Did anyone see the PR - here it is.
December 15, 1998
STARNET COMMUNICATIONS INTERNATIONAL INC/ FA (SNMM)
Quarterly Report (SEC form 10QSB)
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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General -
Until the end of fiscal 1998, the Company derived its revenues principally from its Internet web sites namely Sizzle and Chisel.
Through substantial research in the past two years, the Company has identified the opportunity of offering gaming services over
the Internet and has successfully launched its gaming products in March 1998. The Company's Internet casino, which targets
only customers outside North America, is operated by its subsidiary, World Gaming Services Inc, in Antigua. Softec System
Caribbean Inc., the Company's other Antigua subsidiary, licenses its gaming product to third parties for a set up fee and
monthly royalty. Since the beginning of fiscal 1999, revenues from all components of the gaming business, which include
licensing, casino operations and financial transactions processing, has undergone a tremendous growth. For the three months
ended October 31, 1998, revenues generated from the gaming business reached $991,098 and accounted for 55.6% of the
total revenues.
The following tables set forth statements of operations data for the three months ended October 31, 1998 and 1997, six
months ended October 31, 1998 and 1997 and balance sheet data as at October 31, 1998 and April 30, 1998.
A. Statement of Operations Data
For the three months ended October 31, 1998 and 1997
For the three months ended
October 31, October 31,
1998 1997
---------- ----------
Net Sales 1,781,357 720,732
Gross Margin 1,215,920 394,675
Operating expenses 1,029,194 608,746
Operating Income (Loss) 186,726 (214,071)
Net Income (Loss) 247,747 (229,687)
For the six months ended October 31, 1998 and 1997
For the six months ended
October 31, October 31,
1998 1997
---------- ----------
Net Sales 3,318,616 1,430,069
Gross Margin 2,178,139 778,633
Operating expenses 1,868,644 1,075,554
Operating Income (Loss) 309,495 (296,921)
Net Income (Loss) 350,263 (328,178)
B. Balance Sheet Data -
At October 31, At April 30,
1998 1998
---------- ----------
Working Capital (Deficiency) (61,834) (329,060)
Total Assets 3,907,889 3,274,931
Long Term Debt 166,670 258,298
Stockholders' Equity 1,728,224 1,297,892
Accumulated Earnings (Deficit) (807,608) (1,157,871)
The Company's revenues increased 132% to $3,318,616 for the six months ended October 31, 1998 compared to
$1,430,069 for the six months ended October 31, 1997. Revenues for the quarter ended October 31, 1998 amounted to
$1,781,357 which represents a growth of 15.9% compared to the previous quarter and 147.2% compared to
the prior year quarter. The growth is primarily due to additional revenues generated from licensing, gaming operations and
financial transactions processing for licensees. Revenues from licensing, which is becoming a major income source, account for
41% and 36% of the total revenues for the three months and six months ended October 31, 1998 respectively. At October 31,
1998, nine licensees are in operations and are generating over 1 million dollars a month in total revenues.
Along with the growth in sales, gross margin increased to $1,215,920 for the quarter ended October 31, 1998 from $394,675
for the prior year quarter. Gross margin increased from 54.8% for the quarter ended October 31, 1997 to 68.3% for the
quarter ended October 31, 1998 due to the relatively higher gross margin of the gaming operations and efficiencies gained from
increased number of licensees.
Operating expenses increased by 69.1% to $1,029,194 (57.8% of sales) for the three months ended October 31, 1998 from
$608,746 (84.5% of sales) for the prior year quarter. The decrease in these expenses from 84.5% to 57.8% was the result of
efficiencies gained as the Company handled a greater level of activity.
Interest expense increased to $38,260 for the six months ended October 31, 1998 from $28,996 for the six months ended
October 31, 1997. The increase was mainly a result of interest costs due to bank borrowing and additional capital leases
obtained.
Net income from operations for the three months ended October 31, 1998 was $186,726 compared to operating profit of
$122,769 for the previous quarter and operating loss of $214,071 for the prior year quarter. The continuous growth was
mainly the result of increase in revenues from software licensing. The Company expects revenues from licensing continue to
grow as more licensees commence operations and revenues from their casino operations increase.
Provision for income tax for the year ended April 30, 1998 was reversed following the filing of Starnet Communications
Canada Inc. tax return. As a result, income tax recovery of $74,360 was recorded for the quarter ended October 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
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As of October 31, 1998, the Company had $273,128 in cash and cash equivalents compared to $140,462 at April 30, 1998.
The Company has pledged cash equivalents of $500,000 to its bank to secure the banking facilities.
Net cash generated from (used for) operations for the six months ended October 31, 1998 increased to $939,421 from
($131,238) for the six months ended October 31, 1997. The increase in cash flow from operations was mainly due to increase
in revenues and customers' deposits received by the Company.
Net cash used for investing activities for the six months ended October 31, 1998 was $760,507 compared to $569,591 for the
six months ended October 31, 1997. The increase was a result of a higher level of investment in software and web site
development.
Net cash provided by (used in) financing activities for the six months ended October 31, 1998 was ($46,247) compared to
$1,468,844 for the six months ended October 31, 1997. The decrease was a result of the loans obtained for the six months
ended October 31, 1997 and higher principal repayments under the capital leases.
Impact of Inflation -
The Company believes that inflation has not had a material effect on its past business. |
