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 January 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
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)
5052 South 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 [ ]
As of January 31, 2006 the Company had 106,979,735 shares of its $.0001 par
value common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
GWIN, INC.
INDEX TO FORM 10-QSB
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at January 31, 2006
(Unaudited) ............................................... 3
Consolidated Statements of Operations for the three
and six month periods ended January 31, 2006 and 2005
(Unaudited) ............................................... 4
Consolidated Statements of Cash Flows for the six month
periods ended January 31, 2006 and 2005 (Unaudited) ....... 5-6
Notes to Financial Statements ............................. 7-10
Item 2. Management's Discussion and Analysis or Plan of
Operation ......................................... 11-15
Item 3. Controls and Procedures ........................... 15
Part II - OTHER INFORMATION
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 ......................................... 16
Signatures ......................................................... 17
2
PART 1: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GWIN, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
January 31, 2006
ASSETS
Current assets:
Cash $ 10,193
Accounts receivable 185,990
Prepaid Expense 50,000
Deferred financing fees 10,333
Deferred offering costs 103,370
Deposits 228,998
-----------
Total current assets 588,884
-----------
Property and equipment (net) 51,661
Equipment held under capital leases (net) 8,251
Deposits and other assets 255,969
Deferred financing fees 7,750
-----------
Total assets $ 912,515
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term convertible debt,
less unamortized discount of $32,946 $ 213,836
Accounts payable - related parties 47,604
Notes payable - related parties 162,371
Deferred revenue 348,000
Accounts payable 379,531
-----------
Total current liabilities 1,151,342
-----------
Long term convertible debt, less unamortized discount
of $35,692 206,073
-----------
Total liabilities 1,357,415
-----------
Stockholders' deficit:
Preferred stock - $0.0001 par value; 5,000,000 shares
authorized; none issued or outstanding -
Common stock - $0.0001 par value; 150,000,000 shares
authorized; 106,979,735 issued and outstanding 10,697
Additional paid-in capital 26,900,542
Accumulated deficit (27,356,139)
-----------
Total stockholders' deficit (444,899)
-----------
Total liabilities and stockholders' deficit $ 912,515
===========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
3
GWIN, INC.
CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended Six Months ended
January 31, January 31,
2006 2005 2006 2005
----------- ------------ ------------ ------------
Net revenue - services $ 2,488,330 $ 2,520,512 $ 3,917,839 $ 3,383,437
Revenues - advertising 243,750 201,154 591,000 499,704
----------- ------------ ------------ ------------
Total revenue 2,732,080 2,721,666 4,508,839 3,883,141
----------- ------------ ------------ ------------
Handicapping fees 45,404 60,643 93,046 113,302
Handicapping fees - related party 106,782 163,751 263,251 266,494
Advertising expense 464,747 558,479 1,229,729 1,331,524
Commissions 661,745 896,628 1,381,799 1,294,851
Salaries and wages 358,669 270,571 666,794 555,007
Professional fees 37,435 45,482 76,902 59,520
General and administrative 407,111 479,347 738,786 777,628
Depreciation expense 12,269 15,460 24,604 30,696
----------- ------------ ------------ ------------
Total operating expense 2,094,162 2,490,360 4,474,911 4,429,022
----------- ------------ ------------ ------------
Operating income (loss) 637,918 231,306 33,928 ( 545,882)
Non-cash financing costs
Settlement income - - 179,200 -
Interest (expense), including
amortization of debt discount (23,484) (205,436) (49,059) (228,839)
Other non-cash cost of financing - (393,606) (6,667) (427,356)
Interest (expense) - related parties (5,817) (4,947) (11,633) (12,269)
----------- ------------ ------------ ------------
Net income (loss) $ 608,617 $ (372,683) $ 145,769 $ (1,214,346)
=========== ============ ============ ============
Basic and diluted income (loss)
per share of common stock $ 0.01 $ (0.00) $ 0.00 $ (0.01)
=========== ============ ============ ============
Basic weighted shares of common
stock outstanding 105,231,168 89,750,331 104,517,627 87,225,427
=========== ============ ============ ============
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
4
GWIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months ended
January 31,
2006 2005
--------- -----------
Cash flows - operating activities:
Net income (loss) $ 145,769 $(1,214,346)
Adjustments to reconcile net income (loss)
to net cash (used in) operations:
Depreciation 24,603 30,696
Settlements Received (179,200) -
Services and settlements paid with common stock
and warrants 58,333 568,806
Amortization of prepaid expense-related parties 6,667 30,000
Interest expense - issuance of common stock - 27,822
Interest expense - amortization of debt discount 22,200 140,606
Decrease (increase) in:
Accounts receivable 94,459 (228,758)
Prepaid expenses 39,033 29,624
Other assets 97,317 (449,374)
Deposits 56,151 -
Deferred financing fees 5,167 -
Increase (decrease) in:
Deferred revenue (612,000) 176,809
Accounts payable 92,800 (61,984)
Accounts Payable - related parties (10,049) (113,564)
--------- -----------
Total adjustments (304,519) 33,018
--------- -----------
Total cash (used in) operating activities (158,750) (1,063,663)
--------- -----------
Cash flows - investing activities:
Purchase of property and equipment (15,676) (15,392)
--------- -----------
Total cash used in investing activities (15,676) (15,392)
Cash flows - financing activities:
Proceeds from issuance of notes payable-related parties - 569,000
Proceeds from issuance of warrants - -
Payments on long-term convertible debt and lease
obligations (87,851) (122,497)
Proceeds from issuance of common stock - 230,000
--------- -----------
Total cash (used in) provided by financing activities (87,851) 676,503
--------- -----------
Net (decrease) in cash (262,277) (402,552)
Cash - beginning of the periods 272,470 439,468
--------- -----------
Cash - end of the periods $ 10,193 $ 36,916
========= ===========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
5
GWIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the six months ended January 31, 2006 and 2005, the Company paid $0 for
taxes and $34,692 for interest and $0 for taxes and $30,866 for interest,
respectively. The Company issued stock and warrants as payment for
professional services and also issued stock as compensation under executive
compensation agreements. These amounts totaled $58,334 and $568,806 for the
six months ended January 31, 2006 and 2005, respectively. In the six months
ended January 31, 2006 the Company issued common stock and warrants in
relation to a private placement offering which were valued at $103,370 in
total; this amount has been capitalized pending the completion of the private
placement. For the six months ended January 31, 2005, the Company incurred
deferred financing charges of $ 31,000 which was paid through a reduction in
the cash received from the associated offering.
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
6
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 develops, produces and markets sports handicapping analysis and
information. It also develops and produces television, radio, and Internet
programming for entertainment and for marketing its handicapping analysis and
information products.
The Company is engaged in a highly seasonal business, with the majority
of sales related to football and basketball handicapping information with a
smaller amount related to baseball handicapping. Due to this seasonality,
quarterly results may vary materially between the football, basketball, and
baseball seasons, with sales higher in the first and the second quarter of
the Company's fiscal year, and lower sales during the remainder of the year.
The Company also spends the majority of its advertising and promotional
budgets during the first and second quarter with only minimal advertising and
promotional expenditures during the remainder of the year.
In addition to revenues from the sales of handicapping analysis,
information, and advice, the Company also generates revenues from the sale of
advertising on its television, radio, and Internet properties as well as from
the lease of its databases of customers and potential customers.
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 year ended July 31, 2005. The results of the three and six month periods
ended January 31, 2006 are not necessarily indicative of the results to be
expected for the full year ending July 31, 2006.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiary, Global Sports EDGE, 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 six months ended January 31,
2006 and 2005, the number of common stock equivalents excluded from the
calculation was 18,102,659 and 30,097,870, respectively, as they would be
anti-dilutive.
7
GWIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - Basis of Presentation (continued)
Revenue Recognition -
Handicapping Service Agreements - Service and advertising contracts vary
in length from a single sporting event to entire seasons. Revenue from
handicapping service agreements is recognized ratably as services are
rendered, in proportion to the total services to be provided under the term
of the agreements. At January 31, 2006 the Company had received
approximately $249,000 for handicapping services not rendered by that date;
this amount is classified as a component of deferred revenues on the
accompanying balance sheet.
Settlement Income - During the six months ended January 31, 2006 the
Company reached a settlement with a vendor related to previously provided
services. Under the terms of this settlement agreement, amounts payable by
the Company totaling $129,200 were forgiven and the Company is to receive
future services valued at $50,000. The Company recorded settlement income of
$179,200 related to this matter. The vendor was not affiliated with the
Company or any of its officers and directors.
Advertising Agreements - Revenue from advertising agreements is
recognized over the terms of the agreements based on individual broadcasting
of the advertising in proportion to the total broadcasts during the terms of
the agreements. At January 31, 2006 the Company had received approximately
$99,000 in payments for advertising services not rendered by that date; this
amount is classified as a component of deferred revenues on the accompanying
balance sheet
Operating Expenses - Handicapping 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 Debt - For the six month period ended January 31, 2006 the
Company issued no new convertible debt. The Company has a convertible
debenture outstanding as of January 31, 2006 totaling approximately $450,000.
The principal of the debt is to be repaid at the rate of $18,200 per month.
At the discretion of the Company this note may be repaid in cash or through
the issuance of common stock. Additionally, the Company has deposits with
credit card processors and in a custodial account that are currently being
used as security for this debt. Amounts in these accounts which secure the
long term portion of debt payments were recorded as long term deposits, and
such amounts totaled $236,363 at January 31, 2006.
Debt - At January 31, 2006 the Company owed $25,000 in short-term term
debt and approximately $9,000 under capital lease arrangements.
Deferred Offering Costs - The Company has capitalized the value of
shares issues and warrants issuable in association with an anticipated
private placement of equity. As these amounts represent share issuances and
the valuation of a warrant, there was no cash effect for these items. Upon
successful completion of the offering, these expenses will be recorded as a
8
GWIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - Basis of Presentation (continued)
reduction of the net proceeds thereof. If this offering is not consummated
due to the inability to place the shares or otherwise, the value of the
shares and warrants will be recorded as an expense at the time such a
determination is made.
Preferred Stock - The Company has no preferred stock issued and
outstanding at January 31, 2006.
Common Stock - During the three month period ended January 31, 2006 the
Company issued 3,191,666 shares of common stock which was valued at the
quoted price on the date of issuance. Of these shares, 2,000,000 were issued
in conjunction with a contemplated private placement of equity and the
$100,000 valuation of these shares was recorded as deferred offering costs on
the accompanying balance sheet. The Company issued 1,166,666 restricted
common shares to two officers under employment agreements dated July, 31
2004. The fair value of these shares is included as a component of salaries
and wages in the accompanying statement of operations. These shares were
valued at the quoted price per share of the Company's stock as of the day of
grant. The Company also issued 25,000 shares as an interest payment on a
convertible debt to a third party, which was valued at the quoted price per
share of the Company's stock as of the day of grant. This amount is included
as a component of interest expense in the accompanying statement of
operations.
Warrants - The Company has committed to issuing warrants to purchase
100,000 shares of the Company's common stock at $0.06 per share for services
to be provided in conjunction with a planned private placement of equity.
The valuation of these warrants was determined using the Black-Scholes model,
and the valuation of these warrants was recorded as deferred offering costs
on the accompanying balance sheet.
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 has a working capital deficit of approximately $562,000 and
an accumulated deficit of approximately $27,356,000 at January 31, 2006.
Historical operating losses, as well as uncertainty related to sources of
financing, create substantial doubt about the Company's ability to continue
as a going concern. Management plans to generate sufficient cash to support
operations by raising additional financing by selling shares of our common
stock through private offerings to accredited investors. 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.
9
GWIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 is not
currently a party to any legal proceedings either as a defendant or as a
plaintiff.
NOTE 5 - Tax Expense
The Company has not accrued income tax expense for the periods ended
January 31, 2006 at its statutory rates due to the utilization of net
operating loss carry-forwards.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
OVERVIEW
We provide sports handicapping information and analysis to sports
bettors 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, and professional baseball. We also generate revenues from the
sale of advertising on our various television, radio, Internet and print
properties and from the leasing of our databases of customers and potential
customers.
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 January 31, 2006, the unaudited consolidated
Statements of Operations for the three and six month periods ended January
31, 2006 and 2005, the unaudited consolidated Statements of Cash Flows for
the six month periods ended January 31, 2006 and 2005, and the related notes
thereto, as well as the audited consolidated financial statements of the
Company included in the Company's Annual Report on Form 10 KSB for the year
ended July 31, 2005, filed with the Securities and Exchange Commission on
November 12 , 2005. This discussion contains forward looking statements based
upon current expectations that involve risks and uncertainties, such as our
plans, objectives, expectations and intentions.
The Company cautions readers that important facts and factors described
in the Management's Discussion and Analysis or Plan of Operations and
elsewhere in this document, as well as facts and factors that are not
discussed in this document, sometimes have affected and in the future could
affect, the Company's actual results and could cause the Company's actual
results during 2006 and beyond to differ materially from those expressed in
any forward looking statements made by, or on behalf of, the Company.
One of the attractive aspects of our business is that we generate
revenues from multiple sources. The two major sources are "Services
Revenue," and "Advertising Revenue."
Services revenue is generated by selling the handicapping advice and
analysis of our professional handicappers. These handicappers include GWIN's
CEO Wayne Allyn Root, winner of numerous sports handicapping championships,
frequent media guest on nationally televised news and talk shows, and
currently co-host of SPIKE TV's "The King of Vegas;" Coach Ron Meyer, former
head coach of SMU, and the NFL's Indianapolis Colts and New England Patriots;
Al McMordie, winner of over 30 sports handicapping contests; and Chet
Coppock, Emmy award winning sports broadcaster. 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[TM]," which aired during the 2005 football season
nationally on the Superstation WGN TV Network. We also produce an hour long
radio program called The WinningEDGE[TM] that airs on selected radio stations
nationwide. In addition to The WinningEDGE[TM] television and radio programs,
we advertise our services on radio in various markets and in selected print
media including the week end edition of USA Today and a multi-issue Sports
Schedule that is mailed to a select database list. During a football week we
will receive several thousand phone calls in response to our offers. These
calls are returned by our team of sports account representatives in our
11
office in Las Vegas. Each account representative offers the caller a variety
of handicapping packages provided by our handicappers. Our handicapping
services are also offered and sold on our web sites, www.WinningEDGE.com, and
www.ewinners.com. The web sites provide free 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 sites.
Our second major source of revenue is advertising revenue. Advertising
revenue is generated from payments made to the Company by third party
advertisers (sponsors) on our various television, radio, print, and Internet
properties. Also included is revenue generated through the rental/lease of
our customer and potential customer databases to advertisers that do not
compete directly with us. The Company has built telemarketing, direct mail,
and e-mail databases totaling over 1,000,000 potential clients. Although not
recorded as an asset on our balance sheet, we consider our databases to be
extremely valuable assets both as a continuing lead source for our
handicapping services and as a growing source of revenue from the rental of
our database contact information.
We showed substantial improvement in operations for the quarter ended
January 31, 2006. For the three months ended January 31, 2006, our operating
profit more than tripled, increasing to $637,918 compared to $231,306 for the
same period in 2005. This improvement was due to our being able to return to
our defined business model after recovering from the theft of its data base,
a steadily increasing flow of advertising revenues, and continued tight
control over expenditures. Also contributing to this improvement is the
recognition of previously deferred revenues for which the associated costs
were recorded as expenses in prior periods. We recorded operating income of
$33,928 for the six months ended January 31, 2006 compared to an operating
loss of $545,882 for the same period in 2005. The net income for the six
month period ended January 31, 2006 was $145,769 compared to a net loss of
$1,214,346 for the six month period ended January 31, 2005.
CRITICAL ACCOUNTING POLICIES
In preparing our financial statements, we make estimates, assumptions
and judgments that can have a significant effect on our revenue 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
important to an understanding of our historical and future performance as
these policies affect the reported amounts of revenue, expense, and
significant estimates and judgments applied by management. While there are a
number of accounting policies, methods and estimates affecting our financial
statements, we have identified two areas of particular significance. One is
the deferral estimate applied to revenue and the other is the pricing of
options and warrants issued. In addition, please refer to Note 2 to the
accompanying consolidated financial statements for further discussion of our
accounting policies.
Revenue Recognition - Our service contracts with clients vary substantially
in length from a single sporting event to entire seasons. We recognize
revenue from service contracts ratably as the services are rendered, in
proportion to the total services to be provided under the contracts. 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
12
generating that revenue including advertising, commissions, and handicapping
fees are expensed as incurred, usually in the quarter that the service
contract is generated.
Stock Options and Equity Instruments - In the past several years, we have
issued substantial amounts of warrants and options to purchase our 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 option valuation model. The use of this model requires
some highly subjective assumptions including expected stock price volatility.
COMPARISON OF SIX MONTHS ENDED JANUARY 31, 2006 TO THE SIX MONTHS ENDED
JANUARY 31, 2005
REVENUES. Total revenue for the six months ended January 31, 2006 increased
16%, to 4,508,839 compared to $3,883,141 for the same period in 2005.
Revenues from advertising increased to $591,000 for the six months ended
January 31, 2006 compared $499,704 for the same period in 2005, an increase
of 18%. This increase in advertising revenue is a result of the Company's
strategy to pursue and bring on board advertisers that will advertise on an
annual basis not only in the football season. Net services revenue from
sports handicapping services (after deferred revenue adjustments) increased
to $3,917,839 for the six months ended January 31, 2006 compared to
$3,383,437 for the same period in 2005, an increase of 16%.
OPERATING EXPENSE. Total operating expense was $4,474,911 for the six months
ended January 31, 2006 compared to $4,429,022 for the same period in 2005.
The majority of our advertising expense is incurred from September to
December, during the football season and the early part of the basketball
season.
OPERATING RESULTS. For the six months ended January 31, 2006 the Company had
operating income of $33,928 compared to a loss of $545,882 for the same
period in 2005. This improvement is due to an increase in both services and
advertising revenues while keeping operating expenses at essentially the same
level as the prior comparable period.
COMPARISON OF THREE MONTHS ENDED JANUARY 31, 2006 TO THREE MONTHS ENDED
JANUARY 31, 2005
REVENUES. Total revenues increased to $2,732,080 for the three months ended
January 31, 2006 compared to $2,721,666 for the same period in 2005. Services
revenue decreased to $2,488,330 for the three month period ended January 31,
2006 compared to $2,520,512 for the same period in 2005, a decrease of 1%.
Advertising revenue increased to $243,750 for the three months ended January
31, 2006 compared to $201,154 for the same period in 2005, an increase of
21%.
OPERATING EXPENSE. Total operating expense was $2,094,162 for the three
months ended January 31, 2006 compared to $2,490,360 for the same period in
2005, a decrease of 16%. Advertising expense decreased to $464,747 for the
three months ended January 31, 2006 compared to $558,479 for the same period
in 2005, a 17% decrease. Commissions decreased to $661,745 for the three
months ended January 31, 2006 compared to $896,628 in 2005, a decrease of
26%. Salaries and wages increased to $358,699 for the three months ended
January 31, 2006 compared to $270,571 for the same period in 2005, a 31%
increase. The increase was due to the expense of stock issued to two key
13
executives; this stock was issued under the terms of their July 31, 2004
employment agreements. Professional fees decreased to $37,435 for the three
months ended January 31, 2006 compared to $45,482 for the same period in
2005, a decrease of 18%. General and administrative expenses decreased to
$407,112 for the three months ended January 31, 2006 compared to $479,347 for
the same period in 2005, a decrease of 15%.
OPERATING RESULTS. The Company recorded operating income of $637,918 for the
three months ended January 31, 2006 compared to operating income of $231,306
for the same period in 2005. These improved results are attributable to the
investments made in protecting and rebuilding our databases allowing a return
to more normal growth patterns, an increase in advertising revenues, and a
continued tight control over operating expenses. The Company was also able
to realize the benefit of previously deferred revenues. As the cost of
deferred revenues is generally recorded at the time of the underlying sale, a
portion of the costs related to the recognized portion of deferred revenues
was recorded during earlier periods.
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, the majority 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 future. We
have traditionally experienced lower net sales in the third and fourth
quarters of the fiscal year, and higher net sales in the first and second
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.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY OF CASH FLOWS FOR THE SIX MONTHS ENDED JANUARY 31, 2006
GWIN's cash decreased $262,277 during the six months ended January,
2006. The decrease was primarily a result of the decrease in deferred
revenue of $612,000, payments on long-term debt and lease obligations of
$87,851 and a decrease in accounts payable of $92,800
OPERATING ACTIVITIES
Net cash used in operating activities decreased from $1,063,663 in the
six months ended January, 2005 to $158,750 in the six months ended January
31, 2006. The primary reason was the change from a net loss of $1,214,346 in
the six months ended January 31, 2005 to net income of $ 145,769 in the six
months ended January 31, 2006. This was offset in part by the decrease in
deferred revenues of $612,000 and a decrease in accounts payable of $92,800.
INVESTING ACTIVITIES
Net cash used in investing activities increased from $15,392 during the
six months ended January 31, 2005 to $15,676 during the six months ended
January 31, 2006. Assets purchased remained low due to our previous
investments in technology and infrastructure.
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FINANCING ACTIVITIES
Net cash provided by financing activities decreased from $676,503 during
the six months ended January 31, 2005 to negative $87,851 during the six
months ended January 31, 2006. Included in the amount for the six months
ended January 31, 2006, was $87,851 paid on long term debt and lease
obligations.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital deficit as of January 31, 2006, was $562,458. Of
the January 31, 2006 amount, approximately $348,000 represents revenues from
sales which will not be recognized until after January 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
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, and 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
The Company maintains disclosure controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed pursuant to the Securities Exchange Act of 1934, as amended the
("Exchange Act"), is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, who is our principal
executive officer, and our Chief Financial Officer, who is our principal
financial officer, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply
its judgment in evaluating the cost benefit relationship of possible controls
and procedures.
There have been no significant changes in our internal controls or in
other factors that could significantly affect the internal controls
subsequent to the Evaluation Date.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three months ended January 31, 2006, we issued 1,166,666
shares to two executive officers under employment contracts, we issued an
aggregate of 2,000,000 restricted shares of common stock to two entities
associated with a consultant hired by the Company and we issued 25,000 shares
to a debenture holder in payment of interest. These shares were issued
pursuant to the exemption provided by Section 4(2) of the Securities Act of
1933, as amended, and the appropriate restrictive legend was placed on the
certificates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS.
(a) Exhibits.
Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes Oxley Act of 2002 -
filed herewith electronically
31.2 Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes Oxley Act of 2002 -
filed herewith electronically
32.1 Certification of Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350 - filed herewith
electronically
32.2 Certification of Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350 - filed herewith
electronically
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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: March 14, 2006 By: /s/ Jeffrey Johnson
Jeffrey Johnson
Chief Financial Officer
Dated: March 14, 2006 By: /s/ Wayne Allyn Root
Wayne Allyn Root
Chairman and Chief Executive Officer
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