SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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 Registrant as specified in its charter)
Delaware 87-042246
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
1950 Sawtelle, Suite 180
Los Angeles, CA 90025
(310) 444-3300
(Address, including zip code, of Registrant's
principal executive offices and telephone
number, including area code)
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 No
The number of shares outstanding of the Registrant's Common Stock on May 15,
1997 was 8,288,333 shares.
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YOU BET INTERNATIONAL, INC.
INDEX
PART I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 10
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
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<TABLE>
<CAPTION>
YOU BET INTERNATIONAL, INCORPORATED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
March 31, 1997 December 31, 1996
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $6,000 $ 87,000
Accounts Receivable 7,000 0
Prepaid Expenses 114,000 156,000
Other Current Assets 31,000 0
--------------------------- ---------------------------
Total Current Assets 158,000 243,000
Fixed Assets - net of depreciation 935,000 1,013,000
Other Assets 55,000 55,000
--------------------------- ---------------------------
Total Assets $1,148,000 $ 1,311,000
=========================== ===========================
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $783,000 $ 828,000
Accrued Salaries and related items 586,000 192,000
Other accrued expenses 200,000 265,000
Bridge Loan payable 746,000 200,000
Income Taxes payable 2,000 4,000
Current portion of capitalized lease 196,000 100,000
obligations
Total Current Liabilities 2,513,000 1,589,000
Capitalized lease obligations 135,000 127,000
--------------------------- ---------------------------
Total Liabilities 2,648,000 1,716,000
--------------------------- ---------------------------
STOCKHOLDERS' EQUITY
Common Stock (par value $ .001) 8,000 8,000
Additional Paid-in Capital 4,411,000 4,411,000
Retained Deficit Balance (5,667,000) (4,547,000)
Deferred Expenses (252,000) (277,000)
--------------------------- ---------------------------
Total Stockholders' Equity (1,500,000) (405,000)
--------------------------- ---------------------------
Total Liabilities and Stockholders' Equity $1,148,000 $ 1,311,000
=========================== ===========================
</TABLE>
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<TABLE>
<CAPTION>
YOU BET INTERNATIONAL, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
March 31, 1997 March 31, 1996
--------------------------- ---------------------------
<S> <C> <C>
CONSULTING INCOME $2,000 $ -
EXPENSES
Research and Development 453,000 211,000
Sales and Marketing 171,000 74,000
General and Administrative 464,000 189,000
--------------------------- ---------------------------
Total Expenses 1,088,000 474,000
--------------------------- ---------------------------
LOSS FROM OPERATIONS (1,086,000) (474,000)
INTEREST EXPENSE (34,000) (2,000)
INTEREST INCOME - 30,000
--------------------------- ---------------------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (1,120,000) (446,000)
PROVISION FOR INCOME TAXES - -
--------------------------- ---------------------------
NET LOSS $(1,120,000) $ (446,000)
===========================
===========================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,283,333 8,053,333
=========================== ===========================
NET LOSS PER COMMON SHARE $(0.14) $ (0.06)
=========================== ===========================
</TABLE>
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<TABLE>
<CAPTION>
YOU BET INTERNATIONAL, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
March 31, 1997 March 31, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $(1,120,000) $ (446,000)
Net Loss
Adjustments to reconcile net loss to net cash (used in) operating
activities:
Depreciation 74,000 7,000
Amortization of deferred compensation 26,000 26,000
Disposition of equipment 3,000 -
Accounts Receivable 1,000 5,000
Prepaid Assets 4,000 (91,000)
Other current assets - 1,000
Accounts Payable (46,000) (114,000)
Other Current Liabilities 349,000 8,000
--------------------- ----------------------
Net cash used in operating activities (709,000) (604,000)
--------------------- ----------------------
NET CASH USED IN INVESTING ACTIVITIES:
Acquisition of equipment - (184,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock - 455,000
Offering costs - (106,000)
Proceeds from capitalized lease obligation 150,000
Payments on capitalized lease obligations (47,000)
Proceeds from bridge loan facility 525,000 -
Common stock subscribed - (305,000)
--------------------- ----------------------
Net cash provided by financing activities 628,000 44,000
--------------------- ----------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (81,000) (744,000)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 87,000 3,298,000
--------------------- ----------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $6,000 $ 2,554,000
===================== ======================
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YOU BET INTERNATIONAL, INCORPORATED
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
the 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, 1996 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, 1997 and the results of its operations and its cash
flows for the three months ended March 31, 1997 and 1996, respectively. The
results of operations for the periods ended March 31, 1997 and 1996 are not
necessarily indicative of the results expected for the entire year ending
December 31, 1997.
NOTE 2
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 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 1,022,614 options have been
issued in 1996 which are exercisable at $2.50-$4.00 per share through December
2006 and vest in four equal installments. A total of 176,735 options have vested
at March 31, 1997. 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, 1996, as
filed with the Securities and Exchange Commission.
GENERAL
The Company has for the past year, used its resources to focus on
developing its product software, computer network service and establishing
alliances inside of horse racing. The Company's computer network service is
ready for deployment, key partnerships have been established and the product is
in Alpha Testing. However the Company is currently experiencing cash flow
difficulties, which has impacted the ability of the Company to implement its
business plan.
The Company has been offering to accredited investors (the "Bridge
Offering") certain Bridge Units, each such Bridge Unit consisting of $50,000
principal amount of 15% Secured Convertible Notes (the "15% Notes"or "Bridge
Notes") and 20,000 Common Stock Purchase Warrants (the "Warrants"). As of May
15, 1997, the Company has been able to effectuate the sale of $1,125,000
principal amount of Bridge Units. (see Liquidity and Capital Resource section).
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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:
In 1994 and 1995, the Company has pursued most of its ongoing business
activity 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.
In mid-1995 and fiscal year 1996 the Company focused exclusively on
the research and development of The You Bet! Racing Network and the
recruitment of key employees.
It is anticipated that future years (1997 and beyond) that costs
associated with providing the service will be much more significant
with relation to development costs. In addition the Company expects to
earn revenues in the last two quarters of 1997 and beyond which will
offset development and operating cost.
EXPENSES
Research and Development
Research and Development costs increased $242,000 to $453,000 for the
quarter ending March 31, 1997 as compared to the March 31, 1996, primarily due
to increased development and network operations staff required for the
development of the software, infrastructure and the virtual private network for
the Company's You Bet! Racing Network service.
Sales and Marketing
Sales and Marketing expense increased $97,000 to $172,000 for the
quarter ending March 31, 1997 as compared to the March 31, 1996, primarily due
to the hiring of a Vice-President of Marketing to establish corporate marketing
strategies and the design and implementation of the beta marketing program.
General and Administrative
General and Administrative costs increased $275,000 to $464,000 for the
quarter ending March 31, 1997 as compared to the March 31, 1996, primarily due
to the hiring of executive management, administrative salaries, legal and
accounting fees, depreciation and deferred compensation amortization.
Interest Income and Expense
Interest income decreased $30,000 for the quarter ending March 31,
1997, primarily the result of less available cash to invest. Interest expense
increased $32,000 to $34,000 for the quarter ending March 31, 1997, as a result
of interest on bridge loans and capital lease financing (see next section).
LIQUIDITY AND CAPITAL RESOURCES
Current Cash Position
The Company is currently experiencing certain liquidity problems that
are expected to continue until the Company completes some form of long term
financing. In response to this situation, the Company has reduced the number of
its employees, agreed to defer compensation to certain of its senior officers,
and otherwise reduced operating and capital expenditures. The Company has
$101,000 in cash and cash equivalents and $1,966,000 of short-term payables as
of May 15, 1997. The short term payables include $1,125,000 in bridge notes (See
1996 offerings) which may be converted into common stock at the note holders
option.
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The Company is dependent upon the proceeds of long term financing (see
1997 offering) for the continuation of its current testing and marketing efforts
relating to The You Bet! Racing Network (YBRN) software and for the continuation
and expansion of the Company's development activities and planned marketing
expenditures. If adequate funds are not available to satisfy short-term or
long-term requirements, 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 expects that the cash on hand coupled with the cash to be
raised from the new private placement (see 1997 offering), assuming it will be
successful, will be sufficient for operating expenses and capital expenditures
through at least June 1998. 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.
The Company has been offering to accredited investors (the "Bridge
Offering") certain Bridge Units, each such Bridge Unit consisting of $50,000
principal amount of 15% Secured Convertible Notes (the "15% Notes" or "Bridge
Notes") and 20,000 Common Stock Purchase Warrants (the "Warrants"). No minimum
subscription is required and the Company intends to accept any qualified
subscriptions. The principal amount of, and interest on, the 15% Notes shall be
due and payable on the earlier to occur of (i) a public or private financing
raising in excess of $5,000,000 of net cash proceeds to the Company (ii) the
first anniversary of the Initial Closing Date, and shall be secured by
substantially all of the assets of the Company. Each Warrant (the "Bridge
Warrants") entitles the holder thereof to acquire one share (each such share, a
"Warrant Share") of Common Stock at the exercise price per share of $2.50 during
the period commencing two business days following the effective date (the
"Effective Date") of the registration statement relating to a sale of the
Company's securities.
The Company has been able to continue operations on a limited basis by
deferring salaries, delaying payable payments and funding from the bridge
facility. To date, the Company has been able to effectuate the sale of
$1,125,000 principal amount of Bridge Units.
1997 Offering
On March 17, 1997 the Company initiated a private placement where the
Company is seeking to raise up to $10,000,000 in gross proceeds before deduction
of expected placement fees and expenses, through a private placement of Units to
persons who are not U.S. persons, as defined in Regulation S, in offshore
transactions, as defined in Regulation S (the "Offering").
Concurrently, the Company is also seeking to offer in the United States
identical Units as is offered for this Offering for the same Unit price of
$25,000 per Unit, each Unit consisting of 10,000 Shares of the Company's $.001
par Common Stock and 5,000 callable Series D Warrants, each Warrant allowing its
holder to purchase a Share of Common Stock for $5.25 per Share for a period of
up to two years from the date of issue (the "Domestic Offering"). The concurrent
Domestic Offering in the United States will only be to accredited investors as
defined in Rule 501 of Regulation D promulgated under the Securities Act. In no
event, however, will the aggregate amount of subscriptions for this Offering and
for the Domestic Offering be accepted for an amount in excess of the maximum
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$10,000,000 (4,000,000 Shares of Common Stock and 2,000,000 Series D Warrants)
amount of this Offering (without regard for the Over-Allotment option).
The Company intends to have an initial closing ("Initial Closing") of
this Offering under this Private Placement Memorandum when an aggregate of at
least 240 Units have been subscribed for at an aggregate price of at least
$6,000,000. See "Description of Securities" herein for a more detailed
description of the Shares and Warrants included in the Units. After such Initial
Closing, the Offering may continue with the intent of raising up to an aggregate
of $10,000,000 from the sale of up to an aggregate of 400 Units, not including
any Over-Allotment amount, from either the Domestic Offering and/or this
Offering.
The net proceeds available for use by the Company from the sale of the
Units being offered hereby will vary depending on the number of Units sold. If
only the minimum aggregate number of Units is sold, the net cash proceeds to the
Company are estimated to be $5,275,000 after deducting the placement fee and
expenses estimated at an aggregate of $725,0000. If the maximum aggregate number
of Units is sold, the net cash proceeds to the Company are estimated to be
$8,875.00 after deducting the placement fee and expenses estimated at an
aggregate of $1,125,000. The net proceeds are expected to be used for the final
stage development of the You Bet! Racing Network software; Private Network
installation, expansion and usage; marketing activities such as service launch,
customer acquisition, web-site creation and maintenance, and promotional
programs for frequent users, repay short-term loans; certification for the
product software and service; new accounting and management software; and for
general corporate purposes.
Use of Cash for the Quarter ending March 31, 1997
During the quarter ended March 31, 1997, the Company's cash position decreased
$81,000 to $6,000 as of March 31, 1997 compared to $87,000 at December 31, 1996.
Net cash decreased $81,000 from December 31, 1996 to March 31, 1997 as a result
of $81,000 used in operating activities.
Cash used in operating activities consisted of research and development costs of
$453,000, marketing costs of $171,000, general and administrative costs of
$464,000. In addition, prepaid expenses decreased $4,000 as a result of
prepaying the office lease, and accounts payable and other liabilities increased
by $303,000. Other operating activities generated $2,000.
Cash flows from financing activities totaled $525,000, used principally for
operating expenditures.
The Company has entered into a capital lease that provides for a $100,000 sale
and leaseback of equipment previously purchased by the Company and a $150,000
line for new equipment purchases in the third quarter 1996. The lease terms are
30 month, 20% security deposit of which 1/3 is returned after each year with an
effective interest rate of approximately 15% per annum.
The Company also entered into a capital lease that provides a $160,000 line for
new equipment purchases in the first quarter 1997. The lease terms are 36 month,
with no security deposits and an effective interest rate of approximately 15%
per annum.
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Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits
The following exhibits are filed herewith: None
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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: /s/ David Marshall
-------------------
DAVID MARSHALL
Chairman of the Board,
President, and Chief
Executive Officer
Signature Capacity Date
/s/ David Marshall
- ------------------- Chairman of the Board May 15, 1997
DAVID MARSHALL President, Chief Executive
Officer and Director
/s/ Barry Peters
- ------------------- Chief Financial Officer May 15, 1997
BARRY PETERS
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet at 3/31/97, Statements of Operations as of 3/31/97 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
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<NAME> You Bet International
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<PERIOD-START> JAN-01-1997
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