SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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 X No
The number of shares outstanding of the Registrant's Common Stock on August 15,
1997 was 8,288,333 shares.
<PAGE>
YOU BET INTERNATIONAL, INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 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 11
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
YOU BET INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June 30, 1997 December 31, 1996
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $63,000 $ 87,000
Accounts Receivable 7,000 -
Prepaid Expenses 108,000 156,000
------------------- -------------------------
Total Current Assets 178,000 243,000
Long Term Assets
Property and Equipment 1,132,000 1,128,000
Accumulated Depreciation (266,000) (115,000)
------------------- -------------------------
Property and Equipment - Net of Depreciation 866,000 1,013,000
Other Assets 55,000 55,000
------------------- -------------------------
Total Long Term Assets 921,000 1,068,000
------------------- -------------------------
Total Assets $1,099,000 $ 1,311,000
=================== =========================
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $857,000 $ 828,000
Accrued Salaries and related items 657,000 192,000
Other accrued expenses 186,000 265,000
Bridge Loan payable 1,760,000 200,000
Interest Payable 101,000 1,000
Income Taxes payable 2,000 4,000
Current portion of capitalized lease obligations 195,000 129,000
------------------- -------------------------
Total Current Liabilities 3,758,000 1,619,000
Capitalized lease obligations 97,000 97,000
------------------- -------------------------
Total Liabilities 3,855,000 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 (6,949,000) (4,547,000)
Deferred Expenses (226,000) (277,000)
------------------- -------------------------
Total Stockholders' Equity (2,756,000) (405,000)
------------------- -------------------------
Total Liabilities and Stockholders' Equity $1,099,000 $ 1,311,000
=================== =========================
</TABLE>
<PAGE>
<TABLE>
YOU BET INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
CONSULTING INCOME $2,000 $3,000 $4,000 $3,000
EXPENSES
Research and Development / 528,000 360,000 980,000 570,000
Operations
Sales and Marketing 151,000 74,000 322,000 148,000
General and Administrative 514,000 318,000 979,000 507,000
-------------------------------------------------------------------
Total Expenses 1,193,000 752,000 2,281,000 1,225,000
-------------------------------------------------------------------
LOSS FROM OPERATIONS (1,191,000) (749,000) (2,277,000) (1,222,000)
INTEREST EXPENSE (91,000) - (125,000) (3,000)
INTEREST INCOME - 25,000 - 55,000
--------------------------------------------------------------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (1,282,000) (724,000) (2,402,000) (1,170,000)
PROVISION FOR INCOME TAXES - - - -
--------------------------------------------------------------------
NET LOSS $(1,282,000) $(724,000) $(2,402,000) $(1,170,000)
--------------------------------------------------------------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,283,333 8,283,333 8,283,333 8,248,333
===================== ==================== ================== ==================
NET LOSS PER COMMON SHARE $(0.15) $(0.09) $(0.29) $(0.14)
===================== ==================== ================== ==================
</TABLE>
<PAGE>
<TABLE>
YOU BET INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
June 30, 1997 June 30, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $(2,402,000) $ (1,170,000)
Net Loss
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation 151,000 25,000
Amortization of deferred compensation 51,000 52,000
Disposition of equipment 3,000 -
Accounts Receivable 1,000 (5,000)
Prepaid Assets 19,000 (188,000)
Other current assets 22,000 -
Accounts Payable 29,000 96,000
Interest payable 100,000 -
Other Current Liabilities 385,000 (24,000)
--------------------- ----------------------
Net cash used in operating activities (1,641,000) (1,214,000)
--------------------- ----------------------
NET CASH USED IN INVESTING ACTIVITIES:
Acquisition of equipment (8,000) (433,000)
--------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock - 350,000
Proceeds from capitalized lease obligation 150,000 -
Payments on capitalized lease obligations (85,000) -
Proceeds from bridge loan facility 1,560,000 -
--------------------- ----------------------
Net cash provided by financing activities 1,625,000 350,000
--------------------- ----------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (24,000) (1,297,000)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 87,000 3,298,000
--------------------- ----------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $63,000 $ 2,001,000
===================== ======================
</TABLE>
<PAGE>
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
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 June 30, 1997 and the results of its operations and its cash flows
for the three and six months ended June 30, 1997 and 1996, respectively. The
results of operations for the periods ended June 30, 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 1,166,508 options are
outstanding from December 1995 through June 30, 1997 which are exercisable at
$2.50-$4.00 per share through June 2007 and generally vest in four equal
installments. A total of 233,524 options have vested at June 30, 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
Management Changes
On May 30, 1997, the Company elected Steve Molnar to the position of
Chief Executive Officer and Ron Luniewski to the position of President and Chief
Operations Officer of You Bet, Inc., the Company's operating subsidiary. Prior
to his promotion, Mr. Molnar held the position of Executive Vice President of
Racing for the Company. Prior to his promotion, Mr. Luniewski held the position
of Chief Operations Officer for the Company for the last year.
On July 15, 1997, Barry Peters, the Chief Financial Officer of the
Company, resigned. Mr. Peters has agreed to maintain a consulting
relationship for a ninety day period from August 1, 1997 to October 31,1997.
<PAGE>
Public Relations Firm Hired
On May 11, 1997, the Company entered into an agreement with McKinley
Capital to provide assistance in developing and implementing a comprehensive
Public Relations program in anticipation of beta testing and limited release.
McKinley Capital will also provide financial advisory services. McKinley has
been remunerated by issuance of 1 million warrants, consisting of 500,000
warrants at a per share exercise price of $3.125 and 500,000 warrants at a per
share exercise price of $5.25, with an exercise period of three years. In
addition, the Company agreed to allocate 10% of the net proceeds received from
the June private placement and the exercise of warrants to public relations and
marketing activities.
Long-Term Communication And Facilitation Agreement Signed
On July 11, 1997, the Company entered into a long-term Communications and
Facilitation agreement with Ladbroke Racing Pennsylvania. The Company, through
the You Bet! Racing Network, will facilitate interactive and personal computer
telecommunications between Ladbroke and its customers. Implementation of the
agreement will be forthcoming subject to certain contingencies, including
regulatory approval.
Company Operations
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
being readied for deployment, key partnerships have been established and the
product is in Alpha testing. However the Company continues to experience working
capital difficulties, which has impacted the ability of the Company to implement
its business plan.
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 fiscal year 1996 the Company focused exclusively on the research
and development of You Bet! Racing Network and the recruitment of key
employees.
* As the Company enters product offering, the percentage of product
development costs will decrease as compared to operation costs and
revenues will begin.
EXPENSES
Research and Development / Operations
Research and Development costs increased $168,000 to $528,000 for the
three months ending June 30, 1997 as compared to $360,000 for the three months
ending June 30, 1996. Research and Development costs increased $410,000 to
$980,000 for the six months ending June 30, 1997 as compared to $570,000 for the
six months ending June 30, 1996. The increases are primarily due to the build-up
of staff needed for the continued development of the software and graphic design
and service operations for the Company's You Bet! Racing Network service.
Network costs recorded in the second quarter 1997 reflected both the first
quarter and second quarter costs. Network costs in future periods will be
reflected in the period they are incurred. Salaries increased $368,000 for the
six month period ending June 30, 1997, as a result of new employees hired for
product development, network operations and service operations. Other areas of
increase include consulting, computer supplies to support the product
development staff and service operations.
Sales and Marketing
Sales and Marketing costs increased $77,000 to $151,000 for the three
month period ending June 30, 1997 as compared to $74,000 for the three month
period ending June 30, 1996. Sales and Marketing costs increased $174,000 to
$322,000 for the six month period ending June 30, 1997 as compared to $148,000
for the six month period ending June 30, 1996. The increases in costs are
primarily due to the hiring of a Vice-President of Marketing and a marketing
staff to establish corporate marketing strategies. Additional increases include
advertising, product packaging, market research, and travel expenses.
<PAGE>
General and Administrative
General and Administrative costs increased $196,000 to $514,000 for the
three month period ending June 30, 1997 as compared to $318,000 for the three
month period ending June 30, 1996. General and Administrative costs increased
$473,000 to $979,000 for the six month period ending June 30, 1997 as compared
to $506,000 for the six month period ending June 30, 1996. The increase in costs
is primarily due to additional financial advisory and legal costs related to
fundraising. Other costs incurred are the executive management team's salaries,
staffing salaries, depreciation and deferred compensation amortization.
Interest Income and Expense
Interest income decreased $25,000 for the three month period ending
June 30, 1997, and decreased $55,000 for the six month period ending June 30,
1997, primarily as the result of a lack of excess funds to invest. Interest
expense increased $91,000 for the three month period ending June 30, 1997 and
increased $122,000 for the six month period ending June 30, 1997 as a result of
interest payable on bridge loans totaling $1,760,000.
LIQUIDITY AND CAPITAL RESOURCES
Current Cash Position
The Company is currently experiencing liquidity problems that are
expected to continue until the Company completes some form of long term
financing (see Private Placement). 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 $150,000 in cash and cash equivalents and
$3,238,000 of short-term payables as of August 15, 1997. The short term payables
include $1,760,000 in bridge notes of which there are $1,110,000 in commitments
confirmed to be converted to the private placement (See Bridge Offering) with
additional $150,000 pending but not confirmed.
The Company is dependent upon the proceeds of long term financing (see
Private Placement) for the continuation of its current testing and marketing
efforts relating to 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, 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.
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.
Bridge Offering
Commencing December 1996, the Company offered to accredited investors
(the "Bridge Offering") certain Bridge Notes. The Bridge Notes were structured
as units, 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 was required and the Company
<PAGE>
intended to accept any qualified subscriptions. The principal amount of, and
interest on, the 15% Notes is 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 or (ii) the first anniversary of the Initial Closing Date of
December 12, 1996 and is 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. To date, the Company
has been able to complete the sale of $1,760,000 principal amount of Bridge
Notes, $200,000 of which were closed in December 1996.
Private Placement
On June 11, 1997 the Company commenced a private placement to replace
the previously reported March 17, 1997 offering. 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 offshore transactions, as defined in Regulation S.
Concurrently, the Company is offering in the United States identical
Units as is offered for this Offering to domestic accredited investors, as
defined in Rule 501 of Regulation D promulgated under the Securities Act. Each
Unit is being offered at a price of $25,000 per Unit. Each Unit consists 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. This
is a "best efforts" offering with no minimum amount of Units required to be sold
before subscriptions are accepted by the Company.
The net proceeds available for use by the Company from the sale of the
Units will vary depending on the number of Units sold. If the maximum aggregate
number of Units is sold, the net cash proceeds to the Company are estimated to
be $8,875,000 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.
As of August 15, 1997, the Company has raised $2.1 million from the
Offering, which includes $1,110,000 of bridge conversions.
Use of Cash for the Quarter ending June 30, 1997
During the six month period ending June 30, 1997, the Company's cash
position decreased $24,000 to $63,000 as compared to $87,000 at December 31,
1996 from amount expended for operating activities in excess financing.
Cash used in operating activities consisted of research and development
costs of $980,000, marketing costs of $322,000, and general and administrative
costs of $979,000. In addition, prepaid expenses decreased $19,000 as a result
of prepaying the office lease, and accounts payable and other liabilities
increased by $500,000. Other operating activities generated $2,000. As of June
30, 1997 the Company had cash and cash equivalents of approximately $63,000.
Cash flows from financing activities totaled $1,560,000, 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.
<PAGE>
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 30 month,
with no security deposits and an effective interest rate of approximately 15%
per annum.
<PAGE>
Part II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K:
8K filed on March 2, 1997
8K filed on May 9, 1997
(a) Exhibits
The following exhibits are filed herewith:
Exhibit 27 - Financial Data Schedule
<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.
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, August 15, 1997
- ------------------ President, Chief Executive
DAVID M. MARSHALL Officer and Director
/s/ Barry Peters Acting Chief Accounting August 15, 1997
- ---------------- Officer
BARRY PETERS
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet at 6/30/97, Statements of Operations as of 6/30/97 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 63,000
<SECURITIES> 0
<RECEIVABLES> 7,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 108,000
<PP&E> 1,187,000
<DEPRECIATION> (266,000)
<TOTAL-ASSETS> 1,099,000
<CURRENT-LIABILITIES> 3,855,000
<BONDS> 0
0
0
<COMMON> 8,000
<OTHER-SE> (2,764,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,099,000
<SALES> 2,000
<TOTAL-REVENUES> 2,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,193,000
<LOSS-PROVISION> (1,191,000)
<INTEREST-EXPENSE> (91,000)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,282,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
