SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002
Commission file number: 0-28465
INTERSPACE ENTERPRISES, INC.
(Exact name of registrant as specified in this charter)
Colorado 84-1283938
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7825 Fay Avenue, #200, La Jolla, California 92037
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (858) 456-3539
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 for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [ ]
As of September 30, 2001, there were 135,732,063 shares of $0.00001 par value
common stock outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Financial Statements F-1 - F-6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 5
Item 2 Changes in Securities 5
Item 3 Default Upon Senior Securities 5
Item 4 Submission of Matters to a Vote of Security Holders 5
Item 5 Other Information 5
Item 6 Exhibits and Reports on Form 8-K 5
PART III
Signature 6
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Financial Statements (Unaudited)
For the Nine Months Ended September 30, 2002
and Cumulative from Inception of the Development Stage
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Balance Sheet (Unaudited)
As of September 30, 2002
ASSETS
September 30 December 31,
2002 2001
-------------------------------
Current Assets
Cash $ 33,502 130,815
Accounts Receivable 1,090
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Total current assets 34,592 130,815
Fixed Assets
Computer and office equipment 17,120 11,281
Accumulated depreciation (8,815) (6,662)
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Total fixed assets 8,305 4,619
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Total Assets $ 42,897 135,434
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 169,252 232,886
Notes payable 33,500 30,000
Accrued payroll liabilities 735,466 746,361
Accrued income tax 2,400 2,400
Convertible notes payable 31,136 178,000
Current portion long term liabilities 1,692 700
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Total current liabilities 973,446 1,190,347
Long Term Liabilities 3,803 842
Stockholders' Equity
Common stock 1,357 998
Accounts receivable subscribed (254,330) (185,697)
Additional paid in capital 3,564,458 2,736,043
Accumulated deficit - during development stage (4,245,837) (3,607,099)
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Total stockholders' equity (934,352) (1,055,755)
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Total Liabilities and Stockholders' Equity $ 42,897 135,434
==================================================================================================
F-1
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Balance Sheet (Unaudited)
As of September 30, 2002
Cumulative from
June 30, 1998
(Inception of the
Development
Three Months Three Months Nine Months Nine Months Stage) to
Ended Ended Ended Ended September 30,
Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001 2002
--------------------------------------------------------------------------
Revenues
- - - -
Sales $ 5,645 - $ 15,114 - $ 15,114
- -----------------------------------------------------------------------------------------------------------
Total Revenue 5,645 - 15,114 - 15,114
Research and Development - - - - 5,059
Administrative and Selling Expenses
Consulting 16,400 108,442 154,450 299,942 980,960
Depreciation and amortization 873 682 2,153 2,045 8,815
Legal and professional 8,813 0 66,043 75,800 385,599
License fees - - - - 373,000
Marketing and promotion 6,235 0 134,139 8,772 252,092
Office expense 2,445 5,806 17,154 28,764 106,147
Other administrative expenses 22,288 62,012 78,112 113,187 656,786
Rent 2,812 1,956 8,117 8,514 30,313
Salaries 34,935 115,731 200,998 457,776 1,480,790
- -----------------------------------------------------------------------------------------------------------
Total Administrative Expense 94,801 294,629 661,166 994,800 4,274,502
- -----------------------------------------------------------------------------------------------------------
Net Loss from Operations (89,156) (294,629) (646,052) (994,800) (4,264,447)
Other Income
Interest income (1,767) (13,530) (7,473) (40,636) (22,170)
Interest expense 0 0 159 (9,031) 360
- -----------------------------------------------------------------------------------------------------------
Total Other (Income) Expense (1,767) (13,530) (7,314) (49,667) (21,810)
Income Taxes - - - - 3,200
- -----------------------------------------------------------------------------------------------------------
Net loss $ (87,389) (281,099) (638,738) (945,133) (4,245,837)
===========================================================================================================
F-2
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2002
June 30, 1998
(Inception of the
Development
Nine Months Nine Months Stage) to
Ended Ended September 30,
Sept 30, 2002 Sept 30, 2001 2002
--------------- ---------------- ----------------
Cash Flows From Operating Activities
Net loss $ (638,738) (1,394,891) $ (4,245,837)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,153 403,476 8,815
Stock issued for services 259,950 496,670 1,755,620
Changes in:
Accounts receivable (1,090) - (1,090)
Prepaid expense 0 14,750 0
Accounts payable (63,634) (83,997) 169,252
Accrued interest 0 (9,105) 0
Accrued payroll liabilities (10,895) 278,055 735,466
State tax payable - - 2,400
- ------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (452,254) (295,042) (1,575,374)
Cash Flows From Investing Activities
Accrued interest related parties (7,473) (40,636) (22,170)
Computer and equipment purchases (5,839) - (17,120)
Note receivable (payments) - 45,126 -
- ------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (13,312) 4,490 (39,290)
Cash Flows From Financing Activities
Notes payable 7,953 (106,000) 47,153
Sale of common stock 507,664 471,050 1,578,035
Repayment of notes (500) (926) (8,158)
Convertible notes (146,864) (136,000) 31,136
- ------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities 368,253 228,124 1,648,166
Net Decrease in Cash (97,313) (14,101) 33,502
Cash, beginning of the year 130,815 17,343 0
- ------------------------------------------------------------------------------------------------------------
Cash, September 30, 2002 $ 33,502 3,242 $ 33,502
============================================================================================================
F-3
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2002
Preferred Stock Common Stock Additional Paid Accounts Rec Accumulated
Description Shares Dollars Shares Dollars in Capital Subscribed Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 - - 99,887,230 $ 998 $2,736,042 $ (185,697) $(3,607,099) $(1,055,756)
Conversion of notes payable 10,923,991 $ 109 $ 295,251 $ 295,360
Conversion of other payables 1,018,064 $ 11 $ 103,454 $ 103,465
Stock issued for current services 3,175,000 $ 32 $ 158,718 $ (45,000) $ 113,750
Interest on notes - $ - $ - $ (3,691) $ (3,691)
Due from shareholder - $ - $ - $ 23,839 $ 23,839
Net loss $ (315,755) $ (315,755)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 2002 - - 115,004,285 1,150 3,293,465 (210,549) (3,922,854) (838,788)
====================================================================================================================================
Stock issued for cash 997,778 $ 10 $ 24,990 $ 25,000
Stock issued for current services 6,690,000 $ 67 $ 133,733 $ 133,800
Interest on notes - $ - $ - $ (2,014) $ (2,014)
Net loss $ (235,594) $ (235,594)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2002 - - 122,692,063 1,227 3,452,188 (212,563) (4,158,448) (917,596)
====================================================================================================================================
Stock issued for cash 11,800,000 $ 118 $ 99,882 $ (50,000) $ 50,000
Stock issued for current services 1,240,000 $ 12 $ 12,388 $ 12,400
Interest on notes - $ - $ - $ (1,767) $ (1,767)
Due from shareholder - $ - $ - $ 10,000 $ 10,000
Net loss $ (87,389) $ (87,389)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 2002 - - 135,732,063 1,357 3,564,458 (254,330) (4,245,837) (934,352)
====================================================================================================================================
F-4
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of
InterSpace Enterprises, Inc. (the "Company"). The financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles.
In the opinion of management, the unaudited interim financial statements for the
period ended September 30, 2002 are presented on a basis consistent with the
audited financial statements and reflect all adjustments, consisting only of
normal recurring accruals, necessary for fair presentation of the results of
such period.
The results for the nine months ended September 30, 2002 are not necessarily
indicative of the results of operations for the full year. These financial
statements and related footnotes should be read in conjunction with the
financial statements and footnotes thereto included in the Company's financial
statements of the period ended December 31, 2001.
NOTE 2 - NET REVENUE
The Company operates under an agreement with the International Lottery in
Liechtenstein Foundation (ILLF). As part of this agreement, ILLF is responsible
for collecting payment, and allocating prize payouts, charity fund allocations
and affiliate fees. The Company receives a percentage of the net revenue from
these transactions.
Net revenue represents the residual amount earned by the Company from its weekly
lottery draw ticket sales and scratchcards after deducting payouts, insurance,
charity allocations, affiliate promotions and partnership fees as set out in the
hosting agreement.
Gross receipts for the quarters ended March 31, 2002, June 30, 2002 and
September 30, 2002 were $30,943, $32,523 and $77,335 respectively. Total payouts
and expenses were $26,362 for the quarter ended March 31, 2002, $27,635 for the
quarter ended June 30, 2002 and $71,690 for the quarter ended September 30, 2002
NOTE 3 - CONVERSION OF NOTES PAYABLE
In February 2002, the Company converted $291,100 of convertible promissory notes
into common stock resulting in the issuance of 10,673,991 shares. In addition, a
F-5
note payable from the Company in the amount of $15,000 was converted into
250,000 shares of common stock.
NOTE 4 - CONVERSION OF OTHER LIABILITIES
In February 2002, the Company settled $88,465 of payroll liabilities to various
former employees and $15,000 of trade liabilities via the issuance of 1,018,064
shares.
NOTE 5 - NON-MONETARY TRANSACTIONS
The Company issued 11,105,000 shares during the nine month period ending
September 30, 2002, for certain consulting and advisory services provided to the
Company, as well as services related to the development of the Company's
internet infrastructure. Approximately 300,000 of these shares relate to
services to be provided to the Company over the remainder of the fiscal year.
Also, approximately 765,000 of these shares related to services provided in past
fiscal periods. The Company valued these transactions at what they believed to
be the fair market value of the services provided. The value for these services
also approximates what management believes to be the value of the stock.
NOTE 6 - INTEREST INCOME/EXPENSE
Interest income represents accrued interest on promissory notes to the Company
from certain officers incurred as a result of options previously exercised.
F-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002
COMPARED TO THE SAME PERIOD IN 2001.
During the quarter ended September 30, 2002, the company expanded its marketing
initiatives with a focus on new games to increase repeat player traffic. The
introduction of two new games, while providing lower margins, led to a
significant increase in gross sales compared to the previous quarter. Net
revenues for the quarter ended September 30, 2002 were $5,645. The Company
incurred operating expenses for the three month period of $94,801 in 2002
compared to $294,629 in the same period in 2001. The Company recorded a net
operating loss of ($87,389) for the 2002 period as compared to ($281,099) for
the same period in fiscal year 2001. The Company losses will continue until
business and profitable operations are achieved. While the Company is seeking
capital sources for investment, there is no assurance that capital sources can
be found. The loss per share was ($.01) for the quarter ended 2002 compared to
($.02) for the same period in fiscal 2001.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002
COMPARED TO THE SAME PERIOD IN 2001.
The Company introduced its flagship product in the first quarter with the
Company beginning to see its first revenues. Revenues are derived under the
Company's partnership agreement with Zabadoo.com AG. The Company receives a
percentage of all ticket sales for the weekly lottery draw as well as instant
scratchcards. Net revenues for the nine months ended September 30, 2002 were
$15,114. The Company incurred operating expenses for the nine-month period of
$661,166 in 2002 compared to $994,800 in the same period in 2001. The Company
recorded a net operating loss of ($638,738) for the 2002 period as compared to
($945,133) for the same period in fiscal year 2001. The Company losses will
continue until business and profitable operations are achieved. While the
Company is seeking capital sources for investment, there is no assurance that
capital sources can be found. The loss per share was ($.01) for the nine-month
period ending September 30, 2002 compared to ($.02) for the same period in
fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital of $33,502, accounts receivable of $1,090 and
$8,305 in fixed assets for total tangible assets of $42,897 at September 30,
2002. The Company will be forced to make private placements of stock in order to
fund operations continuance. No assurance exists as to the ability to make
private placements of stock.
At September 30, 2002, the Company has current liabilities of $973,446
which exceed current assets by approximately $938,854.
4
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- ----------------------------
None.
Item 2. Changes in securities
- --------------------------------
None.
Item 3. Defaults upon senior securities
- ------------------------------------------
None.
Item 4. Submission of matters to a vote of security holders
- --------------------------------------------------------------
None.
Item 5. Other information
- ----------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
A. Exhibits
Exhibit 99-14 Sarbanes/Oxley Certification
B. Reports on Form 8-K
None
5
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act
of 1934, as amended, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERSPACE ENTERPRISES, INC.
Dated: November 12, 2002 By: /s/ Daniel Murphy
--------------------------------------
Daniel Murphy, President
6