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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal period ended July 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number: 000-24520
GWIN, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-302177
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5092 South Jones Blvd.
Las Vegas, Nevada 89118
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(Address of principal executive offices) (Zip Code)
GLOBAL SPORTS & ENTERTAINMENT, INC.
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(Former Name of Registrant)
(Registrant's telephone number, including area code): (702) 967-6000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
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(Title of Class)
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 such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (Section 229.405 of this Chapter) is not contained herein, and
will not 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of October 25, 2002 was approximately $3,641,141 based upon the
closing price per share of the Common Stock of $0.32 on that date.
The number of shares outstanding of the issuer's classes of Common Stock as of
October 25, 2002:
Common Stock, $.0001 Par Value - 21,285,703 shares
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<PAGE>
TABLE OF CONTENTS
Page
PART I ...................................................................... 1
Item 1. Description of Business ............................................ 1
Item 2. Description of Properties .......................................... 3
Item 3. Legal Proceedings .................................................. 3
Item 4. Submission of Matters to a Vote of Security Holders ................ 4
PART II ..................................................................... 4
Item 5. Market for Common Equity and Related Stockholder Matters ........... 4
Item 6. Management's Discussion and Analysis and Results of Operations...... 4
Item 7. Financial Statements ............................................... 6
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .............................. 7
PART III .................................................................... 7
Item 9. Identification of Directors, Executive Officers,
Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act ................................ 7
Item 10. Executive Compensation ............................................. 9
Item 11. Security Ownership of Certain Beneficial Owners and Management......10
Item 12. Certain Relationships and Related Transactions .....................12
Item 13. Exhibits, Lists and Reports on Form 8-K ............................13
SIGNATURES ..................................................................14
Exhibit Index
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
OVERVIEW
We provide sports handicapping analysis and advice to sports bettors
worldwide through our wholly-owned subsidiary, Global SportsEDGE, Inc. Global
SportsEDGE provides professional handicapping advice on professional football
games played by the National Football League, professional basketball games
played by the National Basketball Association, college football and basketball
games played by Division I of the National Collegiate Athletic Association, and
professional major-league baseball. Over the next year, we plan to expand our
operations to cover sporting events in Europe and Asia, and to expand our
handicapping services to include soccer, cricket and rugby.
CORPORATE INFORMATION
We were originally incorporated in Nevada in 1986. We reincorporated in
Massachusetts in 1987 and reincorporated in Delaware under the name of IMSCO
Technologies, Inc. in 1996. From July 1992 to August 1999, we were engaged in
the research and development of electrostatic separation technologies. In late
1999, we ceased our operations and shifted our focus toward the strategic
acquisition of an operating business. To that end, in July 2001, we acquired
our sports handicapping business, which we operate through our wholly-owned
subsidiary, Global SportsEDGE, Inc., a Delaware corporation. As a result of the
reorganization:
- all of our former directors and officers resigned and were replaced by our
current directors and officers;
- we amended our certificate of incorporation to (a) effect a one-for-four
reverse stock split of our common stock; (b) change our name to Global
Sports & Entertainment, Inc.; and (c) increase our authorized capital to
50,000,000 shares of common stock and 5,000,000 shares of preferred stock;
- we issued an additional 14,845,241 shares of our common stock to the
stockholders of the acquired company, after giving effect to the
conversion of our Series B preferred stock and the one-for-four reverse
split of our common stock;
- we issued options and warrants to purchase a total of 4,570,121 shares of
our common stock to replace options and warrants held by the stockholders
of the acquired company; and
- we raised $1,500,000 in a private placement sale of 64,000 shares of our
Series C convertible preferred stock, each share of which is convertible at
any time into 46.875 shares of our common stock, as well as warrants to
purchase an additional 64,000 shares of Series C convertible preferred
stock.
Effective August 22, 2002, we changed our name to GWIN, Inc. in order to
avoid both consumer confusion and potential and actual litigation with another
Delaware company with a similar name, Global Sports, Inc. Global Sports, Inc.
filed a complaint against us on October 11, 2001 regarding the similarity of our
names. Although our businesses are not competitive, in evaluating our options
regarding this proceeding, including a consideration of the time and resources
that would have been required to adequately respond to this proceeding, the
board of directors determined that it was in the best interests of our company
and our shareholders to avoid the deleterious effects of pursuing this cause of
action altogether, and changed our name, which permitted us to focus on our
business and operations. Our shareholders were not affected by the name
change in any way.
THE GAMING AND SPORTS HANDICAPPING MARKET
Our services are intended to assist fans of the games and teams we cover in
analyzing the prospects for their favored teams throughout the season, and for
sports bettors who wish to use our analysis in determining their wagers on
specific teams and/or games. We believe that our handicappers have the superior
knowledge and skill, and purchasing our handicappers' analysis allows our
customers to increase their odds of winning.
We believe that there is a market for our sports handicapping information
and analysis wherever there is a market for sports wagering and that the size of
the market for our sports handicapping information and analysis is directly
related to the market for sports wagering, which is substantial. In the United
States, wagering on sporting events, other than pari-mutuel betting, is
currently legal only in the State of Nevada. Pari-mutuel betting is a betting
pool in which those who bet on competitors finishing in the first three places
share the total amount bet, minus a percentage for the management. According to
a 1999 report by the National Gambling Impact Study Commission, sports wagering
reached $2.3 billion in Nevada's sports books in 1998. Estimates of the scope of
other sports betting in the United States range from $80 billion to $380 billion
annually. We believe that the proliferation of cable and satellite television,
which has increased the viewing access to sporting events worldwide, has also
increased viewers' interest in sports betting.
<PAGE>
OUR BUSINESS MODEL
Our business model is centered around our high-caliber handicappers. Mr.
Wayne Allen Root, our Chairman and Chief Executive Officer, has been employed in
the handicapping industry for the past 15 years, and had been the leading
revenue generator for National Sports Service, a competitor of our company and
an industry leader for the past 25 years. Mr. Alec McMordie has won 28 national
handicapping championships over the past nine years. The celebrity of our
handicappers allows us to attract highly qualified account representatives to
our company. These account representatives are then able to convert incoming
telephone leads into completed sales, as described further below.
MARKETING AND SALES
We generate revenue from the direct sale of our handicapping advice.
Interest in our service is derived primarily from two different sources, aside
from word-of-mouth: our informercial and our website. We estimate that 70% of
our revenue is derived from our infomercial advertising. "The WinningEDGE ,"
formerly The Global SportsEDGE(TM), a lively 30-minute, professionally produced
television infomercial broadcast nationally on Saturday mornings throughout the
football season, generally September through January. The WinningEDGE airs on
PAX TV Network, a cable television channel reaching 77 million households, as
well as on selected Fox Sports Net stations, reaching approximately 40,000,000
households. The show stars and is hosted by Mr. Root. The WinningEDGE also
showcases our team of professional handicappers, including Randy White (NFL Hall
of Fame, Super Bowl Most Valuable Player), and handicappers Larry Ness, and Alec
McMordie. Messrs. Ness and McMordie combined have won over 30 nationally
recognized handicapping contests. High profile guests are also featured on the
show. During the 2001-2001 season, guests included Tony Dorsett (NFL Hall of
Fame, Heisman Trophy), and Rick Barry (NBA Hall of Fame). Other NFL celebrities
join the cast on a regular and semi-regular basis. In the past these have
included Dan Hampton (six-time NFL All Pro) and Phil McConkey.
We also sell our handicapping analysis, or "picks," on our website
www.WinningEDGE.com, and develop customer interest through radio station
advertisements. This year, we have introduced a national advertising campaign on
The Sporting News Network, a radio network comprised of 425 affiliates,
averaging 13 million listeners weekly. The only "product" we sell is our
handicapping analysis, which may be sold as one pick from one handicapper for
one game (priced between $49 and $200, depending on the handicapper), or a
series of picks for a series of games played in one sport, a series of events in
one season, a series of different events for different sports during a season,
or a series of picks from different handicappers for one or many games in one or
many sports. The cost varies entirely based on the event, the sport, the number
of picks and the handicapper.
Once a potential customer has decided to purchase our picks, the customer
calls a toll-free number listed on our website or displayed on our program.
Unique telephone numbers are assigned to each of our handicappers and to each
advertising source, to assist us with identifying which promotional sources
generate the highest revenue. An experienced account representative receives the
call, and offers the customer various picks, which the customer can purchase
individually or in packages, such as a series of games, sports, or an entire
season. Our representatives encourage package sales, which generate higher
revenues. Once the customer has selected the individual pick or package, the
customer's credit card is immediately charged and the customer then receives the
selected pick or package.
During the football and basketball season, which, combined, extend from
September to March, we maintain a staff of approximately 60 experienced sales
representatives at our three telemarketing centers. Two of our centers are
located in Las Vegas, Nevada, and the third is in Phoenix, Arizona. During the
football season, our weekly television infomercials generate significant
consumer interest in our handicapping information, and a large portion of our
revenues is generated by inbound calls that our account representatives convert
into sales. Each inbound call, whether or not converted to an immediate sale, is
added to our database of potential customers. Outside of football season, when
we do not air regular weekly television infomercials, our account
representatives rely more heavily on contacting our caller database to sell
handicapping information for other sporting events, such as professional and
college basketball and major league baseball.
Our account representatives have a comprehensive knowledge of sports and
the business of sports betting, although they themselves do not conduct any of
the handicap analysis. We train our sales representatives thoroughly and
randomly monitor calls for quality assurance. We believe that our sales force is
among the most experienced and professional in our industry. A number of our
customers develop a relationship with a particular account representative and
call that representative on a regular basis to purchase our handicapper's picks.
Our account representatives, also referred to as sales representatives, are
compensated on a commission basis, with total commissions averaging
approximately 25% of our gross sales. In addition, sales managers may also
receive a small percentage (1-2%) of gross sales achieved by their sales
representatives in excess of predetermined sales targets. We sell the analysis
and picks of our professional handicappers in a variety of packages and at
various prices. Our prices vary by handicapper and by the packages and picks
offered by each handicapper, with higher prices for the picks considered by our
handicappers to have better odds of beating the spread for a particular game.
Customers may also purchase picks directly from our website, without
interaction with account representatives. Visitors to this site can purchase
both unique packages of picks offered only on our website as well as many of the
picks of our sports handicappers in the same packages and for the same prices as
if they had called our sales office.
<PAGE>
OUR STRATEGY
Our goal is to become the leading provider of sports handicapping
information and advice in the United States and internationally. Our
strategy includes the following key elements:
Expand our Business to Cover Additional Sports and Services and New
Geographic Markets. We currently provide handicapping analysis and advice for
football, basketball and baseball, primarily for events in the United States.
We plan to focus on maintaining and expanding the profitable growth of our
traditional operations for the remainder of 2002. Beginning in 2003, we plan to
expand our services to cover hockey, NASCAR, and golf, as well as soccer,
cricket, rugby and other heavily wagered sports in Europe and Asia, where
wagering on sporting events is widespread.
Establish a Global Brand Name. We plan to vigorously promote our "The
WinningEDGE" brand name and related website through continued expansion of our
television format to other markets. More importantly, by hiring only the most
insightful handicappers in each field that we enter, our goal is to continue to
grow a satisfied and loyal customer base and establish our brands as the leading
handicapping services in the world.
Build Strategic Alliances with Key Business Partners. We intend to develop
strategic relationships with leading sports information and sports wagering
providers. We believe that we can enhance our brand recognition through
advertising and co-marketing arrangements with leading television, radio and
Internet sports information and entertainment providers.
Expand Advertising Sales. We currently generate revenues by the sale of
advertising exposure on our website and by licensing of our database. We intend
to expand these efforts by also selling sponsorship and advertising
opportunities on our television show.
COMPETITION
We face competition from numerous operations that sell sports handicapping
information through television infomercials, print media, direct mail, the
Internet and telemarketing. While we believe that we feature the leading
handicappers in the country, some of our competitors have longer operating
histories, significantly greater financial and marketing resources, greater name
recognition and larger user and membership bases.
Our industry is characterized by a large number of privately held, small
companies and sole proprietorships, and information regarding capitalization,
revenues and market share of these companies is not available. We are unaware of
any independent reporting service which may supply information of this nature
regarding businesses operating in our industry. We believe that our principal
competitor is National Sports Service, Inc., which has a business model very
similar to ours and airs the Proline sports handicapping program on the USA
Network. National Sports Service has been well known in the industry for the
past 25 years. Other major competitors include vegasinsider.com, a well-known
provider of sports gaming information, and a subsidiary of Sportsline.com, which
is a leading online sports information site.
Our primary method of competing with these businesses is employing
handicappers who are well-known and have an established reputation and success
rate, as well as our promotion of our brand name through advertisement and our
infomercial vehicle, and the successful use of our proprietary database of
actual and potential customers.
INTELLECTUAL PROPERTY
We regard the professional reputations of our expert handicappers, and the
methodologies they employ, as important to our ability to maintain and grow our
business. We generally enter into sports personality agreements with our
handicappers to obtain rights to use their name, likeness and services in
connection with our business. The enforceability of these agreements may be
limited in some jurisdictions and, without an additional employment agreement,
we cannot prevent our handicappers from terminating their relationships with us.
We have acquired the registered trademark, "The WinningEdge " We also own
the Internet domain name www.WinningEDGE.com. We believe that our tradenames and
other proprietary rights are important to our brand-building efforts and our
marketing concept. However, we may not be able to enforce our intellectual
property rights, which may cause us to pay significant costs due to litigation,
and, if unsuccessful, may result in a reduction in our ability to remain
competitive in our industry.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Gaming activities are subject to extensive statutory and regulatory control
by both state and federal authorities, and are likely to be significantly
affected by any changes in the political climate and economic or regulatory
policies. We do not engage in gaming and do not accept or place wagers. The
marketing and sale of our handicapping information and analysis is not currently
subject to direct government control, other than regulations applicable to
businesses generally. However, we believe that demand for our services is
related to availability of legal gaming activities. Significant new
restrictions on wagering on sporting events could have a negative impact on our
sales of handicapping information.
<PAGE>
All 50 states currently have statutes or regulations restricting or
prohibiting gaming activities. In most states it is illegal for anyone either to
accept or make a wager, although there are exceptions that vary by state, such
as exceptions for pari-mutuel betting in many states. The Federal Interstate
Wire Act contains provisions that make it a crime for anyone in the business of
gaming to use an interstate or international telephone line to transmit
information assisting in the placing of wagers, unless the wagering is legal in
the jurisdictions from which and into which the transmission is made. Other
federal laws also impact gaming activities and further legislation is being
considered in Congress and individual states. However, none of these regulations
currently affect or apply directly to our business and operations, and we are
not aware of any legislation which applies directly to our business becoming
effective in the immediate future.
EMPLOYEES
We have 11 full-time employees, including one of our four handicappers, and
four part-time employees. Three of our handicappers are under sports
personality agreements, each of which is automatically renewable annually. The
fourth, Mr. Root, is a full-time employee. Mr. Root has entered into an
employment agreement with us, which expires August 31, 2005. In addition, we
have approximately 60 commissioned-based telemarketing sales representatives in
our Las Vegas and Phoenix sales offices during the peak football and basketball
seasons. Our employees are not represented by any collective bargaining
agreement and we have never had a work stoppage. We believe our employee
relations are good.
CUSTOMERS
None of our customers comprises more than 10% of our revenues.
ITEM 2. DESCRIPTION OF PROPERTIES
We currently lease approximately 5,325 square feet of office space for our
corporate headquarters and sales office in Las Vegas, Nevada, under a lease that
expires on January 22, 2004, with an option to extend the term of the lease for
an additional three years. Our lease for our Las Vegas facility requires monthly
base rental payments of $8,520. Our second Las Vegas facility is leased on a
month-to-month basis, with a monthly rent of $1,337. We also lease approximately
2,713 square feet for our sales office in Phoenix, Arizona, under a lease that
expires on October 31, 2003. Our lease for our Phoenix facility requires monthly
base rental payments of $3,278.
ITEM 3. LEGAL PROCEEDINGS
On April 29, 2002, a former director, Thomas Muehlbauer, filed a complaint
against us in connection with our merger with TurfClub.com, Inc., a California
corporation, to which he was the Chief Executive Officer, Secretary, a director
and a minority shareholder. In connection with our rescission of the merger, Mr.
Muehlbauer alleges breach of an employment guarantee and breach of the merger
agreement due to failure of consideration. The plaintiff sought unspecified
general damages and punitive damages. The action was brought in the Superior
Court of the State of California, in the County of San Diego. On September 26,
2002, we executed a settlement agreement with Mr. Muehlbauer pertaining to both
the litigation and the rescission, the terms of which are as follows:
In exchange for our issuance of a warrant for 450,000 shares of common
stock, exerciseable at $0.50 and expiring on December 31, 2007, 166,650 shares
of common stock, and $90,000 in cash to Mr. Muehlbauer, $15,000 of which was
paid on October 16, 2002, and the remaining $75,000 payable in increments of
$5,000 per month for the next 15 months, the litigation has been terminated and
the TurfClub transaction has been formally ended. As substantially all the
remaining shareholders of TurfClub had previously entered into settlement
agreements with us regarding this transaction, upon reaching settlement with Mr.
Muehlbauer, we are no longer under any obligation to complete the merger with
TurfClub.
From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business.
3
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
On June 18, 2002, a special meeting of our stockholders was conducted for
the purposes of seeking shareholder consent for the following matters, which
were adopted and approved by Board Resolution on June 14, 2002: (i) amend the
company's certificate of incorporation to change the name of the company from
"Global Sports and Entertainment, Inc." to "GWIN, Inc."; (ii) adopt the
company's 2002 Equity Incentive Plan; (iii) reduce the Board of Directors,
previously fixed at eight, to be fixed at seven; (iv) ratify the reappointment
of our auditors, Moore Stephens, PC; and (iv) elect our current slate of
directors, which are as follows:
Wayne Allyn Root
Douglas R. Miller
David P. Hanlon
Edward J. Fishman
Ralph R. Papitto
Timothy J. Keating
John T. Manner
Each and all of these individuals served as directors during our last
fiscal year, and each has been nominated and elected for an additional annual
term.
All matters were uncontested and unanimously consented to by all
stockholders present at the special meeting, which represented 53.4% of the
authorized, issued and outstanding shares of common stock.
Mr. Papitto has since resigned, and Mr. Simon Hayes has been nominated
to fill the vacancy. See "Item 9" and "Item 12" for further discussion.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has traded on the OTC Bulletin Board under the symbol
"GWIN" since September 7, 2001. From August 28, 2001 to September 6, 2001, our
common stock traded on the OTC Bulletin Board under the symbol "GSPE" and prior
to August 28, 2001 our common stock traded on the OTC Bulletin Board under the
symbol "IMSO." The following table shows the high and low bid prices of our
common stock for the periods indicated as reported by the OTC Bulletin Board.
The table below sets forth for the periods indicated the high and low
bid prices per share of our Common Stock, as reported by the Over the Counter
Bulletin Board. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
HIGH LOW
FISCAL YEAR 2000
Fourth Quarter............................. $ .13 .09
Third Quarter.............................. $ .30 .03
Second Quarter............................. $ .75 .38
First Quarter.............................. $ .91 .20
FISCAL YEAR 2001
Fourth Quarter............................. $ 1.03 .51
Third Quarter.............................. $ 1.60 1.00
Second Quarter............................. $ .27 .05
First Quarter.............................. $ .08 .06
FISCAL PERIOD JANUARY 1 TO JULY 31, 2002
Month of July . . . . . . . . . . . . . . .$ 0.74 0.42
Second Quarter . . . . . . . . . . . . . . .$ 0.90 0.47
First Quarter . . . . . . . . . . . . . . .$ 0.86 0.60
We consider our common stock to be thinly traded and any reported sale
prices may not be a true market-based valuation of our common stock. On October
25, 2002 the closing price of our common stock, as reported on the Over the
Counter Bulletin Board, was $0.32. There were approximately 996 holders of
record of the Company's common stock.
We have not paid any cash dividends since our inception and do not
contemplate paying dividends in the foreseeable future. It is anticipated that
earnings, if any, will be retained for the operation of our business.
<PAGE>
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS "FORWARD-LOOKING STATEMENTS," WHICH
ARE BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS,
ESTIMATES AND PROJECTIONS ABOUT OUR BUSINESS AND OUR INDUSTRY. WORDS SUCH AS
"BELIEVE," "ANTICIPATE," "EXPECT," "INTEND," "PLAN," "WILL," "MAY," AND OTHER
SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. IN ADDITION, ANY
STATEMENTS THAT REFER TO EXPECTATIONS, PROJECTIONS OR OTHER CHARACTERIZATIONS OF
FUTURE EVENTS OR CIRCUMSTANCES ARE FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, WHETHER OR NOT OUR PRODUCTS ARE ACCEPTED BY THE
MARKETPLACE AND THE PACE OF ANY SUCH ACCEPTANCE, OUR ABILITY TO OBTAIN FINANCING
TO MAINTAIN OUR OPERATIONS, CHANGING ECONOMIC CONDITIONS AND OTHER FACTORS, SOME
OF WHICH WILL BE OUTSIDE OUR CONTROL. YOU ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH RELATE ONLY TO EVENTS AS OF
THE DATE ON WHICH THE STATEMENTS ARE MADE. WE UNDERTAKE NO OBLIGATION TO
PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES THAT ARISE AFTER THE DATE HEREOF. YOU SHOULD REFER TO AND
CAREFULLY REVIEW THE INFORMATION IN FUTURE DOCUMENTS WE FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
Our business is highly seasonal and the seven months ended July 31, 2002
exclude virtually all of the college and professional football season. This has
historically been the period in which a substantial part of annual revenues are
generated. Comparisons to twelve month periods ending in December on a
"pro-rata" basis may not be effective.
Our net loss decreased from $6,162,866 for the year ended December 31, 2000
to $5,527,352 for the year ended December 31, 2001. The net loss used in
earnings per share calculation in 2001 was further increased by an imputed
non-cash dividend on our Series C Preferred Shares of $1,092,000 to $6,619,352.
This imputed dividend was a result of a 50% upward adjustment in the conversion
rate attached to those Preferred Shares after issuance. The net loss for the
seven months ended July 31, 2002 was $2,075,443.
Revenue from sales of sports handicapping information and analysis
increased from $1,055,075 in 2000, our initial year of operation, to $3,083,314
in 2001, a 192.2 % increase. The amount was $2,765,232 for the seven months to
July 31, 2002 - an increase of 24% from the comparable period in 2001. Revenue
from advertising agreements was $157,168 in 2001 and $261,998 for the July
period. We had no advertising agreements in 2000.
Handicappers' fees increased from $291,432 in 2000 to $424,002 in 2001, an
increase of 45%. This is less than the percentage increase in revenues because,
in part, some handicapping contracts in 2000 provided for fixed minimum payments
not directly related to sales volumes. These fees were approximately 9.5% of
related revenue for the July period and that is consistent with the contract
payment terms.
Advertising expenses (including production of television shows) decreased
from $3,172,392 in 2000 to $2,160,245 in 2001, a 31.9% reduction. Advertising
expenses in 2000 reflected the additional activities associated with the
inception of operations; the reduction is largely the result of commitments in
2001 at a level consistent with continuing normal operations. The amounts for
2001 are more likely representative of future trends than the 2000 amounts.
Advertising expense for the July period is $194,755 and is very low by
comparison because the bulk of our advertising comes during the football season
(September to December).
Professional fees increased from $475,900 in 2000 to $556,201 in 2001, a
16.8% increase. This increase is primarily a result of our common stock becoming
publicly traded following the reverse merger in July of 2001. Professional fees
for the July period of $ 868,148 were exceptionally high because of fees paid in
connection with efforts to raise investment capital. We do not expect this
amount to be indicative of future patterns.
General and administrative expenses of $1,810,410 in 2000 also reflect the
fact that operations commenced in that year. The 2001 amount of $1,238,880 (a
31.6% decrease) is more likely representative of future trends than the amount
from the prior year.
The non-recurring charge of $866,453 in 2001 and $287,000 of the charge in
the July period represent costs associated with a planned share exchange
transaction. As described in Item 1, we have rescinded the share exchange
transaction with the shareholders of TurfClub.com. We have reached agreements
with substantially all of the shareholders of TurfClub.com for payments of
$90,000 and issuance of shares and warrants in exchange for mutual releases from
further claims in connection with this transaction. We have provided
approximately $1,153,000 for the costs of those settlements. In 2001 an
additional charge of $377,000 represents the write off operating advances to
TurfClub.com from the date of the proposed transaction until October 3, 2001.
Management has determined that those advances are not collectible.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our working capital deficit as of July 31, 2002, was $3,013,361. Of
that amount, approximately $396,000 represents revenues from sales which will
not be recognized until after July 31, 2002. Since July 31, 2002, we
have raised approximately $750,000 from our existing security holders.
We believe that this additional financing and cash flow from
operations will be sufficient to fund foreseeable operating requirements.
SEASONALITY
Our business is highly seasonal. Because football and basketball are the
most popular sports for wagering, the demand for the handicapping analysis for
these sports is substantially higher than for any other sporting events. As a
result, approximately 80% of our sales occur in the first and second quarters of
our fiscal year. Because of these factors, our quarterly operating results are
difficult to predict and are likely to vary in the future. We expect this
seasonality to continue for the foreseeable future. If we are ultimately
successful in pursuing our strategy to expand our handicapping services to cover
other sports that are popular internationally, such as soccer and cricket, we
may reduce the seasonality of our business. However, there can be no assurance
that future seasonal fluctuations will not adversely affect the business or
results of operations.
ITEM 7. FINANCIAL STATEMENTS.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
GWIN, Inc.
We have audited the accompanying consolidated balance sheets of GWIN,
Inc. [formerly Global Sports & Entertainment, Inc.], and subsidiary, as of July
31, 2002 and December 31, 2001, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the seven-month period
ended July 31, 2002 and each of the two years in the period ended December 31,
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 consolidated 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 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 consolidated financial
position of GWIN, Inc. [formerly Global Sports & Entertainment, Inc.], and
subsidiary, as of July 31, 2002 and December 31, 2001, and the results of their
operations and their cash flows for the seven-month period ended July 31, 2002
and each of the two years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 3 to the consolidated financial statements, the Company has suffered a loss
from operations, has a working capital deficiency and accumulated deficit that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
October 11, 2002
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
GWIN, INC.
(FORMERLY GLOBAL SPORTS & ENTERTAINMENT, INC.)
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
July 31, December 31,
2002 2001
---- ----
ASSETS
CURRENT ASSETS:
Cash $ 324,786 $ 44,603
Accounts receivable 10,009 103,706
Prepaid expenses 135,534 --
------------- ------------
Total current assets 470,329 148,309
Property & equipment (net) 141,235 204,724
Equipment held under capital leases (net) 100,151 156,810
Deposits & other assets 351,748 357,892
------------- ------------
Total assets $ 1,063,463 $ 867,735
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long term debt $ 643,303 $ 89,176
Notes & accounts payable - related parties 251,666 251,666
Deferred revenue 395,834 822,9255
Accounts payable 849,184 729,054
Accrued settlement costs 635,749 866,453
Other accrued liabilities 707,954 507,037
------------- ------------
Total current liabilities 3,483,690 3,266,311
Long term debt, less unamortized discount of $805,913 at July 31, 2002 and
$647,237 at December 31, 2001 390,833 263,499
------------- ------------
Total liabilities 3,874,523 3,529,810
------------- ------------
STOCKHOLDERS' DEFICIT:
Convertible Preferred Stock, Series C - Par Value $0.0001, Authorized 5,000,000
Shares, 64,000 Shares Issued & Outstanding 6 6
Common Stock - Par Value $0.0001, Authorized 50,000,000 Shares; Shares
Issued & Outstanding at July 31, 2002 - 21,285,703 and at December 31, 2001 -
19,195,241 2,128 1,920
Additional Paid-in Capital 12,044,467 10,118,217
Accumulated Deficit (14,857,661) (12,782,218)
------------- ------------
Total stockholders' deficit (2,811,060) (2,662,075)
------------- -------------
Total liabilities and stockholders' deficit $ 1,063,463 $ 867,735
============= =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
GWIN, INC.
(FORMERLY GLOBAL SPORTS & ENTERTAINMENT, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years ended December 31,
Seven Months -----------------------
ended July 31,
2002 2001 2000
---- ---- ----
REVENUES:
Net revenue - services $ 2,765,232 $ 3,083,314 $ 1,055,075
Revenues - advertising 261,998 157,168 --
------------ ------------ ------------
TOTAL REVENUES $ 3,027,230 $ 3,240,482 $1,055,0751
------------ ------------ ------------
EXPENSES:
Handicapping fees 103,518 196,847 221,431
Handicapping fees - related party 160,739 227,155 70,000
Advertising expense 194,755 2,160,245 3,172,392
Compensation expense 1,463,067 2,024,074 1,385,419
Professional fees 868,148 556,201 475,900
General and administrative 864,629 1,238,880 1,810,410
Bad debt expense - TurfClub -- 377,000 --
Non-recurring charges - settlement costs 608,525 866,453 --
Depreciation expense 134,966 230,997 100,461
------------ ------------ ------------
TOTAL EXPENSES 4,398,347 7,877,852 7,236,013
------------ ------------ ------------
OPERATING (LOSS) (1,371,117) (4,637,370) (6,180,938)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income -- -- 42,845
Interest expense, including amortization of debt discount (459,008) (887,659) (22,856)
Other non-cash cost of financing (236,329) -- --
Interest expense - related parties (8,989) (2,323) (1,917)
------------ ------------ ------------
OTHER INCOME (EXPENSE) - NET (704,326) (889,982) 18,072
------------ ------------ ------------
NET (LOSS) $(2,075,443) $(5,527,352) $(6,162,866)
------------ ------------ ------------
Imputed non-cash dividend on Series C Preferred Stock -- (1,092,000) --
------------ ------------ ------------
NET (LOSS) USED IN PER SHARE CALCULATION $(2,075,443) $(6,619,352) $(6,162,866)
============ ============ ============
Basic and diluted (loss) per share of common stock $ (0.10) $ (0.35) $ (0.33)
============ ============ ============
Basic and diluted weighted shares of common stock outstanding 20,240,472 18,801,491 18,745,241
============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
GWIN, INC.
(FORMERLY GLOBAL SPORTS & ENTERTAINMENT, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years ended December 31,
Seven Months -----------------------
ended July 31,
2002 2001 2000
---- ---- ----
CASH FLOWS - OPERATING ACTIVITIES:
Net (loss) $(2,075,445) $(5,527,352) $(6,162,867)
------------ ------------- ------------
Adjustments to reconcile net (loss) to net cash used in operations:
Depreciation 134,966 230,997 100,461
Services paid with Warrants 390,492 18,333 --
Services & settlements paid with Common Stock 969,130 190,000 157,500
Interest expense - issuance of Convertible Debt 127,203 757,090 --
Interest expense - issuance of Convertible Debt (Warrants portion) 276,922 71,995 --
Decrease (increase) in:
Accounts receivable 93,697 (103,706) --
Prepaid expenses (135,534) -- --
Deposits & other assets (28,857) (136,225) --
Increase (decrease) in:
Deferred revenue (427,091) 463,935 358,990
Accounts payable 120,131 206,495 403,191
Accounts payable - related parties -- 85,000 --
Other current liabilities (41,778) 1,371,573 1,917
------------ ------------- ------------
Total adjustments 1,479,281 3,155,487 1,022,059
------------ ------------- ------------
Total cash (used in) operating activities (596,164) (2,371,865) (5,140,808)
------------ ------------- ------------
CASH FLOWS - INVESTING ACTIVITIES:
Cash acquired in merger -- 5,964 --
Purchase of fixed assets (14,818) -- (401,601)
------------ ------------- ------------
Total cash provided by (used in) investing activities (14,818) 5,964 (401,601)
------------ ------------- ------------
CASH FLOWS - FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Debt 791,500 870,000 --
Proceeds from issuance of Notes Payable - Related Parties -- 166,666 150,000
Proceeds from issuance of Preferred Stock -- 1,324,000 5,553,725
Proceeds from issuance of Common Stock -- 200,000 --
Payments on Lease Obligations (34,863) (224,828) (86,650)
Proceeds from conversion of Warrants & Options 134,528 -- --
------------ ------------- ------------
Total cash provided by financing activities 891,165 2,335,838 5,617,075
------------ ------------- ------------
Net increase (decrease) in cash $ 280,183 $ (30,063) $ 0
Cash - beginning of the periods 44,603 74,666 74,666
------------ ------------- ------------
Cash - end of the periods $ 324,786 $ 44,603 $ 74,666
============ ============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the seven months ended July 31, 2002 and the years ended December 31, 2001 and 2000, the Company
paid $-0- for income taxes (all periods) and $22,206, $60,897 and 24,694 for interest, respectively. The
Company issued stock and warrants for services. For the seven months ended July 31, 2002 the amounts were
$969,130 in common stock and $390,492 in warrants; in 2001, $190,000 in common stock and $18,333 in
warrants and, in 2000, $157,500 in common stock.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
GWIN, INC.
(FORMERLY GLOBAL SPORTS & ENTERTAINMENT, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Preferred Stock Common Stock Discount- Total
--------------- ------------------ Common Paid-In Accumulated Shareholders'
Shares Amount Shares Amount Stock Capital Deficit Equity
------ ------- ------ ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Founders' Shares,
January 15, 2000 -- $ -- 10,125,000 $ 10,125 $(10,125) $ -- $ -- $ --
Issuance of Preferred Stock for
services 105,000 105 -- -- -- 157,395 -- 157,500
Issuance of Preferred Stock for
cash 3,702,484 3,702 -- -- -- 5,550,023 -- 5,553,725
Net (loss) for year ended
December 31, 2000 -- -- $ (6,162,866) $(6,162,866)
---------------------------------------------------------------------------------------------------
Balance, December 31, 2000 3,807,484 $ 3,807 10,125,000 $ 10,125 $(10,125) $ 5,707,418 $ (6,162,866) $ (451,641)
Shares of Series B Preferred
Stock issued in reorganization 475,048 48 -- -- -- (48) -- --
Recapitalization adjustment (3,807,484) (3,807) (10,125,000) (10,125) 10,125 3,807 --
Conversion of Series B
Preferred Stock (475,048) (48) 14,845,241 1,485 -- (1,437) -- --
Acquired equity of IMSCO in
reorganization -- -- 3,750,000 375 -- (113,779) -- (113,404)
Issuance of Series C Preferred
Stock with warrants for cash 64,000 6 -- -- -- 1,323,994 -- 1,324,000
Issuance of Common Stock for
services -- -- 200,000 20 -- 189,980 -- 190,000
Issuance of Common Stock for
cash -- -- 400,000 40 -- 199,960 -- 200,000
Issuance of Warrants for
services -- -- -- -- -- 240,000 -- 240,000
Issuance of Warrants with
Debentures -- -- -- -- -- 719,232 -- 719,232
Interest expense from issuance
of Debentures -- -- -- -- -- 757,090 -- 757,090
Net (loss) for the year ended
December 31, 2001 -- -- -- -- -- -- (5,527,352) (5,527,352)
Imputed non-cash dividend on
Series C Preferred Stock -- -- -- -- -- 1,092,000 (1,092,000) --
----------------------------------------------------------------------------------------------------
Balance, December 31, 2001 64,000 6 19,195,241 1,920 -- 10,118,217 (12,782,218) (2,662,075)
Issuance of Common Stock for
conversion of Warrants &
Options -- -- 309,546 30 -- 221,294 -- 221,324
Issuance of Common Stock and
Warrants as payment for services
and settlements -- -- 1,672,145 167 -- 1,423,620 -- 1,423,787
Issuance of Common Stock for
conversion of Debentures -- -- 108,771 11 -- 76,553 -- 76,564
Recorded value of Warrants
issued with Debentures -- -- -- -- -- 204,783 -- 204,783
Net (loss) for the seven months
ended July 31, 2002 -- -- -- -- -- -- (2,075,443) (2,075,443)
----------------------------------------------------------------------------------------------------
Balance - July 31, 2002 64,000 $ 6 21,285,703 $ 2,128 -- $12,044,467 $(14,857,661) $(2,811,060)
====================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
GWIN, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL SPORTS & ENTERTAINMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] ORGANIZATION AND CHANGES IN CONTROL OF COMPANY
Prior to July 11, 2001, the corporation was known as IMSCO Technologies, Inc.
["IMSCO" or the "Company"]. On July 11, 2001, Global Sports & Entertainment,
Inc., a Delaware corporation ["Global Sports"], completed a reverse acquisition
of the Company in which the Company acquired all of the outstanding shares of
Global Sports stock in exchange for a controlling interest in IMSCO [the
"Reorganization"]. As the Company is a public shell, the transaction has been
reflected as a recapitalization of the accounting acquiror, Global Sports (See
Note 8).
Initially, the reverse acquisition included a California corporation,
TurfClub.com ["TurfClub"] [See Note 10].
On August 27, 2001, Global Sports changed its name to Global SportsEDGE, Inc.
["EDGE"] and the Company changed its name to Global Sports & Entertainment, Inc.
[the "Company" or "Global"]. The Company also initiated a reverse stock split of
1:4 and increased the number of authorized common shares to 50,000,000. All
share numbers have been changed to reflect the reverse stock split.
The consolidated financial statements of the Company reflect the results of
operations of EDGE and GLOBAL from July 11, 2001 through December 31, 2001. The
financial statements prior to July 11, 2001 reflect the results of operations
and financial position of EDGE. Pro forma information on this transaction is not
presented as, at the date of this transaction, Global Sports & Entertainment,
Inc. [formerly known as IMSCO Technologies, Inc.] was considered a public shell
and accordingly, the transaction was not considered a business combination.
Global Sports & Entertainment, Inc. is a Delaware corporation located in Las
Vegas, Nevada. The Company primarily develops, produces and markets sports
handicapping analysis and information via television and the internet.
On August 22, 2002 the Company changed its name from Global Sports &
Entertainment, Inc. to GWIN, Inc. ("GWIN") to settle a lawsuit brought by the
management of an unrelated corporation named Global Sports, Inc.
On May 23, 2002, the Company filed a Form 8-K to report that the Board of
Directors had approved a change in our fiscal year from a calendar year to one
beginning August 1 and ending July 31. That change was effective July 31, 2002.
The Company is engaged in a highly seasonal business, with the majority of sales
related to football and basketball handicapping. Due to this seasonality,
quarterly results may vary materially between the football and basketball
seasons [concentrated in the first and second fiscal quarters] and the remainder
of the year [the third and fourth fiscal quarters].
<PAGE>
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiary, EDGE, as well as several inactive
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION - Revenue is recognized as services are rendered. On July
31, 2002, the Company had received approximately $263,000 in payments for
handicapping services not rendered by that date. This amount is recorded as a
current liability.
Revenue from advertising agreements is recognized ratably over the period of the
agreements. As of July 31, 2002 deferred revenue from advertising agreements was
approximately $133,000. This amount is recorded as a current liability.
OPERATING COSTS & EXPENSES - Handicappers' fees and sales representatives'
compensation and related expenses are charged to operations as incurred.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments,
with a maturity of three months or less when purchased, to be cash equivalents.
At July 31, 2002, the Company did not have any cash equivalents.
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from 3 to 5 years.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported as income or expense.
BASIC AND DILUTED LOSS PER COMMON SHARE - The Company has adopted Statement of
Financial Accounting Standards ["SFAS"] No. 128, "Earnings Per Share." Under
SFAS 128, loss per common share is computed by dividing net loss available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Shares issued in the reverse acquisition are reflected as
outstanding for all periods presented. In the Company's present position,
diluted loss per share is the same as basic loss per share. Securities that
could potentially dilute EPS in the future include the issuance of common stock
in settlement of notes payable and the exercise of stock options and warrants.
For the seven months ended July 31, 2002 and the years ended December 31, 2001
<PAGE>
and 2000 the number of common stock equivalents excluded from the calculation
was 16,429,558, 14,281,245 and 4,440,445, respectively.
STOCK OPTIONS AND SIMILAR EQUITY INSTRUMENTS - The Company has adopted the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," for stock options and similar equity instruments [collectively
"Options"] issued to employees and directors. However, the Company will continue
to apply the intrinsic value based method of accounting for options issued to
employees prescribed by Accounting Principles Board ["APB"] Opinion No. 25,
"Accounting for Stock Issued to Employees" rather than the fair value based
method of accounting prescribed by SFAS No. 123. SFAS No. 123 also applies to
transactions in which an entity issues its equity instruments to acquire goods
and services from non-employees. Those transactions must be accounted for based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
BENEFICIAL CONVERSION FEATURES - The Company has sold certain 5% three year
convertible debentures with a beneficial conversion feature [See Note 8]
representing a 50% imputed discount. The value of such features is recorded by
the Company as interest expense of $-0- for the seven months ended July 31, 2002
and $757,090 and $-0- for the years ended December 31, 2001 and 2000,
respectively.
INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total
advertising costs for the seven month period ended July 31, 2002 and the years
ended December 31, 2001 and 2000 amounted to approximately $195,000, $2,160,000
and $3,172,000, respectively.
CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS - The costs of developing the
Company's websites and internal computer software are accounted for in
accordance with SOP 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use", as software developed for internal use.
SOP 98-1 requires that all costs related to the preliminary project stage in
which the nature of the project and the strategy to attain the objectives is
explored are expensed. The next stage, the application development stage,
includes external directs costs of materials and services as well as internal
costs for payroll and other costs, which are capitalized.
RECLASSIFACTION - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.
<PAGE>
[3] GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. For the
seven-month period ended July 31, 2002, the Company has a loss from operations
of approximately $1,371,000, a working capital deficiency of approximately
$3,013,000 and an accumulated deficit of approximately $14,858,000. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Consistent with its original business plan, management plans to
secure additional financing through equity issuances. The financial statements
do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that might
be necessary in the event the Company cannot continue in existence.
[4] CONCENTRATIONS OF CREDIT RISKS
The Company places its cash and cash equivalents with high credit quality
institutions to limit its credit exposure. At July 31, 2002, the Company had
approximately $180,000 in a financial institution that is subject to normal
credit risk beyond insured amounts. At December 31, 2001, the Company did not
have any amounts in a financial institution that were subject to normal credit
risk beyond insured amounts. The Company routinely assesses the credit
worthiness of its customers before a sale takes place and believes its credit
risk exposure is limited. The Company performs ongoing credit evaluations of its
customers but does not require collateral as a condition of service.
[5] PROPERTY AND EQUIPMENT
The following details the composition of property and equipment:
Accumulated
At July 31, 2002 Cost Depreciation Net
---- ------------ ---
Television Studio Set $151,603 $ 102,637 $ 48,966
Website & other 264,818 172,549 92,269
-------- --------- ---------
TOTALS $416,421 $ 275,186 $ 141,235
======== ========= =========
At December 31, 2001
Television Studio Set $151,603 $ 73,159 $ 78,442
Website & other 250,000 123,718 126,282
-------- --------- ---------
TOTALS $401,601 $ 196,877 $ 204,724
======== ========= =========
Depreciation expense, excluding assets under capital lease obligations, for the
seven-month period ended July 31, 2002 and the years ended December 31, 2001 and
2000 amounted to $78,309, $133,847 and $63,080 respectively.
<PAGE>
[6] DEPOSITS AND OTHER ASSETS
Deposits and other assets comprised the following:
July 31, December 31,
------- -----------
2002 2001
-------- --------
Deposits with credit card processors $165,081 $136,225
Pre-paid contract for financial services 186,667 221,667
-------- --------
Total $351,748 $357,892
======== ========
[7] LONG - TERM DEBT
Long - term debt is as follows:
<TABLE>
<CAPTION>
July 31, December 31,
----------- -----------
2002 2001
----------- -----------
<S> <C> <C>
Convertible Debentures (5%) due August 31, 2003 $ 820,000 $ 870,000
Convertible Note (13%) payable in monthly installments of
$50,000 commencing September 28, 2002 750,000 --
Convertible Debentures (5%) due August 31, 2004 175,000 --
Capital leases 95,049 129,912
----------- ----------
Total 1,840,049 999,912
Less - amounts reflected as current liabilities (643,303) (89,176)
----------- ----------
1,196,746 910,736
Less - unamortized debt discount (805,913) (647,237)
----------- ----------
TOTAL LONG - TERM DEBT $ 390,833 $ 263,499
=========== ==========
</TABLE>
Long - term debt at July 31, 2002 matures as follows:
2003 $ 643,303
2004 1,021,746
2005 175,000
------------
TOTAL $ 1,840,049
============
The 13% Convertible Note ($750,000, of which $550,000 is due in the year ending
July 31, 2003) may, at the discretion of the Company, be repaid by the issuance
of common stock of the Company (See Note 8).
[8] STOCKHOLDERS' DEFICIT
CONVERTIBLE DEBT and WARRANTS - During the seven-month period ended July 31,
2002, the Company sold a convertible note with a principal amount of $750,000.
The note bears interest at annual rate of 13%, matures in November, 2003, and
may be repaid, at the option of the Company, by issuance of shares of common
stock valued at market price at the time of each installment payment. The lender
<PAGE>
has the right to request repayment by issuance of shares of common stock with a
valuation of $0.80 per share. The Company also issued to the lender a warrant
for the purchase of 250,000 shares of common stock at an average price of $0.99
per share which expires on June 27, 2007.
In addition, the Company sold four convertible debentures with an aggregate
principal amount of $175,000. The debentures bear interest at an annual rate of
5% and the principal amount plus accrued interest will automatically convert to
an aggregate of approximately 385,000 shares of common stock in August, 2004.
The detachable warrants issued in conjunction with this debt have been valued at
$96,348 by management. The value of these warrants is being charged to interest
expense over the life of the related debt.
After deducting fees and expenses paid to the buyers and other agents, the
net proceeds for the sale of the convertible note and the convertible debentures
amounted to $791,500.
During the year ended December 31, 2001 the following securities activity
occurred:
COMMON STOCK - The Company sold 400,000 shares of common stock and granted a
warrant to purchase 400,000 shares of common stock at $1.00 per share to a
member of its Board of Directors for $200,000.
CONVERTIBLE PREFERRED STOCK - The Company issued approximately 475,050 shares of
Series B convertible preferred stock as part of the recapitalization of the
Company on July 11, 2001 (See Note 1). These shares included 4,800 shares of
Series B convertible preferred stock [convertible to 150,000 shares of common
stock], which were issued as payment for a brokers' commission resulting in a
charge to operations of $150,000. All of our Series B preferred stock was
converted on August 27, 2001 into common stock on a 31.25:1 basis.
On July 11, 2001, the Company sold 64,000 units of the Company's Series C
convertible preferred stock for $1,324,000 (net of broker's commission of
$176,000 including $150,000 paid to a related party). Each unit consists of one
share of Series C convertible preferred stock and one warrant with an exercise
price of $31.25 for an additional share of Series C stock. The Series C
convertible preferred stock has a conversion rate that varies with dilution. The
base conversion rate of 31.25:1 has subsequently increased to 46.875:1 due to
anti-dilution provision adjustments of the stock. The beneficial conversion
feature representing that 50% imputed discount and totaling $1,092,000 was
charged to retained earnings in a manner analogous to a dividend.
The agreement for sale of the Company's Series C convertible preferred stock
includes a provision which requires the issuance of additional shares of that
stock in the event that the Company fails to register the common shares
underlying the Company's Series C convertible preferred stock by June 20, 2002.
The financial statements for the seven months ended July 31, 2002 include a
non-cash financing charge of $236,239 to reflect the obligation to issue those
additional shares. That amount is reflected in current liabilities at July 31,
2002.
WARRANTS AND CONVERTIBLE DEBENTURES - The Company issued warrants to purchase
1,815,400 shares at $1.00 per share and 5% convertible debentures to investors
<PAGE>
for approximately $936,000 during the year ended December 31, 2001. The
debentures will convert upon demand to 1,815,400 shares of common stock. The
detachable warrants issued in conjunction with this debt have been valued at
$719,232 by management. The value of these warrants is being charged to
operating expense over the life of the related debt.
On November 2, 2001, the Company also issued a warrant to purchase 600,000
shares of stock at $0.10 per share as payment for financial advisory services
for a period of 4 years. These services were valued at $240,000 and are to be
amortized over the life of the agreement. The charge to operations totaled
$18,333 for the year ended December 31, 2001.
OPTIONS AND WARRANTS AT JULY 31, 2002
As of the date of the reverse merger, the Company and its subsidiary, EDGE,had
2,194,246 options outstanding after giving effect to the one-for-four reverse
split and merger adjustments. The following is a summary of option transactions
for the period after the reverse merger:
Weighted-Average
Shares Exercise Price
------ ----------------
Outstanding at July 11, 2001 2,194,246 $2.22
Granted -- --
Exercised (33,830) 1.41
Canceled -- --
--------- --------
OUTSTANDING AT JULY 31, 2002 2,160,416 $2.24
========== ========
EXERCISABLE AT JULY 31, 2002 2,160,416 $2.24
========== ========
The following table summarizes information about stock options at July 31, 2002:
Weighted Average Outstanding and Exercisable Stock Options
----------------------------------------------------------
Remaining Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price
--------------- ------ ---------------- ----------------
$1.00 - $7.50 2,160,416 4 years $2.24
The Black-Scholes option valuation model was developed for use in estimating the
fair value of options. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility. Due
to the effects of the reverse merger, the Company believes that for options
granted prior to the reverse merger date, the results of the Black-Scholes
<PAGE>
computation are not meaningful. There were no options granted during the seven
months ended July 31, 2002 or for the year ended December 31, 2001.
As of the date of the reverse merger, the Company and its subsidiary, EDGE, had
2,246,199 warrants to purchase common stock outstanding. The following is a
summary of warrant transactions for the period after the reverse merger:
Weighted-Average
Shares Exercise Price
------ --------------
Outstanding at July 11, 2001 2,041,519 $1.77
Issued for services 1,988,889 0.63
Issued with convertible debt 3,144,367 0.90
Issued with Series C Preferred Stock 2,000,000 1.00
------------ -----------
OUTSTANDING AT JULY 31, 2002 9,174,775 $1.06
------------ -----------
EXERCISABLE AT JULY 31, 2002 9,174,775 $1.06
------------ -----------
On June 18, 2002, shareholders of the Company approved an Equity Incentive
Plan ( the "Plan"). Under the Plan, a sub-committee of the Board of Directors is
authorized to grant, at its discretion, options to purchase shares of common
stock at a set price greater than market price as of the date of the grant. The
Company has reserved 3,000,000 shares for issuance under the Plan. At July 31,
2002, no options had been granted under the plan.
[9] PROVISION FOR INCOME TAXES
The operating loss carry forwards at July 31, 2002, [assuming all operating loss
carry forwards will be available] amount to approximately $13,000,000. Such loss
carry forwards will expire as follows: approximately $6,000,000 in 2020,
$5,000,000 in 2021 and $2,000,000 in 2022. At July 31, 2002 based on the amount
of operating loss carry forwards, the Company would have had a deferred tax
asset of approximately $4,080,000. Because of the uncertainty that the Company
will generate income in the future sufficient to fully or partially utilize
these carry forwards, a valuation allowance of $4,080,000 has been established.
Accordingly, no deferred tax asset is reflected in these financial statements.
The corresponding amounts at December 31, 2001 were $3,740,000.
As part of the reverse acquisition (Note 1), the Company acquired net operating
losses of IMSCO of approximately $10,640,000. Pursuant to Section 382 of the
Internal Revenue Code, utilization of these losses will be limited to
approximately $285,000 subject to a maximum annual utilization of approximately
$15,000 per year through 2021. At July 31, 2002, the Company would have a
deferred tax asset of approximately $97,000 from these acquired losses.
<PAGE>
Because of the uncertainty that the Company would generate income in the future
sufficient to fully or partially utilize these carry forwards, a valuation
allowance of $97,000 has been established. Accordingly, no deferred tax asset
is reflected in these financial statements.
[10] NON-RECURRING CHARGES
During the seven months ended July 31, 2002, the Company reached a settlement
with an individual who is both a shareholder and executive officer of
TurfClub.com. This settlement represents the final action required to conclude
the rescission of the 2001 reverse merger as it relates to TurfClub.com. The
settlement provides for payment of $90,000, $15,000 of which was paid on October
16, 2002, and the remaining $75,000 payable in increments of $5,000 per month
over the next 15 months, the issuance of a warrant to purchase 450,000 shares of
common stock for $0.50 per share and the issuance of 166,650 shares of common
stock. The estimated cost of approximately $287,000 has been charged to
operations. The settlement agreement was executed on September 26, 2002.
The Company also reached an agreement in the matter of a breach of contract
litigation with a former landlord and concluded arbitration with an individual
regarding a sports celebrity agreement from 2000. The financial statements for
the seven months ended July 31, 2002 reflect a non-recurring charge of $ 227,000
for the excess of the estimated aggregate costs of those settlements over
amounts previously recorded.
During the year ended December 31, 2001, the Company incurred certain
non-recurring charges related to the rescission of the merger with TurfClub.com.
These charges include approximately $377,000 advanced to the management of
TurfClub.com for normal operating expenses. Management has deemed these amounts
uncollectible from TurfClub, and has charged the items to operations as bad debt
expense. The statements for that period also reflect estimated costs of
settlements with shareholders of TurfClub who were not involved in management or
in the matters which gave rise to the decision to rescind the element of the
reverse merger that involved TurfClub. The agreements provided for issuance of
shares of common stock and warrants in exchange for mutual releases from all
parties. The amount provided for these costs was approximately $866,000.
[11] CHANGE IN FISCAL YEAR.
As described in Note 1, the Company adopted a new fiscal year effective July 31,
2002. The seven month period ended July 31, 2002 effects the transition to that
new fiscal year. Summarized statement of operations information for the
transition period is as follows:
Seven Months ended July 31,
---------------------------
(Unaudited)
2002 2001
---- ----
Revenues $ 3,027,230 $ 993,143
Operating (loss) (1,371,117) (1,052,831)
Net (loss) $(2,075,443) $(1,092,511)
(Loss) per share, basic and diluted $ (0.10) $ (0.06)
<PAGE>
[12] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Company does not anticipate the adoption of recently issued accounting
pronouncements to have a significant on the Company's results of operations,
financial position or cash flows.
[13] RELATED PARTY TRANSACTIONS
In September 2001, we entered into a financial advisory agreement with Keating
Investments, LLC, an entity related to one of our Directors. In consideration
for the services to be rendered pursuant to this agreement, we issued Keating
Investments, LLC a warrant to purchase 600,000 shares of our common stock at a
purchase price of $0.10 per share, exercisable until September 10, 2006.
In November, 2001, the Company entered into note payable agreements with an
officer and a member of the Board of Directors of the Company for $50,000 each
plus interest accrued at 12% annually. At July 31, 2002 and December 31, 2001,
the Company had a balance of $100,000 outstanding under this agreement, with
accrued interest of $7,323 and $2,323, respectively. The notes plus accrued
interest were payable on June 30, 2002 and are therefore classified as current
liabilities.
Long - term debt includes convertible debentures held by officers and a member
of the Board of Directors of the Company with a face value of $176,666. See Note
7 on long - term debt.
During 2001, Global paid approximately $227,000 to Wayne Root for handicapping
services, Mr. Root is an Officer and Director of the Company. The $227,000 was
charged to handicapping fees.
The Company also sold 400,000 shares of common stock and granted 400,000 stock
warrants with an exercise price of $1.00 per share to an entity related to a
member of its Board of Directors for $200,000 (See Note 8).
In connection with the reorganization and sale of Series C Preferred Stock in
July 2001, Keating Investments, LLC received a placement fee of $150,000 for
services rendered in connection with the private placement of our Series C
preferred stock. Timothy J. Keating, a director of our company and our former
President and Chief Executive Officer, is the Managing Member and President of
Keating Investments, LLC (See Note 8).
[14] COMMITMENTS AND CONTINGENCIES
<PAGE>
CAPITAL LEASES - The Company is the lessee of office and computer equipment
under nine (9) capital leases expiring within the next two (2) years. These
capital leases are collateralized by the related assets. The liabilities under
capital leases are recorded at the present value of the net future minimum lease
payments and the assets are recorded at the purchase price which approximates
fair market value on the date of the purchase.
Following is a summary of property held under capital leases:
Accumulated
Cost Depreciation Net
----- ------------ ----
Office Fixtures and Equipment
At July 31, 2002 $ 291,390 $ 191,239 $ 100,151
At December 31, 2001 $ 291,390 $ 134,580 $ 156,810
Depreciation of assets under capital leases charged to expense for the
seven-month period ended July 31, 2002 and the years ended December 31, 2001 and
2000 was $56,660, $97,130 and $37,450 respectively.
Minimum future lease payments under capital leases for each of the next two
fiscal years and in the aggregate are:
2003 (August 1, 2002 - July 31, 2003) $ 114,813
2004 1,350
----------
Total Minimum Lease Payments 116,163
Less: Amount Representing Interest (21,114)
----------
Present Value of Net Minimum Lease Payments 95,049
Less: Current Portion (93,303)
----------
LONG-TERM PORTION $ 1,746
==========
OPERATING LEASES - At July 31, 2002, the Company has two operating leases
for office space that expire in November 2003 and January 2004. One lease
grants an option for renewal for an additional three (3) years. The leases have
monthly payment obligations of $3,278 and $8,520, increasing annually, based on
the CPI.
Approximate minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of July 31, 2002 are as follows:
Year ending Operating
July 31, Leases
------------ ---------
2003 $148,000
2004 63,000
Thereafter 0
---------
Total $211,000
=========
<PAGE>
Rent expense for the seven months ended July 31, 2002 and for the years ended
December 31, 2001 and 2000 was approximately $80,000, $138,000 and $145,000,
respectively, and was charged to operations.
[15] LEGAL MATTERS
In the normal course of business, the Company is exposed to a number of asserted
and unasserted potential claims. Management, after review and consultation with
counsel, believes it has meritorious defenses and considers that any liabilities
from these matters would not materially affect the financial position, liquidity
or results of operations of the Company.
[16] FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted Statement of Financial Accounting Standards ["SFAS"] No.
107, "Disclosure About Fair Value of Financial Instruments," which requires
disclosing fair value, to the extent practicable, for financial instruments
which are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
In assessing the fair value of these financial instruments, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, related party and trade and notes payable, it was
assumed that the carrying amount approximated fair value for the majority of
these instruments because of their short maturities.
The fair value of long-term debt is based upon current rates at which the
Company could borrow funds with similar remaining maturities. It was assumed
that the carrying amount approximated fair value for these instruments.
[17] SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to year end, we entered into an agreement with Newmarket Investments
plc (formerly The British Bloodstock Agency, plc ("BBA")), an existing debenture
holder. BBA currently holds a $500,000 5% Convertible Debenture, maturing in
August 2004, convertible at BBA's option to 1,000,000 shares of common stock,
and a warrant to purchase 1,000,000 shares of common stock, exerciseable at
$1.00 and expiring on August 31, 2005.
BBA has invested an additional $700,000, in exchange for which the principal
amount of their currently outstanding debenture was increased to $1,200,000
<PAGE>
which is convertible into 3,428,571 shares of common stock. The exercise price
for the debt conversion was reduced to $0.35 per share, and the price is subject
to further adjustment based on operating income and net revenue for the fiscal
year ending July 31, 2003. This beneficial conversion will result in a non-cash
financing charge in the first quarter of fiscal 2003 of approximately $425,000.
In addition, BBA has extended an unsecured standby credit facility of $250,000,
payable on March 31, 2003 and bearing interest at an annual rate of 16%. As
consideration for these investments, the Company has also agreed to exchange the
warrant currently held by BBA for a warrant to purchase 3,000,000 shares of
common stock at $0.35 expiring on August 31, 2005. The exercise price of both
the warrants and the convertible debt is subject to modification based on any
other conversions by any other shareholders or noteholders which result in
conversion to common stock at an exercise price of less than $0.35 per share.
The Company also agreed to engage an executive of BBA as an operational
consultant for 90 days and as a senior executive officer at the conclusion of
that period. An executive of BBA will also be nominated for election to the
Board of Directors of the Company.
<PAGE>
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
NONE
PART III
ITEM 9. IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning our executive
officers and directors, including their age as of October 25, 2002. Our
directors serve for a term of one year or until their successors are elected and
qualified. Our officers serve at the discretion of our board of directors. There
are no family relationships among our Directors and Officers.
The resignation of Mr. Ralph Papitto on September 9, 2002 has left one
vacancy on our Board of Directors, which we intend to fill by appointing Mr.
Simon Hayes as a Director. Mr. Hayes' appointment will become effective upon the
closing of our agreement with Newmarket Investments plc (formerly British
Bloodstock Agency). For further discussion, please refer to the section titled
"Certain Relationships and Related Party Transactions."
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Wayne Allyn Root . . . . . . . . . 40 Chairman of the Board and Chief Executive Officer
Douglas R. Miller . . . . . . . . 55 President, Chief Operating Officer, Chief Financial Officer,
Secretary and Director
David P. Hanlon . . . . . . . . 56 Director
Edward J. Fishman . . . . . . . . 58 Director
Timothy J. Keating . . . . . . . . 39 Director
John T. Manner . . . . . . . . . 55 Director
Simon Hayes . . . . . . . . . . . 41 Director and (untitled) Senior Executive Officer (both nominated)
</TABLE>
WAYNE ALLYN ROOT has served as our chief executive officer and chairman of
our board of directors since our reorganization in July 2001. From 1999 to 2001,
Mr. Root served as chairman and chief executive officer of our subsidiary,
Global Sports Edge, Inc. From 1990 to 1999, Mr. Root served as a sports
handicapper for National Sports Service. Mr. Root holds a B.A. from Columbia
University. Mr. Root does not hold a directorship in any other public company.
DOUGLAS R. MILLER has served as our president, chief operating officer,
secretary and director since our reorganization in July 2001. Mr. Miller has
also served as our chief financial officer since November 2001. From 1999 to
2001, Mr. Miller served as president of our subsidiary, Global Sports Edge, Inc.
From 1998 to 1999, Mr. Miller was the chief financial officer of Body Code
International, an apparel manufacturer. Mr. Miller holds a B.A. degree in
economics from the University of Nebraska, and an MBA degree from Stanford
University. Mr. Miller does not hold a directorship in any other public company.
DAVID P. HANLON has served as a director since September 2001. Mr. Hanlon
has been employed as an independent business consultant since 1998. From 1996 to
1998, Mr. Hanlon served as president and chief operating officer of Rio Suites
Hotel & Casino. Mr. Hanlon holds a degree from Cornell University and a MBA from
the Wharton School of Business at the University of Pennsylvania. Mr. Hanlon
does not hold a directorship in any other public company.
EDWARD J. FISHMAN has served as a director since August 2001. Between 1998
and 2001, Mr. Fishman was employed as an independent marketing and gaming
consultant. Mr. Fishman has over 18 years experience in the gaming industry and
has served as a marketing and strategic planning consultant to casinos
worldwide. Mr. Fishman currently holds directorships in two other public
companies, Laserlock, Inc. and Interactive Solutions Company.
<PAGE>
TIMOTHY J. KEATING served as our chief executive officer from August 1999
to July 2001, and has served as our director since August 2001. Mr. Keating is
currently the president of Keating Investments, LLC, a licensed broker-dealer
and registered investment advisor, a position he has held since 1989. Mr.
Keating holds an A.B. degree in economics from Harvard College. Mr. Keating does
not hold a directorship in any other public company.
JOHN T. MANNER has served as a director since September 2001. Mr. Manner
has served as president of John Manner Insurance Agency Inc since 1972. Mr.
Manner holds a B.S. degree from Milliken University and an M.S. degree from
Indiana University. Mr. Manner does not hold a directorship in any other public
company.
SIMON HAYES has been nominated to fill a vacancy on our Board of Directors,
and to fill an unnamed Senior Executive Officer position, both positions to be
effective upon closing our agreement with Newmarket Investments plc. Mr. Hayes
has served as Chief Executive Officer and Director of Newmarket Investments plc,
a publicly traded investment company (on the London Stock Exchange), since 2001.
He intends to maintain his positions as officer and director to Newmarket, as
they are require complementary time commitments. From 1998 to 2001, Mr. Hayes
was retired. From 1997 to 1998, Mr. Hayes served as Managing Director to UBS
Securities (East Asia) Ltd., an international brokerage firm.
There are no family relationships among our executive officers and
directors.
None of the foregoing Directors or Executive Officers during the past
five years:
(1) Had any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to
that time;
(2) Been convicted in a criminal proceeding or subject to a pending
criminal proceeding;
(3) Been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities, futures, commodities or banking activities;
and
(4) Been found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file certain reports
regarding ownership of, and transactions in, the Company's securities with the
Securities and Exchange Commission (the "SEC"). Such officers, directors and 10%
stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely on its review of copies of Forms 3 and 4 and amendments
thereto furnished to the company pursuant to Rule 16(a)-(e) and Forms 5 and
amendments thereto furnished to the company with respect to the last fiscal
year, and any written representations referred to in Item 405(b)(2)(i) of
Regulation S-B stating that no Forms 5 were applicable to the company's
officers, directors and 10% stockholders, the company has determined that
there were deficiencies in compliance.
Based upon our review, the following individuals and entities have not
Filed Section 16 reports in a timely manner. We do not have specific information
Regarding the number of transactions which may have been performed by each or
all Of the following individuals or entities:
Wayne Allyn Root - Forms 3, 4 and 5
Douglas R. Miller - - Forms 3, 4 and 5
David P. Hanlon - - Forms 3, 4 and 5
Edward J. Fishman - Forms 3, 4 and 5
Ralph R. Papitto - Forms 3, 4 and 5
Timothy J. Keating - one undisclosed transaction on Form 4
John T. Manner - Forms 3, 4 and 5
Newmarket Investment, plc - Forms 3, 4 and 5
Trilium Holdings Ltd. - Forms 3, 4 and 5
Laurus Master Fund, Ltd - Forms 3, 4 and 5
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief
Executive Officer and our other executive officers during the fiscal period
ended July 31, 2002 and the fiscal years ended December 31, 2001 and 2000.
<TABLE>
<CAPTION>
COMPENSATION FOR THE LONG-TERM
PERIOD COMPENSATION
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME & POSTION YEAR SALARY OTHER GRANTED COMPENSATION
<S> <C> <C> <C> <C> <C>
Wayne Allyn Root; Chairman &
Chief Executive Officer 2002 $68,077 $163,262 -- --
2001 $165,000 $227,000 -- --
2000 $180,000 $70,000 106,551 --
Douglas R. Miller; President
& Chief Financial Officer 2002 $92,115 -- -- --
2001 $173,845 -- -- --
2000 $180,000 -- 106,551 --
Timothy J. Keating; former
Chief Executive Officer 2002 -- -- -- --
2001 -- -- -- --
2000 -- $75,000 -- --
</TABLE>
- The amounts set forth above for Mr. Root represent compensation paid to
him beginning on December 6, 1999 when he become an executive officer
of Global SportsEDGE, Inc., which became a wholly-owned subsidiary of
our company as a result of our reorganization in July 2001. Other
compensation represents handicapping fees earned.
- Other compensation for Mr. Root in 2001 includes $74,000 earned but not
paid.
- The amounts set forth above for Mr. Miller represent compensation paid
to him beginning on December 6, 1999 when he became an executive
officer of Global SportsEDGE, Inc.
- Mr. Keating served as our Chief Executive Officer from August 1999 to
July 2001. As compensation for serving as our Chief Executive Officer,
we granted Mr. Keating, on October 13, 2000, a total of 200,000 shares
of our common stock, which had a fair market value of approximately
$75,000 on the date of grant.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth option grants to our Chief Executive
Officer and our other executive officers during the fiscal period ended July
31, 2002.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION
OPTIONS GRANTED FISCAL PERIOD PER SHARE DATE
2002
---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Wayne Allyn Root -- N/A
Chairman and Chief Executive Officer
Douglas R. Miller -- N/A
President and Secretary
Timothy J. Keating -- N/A
Former Chief Executive Officer
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AS OF JULY
31, 2002
The following table sets forth information concerning option exercises
and option holdings for the year ended July 31, 2002 with respect to our
Chief Executive Officer and each of our other executive officers.
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME EXERCISE REALIZED OPTIONS AT JULY 31,2002 AT JULY 31, 2002
EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C>
Wayne Allyn Root -- -- 106,551 -- --
Douglas R. Miller -- -- 106,551 -- --
Timothy J. Keating -- -- -- -- --
</TABLE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 25, 2002 with respect to the
shares of Common Stock beneficially owned by (i) each director; (ii) each person
(other than a person who is also a director) who is an executive officer; (iii)
all executive officers and directors as a group and (iv) each beneficial owner
(other than directors and named executive officers) of more than 5% of our
Common Stock. The term "executive officer" is defined as the President, Chief
Operating Officer/Treasurer, any vice-president in charge of a principal
business function (such as administration or finance), or any other person who
performs similar policy making functions for the Company.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options,
warrants or convertible securities exercisable or convertible within 60 days are
deemed outstanding for computing the percentage of the person or entity holding
such options, warrants or convertible securities but are not deemed outstanding
for computing the percentage of any other person, and is based on 37,715,261
shares issued and outstanding on a fully diluted basis, as of October 25, 2002.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
COMMON SHARES HELD OF CLASS
TITLE OF CLASS NAME AND ADDRESS (1) OR CONVERTIBLE OWNED
<S> <C> <C> <C>
Common and 5%
Convertible Debt Wayne Allyn Root (2) 5,010,024 13.3%
Common and 5%
Convertible Debt Douglas R. Miller (3) 3,889,019 10.3%
Common and Series C
Preferred Timothy J. Keating (4) 5,225,874 13.8%
Common Edward J. Fishman 532,756 1.4%
Common and 5%
Convertible Debt John T. Manner (5) 1,265,772 3.4%
<PAGE>
Common David P. Hanlon (6) 106,551 *
Common Simon Hayes (7) * *
Directors and executive
Officers as a group
(7 persons) 16,029,996 42.5%
Common and 5%
Convertible Debt Newmarket Investment, plc (8) 2,000,000 5.3%
Series C Preferred Trilium Holdings Ltd. (9) 1,666,667 4.4%
Common and 13%
Convertible Note Laurus Master Fund, Ltd. (10) 2,125,000 5.6%
</TABLE>
(1) Unless otherwise noted, the address for each of the named directors and
officers is: 5092 South Jones Blvd., Las Vegas, Nevada 89188.
(2) Amount also includes Mr. Root's stock options to acquire 106,551 shares of
common stock at an exercise price of $1.41, warrants to purchase 400,000
shares at an exercise price of $0.50, 106,552 shares of common stock owned
by Mr. Root's minor children, 100,000 common shares to be issued upon
conversion of a 5% Convertible Debenture and warrants to purchase 100,000
shares at an exercise price of $1.00 related to that Debenture.
(3) The shares are held in the name of Kerlee Inter Vivos Trust for which Mr.
Miller is a beneficiary. Amount also includes Mr. Miller's stock options to
acquire 106,551 shares of common stock at an exercise price of $1.41,
33,333 common shares to be issued upon conversion of a 5% Convertible
Debenture held by Mr. Miller's wife and warrants to purchase 33,333 shares
at an exercise price of $1.00 related to that Debenture.
(4) Amount also includes Mr. Keating's shares of Series C Preferred Stock, that
are held by him and through an affiliated entity, that are convertible into
1,720,000 shares of common stock and related warrants to purchase 1,146,667
shares of common stock at an exercise price of $1.00. Also includes
warrants held by him through an affiliated entity to acquire 600,000 shares
of common stock at an exercise price $0.10, 400,000 common shares held by
him through an affiliated entity and a related warrant to purchase 400,000
shares of common stock at an exercise price of $1.00 and a warrant to
purchase 400,000 shares at an exercise price of $0.50 per share.
(5) Amount also includes Mr. Manner's stock options to acquire 168,465 shares
of common stock at an exercise price of $1.41, 220,000 common shares to be
issued upon conversion of a 5% Convertible Debenture and warrants to
purchase 220,000 shares at an exercise price of $1.00 related to that
Debenture.
(6) Amount also includes Mr. Hanlon's stock options to acquire 106,551 shares
of common stock at an exercise price of $1.41.
(7) Mr. Hayes has been nominated to serve as both a director and a senior
executive officer. He is Chief Executive Officer of Newmarket Investments,
plc, but does not hold a control ownership position in the company. His
address is: Queensberry House, 129 High Street, Newmarket, Suffolk, CB8
9WP, UK.
(8) Represents 1,000,000 shares underlying a 5% Convertible Debenture, maturing
in August 2004, and 1,000,000 shares of common stock underlying a warrant,
exerciseable at $1.00 and expiring on August 31, 2005. The address for
Newmarket Investments is: Queensberry House, 129 High Street, Newmarket,
Suffolk, CB8 9WP, UK
(9) Represents 21,333 shares of Series C convertible preferred stock that are
convertible into 1,000,000 common shares and an associated warrant to
purchase 666,667 shares at an exercise price of $1.00. The address for
Trilium Holdings is: Charlotte House, Charlotte Street, P.O. Box 9204,
Nassau, Bahamas.
(10) Represents 1,875,000 shares of common stock underlying 13% Convertible Note
and 250,000 shares of common stock issuable upon exercise of warrant issued
in connection with the 13% Convertible Note. The address for Laurus is:
P.O. Box 1234 Queensgate House, South Church Street, Grand Cayman, Cayman
Islands
* Represents less than 1% owned
Equity Compensation Plan Information
<TABLE>
<CAPTION>
Number of
securities to be
issued upon Number of
exercise of Weighted average securities
outstanding exercise price of remaining
options, warrants outstanding options, available for
Plan category and rights warrants and rights future issuance
<S> <C> <C> <C>
(a) (b) (c)
Equity compensation
plans approved by security holders 3,000,000 Common Not determinable 3,000,000 Common
Equity compensation
plans not approved by
security holders None N/A none
Total 3,000,000 Common Not determinable 3,000,000 Common
</TABLE>
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 21, 2002, we entered into an agreement with Newmarket Investments
plc (formerly The British Bloodstock Agency, plc ("BBA")), an existing
shareholder. BBA currently holds a $500,000 5% Convertible Debenture, maturing
in August 2004, convertible at BBA's option to 1,000,000 shares of common stock,
and a warrant to purchase 1,000,000 shares of common stock, exerciseable at
$1.00 and expiring on August 31, 2005. BBA has invested an additional $700,000,
in exchange for which we have increased the principal amount of their currently
outstanding debenture to $1,200,000, convertible into 3,428,571 shares of common
stock. The exercise price for the debt conversion was reduced to $0.35 per
share, and the price is subject to further adjustment based on our operating
income and net revenue for the fiscal year ending July 31, 2003, as described in
Section 6.5 of the modified agreement. All other terms,including the maturity
date, remained undisturbed. BBA has extended an unsecured standby credit
facility of $250,000, with a 16% annual interest rate and payable on March 31,
2003. In consideration for these investments, we have also agreed to exchange
the warrant currently held by BBA with a warrant to purchase 3,000,000 shares of
common stock, exerciseable at $0.35, and expiring on August 31, 2005. The
exercise price of both the warrants and the convertible debt are subject to
modification based on any other conversions by any other shareholders, including
the Laurus Fund, which results in conversion to our common stock at an exercise
price of less than $0.35 per share. These terms are described more fully in
Section 7.1 of the modified agreement. We have also agreed to approve the
appointment of BBA's Chief Executive Officer, Simon Hayes, as an operational
consultant for 90 days, at a salary of $15,000 per month. Mr. Hayes will also be
appointed to fill a vacancy in our Board of Directors, and will stand for
election at our next annual meeting, as well as being appointed a senior
executive officer, both events to occur no later than December 31, 2002. We
executed this agreement on September 13, 2002.
In connection with the reorganization and sale of Series C preferred
stock in July 2001, Keating Investments, LLC received a placement fee of
$150,000 for services rendered in connection with the private placement of our
Series C preferred stock. Timothy J. Keating, a director of our company and our
former President and Chief Executive Officer, is the Managing Member and
President of Keating Investments, LLC.
On September 4, 2001, we sold to Keating Partners, L.P., for an aggregate
purchase price of $200,000, a total of 400,000 shares of our common stock,
together with a warrant to purchase an additional 400,000 shares at an exercise
price of $1.00 per share expiring on August 31, 2004. This transaction triggered
the anti-dilution adjustment provisions of our Series C preferred stock, of
which 36,694 shares are beneficially owned by Mr. Keating, resulting in an
increase in the conversion rate for the Series C preferred stock from 31.25 to
46.875 shares of common stock for every one share of Series C preferred stock.
In September 2001, we entered into a financial advisory agreement with
Keating Investments, LLC. In consideration for the services to be rendered
pursuant to this agreement, we issued Keating Investments, LLC a warrant to
purchase 600,000 shares of our common stock at a purchase price of $0.10 per
share, exercisable until September 10, 2006. The cost of this agreement has been
recorded at $240,000 and is being charged to operations over 48 months. The
holders of the Series C preferred stock executed a waiver of the anti-dilution
adjustment to the conversion rate of the Series C preferred stock that otherwise
would have been triggered by this transaction.
In November, 2001, we entered into note payable agreements with Mr. Root,
an officer and director, and Mr. Keating, a director, for $50,000 each plus
interest accrued at 12% annually. At December 31, 2001, we had a balance of
$100,000 outstanding under this agreement with accrued interest of $2,323. The
notes plus accrued interest were payable on June 30, 2002 and are therefore
classified as current liabilities.
<PAGE>
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed as part of this annual report:
(a) EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
-------------------------------------------------------------------------------
Exhibit Description
No.
-------------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated July 6, 2001 between Global
Sports & Entertainment, Inc. and Turfclub.com, Inc. (1)
3.1 Certificate of Incorporation of GWIN, as amended (1)
3.2 Bylaws of GWIN (5)
4.1 Certificate of Designations of Series C Preferred Stock and Series C
Stock Purchase Agreement (1)
4.2 Form of Indenture representing 5% Convertible Debentures (1)
4.3 Form of Indenture representing 13% Convertible Debentures (4)
4.4 Form of Common Stock Purchase Warrant included with 5% Convertible
Debenture Units (4)
10.1 Financial Advisory Agreement dated September 10, 2001 between the
GWIN and Keating Investments, LLC (1)
10.2 Executive Services Agreement dated December 6, 1999 between GWIN
and Mr. Miller (1)
10.3 Executive Services Agreement dated December 6, 1999 between GWIN
and Mr. Root (1)
10.4 Sports Personality Agreement dated March 2, 2000 between GWIN and Mr.
Root (1)
<PAGE>
10.5 Term sheet with British Bloodstock Agency, dated August 21, 2002 (4)
10.6 Agreement describing voting agreement between Mr. Manner and Mr.
Root regarding Mr. Keating's board rights (2)
10.7 Common Stock Purchase Warrant issued to Keating Investments, LLC (1)
10.8 Debenture Purchase Agreement dated September 19, 2001 between GWIN and
Mr. Root (1)
10.9 5% Convertible Debenture dated September 19, 2001 issued to Wayne Allyn
Root (1)
10.11 Common Stock Purchase Warrant issued to Mr. Root (1)
10.12 Debenture Purchase Agreement dated August 31, 2001 between GWIN and Mr. Manner (1)
10.13 5% Convertible Debenture dated September 19, 2001 issued to Mr. Manner (1)
10.14 Common Stock Purchase Warrant issued to Mr. Manner (1)
10.15 Common Stock Purchase Warrant dated September 4, 2001 between GWIN and
Keating Partners, L.P. (1)
10.16 Common Stock Purchase Warrant issued to Keating Partners, L.P. (1)
10.17 Promissory Note dated October 23, 2000 issued to Mr. Root (1)
10.18 Letter Agreement dated July 5, 2001 between GWIN and Keating Investments,
LLC (1)
10.19 Series C Preferred Stock Purchase Agreement dated July 10, 2001 between
Trilium Holdings Ltd. and the Company (1)
10.20 Promissory Note dated November 12, 2001 issued to Mr. Keating. (3)
10.21 Promissory Note dated November 12, 2001 issued to Mr. Root. (3)
10.22 Securities Purchase Agreement dated June 29, 2002 between Laurus Master
Fund, Ltd. and GWIN (4)
10.23 2002 Equity Incentive Plan (6)
<PAGE>
21.1 List of Subsidiaries (4)
23.1 Consent of Simon Hayes
99.1 Certifications pursuant to section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
</TABLE>
_________
(1) Incorporated by reference to the similarly described exhibit included with
the registrant's Quarterly Report for quarter ended September 30, 2001
filed with the SEC on November 19, 2001.
(2) Described in Exhibit 2.1
(3) Incorporated by reference to the similarly described exhibit included with
the registrant's Annual Report for the year ended December 31, 2001 filed
with the SEC on April 1, 2002 and amended on May 15, 2002.
(4) Incorporated by reference to the similarly described exhibit included with
the registrant's registration statement on Form SB-2, 333-99599, filed on
September 13, 2002.
(5) Unavailable in electronic format, but will be mailed upon request free of
charge.
(6) Incorporated by reference to the Registrants Definitive Information
Statement filed with the SEC on July 21, 2002.
(b) REPORTS ON FORM 8-K
On May 23, 2002, we filed a Form 8-K to report that our Board of Directors
had approved a change in our fiscal year from a calendar year to one beginning
August 1 and ending July 31. That change was effective July 31, 2002.
On July 24, 2001, we filed a Form 8-K to report (i) the changes in control
and (ii) the proposed amendments to the Certificate of Incorporation as
described in Item 5 of our Quarterly Report filed with the Securities and
Exchange Commission on Form 10 - QSB on November 19, 2001. On February 26, 2002,
we filed a Form 8-K/A amending the above filing to include the audited financial
statements of Global SportsEDGE.
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on October 28, 2002
GLOBAL SPORTS & ENTERTAINMENT, INC.
By: /s/ Wayne Allyn Root
-----------------------------------------
Wayne Allyn Root, Chief Executive Officer
In accordance with the requirements of Section 13 of the Exchange Act, this
Report has been signed below by the following persons on behalf of the
Registrant on October 28, 2002 and in the capacities indicated.
/s/ Wayne Allyn Root
-----------------------------------------------------
Wayne Allyn Root, Chairman, Chief Executive Officer
(Principal Executive Officer)
/s/ Douglas Miller
-----------------------------------------------------
Douglas Miller, Director and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Timothy J. Keating
-----------------------------------------------------
Timothy J. Keating, Director
/s/ Edward J. Fishman
-----------------------------------------------------
Edward J. Fishman, Director
<PAGE>
</TEXT>
</DOCUMENT>