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, 2006
[ ] 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
Winning Edge International, 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)
5052 S. Jones Boulevard, Las Vegas, Nevada 89118
------------------------------------------------
(Address of principal executive offices)
(702) 967-6000
---------------------------
(Issuer's telephone number)
N/A
-------------------------------------------------
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
As of October 31, 2006 the Company had 123,396,450 shares of its $.0001 par
value common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
2
Winning Edge International, Inc.
Index to Form 10-QSB
Page
Part I - FINANCIAL INFORMATION ................................. 3
Item 1. Financial Statements .............................. 3
Consolidated Balance Sheet at October 31, 2006
(Unaudited) ............................................. 3
Consolidated Statements of Operations for the three
months ended October 31, 2006 and 2005(Unaudited)...... 4
Consolidated Statements of Cash Flows for the
three months ended October 31, 2006 and 2005
(Unaudited) ............................................ 5
Notes to Financial Statements (Unaudited)............... 7
Item 2. Management's Discussion and Analysis or Plan
of Operation .............................................. 10
Item 3. Controls and Procedures ........................... 15
Part II - OTHER INFORMATION .................................... 16
Item 1. Legal Proceedings ................................. 16
Item 2. Change in Securities and Use of Proceeds .......... 16
Item 3. Defaults Upon Senior Securities ................... 16
Item 4. Submission of Matters to a Vote of Securities
Holders ................................................... 16
Item 5. Other Information ................................. 16
Item 6. Exhibits and Reports on Form 8-K .................. 16
SIGNATURES ..................................................... 17
3
PART 1: FINANCIAL INFORMATION
Item 1. CONSOLIDATED Financial Statements
WINNING EDGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
October 31, 2006
ASSETS
Current assets:
Cash $
Accounts receivable 579,925
Prepaid expense 318,058
Deferred financial fees 10,334
Deposits 200,925
----------------
Total current assets 1,109,242
----------------
Property and equipment (net) 47,946
Equipment held under capital leases (net) 6,078
Deposits and other assets 94,332
----------------
Total assets $ 1,257,598
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt, less unamortized
discount of $ 29,416 $ 962,460
Cash overdrafts 45,430
Notes payable related parties 144,622
Deferred revenue 1,118,739
Accounts payable 544,913
----------------
Total current liabilities 2,816,164
----------------
Long term debt, less unamortized discount of $9,805 66,104
----------------
Total liabilities $ 2,882,268
----------------
Stockholders' deficit:
Preferred stock - $0.0001 par value;
5,000,000 shares authorized;462,222 shares issued
and outstanding 462
Common stock - $0.0001 par value; 750,000,000 shares
authorized; 123,396,450 issued and outstanding 12,340
Additional paid in capital 27,737,631
Accumulated deficit (29,375,103)
----------------
Total stockholders' deficit (1,624,670)
----------------
Total liabilities and stockholders' deficit $ 1,257,598
================
The accompanying notes are an integral part of the consolidated financial
statements.
4
WINNING EDGE INTERNATIONAL, INC.
CONSOLIDATED Financial Statements of operations
(Unaudited)
Three Months ended
October 31
-------------------------
2006 2005
----------- ----------
Net revenue - services $1,627,826 $1,429,509
Revenues - advertising 353,486 347,250
----------- ------------
Total revenues 1,981,312 1,776,759
----------- ------------
Handicapping fees 84,667 47,642
Handicapping fees related party 123,192 156,469
Advertising expense 921,380 764,982
Commissions 678,519 720,054
Salaries and wages 320,111 308,123
Professional fees 111,349 39,467
General and administrative 353,647 331,675
Depreciation expense 11,989 12,335
----------- ------------
Total operating expense 2,604,854 2,380,747
----------- ------------
Operating (loss) (623,542) (603,988)
----------- ------------
Settlement income 179,200
Interest (expense), including amortization
of debt discount (39,110) (25,576)
Other non-cash cost of financing - related parties (6,667)
Interest (expense) related parties (5,816) (5,817)
----------- ------------
Net (loss) (668,468) (462,848)
============ ============
Basic and diluted (loss) per share of common stock $ (0.01) $ (0.01)
============ ============
Basic weighted shares of common stock outstanding 121,857,988 103,788,069
=========== ============
The accompanying notes are an integral part of the consolidate financial
statements.
5
WINNING EDGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended
October 31,
-----------------------
2006 2005
------------ ----------
Cash flows - operating activities:
Net (loss) $ (668,468) $ (462,848)
Adjustments to reconcile net (loss)
to net cash used in operations:
Depreciation 11,989 12,335
Amortization of prepaid expense-related parties 6,667
Interest expense amortization of debt discount 9,805 10,197
Decrease (increase) in:
Accounts receivable (431,994) (44,808)
Prepaid expenses (225,458) (88,467)
Other assets 52,546 36,354
Deposits (15,079) 6,465
Deferred financing fees 2,583 2,583
Increase (decrease) in:
Deferred revenue 133,287 260,750
Accounts payable 199,957 18,184
Accounts payable related parties 5,816 11,500
---------- ----------
Total adjustments (256,548) 231,760
---------- ----------
Total cash (used in) operating activities (925,016) (231,088)
---------- ----------
Cash flows - investing activities:
Purchase of fixed assets (25,717) (5,576)
---------- ----------
Total cash (used in) investing activities (25,717) (5,576)
Cash flows - financing activities:
Cash overdrafts 45,430 4,357
Proceeds from issuance of notes payable 655,000
Payments on long-term debt and lease obligations (55,445) (39,963)
Proceeds from the exercise of warrants 100,000 --
---------- ----------
Total cash provided by (used in) financing activities 744,985 (35,606)
---------- ----------
Net (decrease) in cash (205,748) (272,470)
---------- ----------
Cash - beginning of the periods 205,748 272,470
---------- ----------
Cash - end of the periods $ 0 $ 0
---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the three months ended October 31, 2006 and 2005, the Company paid $0 for
taxes and $29,870 for interest and $0 for taxes and $24,035 for interest,
respectively. The Company issued stock and warrants in payment for
professional services and settlement costs.
The accompanying notes are an integral part of the consolidated financial
statements.
6
WINNING EDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Organization and Operations
Winning Edge International, Inc., and subsidiaries, (the "Company") is
headquartered in Las Vegas, Nevada. The Company primarily develops, produces
and markets sports handicapping analysis and information via television, radio
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 and the second quarter of the
Company's fiscal year, and the remainder of the year.
On August 24, 2006 the Company filed Schedule 14-C Information, which
summarized a majority shareholder approval of the following items: 1) an
increase in the authorized shares from 150 million to 750 million, 2) adopting
a 25,000,000 share stock incentive plan for employees and consultants, 3)
changing the name of the Company from GWIN, Inc. to Winning Edge
International, Inc. the effective date for these changes was September 19,
2006.
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. 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 year ended July 31, 2006. The results of the three months
ended October 31, 2006 are not necessarily indicative of the results to be
expected for the full year ending July 31, 2007.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiary, Global SportsEDGE, 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,
2006 and 2005, the number of common stock equivalents excluded from the
calculation was 25,678,053 and 20,511,393 respectively.
7
WINNING EDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - Basis of Presentation (cont.)
Revenue Recognition - Service and advertising contracts vary
substantially in length from a single sporting event to entire seasons. The
Company recognizes the revenue from service contracts ratably, over the
estimated term of the underlying contracts. It is important to note that
while revenue from service contracts is deferred and recognized only as the
service is delivered, the bulk of the costs associated with generating that
revenue including advertising, commissions, and handicapping fees are expensed
in the quarter that the service contract is generated.
Settlement Income - During the three months ended October 31, 2005, the
Company reached a settlement with a vendor related to previously provided
services. Under the terms of this settlement, amounts payable by the Company
totaling $129,200 were forgiven and the Company was granted future services
valued at $50,000. The Company recorded settlement income of $179,200 related
to this matter during the prior period. All services were used prior to
October 31, 2006.
Short Term Loan - In September of 2006 the Company entered into a
$655,000 short term loan with a private investor. The note has an 18% interest
rate and matures on June 30, 2007. As collateral, the Company made a general
pledge agreement, giving a security interest in the assets of the Company
including a specific credit card reserve account. Additionally, the Company
pledged 502,000,000 shares of common stock in the event of default. Wayne
Ally Root, the CEO of the Company, also personally pledged 462,222 shares of
preferred stock in the event of default.
Convertible Debenture - The Company has a convertible debenture
outstanding as of October 31, 2006 totaling approximately $291,000. Such debt
is to be repaid at the rate of approximately $20,000 in principal per month,
plus interest. At the discretion of the Company, this note can be repaid in
cash or by the issuance of common stock. The Company has recorded this
convertible debenture, net of the associated discount, as a component of long-
term debt on the balance sheet.
Preferred Stock - At October 31, 2006 the Company had 462,222 shares of
preferred stock outstanding.
Common Stock - During the three month period ended October 31, 2006 the
Company issued 5,000,000 shares upon the exercise of previously issued
warrants.
Operating Costs and 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.
8
WINNING EDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - Going Concern
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate 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 $668,468 for the three months ended
October 31, 2006 and has an accumulated deficit of $29,375,103 at October 31,
2006. The Company believes that it will need additional financing and cash to
fund projected operating cash flow deficiencies and for expansion. These
operating losses and operational requirements, as well as the uncertain
sources of financing, raise substantial doubt about the Company's ability to
continue as a going concern.
The Company will continue to seek additional infusions of capital from
accredited investors and institutional lenders until the Company is
operationally profitable. Additionally, the Company believes its brand names,
database and the value of the viewers of its media properties are
significantly underutilized. Consequently, the Company is actively pursuing
joint venture opportunities including the possibility of being strategically
acquired with the goal of fully realizing the value of those assets.
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.
NOTE 4 - Commitments
Legal Matters - In the normal course of business, the Company is exposed
to a number of asserted and unasserted potential claims.
The Company owns a patent (U.S. Patent # 6,260,019 Web-based
Prediction Marketplace) that is a method and apparatus for facilitating
electronic commerce between suppliers of predictions and consumers of
predictions which it believes is being infringed upon by many of its
competitors. The Company has entered into a licensing and patent enforcement
agreement with General Patent Corporation International (GPCI) to license and
defend the Company's patent. In August of 2006 the Company, through GPCI,
filed a lawsuit against certain companies and individuals to enforce
violations of the patent infringement and to seek damages for the unauthorized
use of the company's proprietary technology.
Capital Lease - The Company has entered into a capital lease related to a
piece of office equipment. The capital lease is in the principal amount of
$9,900 and is scheduled to last for two more years.
NOTE 5 - Tax Expense
The Company has not accrued income tax expense for the periods ended
October 31, 2006 and 2005 at its statutory rates due to current operating
losses and unused net operating losses.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the unaudited
consolidated Balance Sheet as of October 31, 2006 and the unaudited
consolidated Statements of Operations and Cash Flows for the three months
ended October 31, 2006 and 2005, and the related notes thereto, as well as the
audited financial statements of the Company included in the Company's annual
report on Form 10-KSB for the year ended July 31, 2006 filed with the
Securities and Exchange Commission on November 14, 2006. This discussion
contains forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations
and intentions. 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. You should refer to and
carefully review the information in future documents we file with the
Securities and Exchange Commission.
We provide sports handicapping information and analysis to customers
through direct marketing channels such as television, radio, the Internet, and
print media. The handicapping information that we currently provide includes
commentary, analysis and selections from leading sports handicappers for
professional and college football, professional and college basketball,
professional baseball, professional hockey, and occasionally boxing, NASCAR,
and horseracing.
One of the attractive aspects of our business is that we generate
revenues from multiple sources. The two primary sources are services revenues
and advertising revenues.
Service revenues are generated by selling the handicapping advice and
analysis of our professional handicappers. Services revenue is generated from
respondents to our various media promotions including those promoted on our
weekly 30-minute television program called "Wayne Allyn Root's WinningEDGE".
This lively, 30-minute, professionally produced television show is broadcast
nationally for 13 consecutive Saturday mornings during the football season,
which is generally from September through early December. During the 2006-
2007 NFL season, WinningEDGE airs nationwide on the Discovery Channel,
reaching an approximate viewing audience of 90 million potential viewers at
what the Company considers a "prime", 8:30 am est/pst pre-game time spot. The
show stars and showcases our team of professional handicappers. Our hour-long
radio show, also called "Wayne Allyn Root's WinningEDGE ," stars the same cast
of handicappers as the television show. The radio show airs on a number of
stations in local markets across the country. Like the television show, the
radio program provides analysis of upcoming games and promotes the various
handicappers' services.
10
The second major source of revenue for the Company is advertising
revenues. Advertising revenues are revenues generated from payments made to
the Company from third party advertisers (sponsors) on our various television,
radio, print, and Internet properties. They also include revenues generated
from the rental of our customer databases to noncompetitive advertisers. The
Company has built a telemarketing, direct mail, and email database totaling
over 250,000 potential clients who have contacted us through our various media
promotions. Although not recorded as an asset on the Company's Balance Sheet,
the Company considers its databases to be extremely valuable assets both as
continuing lead sources for our handicapping services and as an additional
source of revenue from the rental of our customer lists.
Total revenues for the three months ended October 31, 2006 were
$1,981,312 compared to total revenues for the three months ended October 31,
2005 which were $1,776,759. This 11% increase is due to a combination of
improved utilization of our database, upgrades in our sales training and
management and improved protection of our valuable lead sources. In addition
to the $1,981,312 of total revenues, the Company has an additional $1,118,739
of deferred revenues from sales and advertising contracts entered into through
October 31, 2006. These amounts cannot be recognized as operating revenues by
that date, as the underlying service had not yet been performed. As an
example, if a $4,000 sale was made on October 1 for the remainder of the
football season, a total of $1,000 would be recorded per month as operating
revenues, which is a straight-line basis of amortization of the revenues over
the remaining period for which services will be provided; The revenues for
such a sale would be recorded so that $1,000 is recorded as operating revenues
and $3,000 would be deferred, even if all of the related payments had been
received. Note, however, that all commission expense, handicapping fees, and
advertising expense associated with that sale would be recorded and recognized
in the quarter incurred. Most of the revenue deferred in the first quarter of
the fiscal year will be recognized as operating revenue during the second
fiscal quarter.
Even though only a portion of the sales made during the first fiscal
quarter are recorded as deferred revenue and not as operating revenue during
the quarter, all costs associated with generating the sales are recorded as
expenses during the quarter in which they were incurred. The result of this
accounting treatment is that during certain periods (including the first
fiscal quarter) with large increases in the amount of deferred revenue,
reported operating revenue will be lower than actual cash received while the
related expenses are fully recognized, thus reducing reported operating
margins for those periods.
The increase in advertising revenue for the quarter is due to more
advertisers. The Company has both year-around and seasonal advertisers and
the revenue is recognized accordingly. For example, revenue from one of the
key new agreements is only being recognized during the period when the related
informercial airs. The Company made the strategic decision to seek sponsors
that would advertise with the Company on a year-round basis rather than only
during the heavy fall promotional period. Insofar as the Company has received
pre-payments for these advertising services, they are recorded as deferred
revenues.
11
One thing is important to note: Most of the deferred revenue from the
first fiscal quarter will be recorded as operating revenue for the second
fiscal quarter ending January 31, 2007. Since essentially all the costs
associated with generating this deferred revenue were recognized as expense in
the quarter ended October 31, 2006, this higher deferred revenue can be
expected to make a substantial contribution toward operating revenue and
operating profitability for the second fiscal quarter ending January 31, 2007.
CRITICAL ACCOUNTING POLICIES
In preparing our financial statements, we make estimates, assumptions and
judgments that can have a significant effect on our revenues and net income or
net loss, as well as on the value of certain assets on our balance sheet. We
believe that there are several accounting policies that are critical to an
understanding of our historical and future performance as these policies
affect the reported amounts of revenues, expenses, and significant estimates
and judgments applied by management. While there are a number of accounting
policies, methods and estimates affecting our financial statements, two areas
of particular significance are identified. One of theses areas is the
deferral estimate applied to revenues and the other area is the pricing of
options and warrants issued by the Company. In addition, please refer to Note
2 to the accompanying unaudited consolidated financial statements and the Form
10K-SB for the year ended July 31, 2006, for further discussion of our
accounting policies.
Our service contracts with clients vary substantially in length from a
single sporting event to entire seasons. We recognize the revenue from
service contracts ratably, over the estimated term of the underlying service
contract. It is important to note that while revenue from service contracts
is deferred and recognized as the service is delivered, the bulk of the costs
associated with generating that revenue including advertising, commissions,
and handicapping fees are expensed in the quarter that the service contract is
generated.
In the past two years, we have issued substantial amounts of warrants and
options to purchase common stock in connection with financing activities and
as payment for services and other items. We record the cost attributable to
those issuances on the basis of the Black-Scholes Merton option valuation
model. The use of this model requires some highly subjective assumptions
including expected stock price volatility.
COMPARISON OF THREE MONTHS ENDED OCTOBER 31, 2006 TO THE THREE MONTHS ENDED
OCTOBER 31, 2005
REVENUES. Net service revenues from sports handicapping services (after
charge-backs and changes in deferred revenue) increased to $1,627,826 for the
three months ended October 31, 2006 compared to $1,429,509 for the same period
in 2005, an increase of 14%. This increase was primarily the result of
improved utilization of our database and lead sources along with improved
training and management of our account representatives. Advertising revenue
increased to $353,486 for the three months ended October 31, 2006 compared to
$347,250 for the same period in 2005, an increase of under 2%. This increase
is due to the addition of new sponsors for our media properties.
12
OPERATING COSTS AND EXPENSES. Total operating costs and expenses were
$2,604,854 for the three months ended October 31, 2006 compared to $2,380,747
for the same period in 2005, an increase of 9%. A detailed breakdown of those
costs and expenses follows:
Handicapping fees increased to $207,859 for the three months ended
October 31, 2006 compared to $204,111 for the same period in 2005, an increase
of 1%. These fees are based upon a percentage of sales, a portion of which are
recorded as deferred revenue. The total amount of handicapping fees are
consistent with the contractual rates of our handicapping agreements and are
based upon a percentage of sales. These handicapping fees include amounts
paid on sales that are being recorded as deferred revenue.
Advertising expenses, including production costs, increased to $921,380
for the three months ended October 31, 2006 compared to $764,982 for the same
period in 2005. This 20% increase is due to a combination of increased
television costs to broadcast on a larger audience network and additional
radio broadcasting in larger markets. This additional cost was incurred to
increase the viewer response resulting in increased sales and a larger
database inventory.
Commission expense decreased to $678,519 for the three months ended
October 31, 2006 compared to $720,054 for the same period in 2005, a decrease
of 6%. As with handicapping fees, commissions are based upon a percentage of
sales including those that are recorded as deferred revenues. The total
commission expense for the quarter is consistent with the total of sales
recorded for the quarter including those deferred revenues. The decrease is
due to a repositioning of personnel from sales.
Salaries and wages increased to $320,111 for the three months ended
October 31, 2006 compared to $308,123 for the same period in 2005, an increase
of 4%. This is primarily the result of an increase in the cost of benefits.
Professional fees increased to $111,349 for the three months ended
October 31, 2006 compared to $39,467 for the same period in 2005, a 182%
increase. The increase is primarily due to costs associated with registration
expenses and increased legal, consulting, and accounting expenses.
General and administrative expenses increased to $353,647 for the three
months ended October 31, 2006 compared to $331,675 for the same period in
2005, an increase of 7%. This increase is primarily a result of a percentage
increase in credit card processing fees due to higher sales volume, including
sales that are reported as deferred revenues.
Seasonality
Our business is highly seasonal. Because football and basketball are the
most popular sports for wagering, the demand for the handicapping analysis and
selections for these sports is substantially higher than for other sporting
events. As a result, a higher percentage of our sales occur in the first and
second quarters of the fiscal year. Because of these factors, our quarterly
operating results are difficult to predict and are likely to vary in the
13
future. We have traditionally experienced higher net sales in the first and
second quarters of the fiscal year and lower net sales in the third and fourth
quarters of the fiscal year. 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.
SUMMARY OF CASH FLOWS FOR THE THREE MONTHS ENDED OCTOBER 31, 2006
Cash decreased $205,748 during the three months ended October, 2006. The
decrease was primarily a reflection of the operating loss of $668,468.
OPERATING ACTIVITIES
Net cash used in operating activities increased from $231,088 in the
three months ended October, 2005 to $925,016 in the three months ended October
31, 2006. The primary reason was the increase in the net loss from $462,848
in the three months ended October 31, 2005 to $668,468 in the three months
ended October 31, 2006 and an increase in accounts receivable and prepaid
expenses.
INVESTING ACTIVITIES
Net cash used in investing activities increased from $5,576 during the
three months ended October 31, 2005 to $25,717 during the three months ended
October 31, 2006 because a greater number of assets were purchased in the most
recent three months.
FINANCING ACTIVITIES
Financing activities used net cash of $35,606 during the three months ended
October 31, 2005 and provided net cash of $744,985 during the three months
ended October 31, 2006, a net increase of $780,591. Included in the amount
for the three months ended October 31, 2006, $655,000 was received on the
issuance of notes payable and $100,000 was received on the exercise of
warrants.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital deficit as of October 31, 2006 was $1,706,922. Of
the October 31, 2006 amount, approximately $1,118,739 in deferred revenues
represents revenues from sales which will not be recognized until after
October 31, 2006.
FORWARD LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements 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
14
forward-looking statements. These statements are subject to risks,
uncertainties and assumptions, including, without limitation, 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. You should
refer to and carefully review the information in future documents we file with
the Securities and Exchange Commission.
ITEM 3. CONTROLS AND PROCEDURES
(a) The Company's management evaluated, with the participation of the
Company's principal executive and principal financial officers, the
effectiveness of the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of July 31, 2005.
Based on their evaluation, the Company's principal executive and principal
financial officers concluded that the Company's disclosure controls and
procedures were effective as of July 31, 2006.
(b) There has been no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the Company's fiscal quarter ended October
31, 2005, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 24, 2006, shareholders holding 56.51% of the voting power of
the Company, voted in favor of the following items: 1) an increase in the
authorized shares from 150 million to 750 million, 2) adopting a 25,000,000
share stock incentive plan for employees and consultants, 3) changing the name
of the Company from GWIN, Inc. to Winning Edge International, Inc. the
effective date for these changes was September 19, 2006. Only shareholders of
record on August 10, 2006, were entitled to vote. The vote was through a
consent of shareholders holding in excess of 50% of the voting power of the
Company as permitted under the laws of the state of Delaware.
15
ITEM 5. OTHER INFORMATION.
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit No. Description Location
31.1 Certification of Chief Filed herewith
Executive Officer Pursuant electronically
to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Filed herewith
Financial Officer Pursuant electronically
to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Filed herewith
Executive Officer Pursuant electronically
to 18 U.S.C Section 1350
32.2 Certification of Chief Filed herewith
Financial Officer Pursuant electronically
to 18 U.S.C Section 1350
(b) Reports on Form 8-K.
None.
16
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 11, 2006 By:/s/ Jeffrey Johnson
Jeffrey Johnson
Chief Financial Officer
Dated: December 11, 2006 By:/s/ Wayne Allyn Root
Wayne Allyn Root
Chairman and Chief Executive
Office