UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 033-03275-D
| Ensurge, Inc. |
| (Exact name of registrant as specified in its charter) |
| | |
Nevada | 87-0431533 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| | |
| 2825 E. Cottonwood Parkway, Suite 500 |
| Salt Lake City, UT 84121 |
| (Address of principal executive offices) |
| | |
| (801) 990-3457 |
| (Issuer’s telephone number) |
(Former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). The registrant is not yet part of the Interactive Data reporting system.
Yes [ ] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
There were 28,485,341 shares of common stock, $0.001 par value, issued and outstanding as of November 17, 2010.
Explanatory Note
The purpose of this Amendment on Form 10-Q/A for Ensurge, Inc. quarterly report on Form 10-Q for the quarterly period ended September 30, 2010, filed with the Securities and Exchange Commission on November 18, 2010, is to amend the initial filing to update the disclosure of warrants sold to an investor. The warrants were booked as an equity item and should have been booked as a derivative.
The financial statements for September 30, 2010 have been restated. This Form 10-Q/A speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way the disclosures made in the initial filing.
Ensurge, Inc.
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS
| | Page |
| | |
| PART I-FINANCIAL INFORMATION | |
| | |
| Item 1. Financial Statements | |
| | |
| Balance Sheets | |
| (Unaudited and Restated) as of September 30, 2010 and December 31, 2009 | 3 |
| | |
| Statements of Operations | |
(Unaudited and Restated) for the Three and nine Months Ended September 30, 2010 and 2009 and from inception of exploration stage to September 30, 2010 | 4 |
| | |
Statements of Cash Flows (Unaudited and Restated) for the nine Months Ended September 30, 2010 and 2009 and from inception of exploration stage to September 30, 2010 | 5 |
| | |
| Notes to Financial Statements (Unaudited) | 6 |
| | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 13 |
| | |
| Item 4. Controls and Procedures | 14 |
PART II - OTHER INFORMATION
| Item 1. Legal Proceedings | 14 |
| | |
| Item 1A. Risk Factors | 14 |
| | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| | |
| Item 3. Defaults Upon Senior Securities | 15 |
| | |
| Item 4. (Removed and Reserved) | 15 |
| | |
| Item 5. Other Information | 15 |
| | |
| Item 6. Exhibits and Reports on Form 8-K | 15 |
| | |
| Signatures | 15 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Ensurge, Inc.
(An Exploration Stage Company)
BALANCE SHEET
| | | September 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| ASSETS | | (Unaudited) (Restated) | | | (Audited) | |
| | | | | | | |
| Current Assets | | | | | | - | |
| Cash | | $ | 284,679 | | | $ | - | |
| Prepaid Expense | | | 7,000 | | | | - | |
| | | | | | | | | |
| Total Current Assets | | | 291,679 | | | | - | |
| | | | | | | | | |
| Investment in mining rights project | | | 105,000 | | | | - | |
| | | | | | | | | |
| Total Other Assets | | | 105,000 | | | | - | |
| | | | | | | | | |
| Total Assets | | $ | 396,679 | | | $ | - | |
| | | | | | | | | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Trade accounts payable | | $ | 43,232 | | | | 8,686 | |
| Proceeds for common stock to be issued | | | 560,000 | | | $ | - | |
| Warrants Derivative Liability | | | 435,760 | | | | - | |
| Accrued liabilities | | | 3,810 | | | | 14,738 | |
| | | | | | | | | |
| Total Current Liabilities | | | 1,042,802 | | | | 23,424 | |
| | | | | | | | | |
| Stockholders' Equity (Deficit) | | | | | | | | |
| Common stock - $0.001 par value; 100,000,000 shares authorized; 28,485,341 and 26,035,341 shares issued and outstanding | | | 28,485 | | | | 26,035 | |
| Additional paid-in-capital | | | 24,352,180 | | | | 23,266,514 | |
| Accumulated deficit | | | (23,315,973 | ) | | | (23,315,973 | ) |
| Exploration stage deficit | | | (1,710,815 | ) | | | - | |
| | | | | | | | | |
| Total Stockholders' Equity (Deficit) | | | (646,123 | ) | | | (23,424 | ) |
| | | | | | | | | |
| Total Liabilities and Stockholders' Equity (Deficit) | | $ | 396,679 | | | $ | - | |
The accompanying notes are an integral part of these condensed financial statements.
Ensurge, Inc.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
| | | For the Three Months Ended September 30 | | | For the Nine Months Ended September 30 | | | From Inception of Exploration Stage January 1, 2010 through | |
| | | (Restated) 2010 | | | 2009 | | | (Restated) 2010 | | | 2009 | | | | |
Sales | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Cost of Sales | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | - | | | | - | | | | - | | | | - | | | | - | |
| Expenses: | | | | | | | | | | | | | | | | | | | | |
| Mining Project Expense | | | 56,803 | | | | - | | | | 72,565 | | | | - | | | | 72,565 | |
| General and Administrative | | | 1,253,188 | | | | 4,856 | | | | 1,559,089 | | | | 115,555 | | | | 1,559,089 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Expenses | | | 1,309,991 | | | | 4,856 | | | | 1,631,654 | | | | 115,555 | | | | 1,631,654 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating Loss | | | (1,309,991 | ) | | | (4,856 | ) | | | (1,631,654 | ) | | | (115,555 | ) | | | (1,631,654 | ) |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | |
| Warrant derivative | | | (80,659 | ) | | | - | | | | (80,659 | ) | | | - | | | | (80,659 | ) |
| Interest expense | | | - | | | | (25,573 | ) | | | - | | | | (76,548 | ) | | | - | |
| Interest Income | | | 617 | | | | - | | | | 1,498 | | | | - | | | | 1,498 | |
| NET LOSS | | $ | (1,390,033 | ) | | $ | (30,429 | ) | | $ | (1,710,815 | ) | | $ | (192,103 | ) | | $ | (1,710,815 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| NET (LOSS) PER SHARE: | | $ | (0.05 | ) | | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.72 | ) | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED in PER SHARE CALCULATION | | | 28,235,884 | | | | 511,074 | | | | 27,880,945 | | | | 266,812 | | | | | |
The accompanying notes are an integral part of these condensed financial statements.
Ensurge, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
| | | For the Nine Months Ended September 30, | | | From Inception of Exploration Stage January 1, 2010 through September 30, | |
| | | 2010 | | | | 2009 | | | | |
| | | (Restated) | | | | | | | | |
| Cash Flows from Operating Activities: | | | | | | | | | | |
| Net (Loss) | $ | (1,710,815 | ) | | $ | (192,103 | ) | $ | (1,710,815 | ) |
| Adjustments to Reconcile Net (Loss) to Net Cash used by Operating Activities: | | | | | | | | | | |
| Warrant derivative liability | | 80,659 | | | | - | | | 80,659 | |
| Common stock issued for services | | 1,017,417 | | | | 100,000 | | | 1,017,417 | |
| Changes in Operating Assets and Liabilities: | | | | | | | | | | |
| Prepaid Expenses | | (7,000 | ) | | | - | | | (7,000 | ) |
| Trade accounts payable | | 34,546 | | | | 7,381 | | | 34,546 | |
| Accrued liabilities | | (10,928 | ) | | | 76,445 | | | (10,928 | ) |
| Net Cash (Used) by Operating Activities | | (596,121 | ) | | | (8,277 | ) | | (596,121 | ) |
| | | | | | | | | | | |
| Cash Flows from Investing Activities: | | | | | | | | | | |
| | | | | | | | | | | |
| Investment in mining rights project | | (105,000 | ) | | | - | | | (105,000 | ) |
| Net Cash (Used) by Investing Activities: | | (105,000 | ) | | | - | | | (105,000 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | | |
| Proceeds from issuance of notes payable | | - | | | | 8,277 | | | - | |
Proceeds from exercise of warrants for common stock to be issued | | 560,000 | | | | - | | | 560,000 | |
| Purchase treasury stock | | (60,000 | ) | | | - | | | (60,000 | ) |
| Proceeds from issuance of common stock | | 485,800 | | | | - | | | 485,800 | |
| Net Cash Provided by Financing Activities: | | 985,800 | | | | 8,277 | | | 985,800 | |
| Net Increase in Cash | | 284,679 | | | | - | | | 284,679 | |
| Cash, Beginning of Period | | - | | | | - | | | - | |
| Cash, End of Period | $ | 284,679 | | | $ | - | | $ | 284,679 | |
Non-Cash Investing and Financing Activities:
None
The accompanying notes are an integral part of these condensed consolidated financial statements.
Ensurge, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 2010
NOTE 1–ORGANIZATION AND BASIS OF PRESENTATION
Organization – On October 16, 2000, iShopper.com, Inc. changed its name to Ensurge, Inc., which is referred to herein as the Company. On January 1, 2002, the Company began liquidation of its assets. During 2009, the Company started a new phase of operations. Accordingly, the accompanying financial statements are presented on a GAAP basis of accounting rather than on a liquidation basis of accounting.
Basis of Presentation – The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, these financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. These unaudited condensed financial statements should be read in conjunction with the Company’s annual financial statements and the notes thereto for the year ended December 31, 2009, included in the Company’s annual report on Form 10-K, especially the information included in Note 1 to those financial statements, “Summary of Significant Accounting Policies.” In the opinion of the Company’s management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to fairly present the Company’s financial position as of September 30, 2010, and its results of operations and cash flows for the nine months ended September 30, 2010 and 2009. The results of operations for the nine months ended September 30, 2010, may not be indicative of the results that may be expected for the year ending December 31, 2010.
Business Condition – The Company has suffered losses from operations; and the Company had working capital deficit in the amount $322,363 at September 30, 2010. During February and March 2010, the Company sold an aggregate of 2,100,000 shares of common stock for $525,000. During July 2010, the Company sold 4,000,000 warrants for $100 for the right to purchase 4,000,000 shares of common stock at $0.14 per share or $560,000. $560,100 was received in July for the warrants and the exercise of the warrants. The cash has been received, however the warrants have not been exercised thus the common stock has not been issued to the purchaser. The proceeds of the financing will be used to help the Company maintain operations and to fund the exploration for gold mines and/or acquisition of mining assets, either directly or through one or more partnerships or joint ventures in Brazil or elsewhere in South America. During this quarter the Company purchased back 2,000,000 shares of common stock for $60,000 from its previous President. The stock was subsequently cancelled.
Basic and Diluted Loss Per Share – Basic loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated to give effect to potentially issuable common shares which include stock options and stock warrants except during loss periods when those potentially issuable common shares would decrease loss per share. At September 30, 2010, the Company had received proceeds from selling 4,000,000 shares of the Company’s common stock. The shares have yet to be issued.
Recently Enacted Accounting Standards – In June 2009 the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact the Company’s financial statements. The ASC does change the way the guidance is organized and presented.
Statement of Financial Accounting Standards (“SFAS”) SFAS No. 166 (ASC Topic 810), “Accounting for Transfers of Financial Assets—an Amendment of FASB Statement No. 140”, SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R)”, and SFAS No. 168 (ASC Topic 105), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” were recently issued. SFAS Nos. 166, 167 and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.
Accounting Standards Update (“ASU”) No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No. 2010-26, which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.
NOTE 2 – COMMITMENTS AND CONTINGENCIES
In February 2010, the Company sold 2,100,000 shares of common stock as part of a Subscription Agreement. The agreement has an anti-dilution clause that states the following; if during the 12 months following the date of the agreement the Company sells Shares, or securities convertible into Shares, at a price per Share less than that paid by the Subscriber, then the Company shall issue additional Shares to the Subscriber in an amount such that the total number of shares issued to the Subscriber shall equal $25,000 divided by the price per share 20% lower than that paid by the new buyer of Shares.
The buyer has waived the anti-dilution clause and no more shares will be issued.
NOTE 3 – ISSUANCE OF STOCK
During the month of July 2010, the Company issued 1,500,000 shares of common stock at a value of $0.14 to its Officers for a total value of $210,000 for services rendered. During the month of August, the Company issued 3,000,000 options at a price of $0.14 to its Officers for a total value of $688,417 for services rendered. This valuation is based on the Black Sholes model for SEC reporting purposes, however the exercise price was based on fair market value.
During July 2010, the Company sold 4,000,000 warrants for $100 for the right to purchase 4,000,000 shares of common stock at $0.14 per share or $560,000. $560,100 was received in July for the warrants and the exercise of the warrants. The cash has been received, however the warrants have not been exercised thus the common stock has not been issued to the purchaser. As part of this capital raising transaction, a fee of $39,200 was paid as a commission. The nature of this warrant requires the Company to record a Warrant Derivative Liability. The valuation of the derivative is based on using the Black Sholes model for SEC reporting purposes.
NOTE 4 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued, and has determined there are no other events to disclose.
NOTE 5 – RESTATEMENT OF SEPTEMBER 30, 2010 FINANCIAL STATEMENTS
Subsequent to the issuance of the September 2010 financial statements, the auditors and management determined that warrant derivatives were not recorded properly due to the cash received as part of the July 2010, issuance of stock for warrants. The financial statements have been revised to accurately record the transactions. Accordingly, the balance sheet as of September 30, 2010 and the statement of operations, and statement of cash flows for the three and nine months ended September 30, 2010 have been revised as follows:
Ensurge, Inc.
(An Exploration Stage Company)
BALANCE SHEET
| | | Restated September 30, 2010 | | | Original September 30, 2010 | | | Effect of Changes | | | |
| Assets | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | |
| Cash | | $ | 284,679 | | | $ | 284,679 | | | $ | - | | | |
| Prepaid Expense | | | 7,000 | | | | 7,000 | | | | - | | | |
| Total Current Assets | | | 291,679 | | | | 291,679 | | | | - | | | |
| Investment in mining rights project | | | 105,000 | | | | 105,000 | | | | - | | | |
| Total Other Assets | | | 105,000 | | | | 105,000 | | | | - | | | |
| Total Assets | | $ | 396,679 | | | $ | 396,679 | | | $ | - | | | |
| | | | | | | | | | | | | | | |
| Liabilities and Stockholders’ Equity (Deficit) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Current Liabilities | | | | | | | | | | | | | | |
| Trade accounts payable | | $ | 43,232 | | | $ | 43,232 | | | $ | - | | | |
| Proceeds for common stock to be issued | | | 560,000 | | | | 560,000 | | | | - | | | |
| Warrants derivative liability | | | 435,760 | | | | - | | | | 435,760 | | (1 | ) |
| Accrued liabilities | | | 3,810 | | | | 3,810 | | | | - | | | |
| Total Liabilities | | | 1,042,802 | | | | 607,042 | | | | 435,760 | | (1 | ) |
| | | | | | | | | | | | | | | |
| Stockholders’ Equity (Deficit) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common stock - $0.001 par value; 100,000,000 shares authorized; 28,485,341 and 26,035,341 shares issued and outstanding | | | 28,485 | | | | 28,485 | | | | - | | | |
| Additional paid-in capital | | | 24,352,180 | | | | 24,707,281 | | | | 355,101 | | (1 | ) |
| Accumulated deficit | | | (23,315,973 | ) | | | (23,315,973 | ) | | | - | | | |
Exploration stage deficit | | | (1,710,815 | ) | | | (1,630,156 | ) | | | 80,659 | | (1 | ) |
| Total Stockholders’ Equity (Deficit) | | | (646,123 | ) | | | (210,363 | ) | | | 435,760 | | (1 | ) |
| Total Liabilities and Stockholders’ Equity (Deficit) | | $ | 396,679 | | | $ | 396,679 | | | $ | - | | | |
Ensurge, Inc.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
| | | Restated September 31, 2010 | | | Original September 31, 2010 | | | Effect of Change | | | |
| | | | | | | | | | | | |
| Sales | | $ | - | | | $ | - | | | $ | - | | | |
| Cost of Sales | | | - | | | | - | | | | - | | | |
| Gross Profit | | | - | | | | - | | | | - | | | |
| Expenses | | | | | | | | | | | | | | |
| Mining project expense | | | 56,803 | | | | 56,803 | | | | - | | | |
| General and Administrative expenses | | | 1,253,188 | | | | 1,253,188 | | | | - | | | |
| Total Expenses | | | 1,309,991 | | | | 1,309,991 | | | | - | | | |
| Operating Loss | | | 1,309,991 | | | | 1,309,991 | | | | - | | | |
| Other Income (Expense) | | | | | | | | | | | | | | |
| Warrant derivative loss | | | (80,659 | ) | | | - | | | | (80,659 | ) | (1 | ) |
| Interest income | | | 617 | | | | 617 | | | | - | | | |
| Net Loss | | $ | (1,390,033 | ) | | $ | (1,309,374 | ) | | $ | (80,659 | ) | (1 | ) |
Ensurge, Inc.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
| | | Restated September 30, 2010 | | | Original September 30, 2010 | | | Effect of Change | | | |
| | | | | | | | | | | | |
| Sales | | $ | - | | | $ | - | | | $ | - | | | |
| Cost of Sales | | | - | | | | - | | | | - | | | |
| Gross Profit | | | - | | | | - | | | | - | | | |
| Expenses | | | | | | | | | | | | | | |
| Mining project expense | | | 72,565 | | | | 72,565 | | | | - | | | |
| General and Administrative expenses | | | 1,559,089 | | | | 1,559,089 | | | | - | | | |
| Total Expenses | | | 1,631,654 | | | | 1,631,654 | | | | - | | | |
| Operating Loss | | | (1,631,654 | ) | | | (1,631,654 | ) | | | - | | | |
| Other Income (Expense) | | | | | | | | | | | | | | |
| Warrant derivative loss | | | (80,659 | ) | | | - | | | | (80,659 | ) | (1 | ) |
| Interest income | | | 1,498 | | | | 1,498 | | | | - | | | |
| Net Loss | | $ | (1,710,815 | ) | | $ | (1,710,815 | ) | | $ | (80,659 | ) | (1 | ) |
Ensurge, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
Cash Flows from Operating Activities: | | For the Nine Months Ended September 30, 2010 2010 (Restated) (Original) | | | Effect of Change | | | |
| Net (Loss) | | $ | (1,710,815 | ) | | $ | (1,630,156 | ) | | $ | (80,659 | ) | (1 | ) |
| Adjustments to Reconcile Net (Loss) to Net Cash used by Operating Activities: | | | | | | | | | | | | | | |
| Warrant derivative liability | | | 80,659 | | | | - | | | | 80,659- | | (1 | ) |
| Common stock issued for services | | | 1,017,417 | | | | 1,017,417 | | | | - | | | |
| Changes in Operating Assets and Liabilities: | | | | | | | | | | | | | | |
| Prepaid Expenses | | | (7,000 | ) | | | (7,000 | ) | | | - | | | |
| Trade accounts payable | | | 34,546 | | | | 34,546 | | | | - | | | |
| Accrued liabilities | | | (10,928 | ) | | | (10,928 | ) | | | - | | | |
| Net Cash (Used) by Operating Activities | | | (596,121 | ) | | | (596,121 | ) | | | - | | (1 | ) |
| | | | | | | | | | | | | | | |
| Cash Flows from Investing Activities: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Investment in mining rights project | | | (105,000 | ) | | | (105,000 | ) | | | - | | | |
| Net Cash (Used) by Investing Activities: | | | (105,000 | ) | | | (105,000 | ) | | | - | | | |
| Cash Flows from Financing Activities: | | | | | | | | | | | | | | |
Proceeds from exercise of warrants for common stock to be issued | | | 560,000 | | | | 560,000 | | | | - | | | |
| Purchase treasury stock | | | (60,000 | ) | | | (60,000 | ) | | | - | | | |
| Proceeds from issuance of common stock | | | 485,800 | | | | 485,800 | | | | - | | | |
| Net Cash Provided by Financing Activities: | | | 1,066,459 | | | | 985,800 | | | | - | | | |
| Net Increase in Cash | | | 284,679 | | | | 284,679 | | | | - | | | |
| Cash, Beginning of Period | | | - | | | | - | | | | - | | | |
| Cash, End of Period | | $ | 284,679 | | | $ | 284,679 | | | $ | - | | | |
Note (1)
This change is a result of recording the derivative on the transaction date on July 2010 in the amount of $355,101. As of September 30, 2010, due to management’s analysis, the derivative has increased by $80,659 for a total derivative liability of $435,760. These changes affected warrant derivative liability, additional paid-in-capital, and other income.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
When used in this discussion, the words “expect(s)”, “feel(s)”, “believe(s)”, “will”, “may”, “anticipate(s)” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, and are urged to carefully review and consider the various disclosures elsewhere in this Form 10-Q.
Recent Development and Business Plan
The Company is pursuing opportunities in the gold mining industry, with emphasis on opportunities in South America. Though several mining opportunities have been reviewed and rejected by the Company, research and investigation of mining opportunities continues. Currently, the Company has entered into an agreement to explore for recoverable reserves in tailings on a mine in Brazil.
In February, 2010, the Company sold 2,100,000 shares of common stock for an aggregate purchase price of $525,000. During July 2010, the Company sold 4,000,000 warrants for $100 for the right to purchase 4,000,000 shares of common stock at $0.14 per share or $560,000. $560,100 was received in July for the warrants and the exercise of the warrants. The Company used a portion of the proceeds to commence investigating gold mining claims and properties in South America in anticipation of entering into the gold mining industry.
On August 26, 2010 the Company entered into a Definitive Agreement with Mineracao Nova Esperanca (New Hope Mining Company) or NME, of Pocone, Mato Grosso, Brazil. Under provisions of this Agreement, Ensurge will provide technology and the capital equipment necessary to recover gold from tailings ponds created by NME over the past 20 years as well as recover gold from newly created process mill tailings. Also under terms of the Agreement, longer term, Ensurge will undertake an overall mineral assessment of the entire NME mining tenement, of which only about 10% has been explored to date.
As of October 1, 2010 the Engineering Scoping Study of the Nova Esparanza Mineraco (NME) project was underway. A team of geologists and drillers are at the NME Tuiuiu Mine, drilling and sampling of the tailings stockpiles. It is estimated that it will be the middle of November 2010 for the required work of the drilling and sampling program to be fully completed.
Results of Operations
We had no revenues for the three and nine months ended September 30, 2010 and 2009. During the quarter ended September 30, 2010, the Company entered into an agreement with Mineracao Nova Esperanca (New Hope Mining Company) of Pocone, Mato Grosso, Brazil. The Company has agreed to purchase additional capital equipment to process gold from the existing tailings. We will share in the after tax net profits from these operations. We have completed a preliminary engineering study with positive results and have engaged the engineering firm to do a study of the entire tailings area. The construction of the tailing processing facility can be completed in 6 to 12 months.
The Company is continuing to look for opportunities to create revenue, and has several options it is pursuing as acquisitions or joint ventures.
Mining project expenses for the three months ended September 30, 2010 and 2009 were, respectively, $56,803 and $0. Mining project expenses for the nine months ended September 30, 2010 and 2009 were, respectively, $72,565 and $0. These expenses are made up of preliminary engineering costs, legal and travel costs directly related to reviewing and substantiating mining projects.
General and administrative expenses for the three months ended September 30, 2010 and 2009 were, respectively, $1,253,188 and $4,856. General and administrative expenses for the nine months ended September 30, 2010 and 2009 were, respectively, $1,559,089 and $115,555. These costs are made up of audit, legal, and consulting fees, along with travel expenses looking for acquisitions.
Interest expense for the three months ended September 30, 2010 and 2009 were, respectively, $0 and $25,573. Interest expense for the nine months ended September 30, 2010 and 2009 were, respectively, $0 and $76,548. These costs are made up of interest expense on notes payable that have been paid off.
Interest income for the three months ended September 30, 2010 and 2009 were, respectively, $617 and $0. Interest income for the nine months ended September 30, 2010 and 2009 were, respectively, $1,498 and $0. This income is from interest bearing cash bank accounts.
The warrant derivative expense for the three months ended September 30, 2010 and 2009 were, respectively, $80,659 and $0. The warrant derivative expense for the nine months ended September 30, 2010 and 2009 were, respectively, $80,659 and $0. This expense is due to change in value of the warrants derivative liability from July to September 2010.
Liquidity and Capital Resources
The Company has financed its operations to date primarily through private placements of equity securities. The Company has been unprofitable since inception (1998) and has incurred net losses in each quarter and year. During February and March 2010, the Company sold an aggregate of 2,100,000 shares of common stock for $525,000. During July 2010, the Company sold warrants for $100 for the rights to purchase 4,000,000 shares of common stock for $560,000, which was received in July.
The Company has made progress in creating relationships with Corporate and Tax Council, Banks, and Engineering firms within Brazil. By having these areas completed, we have entered into our first agreement and are in discussion with several other groups. Once a project is identified and an agreement is in place, then a two part engineering study is done. The first part is to perform a preliminary test of a small area for the appropriate amount of gold within the tailings. The second part is a complete testing of the area and depth to determine amount of ore per tonnage of tailings. The Company will then build a processing plant to strip the gold from the remaining tailings. The estimated cost of these plants will be $3 to $5 million depending on the size of the production and tailings. We will have to raise additional capital to fund such projects and would anticpate dilution to current investors as we seek additional equity capital.
Item 3. Qualitative and Quantitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company’s chief executive officer and chief financial officer / principle financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, Rules 13a-14(c) and 15-d-14(c)) as of September 30, 2010, have concluded that, as of the evaluation date, the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its subsidiaries would be made known to them by others within those entities.
(b) Changes in Internal Controls. There were no significant changes in the Company’s internal controls, or, to the Company’s knowledge, in other factors that could significantly affect these controls subsequent to the evaluation date.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control - Integrated Framework. During the course of this assessment, management identified a material weakness relating primarily to recording complex financial transactions.
The Company has a lack of staffing within its accounting department, in terms of the small number of employees performing its financial and accounting functions, which does not provide the necessary separation of duties. Management believes the lack of accounting and financial personnel amounts to a material weakness in its internal control over financial reporting and, as a result, at December 31, 2009 and on the date of this Report, its internal control over financial reporting is not effective. The Company will continue to evaluate the employees involved and the hiring of additional accounting staff. However, the Company will be unable to remedy this material weakness in its internal controls until the Company has the financial resources that allow the Company to hire additional qualified employees.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During July 2010, the Company sold 4,000,000 warrants for $100 for the right to purchase 4,000,000 shares of common stock at $0.14 per share or $560,000. $560,100 was received in July for the warrants and the exercise of the warrants. The sale was to one investor that is an existing shareholder of the Company. The Company relied on Section 4(2) and Rule 506 of Regulation D for the sale of such securities.
Item 3. Defaults Upon Senior Securities
None
Item 4. (Removed and Reserved)
Item 5. Other Information
There were no other items to be reported under Part II of this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
| | 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
| | 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| | Ensurge, Inc. |
| | |
| March 22, 2011 | /s/ Jordan M. Estra |
| | Jordan M. Estra, Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | |
| March 22, 2011 | /s/ Jeff A. Hanks |
| | Jeff A. Hanks, Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting Officer) |
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