<PAGE> 1
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, 1996
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 33-13789 LA
YOU BET INTERNATIONAL, INC.
(Exact name of Small Business Issuer As Specified in Its Charter)
DELAWARE 87-0422246
(State or other jurisdiction (I.R.S. employer
of Incorporation or Organization) identification no.)
1950 Sawtelle, Suite 180
Los Angeles, CA 90025
(Address of Principal Executive Offices)
310 444-3300
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (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 No X
The number of shares outstanding of the Registrant's Common Stock on July 26,
1996 was 8,283,333 shares.
Transitional Small Business Disclosure Format (check one)
Yes No X
1
<PAGE> 2
YOU BET INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
</TABLE>
2
<PAGE> 3
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 2,553,591 $ 3,297,908
ACCOUNTS RECEIVABLE 30,608 35,608
PREPAID EXPENSES AND OTHER CURRENT ASSETS 95,606 5,364
----------- -----------
TOTAL CURRENT ASSETS 2,679,805 3,338,880
FIXED ASSETS - NET OF ACCUMULATED
DEPRECIATION 254,791 78,154
----------- -----------
TOTAL ASSETS $ 2,934,596 $ 3,417,034
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 144,723 $ 259,214
RELATED PARTY LIABILITIES 45,213 45,213
OTHER CURRENT LIABILITIES 15,450 7,810
----------- -----------
TOTAL CURRENT LIABILITIES 205,386 312,237
----------- -----------
STOCKHOLDERS' EQUITY
COMMON STOCK (PAR VALUE $ .001) 8,133 8,071
ADDITIONAL PAID-IN CAPITAL 4,202,636 4,030,648
RETAINED DEFICIT BALANCE (1,128,338) (682,822)
DEFERRED COMPENSATION (353,221) (251,100)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,729,210 3,104,797
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,934,596 $ 3,417,034
=========== ===========
</TABLE>
3
<PAGE> 4
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
----------------- -----------------
<S> <C> <C>
CONSULTING INCOME $ -- $ 45,000
----------- ---------
EXPENSES
RESEARCH AND DEVELOPMENT 210,889 62,398
SALES AND MARKETING 74,225 --
GENERAL AND ADMINISTRATIVE 187,600 33,550
----------- ---------
TOTAL EXPENSES 472,714 95,948
----------- ---------
LOSS FROM OPERATIONS (472,714) (50,948)
INTEREST EXPENSE (2,463) (2,669)
INTEREST INCOME 29,661 6,607
----------- ---------
LOSS BEFORE PROVISION FOR
INCOME TAXES (445,516) (47,010)
PROVISION FOR INCOME TAXES -- --
----------- ---------
NET LOSS $ (445,516) $ (47,010)
=========== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,080,000 343,333
=========== =========
NET LOSS PER COMMON SHARE $ (.06) $ (0.14)
=========== =========
</TABLE>
4
<PAGE> 5
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (445,516) $ (47,010)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 7,439 106
Amortization of Deferred Compensation 26,129 --
Change in operating assets and liabilities
Accounts Receivable 5,000 30,000
Prepaid Expenses (90,242) --
Accounts Payable (114,491) 46,049
Other Current Liabilities 7,640 (63,204)
----------- ---------
Net cash used in operating activities (604,041) (34,059)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES:
Acquisition of equipment (184,076) (6,338)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock (net) 43,800 --
----------- ---------
Net cash provided by financing activities 43,800 --
----------- ---------
NET DECREASE IN CASH AND CASH (744,317) (40,397)
EQUIVALENTS
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 3,297,908 55,477
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,553,591 $ 15,080
=========== =========
</TABLE>
5
<PAGE> 6
YOU BET INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The unaudited consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying consolidated financial statements should
be read in conjunction with the more detailed consolidated financial statements
and related footnotes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 filed with the Securities and Exchange
Commission.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which include only normal
recurring accruals), necessary to present fairly the financial position of the
Company as of March 31, 1996 and the results of its operations and its cash
flows for the three months ended March 31, 1996 and 1995, respectively. The
results of operations for the periods ended March 31, 1996 and 1995 are not
necessarily indicative of the results expected for the entire year ending
December 31, 1996.
NOTE 2
On December 6, 1995, the Company (which concurrently changed its name to
You Bet International, Inc and which was formerly known as Continental Embassy
Acquisition, Inc.) completed the acquisition ( the "Acquisition") of You Bet!,
Inc. ("YBI", which was formerly known as PC Totes, Inc.), a privately held
Delaware corporation. The Acquisition was completed concurrently with the
closing of the private placement of securities of YBI.
At the time of the Acquisition, YBI offered (and the Company, as
successor, continued to offer) securities in private placements to accredited
domestic investors and in offshore transactions to persons who were not U.S.
persons. Gross proceeds to the Company from the offering, which continued into
1996, before deducting underwriters' discounts and commissions and expenses of
the offering, were approximately $4.8 million. Of such proceeds, approximately
$605,000 was used to repay certain indebtedness.
In February, 1996, the Company entered into a lease for 7,779 square feet
of space in an office building located at 1950 Sawtelle Boulevard in Los
Angeles, California, which houses the Company's executive offices. The lease is
for a 26 month term, expiring March 31, 1998, with rent accruing at the rate of
approximately $7,688 per month. The Company prepaid the $193,220 aggregate lease
payment of which $95,201 was paid in the first quarter of 1996 and $98,020 was
paid in the second quarter of 1996.
The Company entered into a lease with First Venture Leasing Corporation in
July 1996. The terms of the equipment lease provide for the sale and lease back
of equipment already purchased for $100,000 and for a $150,000 line for new
purchases. The lease is payable over 30 months, with an effective interest rate
of approximately 15% per annum.
In November 1995, the Company's Board of Directors approved the 1995 Stock
Option Plan and the 1995 Stock Option Plan for Non-Employee Directors
(collectively the "1995 Plans"). The 1995 Plans provide for the granting of
awards of incentive stock options, nonqualified stock options, and stock
appreciation rights. The
6
<PAGE> 7
aggregate number of shares of common stock available for issuance under the 1995
Plans is 15% of the total number of shares of common stock outstanding from time
to time. A total of 643,500 options were issued in 1995 which are exercisable at
$2.50 per share through December 2005 and vest in four equal installments. An
additional 285,000 options, exercisable at $2.50 per share, were issued during
the first quarter of 1996. A total of 85,500 options have vested at March 31,
1996. Compensation totaling $417,825 was recorded upon the issuance of the
options which is being amortized over the vesting period of the options.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information set forth below should be read in conjunction with the
unaudited interim condensed financial statements and notes thereto included in
Part I - Item 1 of this Quarterly Report and with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
filed with the Securities and Exchange Commission.
GENERAL
The Company was organized in 1987 to evaluate, structure and complete a
merger with, or acquisition of, any privately held business enterprises seeking
to obtain the perceived advantages of being a publicly-owned company. The
Company completed this objective through the December 1995 acquisition of You
Bet!, Inc ("YBI"). The Company is now an on-line communications company that is
developing interactive software and services for consumer use to be provided
over its secure private network. The Company's initial focus will be on its
interactive horse racing product line (tentatively called You Bet!), which is
expected to undergo field testing in the fourth quarter of 1996. The software
package will enable users, via modem over regular telephone lines, the Internet
or cellular carriers, to connect to the Company's network, allowing personal
computer (PC) users to establish accounts, access sports and handicapping
information, engage in recreational games and contests for points and prizes
and, where consistent with the Company's "Business Guidelines" (as described in
Item 1 - "Business Government Regulations; Legality" in the Company's Annual
Report Form 10-K for the fiscal year ended December 31, 1995), transmit actual
cash wagers to licensed gaming agencies.
Management believes that the historical financial information relating to
the Company is not indicative of the operations of the Company in the future for
the following reasons:
7
<PAGE> 8
- In 1995, the Company generated a modest amount of revenue through
consulting projects relating to on-line marketing and wagering. It is not
anticipated that consulting assignments will be sought or significant
consulting revenue will be received in the current year or subsequent
periods.
- Revenue and expenses for the foreseeable future are expected to be related
to the You Bet! on-line software product.
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995.
REVENUES
Revenues declined $45,000 to $0 from the year earlier period as a
result of the cessation of consulting business in the fourth quarter of 1995
and concentration on research and development for the You Bet! product.
EXPENSES
Research and Development
Research and development costs increased $148,491 (238%) to
$210,889 for the quarter ending March 31, 1996 as compared to the comparable
1995 quarter, primarily due to the build -up of staff and the continued
development of the software and graphic design of the Company's You Bet!
product. Salaries increased $89,368 as a result of nine new employees hired
for product development, including an operations manager and chief operating
officer. Other expenses in this category include increased recruiting fees as
a result of utilizing a recruiter to assist in finding and hiring new
employees and consulting expenses as a result of programming efforts that
were out-sourced.
Sales and Marketing
Sales and marketing expense increased $74,225 for the quarter
ending March 31, 1996 as compared to the comparable 1995 quarter. In the
first quarter of 1995 there was no sales or marketing effort. In 1996,
however, the Company began to establish corporate identity (logo) and product
marketing programs. Included within sales and marketing expense are
consulting and travel expenses.
General and Administrative
General and administrative costs increased $154,050 (459%) to $187,600
for the quarter ending March 31, 1996 as compared to the comparable 1995
quarter, primarily due to increased staffing, rent, professional fees and
deferred compensation amortization.
Interest Income and Expense
Interest income increased $23,055 (349%) to $29,662 for the
quarter ending March 31, 1996, primarily the result of investing, on a short
term basis, the proceeds of the sale of the Company's securities in interest
bearing accounts. Interest expense decreased $206 (7%) to $2,463 for the
quarter ending March 31, 1996, as a result of a decline in interest accruing
liabilities.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital
resources have been cash flow from operations and borrowing from related
parties. During the quarter ended March 31, 1996, the Company's cash position
decreased $745,000 to $2.5 million as of March 31, 1996 compared to $3.3 million
at December 31, 1995. Net cash decreased $745,000 from December 31, 1995 to
March 31, 1996 as a result of $604,000 used in operating activities, $184,000
from the acquisition of equipment which was partially offset by $43,000 from
proceeds from the private placement that began in 1995.
Cash used in operating activities consisted of research and
development costs of $209,000, marketing costs of $73,000, general and
administrative costs of $154,000. These costs were partially offset by net
interest income of $27,000. In addition, prepaid expenses increased $95,000 as a
result of prepaying the office lease and accounts payable and other liabilities
were reduced by $105,000. Other operating activities generated $5,000. As of
June 30, 1996 the Company had cash and cash equivalents of approximately $2.0
million.
In July 1996, the Company has entered into a capital lease that
calls for a $100,000 sale and lease back for equipment previously purchased and
a $150,000 line for new purchases. The lease is payable over 30 months, with a
20% security deposit of which 1/3 is returned after each year, with an effective
interest rate of approximately 15% per annum.
The Company plans to begin a new private placement offering in
summer of 1996. The Company plans to offer for sale on a "best efforts" basis,
approximately maximum of 1,100,000 shares of the Company's .001 par value Common
Stock to persons other than U.S. Persons, as defined in Regulation S
("Regulation S"), promulgated under the Securities Act of 1933 as amended (the
"Securities Act"), in offshore transactions, as defined in Regulation S.
The Company expects that the cash on hand coupled with the cash to
be raised from the new private placement, assuming it will be successful, will
be sufficient for operating expenses and capital expenditures through at least
June 1997. No assurance can be given that the Company will be successful in
raising additional funds. If the Company is not successful in raising this
additional financing, management will be required to consider a variety of other
options including seeking joint venture partners, selling or licensing all or a
portion of its proprietary technology, curtailing product development and
delaying the roll-out of its first product, as well as other cost cutting
actions, including suspending all or a portion of its activities.
The Company's need for capital (beyond that contemplated in the
anticipated private placement) during the next year or more will vary based upon
a number of factors, including the rate at which demand for products expands,
the level of sales and marketing activities for its products, and the level of
effort needed to develop and commercialize additional applications. In addition,
the Company's business plans may change or unforeseen events may occur which
require the Company to raise additional funds. Additional funds may not be
available on terms acceptable to the Company when the Company needs such funds.
The unavailability of additional funds when needed could have a material adverse
effect on the Company.
9
<PAGE> 10
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS
The following exhibits are filed herewith: None
10
<PAGE> 11
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.
YOU BET INTERNATIONAL, INC.
BY:______________________
DAVID MARSHALL
CHAIRMAN OF THE BOARD,
PRESIDENT, AND CHIEF
EXECUTIVE OFFICER
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
___________________ Chairman of the Board, August __, 1996
DAVID MARSHALL President, Chief Executive
Officer and Director
___________________ Director August __, 1996
RUSSELL FINE
___________________ Director August __, 1996
JESS RIFKIND
___________________ Chief Financial Officer August __, 1996
BARRY PETERS
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,553,591
<SECURITIES> 0
<RECEIVABLES> 126,214
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,679,805
<PP&E> 262,230
<DEPRECIATION> (7,439)
<TOTAL-ASSETS> 2,934,596
<CURRENT-LIABILITIES> 205,386
<BONDS> 0
0
0
<COMMON> 8,133
<OTHER-SE> 2,721,077
<TOTAL-LIABILITY-AND-EQUITY> 2,729,210
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 472,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,198)
<INCOME-PRETAX> (445,516)
<INCOME-TAX> 0
<INCOME-CONTINUING> (445,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 445,516
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
