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: June 30, 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 in its charter)
Florida 58-2466312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Randall St., L6J 1P3
Oakville, Ontario, Canada
(Address of principal executive offices) (zip code)
(905) 337-8524
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 August 3, 2000, the registrant had 10,730,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one);
Yes_____ No__X__
The registrant meets the conditions set forth in General Instruction and is
therefore filing this Form with the reduced disclosure format.
<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 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) (Audited)
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ....................... $ 510,281 $ 51,707
Accounts receivable:
Trade ...................................... 432,226 254,471
Other ...................................... 24,800 76,460
----------- ----------
Total current assets ....................... 967,307 382,638
Deferred tax asset ................................. 279,354 323,000
----------- ----------
$ 1,246,661 $ 705,638
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........ $ 130,681 $ 126,901
Accounts payable - officers ..................... 99,690 100,916
Income taxes payable ............................ 3,400 3,400
----------- ----------
Total current liabilities .................. 233,771 231,217
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 ................................ (409,660) (475,129)
----------- ----------
1,012,890 474,421
----------- ----------
$ 1,246,661 $ 705,638
=========== ==========
</TABLE>
(see accompanying notes)
<PAGE>
dot com ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ..................................... $ 436,312 $ 77,215 $ 742,222 $ 143,264
Expenses:
Marketing .................................. 38,421 60,000 72,300 85,800
Development ................................ 139,901 67,147 257,172 81,368
General and administrative ................. 190,270 46,286 285,635 71,429
Stock and stock option compensation ........ - - 18,000 -
---------- ---------- ---------- ----------
368,592 173,433 633,107 238,597
---------- ---------- ---------- ----------
Net income (loss) before taxes ............... 67,720 (96,218) 109,115 (95,333)
Income tax expense ........................... 26,646 - 43,646 -
---------- ---------- ---------- ----------
Net income (loss) ............................ $ 41,074 $ (96,218) $ 65,469 $ (95,333)
========== ========== ========== ==========
Net income (loss) per share - basic .......... $ 0.004 $ (0.009) $ 0.006 $ (0.010)
========== ========== ========= ==========
Weighted average number of common
shares outstanding - basic .................. 10,730,000 10,500,000 10,691,667 9,416,667
========== ========== ========= ==========
</TABLE>
(see accompanying notes)
<PAGE>
dot com ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $ 65,469 $ (95,333)
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 ........................ 43,646 -
Changes in non-cash working capital items:
Accounts receivable ............................ (126,095) (144,279)
Accounts payable ............................... 2,554 7,385
--------- --------
Net cash provided by (used in) operating activities ......... 3,574 (232,227)
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 ...................... 458,574 16,193
Cash position, beginning of period .......................... 51,707 3,419
--------- --------
Cash and cash equivalents position, end of period ........... $ 510,281 $ 19,612
========= ========
</TABLE>
(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 and six
month periods ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 2000. There are no other
potentially dilutive securities outstanding.
NOTE 5. - COMMITMENTS
During the three months ended June 30, 2000, the Company entered into a lease
for additional office space at an annual cost of $45,000 for a period of 5
years.
NOTE 6. SUBSEQUENT EVENT
Subsequent to June 30, 2000, the Company granted 830,000 options to purchase
common stock of the Company to directors and employees of the Company at an
exercise price of $0.75 which will be accounted for under APB 25. Accordingly,
no compensation expense will be recognized in the statement of operations.
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.
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 and six months ended June 30, 2000 and 1999 and the
balance sheets as at June 30, 2000 and December 31, 1999.
Selected Statement of Operations Information
--------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 436,312 $ 77,215 $ 742,222 $ 143,264
Operating expenses 368,592 173,433 633,107 238,597
Net income 41,074 (96,218) 65,469 (95,333)
</TABLE>
Selected Balance Sheet Information
-----------------------------------
June 30, December 31
2000 1999
---- ----
Current assets $ 967,307 $ 382,638
Current liabilities 233,772 231,217
Stockholders' equity 1,012,889 474,421
REVIEW OF THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE THREE MONTHS
ENDED JUNE 30, 1999
Revenues increased to $436,312 for the quarter ended June 30, 2000 from $77,215
for the quarter ended June 30, 1999. The growth in revenues results from higher
royalties and support and maintenance charges. The royalty revenue increased to
$340,812 in 2000 from $62,215 in 1999 reflecting the increased activity of the
Company's existing licensee and the addition of royalty income from a new
licensee, which commenced operations in the quarter. Support and maintenance
revenue was $95,500 for the quarter ended June 30, 2000 resulting from upgrades
being made to the CyberBingo(TM) software and related systems, the redevelopment
of the CyberBingo(TM) website, ongoing maintenance to the Antiguan licensee and
the development and delivery of marketing and promotional programs. In 1999,
support and maintenance revenue was $15,000. Licensing revenues were nil for the
quarter ended June 30, 2000 although the Company did receive a deposit from a
new software licensee who is in the process of establishing its operations and
will operate an Internet Bingo hall. 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 continue to diversify the Company's concentration of revenue for
the remainder 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
Operating expenses increased to $368,592 for the quarter ended June 30, 2000
from $173,433 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 half of the year,
resulting in significantly lower expense levels. Marketing expenses were $38,421
for the second quarter of 2000 compared to $60,000 for the second quarter in
1999. The decrease is due primarily to the Company replacing an outside
marketing firm with a senior marketing employee. Development expenses grew to
$139,901 for the three months ended June 30, 2000 from $67,147 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 and to create additional internet games. General and administrative
expenses increased to $190,270 for the quarter ended June 30, 2000 from $46,286
for the similar period in the prior year. The increase results from the
remuneration of its senior management, the leasing of larger office space,
professional fees and the incurrence 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. Of note is that the Company employed approximately 20
people at June 30, 2000 as compared to 3 at the same time in 1999.
The Company had a net profit of $41,074 for the three months ended June 30, 2000
compared to a loss of $(96,218) 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 $26,646 tax provision recorded for the second quarter
of 2000 based on the profits for the period as compared to nil in the prior year
period.
REVIEW OF THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE SIX MONTHS ENDED
JUNE 30, 1999
Revenues increased to $742,222 for the six months ended June 30, 2000 from
$143,264 for the six months ended June 30, 1999. The growth in revenues results
from higher royalties and support and maintenance charges and the assessment of
license fees to new software licensees. The royalty revenue increased to
$562,722 in 2000 from $117,521 in 1999 reflecting the increased activity of the
Company's existing licensee and the addition of a new licensee during the second
quarter. Support and maintenance revenue was $162,500 for the six months ended
June 30, 2000 as a result of higher levels of support as discussed above. In
1999, support and maintenance revenue was $25,000. Licensing revenues totaled
$17,000 for the year to date period ended June 30, 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. The Company earned $743 of
advertising revenue during fiscal 1999 compared to nil in 2000.
Operating expenses increased to $633,107 for the six months ended June 30, 2000
from $238,597 for the same period in 1999. The increased operating expenses
reflect the significantly higher level of activity at the Company. Marketing
expenses were $72,300 for the first half of 2000 compared to $85,800 for the
first half of 1999. The decrease is due primarily to the inclusion of a
marketing director in the current year where, in the prior year the Company was
using outside services to market and promote the Company and its products.
Development expenses grew to $257,172 for the six months ended June 30, 2000
from $81,368 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 and to create additional internet
games. General and administrative expenses increased to $285,635 for the first
half of fiscal 2000 from $71,429 for the similar period in the prior year. The
increase results from the remuneration of its senior management, the leasing of
expanded office space and the incurrence of the related expenses associated with
the higher level of activity of the Company which were expenses that were
significantly less in the prior year. 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 for software development and other services. 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 $65,469 for the six months ended June 30, 2000
compared to a loss of $(95,333) in 1999 resulting from the higher levels of
revenue offsetting expense requirements. There was a $43,646 tax provision
recorded for the first half of 2000 based on the profits for the period as
compared to nil in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 the Company had cash resources of $510,281 as compared with
$51,707 at December 31, 1999.
At June 30, 2000 the Company had working capital of approximately $733,000 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 unit price was $2.50 per share 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 June 30, 2000, total assets increased to $1,246,661 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 as well as an increase in
accounts receivable due to the higher level of revenues.
Total liabilities increased marginally to $233,772 at June 30, 2000 from
$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 provided by operating activities was $5,659 and $3,574 for the three
and six months respectively ended June 30, 2000. These amounts compare to
$(133,609) and $(232,227) in the prior year. The improvement results from higher
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 $458,574 for the first half of
2000 as compared to $16,193 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 devoted only 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 and Internet software 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. Some of these proposals have
recently been defeated. 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 FY1999, 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.
<PAGE>
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: August 4, 2000 /s/ SCOTT WHITE
----------------
Scott White
President
Date: August 4, 2000 /s/ ANDRE KERN
---------------
Andre Kern
Principal Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Name
----------- -------------
27 Financial Data Schedule
