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: March 31, 2000
Or
[ ] 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: 0 - 26597
DOT COM ENTERTAINMENT GROUP, INC.
(Name of Small Business Issuer as specified in its charter)
Florida 58-2466312
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 Randall St., L6J 1P3
Oakville, Ontario, Canada
(Address of principal executive offices) (zip code)
(716) 853-1964
Issuer's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No_____
As of April 27, 2000, the registrant had 10,730,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one);
Yes_____ No__X__
<PAGE>
Part I - Financial Information
- ------------------------------
Statements contained in this quarterly report on Form 10-QSB that are not
historical facts are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to risks and uncertainties, which could cause actual
results to differ materially from estimated results. Certain of such risks and
uncertainties are detailed in filings with the Securities and Exchange
Commission and the discussion in "Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.
Item 1 - Financial Statements:
dot com ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 504,622 $ 51,707
Accounts receivable:
Trade 299,909 254,471
Other 100,280 76,460
---------- ----------
Total current assets 904,811 382,638
Deferred tax asset 306,000 323,000
---------- ----------
$1,210,811 $ 705,638
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 166,095 $ 126,901
Accounts payable - officers 69,500 100,916
Income taxes payable 3,400 3,400
---------- ----------
Total current liabilities 238,995 231,217
Stockholders' equity:
Common stock, $0.001 par value, 50,000,000
shares authorized, 10,730,000 shares issued
and outstanding (10,500,000 - 1999) 10,730 10,500
Additional paid in capital:
Common Stock 610,320 238,050
Stock options / warrants 801,500 701,000
Accumulated deficit (450,734) (475,129)
---------- ----------
971,816 474,421
---------- ----------
$1,210,811 $ 705,638
========== ==========
</TABLE>
(see accompanying notes)
<PAGE>
dot com ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2000 1999
---- ----
Revenues $ 305,910 $ 66,049
Expenses:
Marketing 33,879 25,800
Development 117,271 14,221
General and administrative 95,365 25,143
Stock and stock option compensation 18,000 -
---------- ---------
264,515 65,164
---------- ---------
Net income before income taxes 41,395 885
Income tax expense 17,000 -
---------- ---------
Net income $ 24,395 $ 885
========== =========
Net income per share - basic $ 0.002 $ 0.000
========== =========
Weighted average number of common
shares outstanding - basic 10,653,333 8,333,333
========== =========
(see accompanying notes)
<PAGE>
dot com ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 24,395 $ 885
Adjustments to reconcile net income to
net cash used in operations:
Expenses satisfied via the issuance of
common stock and stock options 18,000 -
Deferred income tax expense 17,000 -
Changes in non-cash working capital items:
Accounts receivable (69,258) (87,507)
Prepaid expenses - (16,500)
Accounts payable 7,778 4,504
-------- -------
Net cash used in operating activities (2,085) (98,618)
Cash flows from financing activities:
Proceeds from issuance of common stock 455,000 248,420
--------- --------
Net cash provided by financing activities 455,000 248,420
--------- --------
Net increase in cash during the period 452,915 149,802
Cash and cash equivalents, beginning of period 51,707 3,419
--------- --------
Cash and cash equivalents, end of period $ 504,622 $153,221
========= ========
(see accompanying notes)
<PAGE>
DOT COM ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements of dot com Entertainment Group,
Inc. and Subsidiaries (the "Company ") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the 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 for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000. For further information,
refer to the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999, which includes audited financial statements and footnotes as of and
for the years ended December 31, 1999 and 1998.
NOTE 2. - STOCKHOLDERS' EQUITY
During the quarter ended March 31, 2000, the Company issued 200,000 units of
equity instruments in a private placement offering. Each unit was sold for $2.50
and consisted of one share of the Company's common stock and one warrant to
purchase a share of common stock at a price of $4.00 per share. The warrants
vest immediately and expire two years from the date of grant. The proceeds from
the sale of these instruments amounted to approximately $455,000, net of related
costs amounting to $45,000, of which approximately $85,500 was allocated to the
warrants. This amount was determined using the Black-Scholes pricing model.
During the quarter ended March 31, 2000, 30,000 shares of the Company's common
stock were issued in exchange for consulting services rendered. These services
had a value of $3,000.
NOTE 3. - STOCK OPTIONS
During the quarter ended March 31, 2000, the Company granted 50,000 options to
purchase shares of the Company's common stock, in exchange for services
rendered. These services had a value of $15,000. In addition, the Company
granted 50,000 incentive stock options to employees, accounted for under the
provisions of APB 25. Both of the above groups of options have an exercise price
of $3.00, vest immediately and expire in 2005.
NOTE 4. - EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," the Company has reported basic earnings per share. Diluted
earnings per share has not been presented due to the fact that the conversion of
outstanding options and warrants are not considered in the calculation since the
average market price is less than the exercise price for all exercisable
securities during the quarter ended March 31, 2000. There are no other
potentially dilutive securities outstanding.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
General
dot com Entertainment Group, Inc. ("dot com" or the "Company") is an Internet
software development company, specializing in the creation and support of
Internet entertainment products and related services. dot com derives its
revenues from several sources, including its assessment of license fees and
royalties from the use of its software. Additionally, dot com provides licensees
with technical support, maintenance, software upgrades, information and systems
consulting services, and marketing and promotional initiatives and services
geared toward dot com brand awareness.
dot com is not an Internet gaming company, in that it does not directly or
indirectly accept wagers used to play games of chance on the Internet. Rather,
it develops and licenses the use of its commercial software products and
trademarks to independent third parties located in jurisdictions that permit
Internet gaming as a legitimate business enterprise.
The following tables set forth selected information from the statements of
operations for the three months ended March 31, 2000 and 1999 and the balance
sheets as at March 31, 2000 and December 31, 1999.
Selected Statement of Operations Information
- --------------------------------------------
Three Months Ended March 31,
2000 1999
---- ----
Revenues $ 305,910 $ 66,049
Operating expenses 264,515 65,164
Net income 24,395 885
Selected Balance Sheet Information
- -----------------------------------
March 31, December 31
2000 1999
---- ----
Current assets $ 904,811 $ 382,638
Current liabilities 238,995 231,217
Stockholders' equity 971,816 474,421
Revenues increased to $305,910 for the quarter ended March 31, 2000 from $66,049
for the quarter ended March 31, 1999. The growth in revenues results from higher
royalties and support and maintenance charges and the assessment of license fees
to new software licensees who will take delivery of dot com technical systems in
the current quarter. The royalty revenue increased to $221,910 in 2000 from
$55,306 in 1999 reflecting the increased activity of the Company's licensee in
Antigua. Support and maintenance revenue was $67,000 for the quarter ended March
31, 2000 resulting from upgrades being made to the CyberBingo(TM) software and
related systems, the development of The Bingo Network Program (TM) and the
delivery of the CyberBingo Network Program, ongoing maintenance to the Antiguan
licensee and the development and delivery of marketing and promotional programs.
In 1999, support and maintenance revenue was $10,000. Licensing revenues totaled
$17,000 for the quarter ended March 31, 2000 as the Company has added additional
licensees. Licensing revenues were nil in the similar period in 1999 as the
Company only had one licensee for that period, with the initial license fee
having been paid in 1998. It is anticipated that the new licensees will
diversify the Company's concentration of revenue beginning in the second quarter
of fiscal year 2000. The new licensees will also provide additional royalties
and support and maintenance revenue, which will be in addition to initial
license fees where applicable. The Company earned $743 of advertising revenue
during fiscal 1999 compared to nil in 2000.
Operating expenses increased to $264,515 for the quarter ended March 31, 2000
from $65,164 for the same quarter in 1999. The increased operating expenses
reflect the significantly higher level of activity at the Company. During fiscal
1999, the Company had limited operations in the first quarter, resulting in
significantly lower expense levels. Marketing expenses were $33,879 for the
first quarter of 2000 compared to $25,800 for the first quarter in 1999. The
increase is due primarily to the inclusion of a marketing director in the
current year. Development expenses grew to $117,271 the three months ended March
31, 2000 from $14,221 in 1999. The primary reason for the increase in
development expenses results from the hiring of software developers and
consultants to improve the Company's products and services. General and
administrative expenses increased to $95,365 for the quarter ended March 31,
2000 from $25,143 for the similar period in the prior year. The increase results
from the remuneration of its senior management, the leasing of office space and
the incurrance of the related expenses associated with the higher level of
activity of the Company which were expenses not incurred during the first
quarter of 1999. There was $18,000 of stock and stock option compensation
expense in the first quarter of fiscal 2000 related to 30,000 common shares
bearing a restrictive legend and 50,000 non-qualified options issued to
consultants. These options were recorded as compensation expense in accordance
with the provisions of SFAS No. 123, based on the value of the consulting
services. There was no similar expense in 1999.
The Company had a net profit of $24,395 for the three months ended March 31,
2000 compared to a profit of $885 in 1999 resulting from the higher levels of
revenue offsetting expense requirements. As the Company increases the number of
its licensees and introduces new products it is anticipated that profitability
will continue. There was a $17,000 tax provision recorded for the first quarter
of 2000 based on the profits for the period as compared to nil in the prior year
period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 the Company had cash resources of $504,622 as compared with
$51,707 at December 31, 1999.
At March 31, 2000 the Company had working capital of approximately $650,000 as
compared with approximately $150,000 at December 31, 1999. The increase
primarily reflects the issuance of 200,000 units of equity instruments in a
private placement financing. The per unit price was $2.50 providing proceeds of
approximately $455,000 after associated expenses. Each unit consists of one
share of the Company's common stock and one warrant to purchase a share of
common stock at a price of $4.00 per share. The Company intends to use these
funds to further develop its current products, create and develop new products
and to expand its sales and marketing efforts to increase the number of
licensees of its products.
At March 31, 2000, total assets increased to $1,210,811 from $705,638 at
December 31, 1999. The increase is due primarily to the higher levels of cash
associated with the issuance of the units as discussed above.
Total liabilities increased marginally to $238,995 at March 31, 2000from
$231,217 at December 31, 1999. This increase is consistent with the heightened
level of business activity of dot com in the current period compared to that
leading to the year-end December 1999.
Net cash used in operating activities declined to approximately $2,000 from
$99,000 in the prior year. The decrease results from improved net income,
increased non-cash expenses and lower increase in non-cash working capital
items. During the first quarter of 2000 the Company issued common stock for net
proceeds of $455,000 as described above. In the first quarter of 1999 the
Company issued 6,500,000 common shares for proceeds of approximately $248,000.
There was a net increase in cash of $453,000 for the first quarter of 2000 as
compared to $150,000 for the same period in 1999.
The Company intends to continue to pursue financing activities such as further
equity offerings and has obtained a line of credit supported by its cash
resources to support its ongoing investment in activities to generate increased
revenues and profitability for the Company.
There are presently no material commitments for capital expenditures. Due to the
nature of its business, the Company does not require significant outlays for
capital expenditures and, as a result, is not planning for any material capital
expenditures for the foreseeable future, unless and until additional financing
is realized.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on its
business.
RISKS AND UNCERTAINTIES
The Company has identified that there is uncertainty in North America relating
to the lawfulness of Internet gaming. As such, notwithstanding the fact that its
licensees operate from countries where such business is lawful if licensed,
governments elsewhere, including the federal, state or any local governments in
the United States may take the position that the Company's software and support
systems are being played and or used unlawfully in their jurisdiction.
Accordingly, the Company may face criminal prosecution in any number of
jurisdictions, either for operating an illegal gaming operation, or as aiding
and abetting others, such as its licensees, in operating an illegal gaming
operation. The Company has not devoted any of its limited resources to
investigating the legal climate in which it operates. Many of the issues facing
the Company are the same as those facing all other e-commerce providers, as
current laws are not clear as to who, if anyone, has jurisdiction over
Internet-based commerce. A number of proposals have been presented in the United
States congress to expressly ban Internet gaming. Although the Company intends
to do business worldwide, any enforceable ban on Internet gaming in the United
States would have a material adverse effect on the Company's business and both
its short-term and long-term liquidity and its revenues from operations.
YEAR 2000 RISKS
In FY 1999, the potential existed and dot com was exposed to a risk that certain
of its systems or those of licensees would fail or suffer impairment as a result
of the Year 2000 issue (hereinafter "Y2K"). Y2K relates to the rollover date of
programming defaulting to 01/01/1900 rather than 01/01/2000 (the "Rollover
Date"). Although there was no impact on the Company or its licensees on the
Rollover Date and management believes that all hardware is Y2K compliant, there
may still be a risk that the Company's reliance on certain hardware systems,
software and related services could result in a complete system failure to its
software and/or hardware systems and/or any related information technology
system including communication systems.
Although the Company relies on systems developed using current technology and on
systems designed to be Y2K compliant, we may have to replace, upgrade or
re-engineer or program certain systems to ensure that all technology will be Y2K
compliant when operating together. Management does not anticipate having to
incur any major operating or capital expenditures that would have a material
impact on our financial condition. While management believes that the Company's
hardware and software systems are and will continue to operate after the
Rollover Date, there can be no assurance that all systems will function
adequately.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Exhibit Name
----------- ------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOT COM ENTERTAINMENT GROUP, INC.
(Registrant)
Date: April 26, 2000 /s/ SCOTT WHITE
-----------------
Scott White
President
Date: April 26, 2000 /s/ ANDRE KERN
-----------------
Andre Kern
Controller and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Name
----------- ------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 504,662
<SECURITIES> 0
<RECEIVABLES> 400,189
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 904,811
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,201,811
<CURRENT-LIABILITIES> 238,995
<BONDS> 0
0
0
<COMMON> 10,730
<OTHER-SE> 961,086
<TOTAL-LIABILITY-AND-EQUITY> 1,210,811
<SALES> 305,910
<TOTAL-REVENUES> 305,910
<CGS> 0
<TOTAL-COSTS> 264,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,395
<INCOME-TAX> 17,000
<INCOME-CONTINUING> 24,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,395
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
