unless otherwise indicated, the business address of all beneficial owners is
Suite 610-375 Water Street, Vancouver, BC V6B 5C6.
(2) Includes 124,999 shares held by Camino Enterprises Ltd. Mr. Hunter is the
sole shareholder of Camino Enterprises Ltd.
(3) Includes shares held by Messrs. Hunter and MacKenzie.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As presented in the following table, Mr. Hunter, our Chief Executive Officer,
has advanced funds to us for working capital purposes both personally and
through Camino Enterprises Ltd., a company of which he is the sole shareholder.
--------------------------------------------------------------------------------
December 31, December 31,
2002 2001
--------------------------------------------------------------------------------
Controlled company $ 141,701 $ 129,449
--------------------------------------------------------------------------------
Stockholder $ 487,151 $ 368,873
--------------------------------------------------------------------------------
------------ -----------
--------------------------------------------------------------------------------
$ 628,853 $ 498,322
--------------------------------------------------------------------------------
The advance from the stockholder and the controlled company are unsecured, bear
interest at an annual rate of 7%, have no set terms of repayment and are not
callable during 2003.
--------------------------------------------------------------------------------
Page 15
On July 4, 2001, the Company completed a private placement of five units. The
five units were issued for an aggregate purchase price of $333,335 and consisted
of an aggregate of 83,332 shares of Common Stock and warrants to purchase an
aggregate of 83,332 shares of Common Stock; three units, consisting of an
aggregate of 50,000 shares and an equal number of warrants were issued to Camino
Enterprises Ltd., in exchange for the cancellation of $200,001 of debt owed to
Camino Enterprises Ltd.; one unit, consisting of 16,666 shares and an equal
number of warrants, was issued to a third party and the proceeds received by the
Company were used to repay $66,667 of debt owed to Camino Enterprises and Mr.
Hunter; one unit, consisting of 16,666 shares and an equal number of warrants,
was issued to another third party partially in exchange for the cancellation of
$52,000 of debt owed to such third party and partially upon receipt of $14,667;
the $14,667 was used to repay $14,667 of debt owed to Camino Enterprises and Mr.
Hunter. The warrants had a term of six months, expired on January 4, 2002 and
were not exercised.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
2.1 Agreement and Plan of Merger and Reorganization, dated as of September 17,
1999, by and among Realm Production and Entertainment, Inc., Realm Acquisition
Corp., and emailthatpays.com (Previously filed)
3.1 Articles of Amendment to the Articles of Incorporation of Realm Production
and Entertainment, Inc. (Previously filed)
3.2 Articles of Amendment to the Articles of Incorporation of tvtravel.com, Inc.
(Previously filed)
3.3 Certificate of Incorporation of Forge, Inc. (Previously filed)
3.4 Bylaws of Forge, Inc. (Previously filed)
3.5 Certificate of Merger for the State of Florida (Previously filed)
3.6 Certificate of Merger for the State of Delaware (Previously filed)
4.1 1999 Equity Compensation Plan (Previously filed)
21 Subsidiaries. (Previously filed)
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (4)
(b) Reports on Form 8-K
None.
--------------------------------------------------------------------------------
Page 16
ITEM 14. CONTROLS AND PROCEDURES
As required by Rule 13a-15 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 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 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.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Forge, Inc.
By:
/s/ Daniel Hunter
-------------------
Daniel Hunter, Chief Executive Officer,
Principal Accounting and Financial Officer,
Director
By:
/s/ Donald James MacKenzie
-----------------------------
Donald James MacKenzie, President
and Secretary, Director
In accordance with the Securities Exchange Act of 1934, this Report has
been duly signed below by the following persons on behalf of the Registrant in
the capacities and on March 29, 2002.
By: /s/ Daniel Hunter
-------------------
Daniel Hunter, Chief Executive Officer,
Principal Accounting and Financial Officer, Director
By: /s/ Donald James MacKenzie
-----------------------------
Donald James MacKenzie, President and Secretary, Director
--------------------------------------------------------------------------------
Page 17
CERTIFICATIONS
I, Dan Hunter, Chief Executive Officer of Forge, Inc., hereby certify that:
1. I have reviewed this annual report on Form 10-KSB of Forge, Inc.;
2. Based on my knowledge, this annual 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 annual
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. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclose 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 annual 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 annual
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. The registrant's other certifying officers and 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. There registrant's other certifying officers and I have indicated in this
annual 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: April 11, 2002 By: /s/ Daniel Hunter
-------------------
Daniel Hunter
Chief Executive Officer,
Principal Accounting and
Financial Officer and
Director
--------------------------------------------------------------------------------
Page 18
Forge, Inc.
Index to Audited Consolidated Financial Statements
Years ended December 31, 2002 and 2001
With Independent Auditors' Report
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operation F-3
Consolidated Statement of Stockholders' Deficit and Comprehensive Income
(Loss) F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-20
--------------------------------------------------------------------------------
Page 20
Audited Consolidated Financial Statements of
Forge, Inc.
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
Page 21
Audited Consolidated Financial Statements of
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Years ended December 31, 2002 and 2001
KPMG
KPMG LLP Telephone (250) 480-3500
Chartered Accountants Telefax (250) 480-3539
St. Andrew's Square II www.kpmg.ca
800 - 730 View Street
Victoria BC V8W 3Y7
Canada
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Forge, Inc.
We have audited the accompanying consolidated balance sheets of Forge, Inc.
(formerly emailthatpays.com, Inc.) as of December 31, 2002 and 2001 and the
related consolidated statements of operations, stockholders' deficit and
comprehensive income (loss) and cash flows for the years ended December 31, 2002
and 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forge, Inc.
(formerly emailthatpays.com, Inc.) as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for the years ended December 31,
2002 and 2001 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
Forge, Inc. (formerly emailthatpays.com, Inc.) will continue as a going concern.
As discussed in note 2 to the consolidated financial statements, the Company's
recurring losses from operations and stockholders' deficit and its need to
generate cash from operations and obtain additional financing raise substantial
doubt about its ability to continue as a going concern. Management plans as to
these matters are also described in note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG LLP
Chartered Accountants
Victoria, Canada
February 21, 2003
F-1
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Balance Sheets
(expressed in United States dollars)
December 31, 2002 and 2001
---------------------------------------------------------------
2002 2001
---------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 50,537 $ 24,387
Accounts receivable 270,880 87,195
Prepaid expenses 523 52,144
-----------------------------------------------------------------
321,940 163,726
Property and equipment, less
accumulated depreciation (note 5) 80,983 97,335
-----------------------------------------------------------------
$ 402,923 $ 261,061
=================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued
liabilities $ 705,993 $ 269,990
Accrued salaries 21,548 79,041
Unearned revenue 455,633 259,369
Loan payable - current portion
(note 7) 160,327 -
Lease obligation - current
portion (note 9) 6,006 5,375
-----------------------------------------------------------------
1,349,507 613,775
Due to related parties (note 6) 628,853 498,322
Note payable (note 8) 28,016 25,578
Lease obligation (note 9) 4,231 10,041
-----------------------------------------------------------------
Total liabilities 2,010,607 1,147,716
Stockholders' deficit
(notes 10 and 11):
Common stock 520 520
Additional paid-in capital 3,645,386 3,644,886
Deficit (5,238,895) (4,542,324)
Accumulated other comprehensive
income (loss) (14,695) 10,263
-----------------------------------------------------------------
Total stockholders' deficit (1,607,684) (886,655)
-----------------------------------------------------------------
Commitment (note 15)
-----------------------------------------------------------------
$ 402,923 $ 261,061
==================================================================
See accompanying notes to consolidated financial statements.
F-2
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Statements of Operations
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
---------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------
Revenue $ 2,059,738 $ 1,358,465
Cost of revenue (1,498,519) (1,058,630)
---------------------------------------------------------------------
Gross profit 561,219 299,835
Operating expenses:
Depreciation 31,304 69,643
Remuneration including stock-based
compensation of $nil
(2001 - $634,324) 642,585 1,379,522
Legal and accounting 111,236 71,883
Consulting fees and computer
services 181,813 125,619
Phones and utilities 19,320 19,465
Rent 38,474 36,751
Advertising and promotion 54,230 20,824
Other selling, general and
administrative 113,018 55,835
---------------------------------------------------------------------
1,191,980 1,779,542
---------------------------------------------------------------------
Loss from operations (630,761) (1,479,707)
Other expense:
Interest (65,810) (54,579)
---------------------------------------------------------------------
Net loss $ (696,571) $(1,534,286)
=====================================================================
Net loss per common share,
basic and diluted $ (1.34) $ (3.23)
Weighted average common
shares outstanding,
basic and diluted (note 3(l)) 519,236 475,023
=====================================================================
See accompanying notes to consolidated financial statements.
F-3
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Statements of Stockholders' Deficit and Comprehensive Income (Loss)
(expressed in United States dollars)
Year ended December 31, 2002
----------------------------------------------------------------------------------------------
Accumulated
other
Deferred compre-
Additional stock hensive Stock-
Common paid in compen- income holders'
stock capital Deficit sation (loss) deficit
----------------------------------------------------------------------------------------------
Balance at
December 31, 2000 $ 436 3,577,136 (3,008,038) (900,200) (18,981) (349,647)
Shares issued in
connection with:
Exercise of stock
options (3,750
shares) - 375 - - - 375
Private placement for
cash/reduction of debt
(66,666 shares) 66 266,602 - - - 266,668
Private placement for
cash/reduction of debt
(16,666 shares) 16 66,651 - - - 66,667
Cancellation or change
in option status (50) (287,200) - 287,250 - -
Share options issued for
services 60 21,314 - - - 21,374
Cancellation of shares (8) 8 - - -
Amortization of deferred
compensation - - - 612,950 - 612,950
Net loss - - (1,534,286) - - (1,534,286)
Other comprehensive income
(loss):
Foreign exchange trans-
lation adjustment - - - - 29,244 29,244
----------------------------------------------------------------------------------------------
Balance at
December 31, 2001 520 3,644,886 (4,542,324) - 10,263 (886,655)
Shares issued in
connection with:
Exercise of stock
options (4,687 shares) - 500 - - - 500
Net loss (696,571) - - (696,571)
Other comprehensive income
(loss):
Foreign exchange
translation adjustment - - - - (24,958) (24,958)
----------------------------------------------------------------------------------------------
Balance at
December 31, 2002 $ 520 3,645,386 (5,238,895) - (14,695) (1,607,684)
==============================================================================================
See accompanying notes to consolidated financial statements.
F-4
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Consolidated Statements of Cash Flows
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
-------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net loss $(696,571) $(1,534,286)
Items not involving cash:
Depreciation 31,304 69,643
Stock-based compensation - 634,324
Changes in operating assets
and liabilities:
Change in accounts receivable (178,737) (19,797)
Change in prepaid expenses 52,796 (1,936)
Change in accounts payable
and accrued liabilities 422,146 64,075
Increase in unearned revenue 185,411 270,885
Decrease in accrued salaries (59,505) 64,209
-------------------------------------------------------------------
Net cash used in operating activities (243,156) (452,883)
Cash flows used in investing
activities:
Purchase of property and equipment (14,452) (16,027)
-------------------------------------------------------------------
Net cash used in investing activities (14,452) (16,027)
Cash flows from financing activities:
Repayment of lease obligation (5,179) (6,199)
Proceeds from (repayment of) loan
payable and bank indebtedness 160,327 (250,728)
Proceeds from notes payable 2,438 28,358
Proceeds from advances from
related parties 130,531 718,857
Issue of common shares for cash - 375
-------------------------------------------------------------------
Net cash provided by financing
activities 288,117 490,663
Effect of exchange rate changes
on cash (4,359) 2,634
-------------------------------------------------------------------
Increase in cash and cash equivalents 26,150 24,387
Cash and cash equivalents,
beginning of year 24,387 -
-------------------------------------------------------------------
Cash and cash equivalents,
end of year $ 50,537 $ 24,387
===================================================================
Supplementary information:
Interest paid $ 51,068 $ 54,579
Income taxes paid - -
Non-cash transactions:
Issue of common shares for
repayment of debt - 333,335
Cancellation of options - 287,250
===================================================================
See accompanying notes to consolidated financial statements.
F-5
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
1. The Company and description of business:
Forge, Inc. (the "Company") is a "permission-based" email marketing and
integrated advertising strategies service. The Company's services include the
design, delivery, tracking, and analysis of targeted "one-on-one" email
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 the Company's effective domicile was changed from Florida to
Delaware by way of a merger between the Company's parent corporation,
emailthatpays.com, Inc. ("email") (a Florida corporation) and the Company (a
Delaware corporation). The surviving corporation Forge, Inc. issued one share
for every twenty shares of email, thus effecting a reverse stock split. As email
owned 100% of the Company, this transaction has been accounted for on a
continuity-of-interests basis. 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 has sustained net losses and negative cash flows from operations
since its inception. At December 31, 2002, the Company has negative working
capital of $1,027,567. For the year ended December 31, 2002, the Company has
used $243,156 cash in operating activities. At December 31, 2002, the Company
has a total stockholders' deficit of $1,607,684.
The Company's ability to meet its obligations in the ordinary course of business
is dependent upon its ability to establish profitable operations and positive
cash flows from operating activities or to obtain additional funding through
public or private equity financing, collaborative or other arrangements.
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 at current levels for a reasonable period of
time into the future. There is however no assurance that the aforementioned
events, including the receipt of additional funding, will occur and be
successful. Failure to generate sufficient cash flow, will require the Company
to amend or reduce operations.
F-6
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and are presented
in United States dollars. The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are Canadian and
wholly-owned. All significant inter-company balances and transactions have been
eliminated in the consolidation process.
(b) Use of estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, and the reported amounts
of expenses during the period. The valuation of stock compensation is a
significant area requiring the use of estimates. Actual results could differ
from the estimates used in the preparation of consolidated financial statements.
(c) Revenue recognition:
The Company earns revenue by charging fees for sending targeted e-mail and for
providing integrated marketing and advertising solutions. Revenue is recognized
in accordance with contractual arrangements which generally is when e-mail is
transmitted and services are performed. Amounts received prior to services
being performed are recorded as unearned revenue.
(d) Cash and cash equivalents:
Cash and cash equivalents are defined as all highly liquid marketable securities
with original maturities of three months or less.
F-7
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(e) 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 consolidated balance sheet dates 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 other comprehensive income (loss)) in
stockholders' equity.
(f) Property and equipment:
Property and equipment are recorded at cost and are depreciated at rates which
will reduce original cost to estimated residual value over the useful life of
each asset. Maintenance and repairs are charged to expense as incurred, and
improvements and betterments are capitalized. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in the
consolidated statements of operations and deficit for the period in which it is
realized.
The annual rates used to compute depreciation on a declining balance basis are
as follows:
---------------------------------------------
Asset Rate
---------------------------------------------
Office furniture and fixtures 20%
Computer hardware 30%
Computer software 100%
---------------------------------------------
Leasehold improvements are amortized over the term of the lease.
(g) Capital leases and obligations:
The asset value and amount of the capital lease obligations recorded at the
beginning of the lease term are calculated based upon the present value of the
minimum lease payments. Assets under a capital lease are depreciated at the
same rates as property and equipment.
(h) Computer development software:
Programming, application development and enhancement costs associated with the
Company's relational database program and Web site products are expensed as
incurred.
F-8
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(i) Financial instruments and concentration of risk:
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, accrued salaries and obligations under
capital leases. At December 31, 2002 and 2001, the fair market value of these
instruments approximated their financial statement carrying amount due to the
short term maturity of these instruments. The Company does not require
collateral for accounts receivable, but does evaluate customer creditworthiness
and establishes allowances as necessary based on management estimates of
collectibility.
Amounts owing to related parties, loan payable and notes payable, are stated at
their exchange values which approximates fair value due to their short term
maturity and market rates of interest.
(j) Income taxes:
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes". This standard requires the use of the asset
and liability approach for accounting and reporting on income taxes. Deferred
tax assets and liabilities are recognized for the future consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. To
the extent that it is not more likely than not that a deferred tax asset will be
realized, a valuation allowance is provided.
(k) Stock-based compensation:
The Company accounts for stock-based employee and director compensation
arrangements under the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations including Financial Accounting
Standards Board (FASB) Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25, issued in March 2000. Under APB No. 25, compensation expense is recorded on
the date of grant based on the difference, if any, between the current market
price of the Company's stock and the exercise price of options to purchase that
stock. The Company accounts for stock-based compensation arrangements for
non-employees in accordance with provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation". Under SFAS No. 123, compensation expense for services
received from non-employees is based upon the fair value of equity instruments
issued as the services are performed and the stock award is earned.
F-9
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(k) Stock-based compensation (continued):
SFAS No. 123, Accounting for Stock-Based Compensation, established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic-value-based method of
accounting to account for grants to employees as described above, and has
adopted only the disclosure requirements of SFAS No. 123 as amended by SFAS No.
148 Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123. The following table illustrates the effect
on net loss for the year and basic and diluted loss per share if the
fair-value-based method had been applied to all outstanding and unvested awards
in each period.
-----------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------
Net loss for the year, as reported $ 696,571 $1,534,286
Add stock-based employee compensation expense
included in reported net loss, net of tax - 612,950
Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all rewards, net of tax - (667,854)
-----------------------------------------------------------------------------
Pro forma net loss for the year $ 696,571 $1,589,190
=============================================================================
Loss per share:
Basic and diluted loss per share,
as reported $ 1.33 $ 3.23
Basic and diluted loss per share,
pro forma $ 1.33 $ 3.35
=============================================================================
(l) Net loss per share:
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share". Under the provisions of SFAS No. 128, 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 cancelled on the reverse
stock split, 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 is the same as any
exercise of options would be anti-dilutive.
F-10
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(m) Impairment of long-lived assets and long-lived assets to be disposed of:
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
provides a single accounting model for long-lived assets to be disposed of. SFAS
No. 144 also changes the criteria for classifying an asset as held for sale; and
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing losses on such
operations. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of
SFAS No. 144 did not affect the Company's financial statements.
In accordance with SFAS No. 144, long-lived assets, such as property, plant and
equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
Goodwill and intangible assets not subject to amortization are tested annually
for impairment, and are tested for impairment more frequently if events and
circumstances indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the asset's fair
value.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. At December 31, 2002, the
only long-lived assets reported on the Company's consolidated balance sheets are
property and equipment.
F-11
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(n) 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 (loss), 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 $ 696,571 $1,534,286
Other comprehensive (income) loss:
Foreign currency translation adjustment 24,958 (29,244)
----------------------------------------------------------------------
Comprehensive loss $ 721,529 $1,505,042
======================================================================
(o) Recently issued accounting standards:
In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement
of the asset retirement obligation, the obligation will be adjusted at the end
of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The Company is required to adopt
SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 is not expected
to have a material effect on the Company's financial statements.
F-12
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(o) Recently issued accounting standards (continued):
In April 2002, the FASB issued SFAS No. 145, Rescission of FASC Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 is not expected to have a material
effect on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. The
adoption of SFAS No. 146 is not expected to have a material effect on the
Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial statements. The
disclosure requirements are effect for financial statements of interim and
annual periods ending after December 31, 2002.
F-13
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(o) Recently issued accounting standards (continued):
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. Interpretation No.
46 addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation is applied to the enterprise no later than the beginning of the
first interim or annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.
4. Economic dependence:
During the year, the Company generated 67% of total revenue (approximately
$1,377,000) from three customers.
5. Property and equipment:
-------------------------------------------------------------------------------
Accumulated Net book
2002 Cost depreciation value
-------------------------------------------------------------------------------
Office furniture and fixtures $ 70,030 $ 37,188 $32,842
Computer hardware 131,902 83,761 48,141
-------------------------------------------------------------------------------
$201,932 $120,949 $80,983
===============================================================================
F-14
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
5. Property and equipment (continued):
-----------------------------------------------------------------------------
Accumulated Net book
2001 Cost depreciation value
-----------------------------------------------------------------------------
Office furniture and fixtures $ 82,058 $ 37,286 $44,772
Computer hardware 106,318 56,534 49,784
Computer software 26,307 26,307 -
Leasehold improvements 40,904 38,125 2,779
-----------------------------------------------------------------------------
$255,587 $158,252 $97,335
=============================================================================
The cost and accumulated depreciation of assets under capital lease included in
office furniture and fixtures is $14,755 and $(8,806) respectively, (2001 -
$14,444 and $(7,164) respectively) and computer hardware is $14,436 and
$(10,356) respectively, (2001 - $14,132 and $(8,426) respectively).
6. Due to related parties:
------------------------------------------------------------------------
2002 2001
------------------------------------------------------------------------
Stockholder-controlled company $ 141,701 $ 129,449
Stockholder 487,152 368,873
------------------------------------------------------------------------
$ 628,853 $ 498,322
========================================================================
The advances from the stockholder-controlled company and the stockholder are
unsecured, bear interest at an annual rate of 7% and are not callable within
2003. Interest of $61,171 is payable on these loans at December 31, 2002 (2001
- $20,500).
7. Loan payable:
The loan is designated in Canadian dollars, is guaranteed by certain
shareholders, and bears interest at prime plus 2%. The full amount of principal
and interest is to be fully paid by August 2003.
8. Note payable:
The note payable is unsecured, bears interest at an annual rate of 7% and is not
callable until January 1, 2004.
F-15
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
9. Capital leases:
The Company leases equipment under capital lease arrangements which expire in
2004. Future obligations under these leases are as follows:
------------------------------------------------------
2003 $ 6,655
2004 4,437
------------------------------------------------------
Total minimum lease payments 11,092
Less interest component at 7.11% 855
------------------------------------------------------
Present value of capital lease obligations 10,237
Less current portion (6,006)
------------------------------------------------------
$ 4,231
======================================================
10. Capital structure:
The shareholders approved a reverse stock split of 20:1 common shares on May 13,
2002 related to the merger described in note 1. The effect of the reverse stock
split has been applied retroactively to common shares, common stock options,
share purchase warrants and loss per share.
The following table presents the issued and outstanding common stock of the
Company after retroactive restatement of the May 2002 reverse stock split:
--------------------------------------------------------------------------
Company Additional
common paid in
shares Par value capital
--------------------------------------------------------------------------
December 31, 2000 436,132 $ 436 $3,577,136
Stock options exercised - June 2001 3,750 - 375
Write off of options due to
cancellation or change
in status - (50) (287,200)
Shares issued for services - 60 21,314
Private placement - July 2001 66,666 66 266,602
Private placement - July 2001 16,666 16 66,651
Settlement with former employee (8,150) (8) 8
--------------------------------------------------------------------------
December 31, 2001 515,064 520 3,644,886
Stock options exercised
- January 2002 4,687 - 500
--------------------------------------------------------------------------
December 31, 2002 519,751 $ 520 $3,645,386
==========================================================================
The Company's authorized stock was changed as a result of the May 13, 2002
merger described in note 1. The surviving Company has authorized 118,000,000
$0.001 par value common shares and 2,000,000 $0.01 par value preferred shares
(no preferred shares issued and outstanding).
F-16
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
11. Common stock options (continued):
The Company had issued a total of 46,700 options (930,000 prior to reverse stock
split) under an equity compensation plan. The Plan provides for the grant of up
to 2,000,000 incentive or non-qualified stock options or shares of restricted
stock to employees and key advisors (an "Optionee") of the Company. Options
granted under the Plan generally vest ratably over a period of three years and
expire ten years from the date of grant. If an Optionee ceases employment with
or service to the Company (a "Termination"), the Optionee may exercise any
vested option at the time of Termination within such period of time specified in
the option agreement. In the absence of a specified time in the option
agreement, the option remains exercisable for three months following the
Optionee's Termination. Unvested options revert to the Plan at the date of the
Termination. If, after Termination, the Optionee does not exercise the options
within the time specified, the option shall terminate and the shares revert to
the Plan.
On May 13, 2002 all outstanding options were cancelled as part of the merger
that is described in note 1. As a result, the stock options reflect the 20:1
reverse stock split retroactively. No further stock options were granted during
2002.
Following is a summary of stock option activity for the year ended December 31,
2002 and 2001.
----------------------------------------------------------------------
Weighted
average
Outstanding exercise
options price
----------------------------------------------------------------------
Outstanding as of December 31, 2000 46,700 $62.40
Granted - -
Exercised (3,750) 0.10
Forfeited (8,000) 61.20
----------------------------------------------------------------------
Outstanding as of December 31, 2001 34,950 69.20
Granted - -
Exercised (4,687) 0.10
Forfeited (5,250) 85.66
Cancelled (25,013) 79.80
----------------------------------------------------------------------
Outstanding as of December 31, 2002 - $ -
======================================================================
As there were no stock options outstanding or exercisable at December 31 2002,
disclosure regarding weighted average exercise price is not required. At
December 31, 2001, the weighted average exercise prices for the 34,950 options
outstanding and 23,878 options exercisable were $69.20 and $69.00, respectively.
F-17
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
11. Common stock options (continued):
The following table disaggregates stock compensation expense by employees and
non-employees.
-------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------
Pursuant to stock option grants to employees $ - $ 612,950
Pursuant to stock option grants to non-employees - 21,374
-------------------------------------------------------------------------
$ - $ 634,324
=========================================================================
As there were no stock options granted in 2002, and prior year stock option
grants have already been fully expensed, the fair value estimation of option
grants in 2002 is not required.
The fair value of each option grant has been estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
-------------------------------------------------------------
2002 2001
-------------------------------------------------------------
Expected dividend yield N/A 0.0%
Expected stock price volatility N/A 75%
Risk-free interest rate N/A 6.0%
Expected life of options N/A 3 years
--------------------------------------------------------------
12. Share purchase warrants:
In conjunction with the March 5, 2000 private placement of common shares, the
Company issued warrants to purchase 5,000 shares of common stock with an
exercise price of $0.25 and an expiry date of March 5, 2003. On June 6, 2000,
the Company issued warrants to purchase 16,250 shares of common stock with an
exercise price of $0.1625 and an expiry date of June 6, 2003.
In conjunction with the July 4, 2001 private placement of common shares, the
Company issued warrants to purchase 83,332 shares of common stock with an
exercise price of $0.01 and expired January 4, 2002.
As a result of the merger described in note 1, the share purchase warrants
reflect the 20:1 reverse stock split retroactively.
F-18
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
12. Share purchase warrants (continued):
The warrants have the following price and expiration dates:
-------------------------------------------------------------------------------
Number of warrants Exercise price
------------------ --------------
prior to split after split prior to split after split Expiration date
-------------------------------------------------------------------------------
325,000 16,250 $ 3.25 $ 65.00 June 6, 2003
100,000 5,000 $ 5.00 $ 100.00 March 5, 2003
30,000 1,500 $ 12.50 $ 250.00 December 31, 2005
15,000 750 $ 20.00 $ 400.00 December 31, 2005
15,000 750 $ 23.00 $ 460.00 December 31, 2005
-------------------------------------------------------------------------------
To December 31, 2002 no warrants have been exercised.
13. Segmented information:
The Company has one reportable operating segment, advertising services, and the
chief operating decision maker makes decisions about allocating resources based
on the one operating segment. All of the Company's sales are to Canadian
customers and substantially all of the Company's assets are located in Canada.
14. Income taxes:
Current income taxes are computed at statutory rates on pre-tax income. Deferred
taxes would be recorded based on differences in the carrying values of assets
and liabilities for financial statement and income tax purposes. At December 31,
2002, the Company has elected to carry forward net operating losses for federal,
state and provincial income tax purposes of approximately $4.3 million that may
be available to reduce future taxable income to 2022. As utilization of such
operating losses for tax purposes is not considered to be more likely than not,
the deferred tax asset has been fully reserved through the recording of a 100%
valuation allowance. These operating losses may be limited to the extent an
"ownership change" occurs.
The components of the deferred tax asset as of December 31, 2002 are as follows:
----------------------------------------------------------------------
2002 2001
----------------------------------------------------------------------
Deferred tax asset:
Net operating loss carry forward $1,557,000 $1,305,000
Less valuation allowance (1,557,000) (1,305,000)
----------------------------------------------------------------------
Net deferred tax $ - $ -
======================================================================
F-19
Forge, Inc.
(Formerly emailthatpays.com, Inc.)
Notes to Consolidated Financial Statements
(expressed in United States dollars)
Years ended December 31, 2002 and 2001
--------------------------------------------------------------------------------
14. Income taxes: (continued)
Income tax recovery differs from the amounts computed by applying the Canadian
combined federal and provincial tax rates of 39.6% (2001 - 39.6%) to pre-tax
income from continuing operations as a result of the following:
-----------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------
Loss for the year $ (696,571) $(1,534,286)
Income tax recovery based on combined
Canadian tax rates $ (275,842) $ (607,577)
Effect of:
Non-deductible expenses and other
differences (12,658) 349,777
Loss subject to tax at rates lower
than statutory rate 36,500 20,800
Change in valuation allowance 252,000 237,000
-----------------------------------------------------------------------
Income tax recovery (expense) $ - $ -
=======================================================================
15. Commitment:
The Company leases office space under an operating lease which expires in 2005.
----------------------------------------
Operating
leases
----------------------------------------
2003 $ 86,198
2004 99,644
2005 99,644
----------------------------------------
F-20