<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>doc1.txt
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 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.
(Exact name of small business issuer as specified in its charter)
Delaware 04-3021770
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5092 S. Jones Boulevard, Las Vegas, Nevada 89118
(Address of principal executive offices)
(702) 967-6000
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 2002 the Company had 21,581,737 shares of its $.0001 par
value common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GWIN, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
OCTOBER 31, 2002
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 10,363
Accounts receivable 57,791
Prepaid expenses 274,393
-------------
Total current assets 342,547
Property & equipment (net) 121,065
Equipment held under capital leases (net) 75,868
Deposits & other assets 373,359
-------------
Total assets $ 912,839
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 682,381
Accounts payable - related parties 85,000
Notes payable -related parties, less unamortized discount of $259,635 1,417,031
Deferred revenue 1,021,056
Accounts payable 815,279
Accrued settlement costs 764,854
Other accrued liabilities 466,071
-------------
Total current liabilities 5,251,672
-------------
Long term debt, less unamortized discount of $388,642 171,358
-------------
Total liabilities 5,423,030
-------------
STOCKHOLDERS' DEFICIT:
Preferred stock - $0.0001 par value; 5,000,000 shares authorized;
64,000 shares issued and outstanding 6
Common stock - $0.0001 par value; 50,000,000 shares authorized;
21,581,737 issued and outstanding 2,158
Additional paid in capital 13,319,179
Accumulated deficit (17,831,534)
-------------
Total stockholders' deficit (4,510,191)
-------------
Total liabilities and stockholders' deficit $ 912,839
=============
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
GWIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
--------------------------
2002 2001
------------ ------------
<S> <C> <C>
Net revenue - services $ 1,471,700 $ 867,699
Revenues - advertising 77,778 131,250
------------ ------------
Total revenues $ 1,549,478 $ 998,949
------------ ------------
Handicapping fees 73,152 52,049
Handicapping fees - related party 148,518 68,329
Advertising expense 1,133,908 824,619
Commissions 623,487 325,825
Salaries & wages 407,315 297,635
Professional fees 194,798 258,418
General and administrative 512,295 417,121
Non-recurring charges; bad debt expense -- 95,000
Depreciation expense 60,306 57,749
------------ ------------
Total operating expense 3,153,779 2,396,745
------------ ------------
Operating (loss) (1,604,301) (1,397,796)
Non-cash financing costs (708,360) (757,090)
Other non-cash financing costs (45,000) -
Interest (expense), including amortization of debt discount (226,579) (38,242)
Interest (expense) - related parties (3,919) --
------------ ------------
Net (loss) (2,588,159) (2,193,128)
------------ ------------
Imputed non-cash dividend on Series C Preferred Stock (385,714) (1,092,000)
------------ ------------
Net (loss) used in per share calculation $(2,973,873) $(3,285,128)
============ ============
Basic and diluted (loss) per share of common stock $ (0.14) $ (0.18)
============ ============
Basic weighted shares of common stock outstanding 21,433,720 18,645,241
============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
GWIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
--------------------------
2002 2001
------------ ------------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net (loss) $(2,588,159) $(2,193,128)
------------ ------------
Adjustments to reconcile net (loss) to net cash used in operations:
Depreciation 60,306 57,749
Services paid with warrants 15,000 8,333
Services & settlements paid with common stock 166,904 150,000
Non-cash financing costs - issuance of convertible debt 753,360 757,090
Interest expense - issuance of convertible debt (warrants portion) 171,400 24,118
Decrease (increase) in:
Accounts receivable (47,782) (202,323)
Prepaid expenses (138,859) (455,900)
Other assets (36,611) --
Increase (decrease) in:
Deferred revenue 625,222 299,435
Accounts payable (33,905) 121,181
Other current liabilities (157,778) 43,487
------------ ------------
Total adjustments 1,377,257 803,170
------------ ------------
Total cash (used in) operating activities (1,210,902) (1,389,958)
------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Purchase of fixed assets (15,853) --
------------ ------------
Total cash used in investing activities (15,853) --
------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 925,000 836,666
Payments on long-term debt & lease obligations (12,668) (123,436)
Proceeds from issuance of common stock 200,000
------------ ------------
Total cash provided by financing activities 912,332 913,230
------------ ------------
Net (decrease) in cash (314,423) (476,728)
Cash - beginning of the periods 324,786 475,376
------------ ------------
Cash - end of the periods $ 10,363 $ (1,352)
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the three months ended October 31, 2002 and 2001, the Company paid $0 for
taxes and $22,517 for interest and $0 for taxes and $14,124 for interest,
respectively. The Company issued stock and warrants in payment for professional
services and settlement costs. For the three months ended October 31, 2002 the
amounts were $166,904 in common stock and $15,000 in warrants.
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
GWIN, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Series C Convertible
Preferred Stock Common shares
--------------- ------------------- Total
No. of No. of Common Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------- ---------- ------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - July 31, 2002 64,000 $ 6 21,285,703 $ 2,128 $12,044,467 0 ($14,857,661) ($2,811,060)
Interest expense from issuance of
Debentures -- -- -- -- 708,360 -- 708,360
Issuance of common shares in
payment for services and settlements -- -- 296,034 30 166,874 -- 166,904
Recorded value of warrants issued
with debentures -- -- -- -- 13,764 -- 13,764
Net (loss)for the three months ended
October 31, 2002 -- -- -- -- -- (2,588,159) (2,588,159)
Imputed non-cash dividend on
Series C Preferred Stock -- -- -- -- 385,714 (385,714) --
-----------------------------------------------------------------------------------
Balance - October 31, 2002 64,000 $ 6 21,581,737 $ 2,158 $ 13,319,179 ($17,831,534) ($4,510,191)
===================================================================================
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
GWIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND OPERATIONS
GWIN, Inc. (the Company) is headquartered in Las Vegas, Nevada. The
Company primarily develops, produces and markets sports handicapping analysis
and information via television and the internet.
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 quarter and the second quarter, and the
remainder of the fiscal year.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary in order to make the interim
financial statements not misleading have been included. Results for the interim
periods are not necessarily indicative of the results that may be expected for
the fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the seven months ended July 31, 2002.
On May 23, 2002, the Company filed a Form 8-K to disclose an election by
our Board of Directors to change the fiscal year of the Company from January 1
through December 31 in each year to August 1 through July 31 in each year.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its subsidiary, GlobalSportsEDGE, as well as
several inactive subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
EARNINGS (LOSS) PER SHARE - "Basic" earnings (loss) per share equals net
income divided by weighted average common shares outstanding during the period.
"Diluted" earnings per common share equals net income divided by the sum of
weighted average common shares outstanding during the period plus common stock
equivalents if dilutive. For the three months ended October 31, 2002 and 2001,
the number of common stock equivalents excluded from the calculation were
21,815,268 and 5,770,121, respectively.
STOCK OPTIONS AND SIMILAR EQUITY INSTRUMENTS - The Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards ("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.
<PAGE>
NOTE 2 - BASIS OF PRESENTATION (CONTINUED)
REVENUE RECOGNITION - Revenue from service agreements is recognized
ratably over the term of the agreement.
OPERATING COSTS & EXPENSES - Handicappers' fees and sales representatives'
compensation and related expenses are charged to operations as incurred because
the Company believes these costs have no future economic benefit.
CONVERTIBLE DEBENTURES - In September, 2002, we issued one Convertible
Debenture for $25,000 which will convert to 50,000 shares of common stock with
a warrant to purchase 50,000 shares of common stock at $1.25 per share.
We also entered into an agreement with Newmarket Investments, PLC
("Newmarket") which provides that Newmarket will invest an additional $700,000
in the Company by amending the existing Convertible Debenture held by Newmarket
to reflect a principal amount of $1,200,000. The additional $700,000 principal
amount will convert to 2,000,000 shares of common stock and the conversion rate
for the previously existing $500,000 principal amount was adjusted to convert to
1,428,571 shares of common stock (from 1,000,000 shares before adjustment). In
addition, the Company agreed to exchange an existing warrant held by Newmarket
to acquire 1,000,000 shares of common stock at $1.00 per share for a warrant to
acquire 3,000,000 shares of common stock at $0.35 per share. This warrant
expires on August 31, 2005. The costs associated with the issuance of the new
warrants and the adjustment of the conversion rate on the $500,000 original
principal amount are reported as non-cash financing costs of $708,360 in the
financial statements for the three months ended October 31, 2002. During the
three months ended October 31, 2001 similar debentures were issued by the
Company, and $757,090 in non-cash financing costs were recorded.
CONVERTIBLE PREFERRED STOCK - In 2001, the Company sold 64,000 units
consisting of one share of Series C convertible preferred stock and one warrant
exercisable at $31.25 for an additional share of Series C stock. The base
conversion rate was adjusted in the quarter ended October 31, 2001 and the
resulting 50% imputed discount of $1,092,000 was charged to retained earnings in
a manner analogous to a dividend. In the quarter ended October 31, 2002, there
was an additional adjustment to the conversion rate resulting from anti-dilution
provisions in the purchase agreement. The resulting 30% imputed discount of
$385,714 was charged to retained earnings in a manner analogous to a dividend.
The holders of 21,333 shares of Series C convertible preferred stock waived
their rights to the anti-dilution provision; the discount amount is that
applicable to the remaining 42,667 shares.
NOTE 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.
The Company incurred a net loss of $2,588,159 for the three months ended
October 31, 2002 and has an accumulated deficit of $17,831,534 at October 31,
2002. The operating losses, as well as the uncertain sources of financing,
create an uncertainty about the Company's ability to continue as a going
concern. Management of the Company believes that the existing financing is
adequate for future requirements. 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.
<PAGE>
NOTE 4 - COMMITMENTS
LEGAL MATTERS - In the normal course of business, the Company is exposed to
a number of asserted and unasserted potential claims. Management, after review
of amounts accrued and consultation with counsel, believes it has meritorious
defenses and considers that any additional liabilities from these matters would
not materially affect the financial position, liquidity or results of operations
of the Company.
Management has formally rescinded the share exchange transaction with the
shareholders of TurfClub.com. In February and April, 2002, the Company reached
agreements with some of the shareholders of TurfClub.com who were not involved
with the matters which gave rise to the decision to rescind. On April 29, 2002,
a former executive and shareholder of TurfClub.com, and a former member of our
board of directors, filed a complaint against the Company for breach of contract
and other items. On September 26, 2002, a settlement agreement was reached with
that individual and management considers the rescission complete. That
settlement provides for payment of $90,000, $15,000 of which was paid on October
16, 2002, with 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 was charged to operations
in the period ended July 31, 2002.
NOTE 5 - TAX EXPENSE
The Company has not accrued Income Tax Expense for the period ended October
31, 2002 at its statutory rates due to unused net operating losses and acquired
net operating losses.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
We provide sports handicapping information and analysis to sports bettors
through direct marketing channels such as television infomercials, the Internet,
telemarketing and print media. The handicapping information that we currently
provide includes commentary, analysis and picks from leading sports handicappers
for professional and college football, professional and college basketball and
professional baseball.
We generate revenue by selling the handicapping advice and analysis of our
professional handicappers to customers that call the telephone numbers
advertised on our weekly 30-minute infomercial program called The WinningEDGE,TM
which airs nationally for 12 weeks during the 2002 football season on the PAX
TV, a cable television channel. The show is also running on company-owned
stations of the Fox Sports Network in 2002. We also sell our handicapping
services on our Web site located at www.WinningEDGE.com. The Web site also
provides free live odds, scores, schedules, injury and weather reports and free
picks from our professional handicappers, as well as the opportunity for
visitors to purchase a broad selection of picks and services offered through the
site.
COMPARISON OF THREE MONTHS ENDED OCTOBER 31, 2002 TO THREE MONTHS ENDED OCTOBER
31, 2001
REVENUES. Net revenues from sports handicapping services (after charge-backs
and changes in deferred revenue) increased from $867,699 in 2001 to $1,471,700
in 2002 - an increase of 70%. Revenues before changes in deferred revenue
increased from $1,1198,384 to $2,174,700 - an increase of 82%. Revenues from
advertising decreased from $131,250 in 2001 to $77,778 in 2002 - a decrease of
40% resulting from reduced budget commitments from advertisers in 2002.
OPERATING COSTS AND EXPENSES. Total operating costs and expenses were
$3,153,779 in 2002 and $2,396,745 in 2001 - an increase of 37%. A detailed
breakdown of those costs and expenses follows:
Handicapping fees increased from $120,378 in 2001 to $221,670 in 2002 - an
increase of 84%. These fees are based upon revenues before changes in deferred
revenue and this increase is consistent with that activity.
Advertising, including costs of producing television shows, increased from
$824,619 to $1,133,908. This 37% increase is primarily a result of running the
television shows on two networks in 2002 versus one network in 2001. Virtually
all of the Company's advertising expense is incurred from September to December.
Salaries and wages increased from $297,635 in 2001 to $407,315 in 2002 - an
increase of 37%. This increase was caused by increased sales volume and the
additional expenses associated with becoming a public company. In 2001, the
Company had just become public and had not completed assembling the organization
required by those circumstances.
<PAGE>
Commissions expense increased from $325,825 in 2001 to $623,487 in 2002 -
an increase of 91%. Like handicapping fees, commissions are based upon revenues
before changes in deferred revenue and this increase is consistent with that
activity. Commission expense includes "over-rides" earned by sales management.
In addition, the cost of employee benefits increased in 2002.
Professional fees decreased from $258,418 in 2001 to $194,798 in 2002. The
amount for 2001 was greater because of compliance activities undertaken by the
Company's attorneys and accountants as result of the reverse merger completed in
July, 2001 and fees associated with investment capital raised in the three
months ended October 31, 2001.
General and administrative expenses increased from $417,121 in 2001 to
$512,295 in 2002 - an increase of 23%. Much of the increase is expense
associated with activities designed to create new business opportunities for the
traditionally slow period from April to August.
The non-recurring charge in 2001 of $95,000 represents the write-off of
advances to TurfClub.com which management concluded were not collectible.
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 fourth quarters of
the calendar year. Because of these factors, our quarterly operating results
are difficult to predict and are likely to vary in the future. We have
traditionally experienced lower net sales in the second and third quarters and
higher net sales in the first and fourth quarters. 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 3. CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer have supervised and
participated in an evaluation of the effectiveness of our disclosure controls
and procedures as of a date within 90 days of the date of this report, and,
based on their evaluations, they believe that our disclosure controls and
procedures (as defined in Rule 13a-14 (c) of the Securities Exchange Act of
1934, as amended) are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Commission's rules and forms. As a result of the
evaluation, there were no significant changes in our internal controls or in
other factors that could significantly affect those controls subsequent to the
date of their evaluation.
<PAGE>
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that are based on our
management's beliefs as well as assumptions and information currently available
to us. When used in this report, the words "believe," "expect," "anticipate,"
"estimate" and similar expressions are intended to identify forward-looking
statements. These statements are subject to risks, uncertainties and
assumptions, including, without limitation, the risks and uncertainties
concerning our recent reorganization, our present financial condition; the risks
and uncertainties concerning the availability of additional capital as and when
required; the risks and uncertainties concerning general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. We caution you not to place undue
reliance on any forward-looking statements, all of which speak only as of the
date of this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 26, 2002, we executed a settlement agreement with an officer
and shareholder of TurfClub.com and the recission of that proposed merger is now
complete.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three months ended October 31, 2002, we sold and issued the
following unregistered securities:
Common Stock
------------
In the three months ended October 31, 2002 we issued 129,039 shares of
common stock as payment for services and issued 136,995 shares in payment of
settlements reached in the TurfClub.com matter. We also issued 30,000 shares of
common stock which had been registered for use in payment to consultants.
Convertible Debentures
----------------------
In September, 2002, we issued one Convertible Debenture for $25,000 which
will convert to 50,000 shares of common stock with a Warrant to purchase 50,000
shares of common stock at $1.25 per share.
We also entered into an agreement with Newmarket Investments, plc
("Newmarket") which provides that Newmarket will invest an additional $700,000
in the Company by amending the existing Convertible Debenture held by Newmarket
to reflect a principal amount of $1,200,000. The additional $700,000 principal
amount will convert to 2,000,000 shares of common stock and the conversion rate
for the previously existing $500,000 principal amount was adjusted to convert to
<PAGE>
1,428,571 shares of common stock (from 1,000,000 shares before adjustment). In
addition, the Company agreed to exchange an existing warrant held by Newmarket
to acquire 1,000,000 shares of common stock at $1.00 per share for a warrant to
acquire 3,000,000 shares of common stock at $0.35 per share. This warrant
expires on August 31, 2005. The costs associated with the issuance of the new
warrants and the adjustment of the conversion rate on the $500,000 original
principal amount are reported as non-cash financing costs of $708,360 in the
financial statements for the three months ended October 31, 2002.
The agreement with Newmarket also provides that Newmarket will provide a
standby credit facility for $250,000. Advances under this facility are due and
payable on March 31, 2003 and bear interest at 13% per annum. During the three
months ended October 31, 2002, the Company had received advances under this
facility aggregating $200,000.
The securities above were issued to accredited investors as defined by Rule
502 of Regulation D and were exempt from registration pursuant to Rule 506 and
or Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit No. Description
----------- -----------
(B) REPORTS ON FORM 8-K
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GWIN, Inc.
(Registrant)
Dated: December 13, 2002 By: /s/ Douglas R. Miller
-------------------------
Douglas R. Miller
President and Chief Financial
Officer
<PAGE>
</TEXT>
</DOCUMENT>