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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-66085
PROSPECTUS
1,200,000 SHARES
EDUCATIONAL VIDEO CONFERENCING, INC.
COMMON STOCK
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Educational Video Conferencing, Inc. is offering 1,200,000 shares of common
stock. This is our first public offering and no public market currently exists
for our shares. The common stock has been approved for listing on the Pacific
Exchange and the Boston Stock Exchange under the symbol "EVI" and on the Nasdaq
SmallCap Market under the symbol "EVCI."
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THESE ARE SPECULATIVE SECURITIES AND THIS
INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS EVC
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<S> <C> <C> <C>
Per Share................................................... $ 12.00 $ .84 $ 11.16
Total....................................................... $14,400,000 $1,008,000 $13,392,000
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We and our executive officers have granted to the underwriters the right to
purchase an aggregate of up to 180,000 additional shares of common stock to
cover over-allotments. Up to 41,666 shares may be purchased from our executive
officers. The underwriters are offering the shares on a firm commitment basis.
PRIME CHARTER LTD.
FEBRUARY 23, 1999.
<PAGE>
PROSPECTUS SUMMARY
ABOUT OUR COMPANY
We deliver educational courses and programs to employees of major
corporations via interactive video conferencing systems. Interactive video
conferencing systems allow the instructor to see, hear and interact with
students as the students see, hear and interact with the instructor and other
students at multiple locations. We currently deliver these courses to video
conferencing locations of our corporate customers and, if requested, we can
deliver courses to the individual student's desktop computer at work or at home.
We provide corporate customers with access to education providers and the
marketing and administrative services necessary to recruit, enroll and deliver
courses and programs to a corporation's employees. We serve as a marketing and
technology bridge between accredited colleges, universities and training
organizations that want to increase enrollment and tuition revenue from student
populations they otherwise could not serve and corporations that want to raise
the education and skill levels of their employees. We believe that our
interactive video conferencing systems enable students to experience more
closely an actual classroom environment than any other distance learning system
currently available.
We currently offer courses to employees of Citibank, N.A., American
International Group, Inc., Merrill Lynch, & Co., Inc., Travelers Indemnity
Company, Zurich Insurance Company (U.S. Branch), Reliance National, General
Reinsurance Corporation and, in a pilot program, to employees of CNA Financial
Corp. In the third quarter of 1999, we expect to begin offering courses in
Europe to employees of some of our corporate customers.
We currently deliver courses given by Adelphi University, The College of
Insurance and Mercy College. In the first quarter of 1999, we began delivering
an executive development course from the University of Notre Dame and began
offering graduate computer engineering courses given by Manhattan College.
We have agreements with AT&T Corp. to co-market our courses and programs
with AT&T's telecommunications services and with VSI Enterprises, Inc. to market
its interactive video conferencing systems.
Our business strategy is to become the leading world-wide provider of
college, university and training courses and programs via interactive video
conferencing systems.
We were organized in March 1997. Our principal executive offices are
located at 35 East Grassy Sprain Road, Suite 200, Yonkers, New York 10710, and
our telephone number is (914) 395-3501. We maintain a World Wide Web site at
www.evcinc.com. This reference to our World Wide Web site address does not
constitute incorporation by reference of the information contained therein.
ABOUT THE MARKET FOR OUR SERVICES
Recent developments in interactive teleconferencing technology, the
emphasis on locational convenience and the availability of tuition reimbursement
incentives offered by employers have contributed to an increase in demand for
higher education and training at off-campus locations. According to the U.S.
Department of Education, in 1994, about 40% of adults (76 million people)
participated in adult education activities.
Certain economic, demographic and social trends are contributing to the
growing demand for career-oriented education:
o Corporations are investing in intellectual development of employees in
order to gain competitive advantages.
o The ongoing transformation of the U.S. economy from an industrial economy
to a knowledge-based economy requires employees to be better educated.
o We believe there is increased recognition among adults that
post-secondary education leads to significant improvements in their
financial and employment prospects.
o Education providers recognize that adult enrollment is a significant
source of revenue and important to their economic growth.
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THE OFFERING
<TABLE>
<S> <C>
Shares Offered to Public............................... 1,200,000 shares
Over-allotment Option.................................. Up to 180,000 shares (the last 41,666 shares to be sold
by our executive officers)
Total Shares Outstanding Prior to Offering............. 3,008,909
Total Shares Outstanding After Offering................ 4,208,909 shares
Total Shares Outstanding After Offering and Exercise of
all Options and Warrants............................. 5,017,495 shares (including over-allotment shares and
representative's warrants)
Price Per Share to Public.............................. $12.00 per share
Total Proceeds Raised by Offering...................... $14,400,000
Underwriting Discounts and Commissions................. $1,008,000 or 7% of the total proceeds
Non-accountable Expense Allowance...................... $432,000 or 3% of the total proceeds
Other Expenses of the Offering......................... $900,000 (estimated)
Net Proceeds to EVC.................................... $12,060,000 (estimated)
Use of Proceeds........................................ Purchase of equipment, marketing, hiring and training
additional personnel and working capital
PCX Symbol............................................. EVI
BSE Symbol............................................. EVI
Nasdaq SmallCap Symbol................................. EVCI
Dividend Policy........................................ No dividend expected
</TABLE>
Unless otherwise indicated, all dollar amounts in this prospectus have been
rounded to the nearest thousand, and the information in this prospectus:
o gives effect to our reincorporation in Delaware in April 1998;
o assumes no exercise of the underwriters' over-allotment option, the
representative's warrants or outstanding options and warrants; and
o reflects a 20,052-for-one split of the common stock in October 1997 and a
one-for-two reverse split of the common stock effective as of the date of
this prospectus.
FOR RESIDENTS OF CALIFORNIA AND NEW JERSEY ONLY: This offering is being limited
to residents in the States of California and New Jersey meeting investor
suitability standards of $65,000 of gross annual income plus a minimum of
$250,000 of net worth; or in the alternative, a minimum net worth of at least
$500,000 (net worth excludes principal residence, home furnishings and
automobiles). Secondary trading will not be permitted for 90 days from the date
of this prospectus except to persons meeting the foregoing suitability
standards.
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SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The financial data set forth below under the captions "Statement of Operations
Data" and "Balance Sheet Data" as of December 31, 1997 and for the period from
March 4, 1997 (date of inception) through December 31, 1997 and as of and for
the year ended December 31, 1998 are derived from the audited financial
statements of EVC, included elsewhere in this prospectus, by Goldstein Golub
Kessler LLP, independent public accountants. The data set forth below should be
read in conjunction with the Financial Statements and notes thereto included
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The balance sheet data below as of December 31, 1998 has been adjusted to
reflect the sale of common stock offered hereby and the receipt of the estimated
net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 4, 1997
(DATE OF
INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................................. $ -- $ 352
Interest income............................................................. -- 56
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Total revenue............................................................... -- 408
Operating expenses:
Cost of sales............................................................. -- 210
Salaries and benefits..................................................... 334 1,435
Marketing, brochure and student registration costs........................ 158 592
Professional fees......................................................... 61 97
Interest and financing costs.............................................. 59 106
Depreciation.............................................................. -- 235
Other..................................................................... 110 461
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Operating expenses.......................................................... 722 3,136
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Net loss.................................................................... $ (722) $ (2,728)
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Basic loss per share of common stock........................................ $ (.38) $ (1.03)
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Weighted-average number of shares of common stock outstanding............... 1,922,951 2,641,636
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</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
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DECEMBER 31, 1997 ACTUAL AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....................................................... $ 829 $1,222 $ 13,618
Current liabilities.................................................. 745 921 356
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Working capital...................................................... 84 301 13,262
Total assets......................................................... 2,115 3,535 15,031
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Long-term liabilities................................................ 235 -- --
Total liabilities.................................................... 980 921 356
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Stockholders' equity................................................. $ 1,135 $2,614 $ 14,675
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following or other risks actually occur, our
business, financial condition or results of operations could be materially and
adversely affected.
BECAUSE WE HAVE HAD LIMITED REVENUES AND ANTICIPATE CONTINUING SIGNIFICANT
LOSSES WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY
From our inception in March 1997 through December 31, 1997, we had no
revenue and incurred losses of $722,000. Our revenue for the year ended
December 31, 1998 was $352,000 and our accumulated losses at December 31, 1998
were $3,451,000. We believe we may be unable to generate enough revenue to
offset our operating costs and, therefore, expect losses through 1999. However,
we cannot assure you that we will ever generate sufficient revenue to achieve or
sustain profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Operational Overview--Results of
Operations" for a discussion of our developmental activities, sources of revenue
and operating costs.
OUR CONTINUED NEGATIVE CASH FLOW COULD MATERIALLY IMPEDE OUR ABILITY TO OPERATE
Since the billing for tuition by most of our education providers does not
occur until a course is completed and there is a protracted collection cycle, we
have experienced, and expect to continue to experience, negative cash flow from
operations for the foreseeable future. Our negative cash flow from operations
was $176,000 in 1997 and $2,305,000 in 1998. We expect our negative cash flow to
increase substantially which may limit our ability to continue to implement our
business strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Operational Overview--Results of
Operations--Liquidity and Capital Resources" for more information about our
negative cash flow and a discussion about our contractual commitments.
OUR CASH FLOW IS UNPREDICTABLE BECAUSE WE DO NOT CONTROL TUITION BILLING BY OUR
EDUCATION PROVIDERS AND COLLECTION FROM OUR CORPORATE CUSTOMERS
Our education providers control the entire billing and collection process
and we do not receive our share of tuition until they receive payment. In most
cases, we have been receiving our share more than 90 days after completion of
courses and, in some cases, more than nine months after completion of courses.
We believe this is caused mostly by the inability of education providers to
expedite billing procedures and of corporate customers to expedite processing
requests for payment from their employees. The requirement by most of our
corporate customers that they receive evidence of satisfactory completion of
courses by their employees, before requests for payment can be processed, also
contributes significantly to these delays. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Operational
Overview--Revenue and Accounts Receivable" for additional information regarding
tuition billing and collection.
OUR SUCCESS MAY DEPEND ON OUR ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FINANCING
FOLLOWING THIS OFFERING
From our inception in March 1997 through December 1998, we have received
net proceeds from offerings of our debt and equity securities of $6,065,000. As
of December 31, 1998, we had working capital of $301,000. Based on current plans
and assumptions relating to our operations, we believe the proceeds of this
offering will be sufficient to satisfy our cash requirements for at least the
next 12 months. After that, we expect to require additional funding in order to
grow. If, however, we are underestimating our cash needs, we will require
additional debt or equity financing sooner. Our ability to obtain the necessary
financing, and its cost to us, are uncertain. Accordingly, we may be forced to
curtail our planned business expansion and may also be unable to fund our
ongoing operations. See "Use of Proceeds and Plan of Operations" regarding the
purposes for which we expect to use the proceeds of this offering.
OUR DEPENDENCE ON A LIMITED NUMBER OF CORPORATE CUSTOMERS FOR STUDENTS COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
We currently depend on seven corporate customers for students. Our success
depends upon our ability to establish and maintain relationships with employers
that will provide us with sufficient numbers of students for
5
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our course offerings and future growth. If our strategy of leveraging
relationships with major corporations to generate interest within an industry is
not successful, we may continue to be reliant on a limited number of corporate
customers. This would seriously hamper our growth and ability to become
profitable. For the year ended December 31, 1998, 91% of our tuition revenue was
attributable to courses attended by employees of AIG, Citibank and Travelers.
Accordingly, the loss of any of these corporate customers could have a material
adverse affect on our business and financial results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Business--Business Strategy" for more
information about our sources of revenue, costs and strategy.
THE SUBSTANTIAL TIME AND EFFORT REQUIRED TO OBTAIN AND IMPLEMENT CONTRACTS WITH
OUR CORPORATE CUSTOMERS IS IMPEDING OUR GROWTH AND ABILITY TO BECOME PROFITABLE
We have found that to obtain agreements with corporations it takes a long
and uncertain period of time and substantial effort by our personnel,
principally because of our limited operating history and the number of corporate
personnel involved in the decision-making process. We rely primarily on our
employees, direct mail marketing, consultants, telemarketing, trade shows and
our vendors to initiate contact with potential customers. Once initiated, it
generally takes between four and five months to conclude a contract and an
average of another three months to begin offering courses. We have been in
discussions with several potential corporate customers for more than 12 months.
Our ability to conclude contracts with corporate customers is also affected by
the reputation and academic standing of our education providers and their
ability to offer the courses and programs our corporate customers want for their
employees. For the foreseeable future, this concerted effort and extended period
of time to obtain corporate customers is expected to continue to limit our
growth and ability to become profitable, while depleting our cash resources. See
"Business--Marketing and Sales" for more information about how we market our
services.
CHANGES IN EDUCATION POLICIES OF OUR CORPORATE CUSTOMERS COULD QUICKLY AND
MATERIALLY DECREASE OUR STUDENT ENROLLMENT AND, THEREFORE, OUR REVENUE
Our contracts with our corporate customers do not give us protection
against subsequent changes in their corporate tuition reimbursement policies or
shifts in their attitudes toward higher education opportunities for employees.
During economic downturns in a particular industry sector or the economy in
general, if tuition reimbursement is materially curtailed by our corporate
customers, student enrollment would materially decline. Our student recruiting
efforts also could be adversely affected, among other factors, by:
o limitations imposed by our corporate customers on the number and kinds of
courses students can take;
o the failure of our corporate customers to actively endorse and promote
our programs; and
o competition from courses given by our corporate customers or others.
See "Business--Services, Corporate Customers and Education
Providers--Competition" for summaries of our contracts with our corporate
customers and education providers and for information about our competition.
OUR DEPENDENCE ON A LIMITED NUMBER OF EDUCATION PROVIDERS FOR COURSES AND
PROGRAMS COULD LIMIT OUR ABILITY TO INCREASE STUDENT ENROLLMENT TO PROFITABLE
LEVELS
We currently depend on four education providers for courses and programs.
Our success depends upon our ability to establish and maintain relationships
with colleges, universities and training organizations that can provide the
courses and degree and other programs desired by corporations and their
employees. We have entered into multi-year agreements with Adelphi University,
The College of Insurance, Mercy College and Manhattan College. Our oral
agreement with the University of Notre Dame could terminate at any time. We
cannot be certain that our education providers will offer the courses or
programs desired by our corporate customers and their employees. For the year
ended December 31, 1998, our share of tuition from courses given by Adelphi, The
College of Insurance and Mercy College accounted for 100% of our net revenue.
Accordingly, the loss of any of these education providers could have a material
adverse affect on our business and financial results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" for more discussion about the sources of our
net revenue.
6
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THE TIME AND EFFORT REQUIRED TO OBTAIN EDUCATION PROVIDERS IS LIMITING OUR
ABILITY TO OBTAIN CORPORATE CUSTOMERS AND, THEREFORE, OUR ABILITY TO GROW AND
BECOME PROFITABLE
We have found that for us to conclude agreements with colleges and
universities, it takes a long and uncertain period of time and substantial
effort by our personnel, principally because of the number of each education
provider's administrative personnel involved in the decision-making process and
the need for us to learn the policies and procedures of each education provider.
We primarily rely on our employees and consultants to initiate contact with
potential education providers. It generally takes between three and four months
to conclude a contract. It takes longer to reach agreement with education
providers that have better reputations, primarily because they do not have as
great a need for supplemental tuition and are more concerned about protecting
their status and reputation. See "Business--Marketing and Sales" regarding our
marketing and sales staff and activities and our co-marketing agreements.
THE LACK OF EXCLUSIVITY AND NON-COMPETE PROVISIONS COULD MATERIALLY IMPAIR THE
VALUE OF OUR CORPORATE CUSTOMER AGREEMENTS
None of our agreements with corporate customers gives us an exclusive right
to deliver courses to their employees and we do not foresee being able to obtain
such exclusivity. There are no restrictions in our agreements with corporate
customers, and none are contemplated, to prohibit them from competing with us or
from using products or services that compete with us. Accordingly, our corporate
customers could materially impair our ability to enroll their employees in our
courses and programs by actively encouraging employee enrollment in competing
courses and programs. See "Business--Services, Corporate Customers and Education
Providers" for a summary of our corporate customer agreements.
THERE MAY BE NO SIGNIFICANT DEMAND FOR OUR SERVICES BECAUSE EDUCATION VIA VIDEO
CONFERENCING IS NOT YET WIDELY ACCEPTED
Education via video conferencing is a relatively new alternative to
traditional classroom instruction. Many colleges, universities and students may
be unwilling to accept our delivery concept as an appropriate way to provide
quality education. Our experience has been that some instructors are unwilling
to teach by means of interactive video conferencing systems or to adopt our
method of teaching. We have also encountered resistance to our education
delivery method from some students. The extent to which education using video
conferencing is accepted will materially affect our ability to achieve our
objectives. See "Use of Proceeds and Plan of Operations" and
"Business--Interactive Video Conferencing Systems" for information about the
video conferencing equipment we use.
WE DEPEND ON OUR CHAIRMAN, PRESIDENT AND OTHER MANAGEMENT PERSONNEL TO OPERATE
AND GROW
We believe the efforts of our executive officers and other management
personnel, including Dr. Arol I. Buntzman, our chairman and chief executive
officer, and Dr. John J. McGrath, our president, are essential to our operations
and growth. The loss of the services of Drs. Buntzman or McGrath would
materially adversely affect us. We maintain insurance on the life of
Dr. Buntzman in the amount of $2 million and have employment agreements,
expiring December 31, 2001, with each of Dr. Buntzman, Dr. McGrath and several
other key employees. See "Management--Executive Officers, Directors and Key
Employees" for biographies of our management personnel and summaries of their
employment agreements.
TO SUCCEED, WE NEED TO ATTRACT AND RETAIN SKILLED ADMINISTRATORS AND TECHNICIANS
IN A HIGHLY COMPETITIVE LABOR MARKET
Our business also requires the services of skilled administrators to manage
student recruitment and enrollment, develop strategies to increase student
retention, train instructors and deal generally with college and corporate
administrators. We also require technicians to effectively operate our
interactive video conferencing systems. The competition for skilled
administrators and technicians in the distance learning industry is intense. If
we cannot attract new employees or retain and motivate our existing employees,
our business would be adversely affected. See "Use of Proceeds and Plan of
Operations" regarding the additional personnel we intend to hire following this
offering.
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EDUCATION PROVIDERS AND OTHERS WITH GREATER RESOURCES AND NAME RECOGNITION COULD
MAKE IT VERY DIFFICULT FOR US TO COMPETE
Two and four year colleges offering traditional classroom instruction are
our most significant competition. In addition, alternative methods of delivering
courses are proliferating rapidly. Interactive video conferencing equipment has
been used throughout the world for more than five years, the technology upon
which it is based is established and its cost has been declining. If our
interactive video conferencing education delivery method is successful, we
expect a significant increase in direct competition from colleges and
universities and from large corporations. In addition, recent amendments to the
Higher Education Act encourage more competition by providing government
incentives for distance learning companies.
SINCE THERE ARE NO SIGNIFICANT BARRIERS TO ENTRY INTO OUR MARKET, WE FACE
INCREASING COMPETITION FROM OTHER DISTANCE LEARNING COMPANIES THAT OFFER A
VARIETY OF OTHER PRODUCTS AND DELIVERY SERVICES
Our current competition includes one-way and limited two-way satellite
video conferencing, self-paced correspondence courses, video and audio
cassettes, CD-roms and Internet-based instruction. New products and services
will probably be developed. Most of our competitors and potential competitors
are much larger and have greater development, marketing and financial resources,
making it more difficult for us to establish name recognition in the marketplace
and compete effectively. See "Business--Competition" regarding the basis on
which we compete and for more information about our competitors.
OUR AGREEMENTS AND RELATIONSHIPS WITH OUR EDUCATION PROVIDERS MAY HELP THEM TO
COMPETE WITH US
Our agreements with education providers do not restrict the education
provider from competing with us except, in most cases, as long as it does not
offer courses via competing interactive video conferencing systems to our
corporate customers and their employees during the term of the agreement and for
one year after its termination. By teaching our education providers how to
deliver courses and programs via interactive video conferencing, we may be
helping them to compete with us, even during the terms of their agreements with
us. See "Business--Services, Corporate Customers and Education Providers" for
more information about our services and education provider agreements.
WE MAY NEED TO REPLACE OBSOLETE EQUIPMENT AT SUBSTANTIAL UNANTICIPATED COSTS
Our success will depend on our ability to adapt timely and effectively to
rapidly occurring technological advances in telecommunications and video
conferencing equipment. To remain competitive, we may need to make substantial
capital investments in new equipment that has made our existing equipment
obsolete, including equipment bought with the proceeds of this offering. We
anticipate that, if interactive video conferencing is widely accepted as an
effective means of providing educational and training programs, the video
conferencing equipment and telecommunications industries will evolve even more
rapidly than it has to date. In addition, other technologies developed by
competitors may significantly reduce demand for our services or render our
services obsolete. See "Use of Proceeds and Plan of Operations" for information
about the equipment we expect to purchase.
REGULATORY CHANGES MAY IMPOSE CONSTRAINTS, ADDITIONAL COSTS OR OTHER BURDENS ON
EVC AND EDUCATION PROVIDERS
State and local governments have primary responsibility for the regulation
of education. Because distance learning often entails the transmission of
educational programming beyond local and state boundaries, local, state and
federal agencies are currently evaluating proposed regulations that could have a
significant impact on our business. It is uncertain to what extent this impact
will be favorable or adverse or when regulatory authorities will take action.
Our agreements with our education providers require them to obtain the
accreditation and licenses necessary to offer their courses, certificates and
degree programs. If state or local agencies impose new or more burdensome
licensing requirements on our education providers, we may be unable to attract
or retain the education providers on which our business depends.
In addition to state and local review of licensing requirements, federal
agencies and independent accreditation organizations are conducting their own
reviews. For example, the copyright office is considering
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whether or not to extend special copyright exemptions to, or impose special
requirements on, the use of content in distance learning programs. If an
exemption is not extended, the prospect of fines, penalties or royalty payments
could discourage education providers from participating in distance learning.
Additional regulation, if any, resulting from these reviews, may materially
adversely affect us. See "Business--Government Regulation of Distance Learning"
for information about the potential impact on our business of the Higher
Education Act and the Digital Millennium Copyright Act.
OUR CHAIRMAN AND OUR EXISTING STOCKHOLDERS CAN ACT TOGETHER TO CONTROL OUR
BUSINESS AND POLICIES WITHOUT THE APPROVAL OF OTHER STOCKHOLDERS
After the offering, all of our current stockholders will, as a group, be
able to vote approximately 72% of the common stock (68% if the underwriters
fully exercise their over-allotment option). In addition, as a result of voting
agreements our chairman has with our president and chief financial officer,
after the offering, our chairman will have the power to direct the vote of
approximately 36% of the common stock (34% if the underwriters fully exercise
their over-allotment option). This will probably be sufficient for Dr. Buntzman
to control the outcome of any stockholder vote. See footnote (2) to the table
under "Principal Stockholders" for summaries of these voting agreements.
OUR ABILITY TO CHANGE THE USES OF THE OFFERING PROCEEDS MAY INCREASE THE RISK
THAT THEY WILL NOT BE USED EFFECTIVELY
Although we anticipate utilizing the proceeds of this offering as stated in
"Use of Proceeds and Plan of Operations," management will have broad discretion
as to the actual uses of such proceeds without having to seek the approval of
the investors in this offering. Future events may cause us to reallocate our
resources, including cash, for uses not presently contemplated by us.
SALES, OR THE EXPECTATION OF SALES, OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
AFTER THIS OFFERING COULD DECREASE OUR STOCK PRICE
After this offering, 3,008,909 shares (2,967,243 shares if the underwriters
fully exercise their over-allotment option) will become eligible for resale by
our current stockholders. An additional 1,026,252 shares of common stock
reserved for issuance pursuant to our stock incentive plan and outstanding
warrants may also become eligible for resale. See "Shares Eligible for Future
Sale" for information about resales under Rule 144 and future registration
statements filed by EVC and stockholder lock-up agreements.
THE FAILURE TO BE YEAR 2000 COMPLIANT COULD MATERIALLY ADVERSELY AFFECT US
We believe our software is year 2000 compliant because we use "off the
shelf" software applications and operational programs that are certified by the
manufacturers to be year 2000 compliant. However, we cannot be entirely sure we
will not have a year 2000 problem.
We believe it is far more likely that the year 2000 problem may impact
other entities with which we transact business, including corporate customers
and education providers, but we cannot predict the effects of the year 2000
problem on such entities or the economy in general, or the resulting effects on
us. As a result, if preventative or corrective actions by those companies with
which we do business are not made in a timely manner, year 2000 non-compliance
could have a material adverse affect on our business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance" for additional
information concerning the year 2000 problem.
THE INITIAL PUBLIC OFFERING PRICE MAY BE TOO HIGH
The initial public offering price was determined through negotiations
between the underwriters and us. This price may be materially higher than
investors are willing to pay for our shares soon after the offering. See
"Underwriting" for a more complete discussion of the factors considered in
determining the initial public offering price.
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OUR SHARE PRICE MAY BE VERY VOLATILE IN THE FUTURE
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
o actual or anticipated fluctuations in our operating results;
o changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts;
o increased competition from major corporations or well-known colleges and
universities;
o announcements of technological innovations;
o the operating and stock price performance of other comparable companies;
and
o general stock market or economic conditions.
In addition, the stock market in general has experienced volatility that
often has been unrelated to the operating performance of particular companies.
These broad market and industry fluctuations may adversely affect the trading
price of the common stock regardless of our actual operating performance.
THERE WILL BE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR NEW INVESTORS
The initial public offering price is substantially higher than the net
tangible book value per share of our outstanding common stock immediately after
this offering. If you purchase common stock in this offering, you will incur
immediate dilution of $8.51 (71%) in the net tangible book value per share of
common stock from the price you pay for the common stock. In addition, because
our existing stockholders paid an average of $2.25 per share, new investors will
have a much greater risk of loss per share. See "Dilution" for more details
about the calculation of dilution and such average price.
PRIME CHARTER LTD., THE REPRESENTATIVE OF THE UNDERWRITERS, MAY EXERT UNDUE
INFLUENCE OVER ANY DECISION BY US TO SEEK ADDITIONAL FINANCING
Prime Charter has the following continuing rights:
o to appoint a board member or observer to attend Board meetings following
the offering;
o to receive warrants to purchase up to 120,000 shares of common stock;
o to exercise its demand and piggyback registration rights; and
o to give its consent to release shares from lock-up agreements prior to
the expiration of 12 months from the date of this offering.
These rights may give Prime Charter leverage over EVC and its management that
could interfere with or otherwise influence the cost and timing of raising
capital we may need in the future. See "Underwriting" for more information about
Prime Charter's continuing rights and "Shares Eligible For Future Sale" for more
information about the lock-up agreements.
PROVISIONS OF LAW AND AN AGREEMENT WITH OUR CHIEF EXECUTIVE OFFICER MAY PREVENT
TAKE-OVERS OF EVC AND DEPRESS THE PRICE OF OUR SHARES
Certain provisions of Delaware law and an agreement with our chief
executive officer could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of EVC. Such
provisions, which are summarized below under "Management--Employment Agreements"
and "Description of Capital Stock," could limit the price that investors might
be willing to pay in the future for the common stock because they believe our
management can defeat a take-over of our company that could be beneficial to
non-management stockholders.
10
<PAGE>
OUR CLASSIFIED BOARD LIMITS STOCKHOLDER VOTING FOR ELECTION AND REMOVAL OF
DIRECTORS
Our board of directors is divided into three classes. The directors in each
class will be elected for three year terms when their class stands for election
at a stockholders meeting. This staggering of director terms protects directors
from being removed from office by anyone engaged in a proxy contest for control
of the board and dilutes the ability of stockholders to influence corporate
governance policies. Furthermore, a director may only be removed, with or
without cause, by the holders of 66 2/3% of the shares entitled to vote at an
election of directors. See "Management--Classified Board" for a listing of the
directors in each class and when their terms of office expire.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF OUR OFFICERS AND DIRECTORS MAY
INSULATE THEM FROM ACCOUNTABILITY TO STOCKHOLDERS AT SUBSTANTIAL COST TO EVC
Our certificate of incorporation and by-laws include provisions whereby our
officers and directors are to be indemnified against liabilities to the fullest
extent permissible under Delaware law. Our certificate of incorporation also
limits a director's liability for monetary damages for breach of fiduciary duty,
including gross negligence. In addition, we have agreed to advance the legal
expenses of our officers and directors who are required to defend against
claims. These provisions and agreements may have the effect of reducing the
likelihood of suits against directors and officers even though such suits, if
successful, might benefit us and our stockholders. Furthermore, a stockholder's
investment in EVC may be adversely affected if we pay the cost of settlement and
damage awards against directors and officers. See "Management--Limitation on
Liability and Indemnification of Officers and Directors" for a discussion of
these provisions and agreements.
FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS MAY PROVE TO BE MATERIALLY
INACCURATE
This prospectus contains forward-looking statements that involve risks and
uncertainties. The words "anticipate," "estimate," "expect," "will," "could,"
"may" and similar words are intended to identify forward-looking statements. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including the risks described
above and elsewhere in this prospectus.
USE OF PROCEEDS AND PLAN OF OPERATIONS
The estimated net proceeds of this offering will be approximately
$12,060,000 (approximately $13,554,000 if the underwriters' over-allotment
option is exercised in full) after deducting the underwriters' discounts and
commissions and estimated other expenses. EVC intends to apply the net proceeds
approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
ANTICIPATED APPLICATION AMOUNT PERCENT
- ------------------------------------------------------------------------------- ----------- -------
<S> <C> <C>
Purchasing and installing video conferencing equipment......................... $ 6,300,000 52%
Marketing...................................................................... 2,800,000 23
Hiring and training additional personnel....................................... 1,200,000 10
Working capital................................................................ 1,760,000 15
----------- -----
$12,060,000 100%
----------- -----
----------- -----
</TABLE>
If the underwriters' over-allotment option is exercised in full, additional
net proceeds to EVC of $1,494,000 will be added to working capital. EVC will not
receive any of the proceeds from the sale of shares being sold by executive
officers if the over-allotment option is exercised in full. Pending the use of
the net proceeds, EVC intends to invest such funds in short-term,
interest-bearing, investment-grade obligations.
EVC estimates that $762,000 of the working capital portion of the net
proceeds may be used during the next 12 months to pay the salaries of EVC's
current officers. See "Management--Employment Agreements" for summaries of
employment agreements with EVC officers.
EVC anticipates, based on currently proposed plans and assumptions relating
to EVC's operations, that the proceeds of this offering, together with projected
cash flow from operations, will be sufficient to satisfy its contemplated cash
requirements for at least the next 12 months.
11
<PAGE>
EVC reserves the right to change the actual use of proceeds if
unanticipated events cause EVC to change its priorities.
PLAN OF OPERATIONS
During the 12 months following completion of this offering, EVC intends to
focus its efforts on the following:
o Marketing to corporate customers and other organizations. EVC will
expand its current marketing efforts to insurance, banking, financial,
automotive, utility, oil and defense corporations, college and graduate
school entrance exam preparation services, government agencies and
religious organizations. EVC also has plans to target hospitals and other
health care companies, unions and public school districts. Three
full-time employees and six independent consultants/sales representatives
work with EVC's president and chairman to obtain agreements with
additional corporate customers. EVC currently plans to hire up to five
additional sales personnel. EVC will continue to create brochures and
catalogs that describe EVC's services and the course offerings of EVC's
education providers, which is expected to require $1,200,000 of the
proceeds of this offering. EVC expects to spend an additional $700,000
for direct mail and other advertising, $400,000 for independent sales
consultants and $500,000 for market research and trade shows.
o Contracting with education providers. One full-time employee and two
independent consultants work with EVC's president to obtain contracts
with those education providers that will meet the needs and demands of
EVC's corporate customers and their employees. In addition to colleges
and universities, EVC will seek to obtain contracts with corporate
training institutions that offer programs such as management training,
job skills and basic skills training, continuing education for
professionals, remediation programs for grant-eligible members of
low-income households, and test preparation courses for students planning
to take college or graduate school entrance exams. EVC will hire
additional personnel to augment its education provider sales team as the
need arises.
o Hiring and training additional personnel. EVC expects to hire up to 15
recruiting advisors to recruit students and assist them with the
enrollment process, a marketing manager with relevant direct marketing
experience, five equipment administrators, database management and data
entry personnel and three general office personnel.
o Purchasing and installing interactive video conferencing
systems. Equipment purchases and installations will be made as needed to
meet demand and are currently estimated to include: teacher stations,
$300,000; student room stations, $1,500,000; student PC systems,
$2,100,000; and multi-point conferencing units, $2,400,000. See
"Business--Interactive Video Conferencing Systems" for a description of
this equipment.
o Pursuing reseller and co-marketing alliances. EVC will continue to seek
alliances with video conferencing equipment vendors and
telecommunications carriers that will market EVC's programs to their
corporate customers and will allow EVC to lower its video
teleconferencing equipment and telecommunications costs.
o Pursuing pilot programs. EVC is conducting a pilot outreach program at
two churches to deliver courses to economically disadvantaged students
who are eligible for government tuition grants. If the pilot program is
successful, EVC expects that three full-time employees will be devoted to
expanding this outreach program.
DIVIDEND POLICY
To date, EVC has neither declared nor paid any cash dividends on its common
stock. EVC currently intends to retain its earnings to finance its operations
and future growth and, therefore, does not anticipate paying any cash dividends
in the foreseeable future. The payment of cash dividends in the future will be
at the discretion of the board of directors and will depend upon EVC's earnings
levels, capital requirements, restrictive loan covenants, if any, and other
factors which the board of directors may deem relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of EVC as of
December 31, 1998 and as adjusted to give effect to the sale of 1,200,000 shares
of common stock offered hereby and the application of the net proceeds
therefrom. This table should be read with the other financial information
presented elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------
ACTUAL AS ADJUSTED
----------------------- -----------
<S> <C> <C>
Stockholders' equity:
Preferred stock--$.0001 par value; authorized 1,000,000 shares, none issued
Common stock--$.0001 par value; authorized 20,000,000 shares, issued and
outstanding 3,008,909 shares before, and 4,208,909 shares after, this
offering....................................................................... $ 301 $ 421
Additional paid-in capital........................................................ 6,064,920 18,124,800
Accumulated deficit............................................................... (3,450,560) (3,450,560)
----------- -----------
Stockholders' equity.............................................................. $ 2,614,661 $14,674,661
----------- -----------
Total capitalization.............................................................. $ 2,614,661 $14,674,661
----------- -----------
----------- -----------
</TABLE>
The common stock outstanding excludes 356,000 shares reserved for issuance
under the 1998 incentive plan, 550,252 shares issuable upon exercise of
additional options and warrants and 120,000 shares issuable upon exercise of the
representative's warrants.
13
<PAGE>
DILUTION
The net tangible book value (total assets less total liabilities and net
intangible assets) of the common stock at December 31, 1998 was $1,714,661 or
$.57 per share. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of the
common stock in this offering and the net tangible book value per share of the
common stock immediately after consummation of this offering. After giving
effect to the sale of 1,200,000 shares of common stock in this offering and the
application of the estimated net proceeds therefrom, the net tangible book value
of EVC as of December 31, 1998 would have been $14,674,661, or $3.49 per share.
This represents an immediate increase in net tangible book value to existing
stockholders of $2.92 per share and an immediate dilution of $8.51 (71%) per
share to purchasers of the common stock in this offering. Dilution to new
investors would be $8.28 assuming the underwriters' over-allotment option is
exercised in full. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share of common stock............................. $12.00
Net tangible book value per share before giving effect to this
offering.................................................................. $ .57
Increase in net tangible book value per share attributable to new
investors................................................................. 2.92
-----
Net tangible book value per share after giving effect to this
offering.................................................................. 3.49
------
Dilution per share to new investors......................................... $ 8.51
------
------
</TABLE>
The following table summarizes, as of December 31, 1998, after giving
effect to this offering, the number of shares of common stock purchased from
EVC, the total consideration paid and the average price per share paid by the
existing stockholders and by new investors purchasing common stock in this
offering before deducting underwriting discounts and estimated expenses of this
offering payable by EVC:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 3,008,909 71.5% $ 6,767,700 32.0% $ 2.25
New investors......................... 1,200,000 28.5 14,400,000 68.0 12.00
--------- ----- ----------- ----
Total............................ 4,208,909 100% $21,167,700 100%
--------- ----- ----------- ----
--------- ----- ----------- ----
</TABLE>
14
<PAGE>
SELECTED FINANCIAL INFORMATION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
The financial data set forth below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of December 31, 1997 and for the
period from March 4, 1997 (date of inception) through December 31, 1997 and as
of and for the year ended December 31, 1998 are derived from the financial
statements of EVC, included elsewhere in the prospectus, audited by Goldstein
Golub Kessler LLP, independent public accountants. The data set forth below
should be read in conjunction with the Financial Statements and notes thereto
included elsewhere in this prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The balance sheet data below as of December 31, 1998 has been adjusted to
reflect the sale of common stock offered hereby and the receipt of the estimated
net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 4, 1997
(DATE OF YEAR
INCEPTION) TO ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.............................................................. $ -- $ 352
Interest income.......................................................... -- 56
----------- ----------
Total revenue.............................................................. -- 408
----------- ----------
Operating expenses:
Cost of sales.......................................................... -- 210
Salaries and benefits.................................................. 334 1,435
Marketing, brochure and student registration costs..................... 158 592
Professional fees...................................................... 61 97
Interest and financing costs........................................... 59 106
Depreciation........................................................... -- 235
Other.................................................................. 110 461
----------- ----------
Operating expenses....................................................... 722 3,136
----------- ----------
----------- ----------
Net loss................................................................. $ (722) $ (2,728)
----------- ----------
----------- ----------
Basic loss per share of common stock....................................... $ (.38) $ (1.03)
----------- ----------
----------- ----------
Weighted-average number of shares of common stock outstanding(1)........... 1,922,951 2,641,636
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
DECEMBER 31, 1997 ACTUAL AS ADJUSTED(2)
----------------- ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets...................................................... $ 829 $1,222 $ 13,618
Current liabilities................................................. 745 921 356
----------- ------ --------
Working capital..................................................... 84 301 13,262
----------- ------ --------
Total assets........................................................ 2,115 3,535 15,031
----------- ------ --------
Long-term liabilities............................................... 235 -- --
Total liabilities................................................... 980 921 356
----------- ------ --------
Stockholders' equity................................................ $ 1,135 $2,614 $ 14,675
----------- ------ --------
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of EVC and the notes thereto appearing elsewhere in this prospectus.
OPERATIONAL OVERVIEW
General. Since EVC's organization on March 4, 1997, EVC has been engaged
primarily in developmental activities that include:
o developing and implementing business strategies;
o entering into multi-year contracts with corporate customers and education
providers;
o recruiting and hiring management and other personnel;
o acquiring and installing video conferencing equipment;
o entering into co-marketing alliances;
o training instructors and education providers to teach effectively using
interactive video conferencing systems;
o recruiting and enrolling students;
o delivering courses from education providers to multiple locations; and
o raising capital to support its operations.
Revenue and accounts receivable. EVC's revenue is derived from sharing
tuition payments received by education providers based on a contractually agreed
upon formula. The percentage of tuition payments that an education provider pays
to EVC for its services is determined by negotiation between the education
provider and EVC, and depends in large part upon the reputation and academic
standing of, and the tuition charged by, the education provider. Revenue
attributable to a course is recognized ratably over the duration of the course
and, as this occurs, EVC establishes a related accounts receivable. EVC's
education providers generally permit tuition payments to be deferred until after
a course is completed and they control the billing and collection process. The
ability of the education provider to collect tuition, and the timing of such
collection, is subject to the billing practices of the education provider and
the tuition reimbursement and payment policies and practices of the student's
employer. To the extent tuition is not paid by the employer, the ability to
collect tuition is subject to the risk of non-collection from the student, who
is ultimately responsible for payment. If a student does not successfully
complete a course, the employer will generally not pay the tuition.
In most cases, EVC has been receiving its share of tuition payments more
than 90 days after completion of courses and, in some cases, more than nine
months after completion of courses. EVC believes that the tuition billing and
collection process has been protracted as a result of the inability by education
providers to expedite billing procedures and the inability by corporations to
expedite processing requests for payment from their employees. Since EVC
recently commenced business and its receivables collection experience is
limited, EVC cannot accurately determine the typical collection cycle for its
receivables or whether other events will substantially delay or otherwise
negatively affect its receipt of payments.
Steps are being taken by EVC and its education providers to improve tuition
billing and collection, including more prompt billing after the completion of
courses and implementing a policy of requiring students to pay a substantial
portion of the tuition prior to the beginning of their courses. Commencing in
the first quarter of 1999, courses offered by Adelphi and Notre Dame will
require employees of certain corporate customers to advance tuition payments:
Adelphi, 50% and Notre Dame, 100%. However, EVC cannot predict whether this new
policy will adversely impact its student enrollment and, therefore, its cash
flow. Accordingly, the continuation and further implementation of this policy
will depend on its acceptance by students and their employers.
Nevertheless, EVC expects to continue to experience negative cash flow for
the foreseeable future. EVC's negative cash flow may materially adversely impact
its ability to implement EVC's business strategy and its operations and
financial results.
Operating expenses. Cost of sales consists primarily of costs relating to
operating EVC's video conferencing equipment and to certain telecommunications
costs. These costs will increase as EVC delivers more
16
<PAGE>
courses to more locations. In June 1998, EVC entered into an agreement with AT&T
that substantially lowers EVC's long distance usage costs.
Since EVC's inception, selling general and administrative expenses have
consisted primarily of
o salaries and benefits,
o marketing expenses,
o depreciation,
o interest and financing costs related to debt private placements, and
o professional fees.
Generally, marketing costs are expensed as incurred. However, costs of
courses and related materials are expensed over the duration of the course to
which they relate.
Seasonality. EVC expects that revenues for its third quarter will be
substantially lower than other quarters because it anticipates substantially
lower student enrollment during June, July and August.
RESULTS OF OPERATIONS
Net revenue for the year ended December 31, 1998 was $351,000. Tuition
payments received or receivable from Adelphi, the College of Insurance and Mercy
College constituted 64%, 19% and 17%, respectively, of such net revenue. Such
net revenue relates to tuition payments and accounts receivable that are
attributable to employees of EVC's corporate customers as follows: AIG, 41%;
Citibank, 37%; Merrill Lynch, 13% and Travelers, 9%. EVC did not deliver any
courses or generate revenue in 1997. EVC has incurred losses from inception
through December 31, 1998 of $3,451,000. These losses have resulted primarily
from:
o salaries and related benefits and expenses of $1,769,000;
o cost of sales of $210,000;
o marketing costs of $750,000;
o professional fees of $158,000;
o interest and financing fees of $164,000;
o depreciation of $235,000; and
o other expenses of $572,000.
Losses are expected to continue for at least the next 12 months.
LIQUIDITY AND CAPITAL RESOURCES
EVC's private placements. To date, EVC's capital needs have been funded
through a series of debt and equity private placements in which EVC received net
proceeds of approximately $6,065,000.
In June 1997, EVC received gross proceeds of $115,000 from the issuance of
18% promissory notes and warrants, expiring six years from the commencement of
this offering, to purchase 11,500 shares of common stock at $2.00 per share. In
April 1998, $100,000 principal amount of these notes was converted into 20,000
shares of common stock and warrants, expiring in 2002, to purchase 8,000 shares
of common stock at $6.00 per share. The remaining $15,000 principal amount of
these notes was paid in June and July 1998. The transaction costs were
approximately $45,000.
Between August and December 1997, EVC received gross proceeds of $235,000
from the issuance of $235,000 principal amount of 18% convertible promissory
notes and warrants, expiring 2002, to purchase 23,500 shares of common stock at
$4.00 per share. In June and July 1998, $185,000 principal amount of these notes
were converted into 46,250 shares of common stock. The transaction costs were
approximately $110,000 and EVC's issuance of 7,000 shares of common stock.
In October 1997, EVC received gross proceeds of $1,000,000 from the
issuance of 250,000 shares of common stock and warrants, expiring in 2002, to
purchase 150,000 shares of common stock. Of these warrants, 100,000 are
exercisable at $4.00 per share and 50,000 are exercisable at $20.00 per share.
The transaction costs were approximately $155,000 and EVC's issuance of 50,000
shares of common stock.
17
<PAGE>
In October 1997, EVC issued 58,824 shares of common stock for $400,000 and
a $95,000 note to a video conferencing equipment vendor and applied the $400,000
to the purchase of $1,000,000 of equipment from such vendor.
Between January and April 1998, EVC received gross proceeds of $1,072,500
from the issuance of 195,000 shares of common stock and warrants, expiring in
2003, to purchase 78,000 shares of common stock at $6.00 per share. The
transaction costs were approximately $99,000 and EVC's issuance of warrants,
expiring in 2003, to purchase 51,796 shares of common stock at $6.00 per share.
Between May and August of 1998, EVC received gross proceeds of $4,000,000
for the issuance of 533,334 shares of common stock. The transaction costs were
approximately $400,000 and EVC's issuance of warrants, expiring in 2003, to
purchase 25,000 shares of common stock at $12.00 per share.
Co-Marketing agreements. EVC's co-marketing agreement with AT&T requires
EVC and AT&T to mutually agree upon co-marketing activities from time to time,
which will consist primarily of attendance at trade shows and conferences and
preparing direct marketing mailings. EVC anticipates that it will not be
required to commit material financial or other resources to fulfill its
commitments under this agreement.
Under its co-marketing agreement with VSI, a vendor of video conferencing
systems, EVC is required to produce brochures advertising EVC's services and
equipment and to arrange demonstrations of VSI's equipment. EVC is fulfilling
these requirements in the course of EVC's normal marketing activities without
incurring any material additional cost.
Employment and consulting agreements. EVC has annual commitments under its
employment agreements described under "Management--Employment Agreements" of
$682,000 per year. EVC has agreements with consultants providing for payments of
a percentage of gross revenues received by EVC from tuition payments made by or
on behalf of students employed by corporate customers obtained with the
assistance of the consultant. The percentage of gross revenues is generally
between 2% and 3% and in some instances 5%. EVC is also required to make annual
payments to consultants totalling $178,000. All of the consulting agreements are
terminable on 30 days' notice by EVC. In certain instances, percentage fee
payments are required to continue after termination of a consulting agreement by
EVC, generally for a period not to exceed the initial term of EVC's contract
with the corporate customer to which such fees relate.
EVC's cash requirements. EVC anticipates, based on current plans and
assumptions relating to its operations, that the proceeds from this offering
will be sufficient to satisfy its cash requirements for at least the next
12 months. After that, EVC expects to require additional funding in order to
grow. If, however, EVC is underestimating its cash requirements, EVC will
require additional debt or equity financing sooner. There can be no assurance
that any such required debt or equity financing will be available on acceptable
terms.
YEAR 2000 COMPLIANCE
The year 2000 problem is the result of a widespread programming technique
that causes computer systems to identify a date based on the last two numbers of
a year, with the assumption that the first two numbers of the year are "19." As
a result, the year 2000 would be stored as "00," causing computers to
incorrectly interpret the year as 1900. Left uncorrected, the year 2000 problem
may cause information technology systems (e.g. computer databases) and
non-information systems (e.g. elevators) to produce incorrect data or cease
operating completely.
EVC uses recent releases of "off the shelf" software applications and
operational programs that are certified by the manufacturers to be year 2000
compliant. EVC has contingency plans to deal with unanticipated year 2000
problems including backing up its data base and financial and accounting records
and alternative ways of handling scheduling problems resulting from failures of
its multi-point conferencing unit.
EVC has been advised by its educational providers that they are year 2000
compliant and that they have contingency plans in place to at least back up
their accounting and financial records.
Publicly available or other information obtained by EVC about its corporate
customers and telecommunications providers indicates they are making significant
efforts to be year 2000 compliant and are also developing contingency plans to
deal with unanticipated problems.
At this time, EVC fully expects to be year 2000 compliant and believes that
its education providers and corporate customers and its significant vendors have
taken, or are taking, the steps necessary to be in compliance by the year 2000.
Nevertheless, significant uncertainties remain about the affect on EVC of third
parties who are not year 2000 compliant.
18
<PAGE>
BUSINESS
DISTANCE LEARNING INDUSTRY OVERVIEW
Adults represent a substantial segment of the higher education market.
According to the U.S. Department of Education's National Center For Education
Statistics, in 1994 about 40% of adults (76 million people) participated in
adult education activities, including work related courses taken by about
one-half of the adult participants. EVC believes that traditional on-campus
programs do not adequately address the needs and preferences of many working
adults. Burdened by the competing time demands of work and family, many adults
want to attend courses that are convenient to their homes or places of work. The
emphasis on locational convenience, together with the availability of tuition
reimbursement incentives offered by employers, have contributed to an increase
in demand for higher education and training at off-campus locations. EVC
believes that its interactive video conferencing systems enable students to
experience more closely the actual classroom environment than any other distance
learning system currently available.
A number of national economic, demographic and social trends are
contributing to the growing demand for career oriented education.
o Recognition of need for continuing education. EVC believes that
employers recognize the need for continuous enhancement of employee
education and skill levels and that employees recognize that higher
education and training are essential to maintaining and advancing their
employment position and, consequently, their standard of living.
According to the October 1998 issue of Training, corporations with over
100 employees budgeted approximately $60.7 billion for training in 1997
compared to approximately $45 billion in 1992.
o Fastest growing occupations. EVC believes that the continuing shift from
unskilled to skilled jobs in the U.S. results from, among other things,
the transformation of the U.S. economy from an industrial to a
knowledge-based economy and increased competition for such jobs. The U.S.
Bureau of Labor Statistics' 1998-99 Occupational Outlook Handbook
indicates that of the 25 occupations with the largest and fastest
employment growth, high pay and low unemployment, 18 will require at
least a bachelor's degree and are projected to grow nearly twice as fast
as the average for all occupations.
o Economic value of post secondary education. EVC believes that
post-secondary education leads to significant and measurable improvements
in a person's financial prospects and that the public is increasingly
aware of the growing differential in income for persons with some type of
post secondary education and those without.
o Colleges' need for additional sources of revenue. Colleges and
universities are seeking additional sources of revenue and recognize that
increasing adult student enrollment is an important element in their
economic growth.
Other education delivery programs. Most education providers deliver
courses through on-campus classroom instruction. Colleges and universities
prefer the classroom environment because of its live, interactive nature. Many
colleges and universities also believe this traditional learning method is
needed to maintain consistent, high quality instruction and academic standards.
Additionally, most colleges and universities are unable or unwilling to expand
existing campuses to accommodate more students or build satellite campuses to
serve students at distant locations. EVC believes that colleges and universities
that are interested in providing distance learning have not offered these
programs because of program development and equipment costs and limited
technological infrastructure.
Colleges and universities generally target their course content toward
traditional, full-time students and, therefore, do not adequately meet the
career-oriented learning needs of working adults or the corporations that pay
for their employees' education. Typically, the alternatives for working adults
have been correspondence courses, videotaped presentations, the Internet,
one-way broadcast instruction and, more recently, video conferencing that is not
fully interactive and requires students to travel to sites that are not located
at their workplace or home. Although these methods may address the problems of
time and location, EVC believes that they do not provide the same benefits of
traditional classroom learning that fully interactive video conferencing does.
19
<PAGE>
Tuition Reimbursement. Increasingly, corporations are recognizing the need
for continuous upgrading and enhancement of their employees' education and skill
levels. Many corporations pay for their employees' higher education through
tuition reimbursement or direct payment plans. Typically, these plans reimburse
employees or pay for courses at any accredited academic institution as long as
the course has some relevance to the employee's job and the employee achieves a
specified grade.
BUSINESS STRATEGY
EVC's goal is to become the leading provider of college, university and
training courses and programs that are offered at geographically dispersed sites
throughout the world using interactive video conferencing systems. EVC intends
to achieve its goal by:
o Targeting major corporations and other organizations. EVC is primarily
targeting corporations with more than 5,000 employees and that reimburse
or pay at least 80% of tuition costs, have policies to encourage their
employees to pursue higher education and job related training and agree
to actively promote EVC's programs to their employees.
EVC is currently targeting the financial services industry and the
insurance industry because of the numerous major corporations in these
sectors that fit EVC's criteria. An important part of EVC's strategy is
to contract with a well known, highly regarded corporation in a specific
market sector and leverage that relationship to generate interest from
other corporations in the same industry. EVC is also targeting
automotive, utility, oil and defense corporations, college and graduate
school entrance exam preparation services, government agencies and
religious organizations and has plans to target hospitals and other
health care companies, unions and public school districts.
o Making alliances with colleges and universities. EVC seeks alliances
with colleges and universities with experience in providing higher
education for working adults and that offer courses fitting the needs,
interests and academic qualifications of a broad cross-section of the
employees of EVC's corporate customers.
EVC expects to expand its course offerings to include management
training, job skills and basic skills training, continuing education for
professionals, remediation programs for grant-eligible members of low-
income households, and test preparation courses for students planning to
take college or graduate school entrance exams.
o Making alliances with equipment vendors and telecommunication services
providers. EVC is pursuing alliances with several vendors of video
conferencing technologies so that EVC can have access to the latest
technologies that are capable of providing quality, cost-effective
interactive video conferencing systems. EVC is investigating the
prospects for delivering education content over fiber networks, the
Internet, cellular satellite services and other wireless digital
telecommunication technologies. EVC is also pursuing alliances with
telecommunication providers in order to lower the cost of its
telecommunications usage. In addition, EVC seeks alliances with vendors,
telecommunication providers and others that will enable it to market
EVC's services to their customers.
o Staging the rollout of courses and programs. Increasing in stages the
number of employees of EVC's corporate customers to whom courses are
offered enables EVC to use its resources more effectively to market to,
and contract with, a larger number of corporations. As EVC gains more
corporate clients, it intends to increase both its course offerings and
their availability to larger numbers of the employees of its existing
corporate customers.
SERVICES, CORPORATE CUSTOMERS AND EDUCATION PROVIDERS
Services. EVC differentiates itself from other distance learning
companies by functioning as a telecommunications, technology and marketing
bridge between corporate employers and education providers. EVC's comprehensive
services encompass the technical, marketing and administrative services
necessary to:
o offer courses and degree programs from multiple education providers;
o determine corporate employer and employee course and degree program
preferences;
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o recruit and enroll students;
o provide and install video conferencing equipment at education providers;
o install or enhance the video conferencing systems of its corporate
customers when required;
o train teachers how to teach effectively using interactive video
conferencing systems;
o arrange for high speed data lines for signal transmission;
o provide the multi-conferencing units required to permit live, interactive
multimedia communications between multiple parties; and
o coordinate the delivery of courses from the education providers to the
students.
Corporate customers and education providers. In May 1997, EVC entered into
multi-year agreements with each of Citibank and AIG to deliver courses and
programs to their employees. In February 1998, EVC began delivering courses and
programs provided by Adelphi University and The College of Insurance to Citibank
and AIG employees. EVC entered into multi-year agreements with Merrill Lynch,
Travelers and Zurich Insurance in June, July and August 1998, respectively. In
October and November 1998, EVC entered into multi-year agreements with Reliance
National and General Reinsurance.
EVC is currently offering courses from Adelphi University, The College of
Insurance and Mercy College to employees of Citibank, AIG, Travelers, Zurich
Insurance, Merrill Lynch, Reliance National, General Reinsurance and, on a pilot
basis, to employees of CNA. In the first quarter of 1999, EVC began delivering
an executive development course from the University of Notre Dame and offering
graduate computer engineering courses given by Manhattan College.
Corporate customer agreements. Generally, EVC's agreements with its
corporate customers have terms of three to five years and are subject to
automatic extensions and typically include the following terms.
o EVC delivers courses over its corporate customers' existing installed
base of video conferencing room systems. To the extent required, if
surveys of the customer's employees indicate there is a sufficient demand
for courses, EVC will install or enhance equipment at the customer's
site.
o The customer reimburses its eligible employees or pays directly for the
tuition cost of completed courses for which a specified grade is
received. EVC generally will not accept a corporation as a customer
unless its policy is to reimburse or pay at least 80% of the tuition
cost, although changes in the policy are within the customer's sole
discretion. The student is responsible for any portion of the tuition
that is not reimbursed.
o EVC and the customer jointly market the available courses and programs to
the customer's employees using material prepared and paid for by EVC.
Education provider agreements. EVC's agreements with its education
providers enable it to offer accredited undergraduate and graduate courses and
degree programs, corporate training and executive development programs, software
applications programs and professional licensing programs. Areas of study
include insurance and risk management, banking, finance, management, marketing,
economics, accounting, computer science, leadership, entrepreneurship, education
and general studies. In addition, EVC offers national exam preparation courses
for the insurance industry.
EVC's education provider agreements generally have terms of three to five
years and are subject to automatic extensions and typically include the
following terms.
o EVC provides all video conferencing hardware, software and
telecommunications equipment for each teaching station at the education
provider.
o EVC markets the courses offered by the education provider using EVC's
marketing materials that incorporate information from the brochures,
catalogues, class schedules and other materials provided by the education
provider.
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o EVC assists in the enrollment process by providing students with
enrollment forms and assistance in determining available courses and
programs.
o EVC trains the course instructors and professors how to teach adult
students using interactive video conferencing. EVC encourages the
instructors and professors to use charts, graphs, pictures, videotapes
and presentation software using scanners, document cameras and other
equipment provided by EVC. In order to maximize teacher participation and
student enrollment, EVC believes that the learning experience through
interactive video conferencing should replicate as closely as possible a
student-centered active learning environment by allowing a high level of
interactivity among the instructor and the students. Accordingly, EVC
trains instructors and professors in how to maximize the effectiveness of
their teaching styles and their presentation of materials using
interactive video conferencing systems. EVC also limits the number of
student sites and students per site to maintain academic integrity.
o EVC facilitates the recruiting and enrollment process by means of surveys
designed to determine which courses employees need and want and those
that employers are willing to pay for. In addition, EVC's educational
counsellors advise students in the admission and enrollment process. To
date, substantially all of the students using EVC's services have taken
accredited courses on a non-matriculating basis. Full admissions
procedures of the education provider must be followed if a student wants
to take more than 12 credits and matriculate (become a candidate for a
degree).
o The education provider is responsible for providing all administration
and academic personnel and facilities required for teaching the courses
offered. However, a portion of the cost of an admissions coordinator
hired by the education provider is paid by EVC.
o The education provider obtains the necessary licenses and accreditation
for course and program offerings.
o Generally, the education provider is required to schedule courses between
8:00 A.M. and 11:00 P.M. Monday through Friday and 9:00 A.M. to
3:00 P.M. on Saturdays. The courses to be delivered by EVC and their time
slots are determined each semester by EVC and the education provider.
o For its services, EVC receives a fee based on tuition payments actually
received by the education provider.
o Most of EVC's education providers have agreed not to offer courses via
competing interactive video conferencing systems to EVC's corporate
customers and their employees during the term of the education provider's
agreement with EVC and for one year after its termination.
MARKETING AND SALES
EVC's president directs overall marketing and sales activities and he and
EVC's chairman develop EVC's marketing strategies. In addition, EVC's sales
force currently consists of three full-time employees and six independent sales
representatives.
Long-term relationships with major corporations and with education
providers are pursued by EVC's senior management by means of referrals and
introductions by independent consultants, vendors, board of trustee members and
others, direct mail, telemarketing and trade shows or other demonstrations of
EVC's video conferencing delivery method.
In September 1998, EVC entered into an agreement with AT&T to co-market
AT&T's telecommunications services and EVC's courses and programs to AT&T's
corporate and residential customers. EVC has an agreement with VSI, an
interactive video conferencing systems vendor, to co-market VSI systems and
EVC's courses and programs.
EVC assumes primary responsibility for marketing its education providers'
courses and programs to EVC's corporate customers and their employees. EVC
produces promotional brochures and videotapes that include or are accompanied by
endorsements by management of the corporate customer. Other marketing tools
include using demand analysis surveys to collect demographic and preference data
from a corporate customer's employees to determine the courses and programs to
be offered and using professional admissions counselors from EVC or its
education providers to assist students.
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INTERACTIVE VIDEO CONFERENCING SYSTEMS
EVC can deliver educational content from education providers to video
conferencing locations at the corporate customer or to the individual student's
desktop computer at work or at home. To date, substantially all courses have
been delivered by EVC to classrooms at the corporate customers' sites. EVC
targets major corporations which have one or more existing video conferencing
room systems that EVC can use and, if required, enhance. EVC does not develop
the hardware or software for the interactive video conferencing systems it uses
because equipment required for teacher and student stations is readily available
from vendors that include VSI, Polycom, Picturetel and Intel. If EVC's education
providers or corporate customers do not have interactive video conferencing
equipment, EVC will lend them the necessary equipment without charge during the
term of their agreements with EVC. EVC has not encountered any limitation on the
types of subjects that can be taught by interactive video conferencing. From
time-to-time, EVC has encountered instructors who are unwilling to use
interactive video conferencing for teaching their courses, but this has not
materially affected EVC's ability to offer courses.
The teacher station consists of two 35-inch video monitors and a video
camera. One monitor shows the distant sites and the other is a preview monitor
for the instructor. Video conferencing can be voice activated or manually
controlled by the instructor. The instructor can display visual presentations to
the class using a separate document video camera. A VCR unit can be installed
and used for pre-taped instructional material. A caller add-on feature can be
used to invite a subject matter expert to interact verbally with the class
without having to be physically present. The instructor can also use other
multimedia presentation devices.
Room video conferencing. Generally, a student room station is a single
monitor and camera system. Video conferencing by students is also voice
activated, unless manually controlled by the instructor. Normally, there are
between two and eight student room stations per teacher station. EVC's current
policy is to limit class sizes to between 10 and 40 students to maintain
academic integrity, depending on the type of course given and student demand for
a particular course.
Computer video conferencing. If, in the future, corporations and students
desire delivery of courses via the student's desktop computer as EVC
anticipates, EVC can deliver courses on personal computers that have been
video-enabled. Students will see and hear the instructor or another student live
in a small window on the computer screen and have access to the course materials
directly on their computer. EVC plans to limit delivery of courses using
video-enabled desktop computers to approximately 24 students per class.
The teacher and student stations are connected to each other over high
speed point-to-point or multi-point digital data lines (T-1 or ISDN lines) using
EVC's multi-point conferencing units, which enable live, interactive multimedia
communications between three or more endpoints. These units perform the
important functions of conference management, video switching, audio mixing and
data routing and are the key components in providing multimedia communication
between multiple parties.
GOVERNMENT REGULATION OF DISTANCE LEARNING
Federal considerations. Congress has recently amended and reauthorized the
Higher Education Act to include new provisions for federal funding of distance
learning pilot projects under the Distance Learning Demonstration Programs and
grants under the Learning Anytime Anywhere Program for partnerships between
education providers or between education providers and businesses,
not-for-profit organizations and others. These provisions may provide an
additional source of funding for EVC's and its competitor's businesses. Distance
learning is also under review by the U.S. Copyright Office, which has been
instructed by Congress to consider a distance learning exemption from the
exclusive rights of copyright holders and to recommend, by April 1999, ways to
promote distance learning in connection with the recently-passed Digital
Millennium Copyright Act. Although these legislative developments reflect a
generally favorable treatment of distance learning by federal lawmakers, there
can be no guarantee that the Department of Education, the Congress or other
federal entities will not impose stricter or additional requirements affecting
EVC's business. In addition to federal review, the regulation and accreditation
of distance learning programs are undergoing significant review by state
regulators and independent accreditation organizations. EVC cannot predict the
scope, outcome or impact on EVC of this review.
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State licensing. Many states require that any entity providing educational
programs obtain a license to operate. At present, these requirements generally
apply to EVC's education providers, but not to EVC, because EVC only provides
the delivery system for a licensed educator's program or course content. This
situation may change. Some jurisdictions may require EVC to obtain one or more
educational licenses, depending on the number of students enrolled in its
programs in that jurisdiction, in addition to, or instead of, the licensing
requirements for the college and university content providers. State regulators
may be reluctant to grant licenses to EVC because it is not a traditional
education provider.
Some states accept accreditation from other states as evidence of meeting
minimum state licensing requirements. Other states do not accept out-of-state
accreditation or licensing. Moreover, licensing requirements and standards are
not uniform and can vary significantly from state to state. Some states impose
standards for distance learning. The state in which a college or university is
primarily located may require it to obtain approval to offer distance learning
programs through interactive video conferencing systems, even if delivered to
another state. Moreover, the state receiving the distance learning program may
require that the college or university obtain a license to deliver those
programs in that state. Some of these standards may limit the number of courses
that may be offered through distance learning, require specified levels of
student support services, set minimum graduation requirements and otherwise
restrict distance learning programs. Since most of the education providers with
which EVC currently has or will have alliances typically have campuses in only
one state, they may not have considered whether delivering their courses in
other states will subject them to the educational licensing requirements of
those states.
State requirements for distance learning are evolving rapidly and EVC
cannot predict the nature of new requirements, the effect of new requirements on
the way EVC delivers courses, or the degree to which new requirements may
adversely affect EVC's business. EVC believes that state and local universities
and colleges may attempt, and be successful, in persuading state legislatures to
enact laws making it more difficult for EVC to operate. EVC or its education
providers may be unable to obtain licenses to deliver courses as planned or
required licensing may be unduly delayed or revoked.
Accreditation. EVC contracts with education providers accredited by
recognized accreditation organizations. In some instances, specific programs
offered by those education providers may be accredited by specialized
accreditation organizations. Some accreditation organizations have developed
guidelines for distance learning programs, which address such aspects of
distance learning as curriculum and instruction, evaluation and assessment,
library and learning resources, student services and facilities and finances. An
accreditation organization may view the implementation of regular distance
learning course offerings as a substantive change to an education provider's
operations, requiring prior written approval by the accreditation organization.
There can be no assurance that accreditation requirements will not become more
detailed or onerous in the future. If education providers are required to seek
approval for, and undergo monitoring of, distance learning by accreditation
organizations, EVC may be unable to offer courses when or as planned.
Federal student financial aid. The Higher Education Act authorizes various
federal student financial aid programs. Students enrolled in correspondence
courses, including some distance learning programs, are ineligible for federal
student financial aid. The Higher Education Act imposes numerous restrictions on
institutions participating in federal student financial aid programs, including
limitations on the number of courses that an institution of higher education may
offer through telecommunications and on the number of students that may be
enrolled in these courses. If EVC's education providers exceed those
limitations, they could lose their eligibility to participate in federal student
financial aid programs. However, the Higher Education Act also provides for a
limited number of waivers of specific restrictions for financial aid purposes in
connection with Distance Learning Demonstration Programs.
Failure of an otherwise eligible institution to comply with state licensing
requirements could render an education provider ineligible to participate in
federal financial aid programs. If an education provider fails to obtain
necessary state approval for distance learning, it could be liable to the
Department of Education for financial aid to students in the program or other
penalties. Furthermore, the Higher Education Act restricts the ability of
institutions to contract with third parties for educational programming. EVC
believes that these restrictions will not apply to its arrangements with
education providers, but there can be no assurance that federal or state
regulatory changes will not adversely alter the present situation.
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Student affairs. Individuals enrolled in college and university programs
offered by EVC will be students of the education provider offering the program.
As such, the students will generally have the same rights and responsibilities
as other students enrolled at that education provider. Among other legal
obligations to students, the education providers with which EVC contracts are
subject to federal and state laws protecting the privacy of student records and
are likely to require EVC also to abide by those laws. These laws will limit
EVC's ability to obtain and/or use student information or images for marketing
other purposes. If EVC were found to have misused student records, it could be
barred under federal law from access to such records for five years. In
addition, an education provider may be required, and may require EVC, to make
reasonable accommodations for otherwise qualified disabled students to take
courses delivered by EVC.
COMPETITION
EVC believes the distance learning market is fragmented and highly
competitive. EVC faces substantial competition from distance learning companies
and other providers of higher education. Traditional live classroom instruction
by two and four year colleges is EVC's most significant competition. Some
colleges and universities are using interactive video conferencing systems to
deliver their courses. Many education providers have extension centers that
attempt to address the issue of locational and scheduling convenience. As
education providers recognize the value of using video conferencing to increase
enrollment, EVC anticipates more direct competition from them and other
competitors. Columbia University, New York Institute of Technology and Cornell
University, among others, are offering a limited number of courses via video
conferencing.
In addition, alternative methods of delivering course materials are
proliferating rapidly. EVC is, therefore, facing increasing competition from
other distance learning companies that offer, among other products and services,
one way satellite video conferencing, self-paced correspondence courses, video
and audio cassettes, CD-roms and Internet-based instruction. Westcott
Communications Inc. services students through one-way satellite video
conferencing. Apollo Group Inc.'s University of Phoenix offers text-based
computer distance learning using e-mail or server-based bulletin boards. EVC
also competes with Caliber Learning Network, Inc. which is creating
geographically dispersed campuses to receive courses using satellite
transmission and that permit limited two-way interactivity using video
conferencing, wide-area network computing and Internet technologies. Numerous
distance learning companies offer courses that are the same as, or substantially
similar to, the courses that EVC offers.
There are no significant barriers to entry into the distance learning
market. EVC believes competition is primarily based on locational and scheduling
convenience, cost, relevance and quality of course content, quality and
reliability of content delivery and customer support.
EVC believes its principal competitive strengths are:
o its business strategy;
o its employees with experience in higher education and distance learning;
o the breadth of EVC's services;
o the similarity of the learning experience using interactive video
conferencing systems to the traditional classroom experience, as a result
of the level of interactivity;
o the quality and reliability of EVC's delivery of educational content over
interactive video conferencing systems; and
o the relevance and range of the courses EVC can deliver.
EMPLOYEES
As of December 31, 1998, EVC had 18 full-time employees. EVC also engages
part time personnel during recruiting periods and, as of December 31, 1998, had
three temporary recruiters. None of EVC's employees is covered by a collective
bargaining agreement. EVC believes that its relationship with its employees is
satisfactory.
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PROPERTIES
EVC currently utilizes approximately 3,500 square feet of space in Yonkers,
New York for its corporate and administrative offices, of which 1,900 square
feet are occupied under a lease expiring August 31, 2002 and the remaining space
is occupied under an oral lease. A written lease for the entire space is being
negotiated and is expected to have a term expiring on August 31, 2002 and
require rent of $7,076 per month, EVC's current rent, subject to annual
escalations. Additional space is readily available. EVC's multi-point
conferencing units are located and serviced in Bohemia New York under an
agreement expiring in December 2000 and currently requiring payments of $11,110
per month subject to increase as equipment and digital data lines are added.
Video conferencing equipment is delivered to the installation sites by the
manufacturers. EVC believes its current facilities will satisfy its requirements
for at least the next 12 months.
ADDITIONAL INFORMATION
EVC has filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. Descriptions contained in this prospectus
relating to any contract or other document are not necessarily complete, and
each such description is qualified in all respects by reference to the full text
of such contract or document.
The registration statement, and the exhibits and schedules thereto, may be
inspected and copied at the principal office of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part
thereof may be obtained at prescribed rates from the SEC's Public Reference
Section at 450 Fifth Street, N.W. Washington D.C. 20545 or by calling the SEC at
1-800 SEC-0330. The SEC also maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Following this offering, EVC will be subject to the reporting and other
requirements of the Securities Exchange Act of 1934 and intends to furnish to
its stockholders annual reports containing audited financial statements and may
furnish such interim reports to its stockholders as it deems appropriate.
When we qualify statements in this prospectus with the word "believe,"
unless otherwise indicated, we are basing our belief on the knowledge and
experience of our personnel and advisors. Statistical information included in
this prospectus has been obtained by us from publications we deem reliable and
with which we have no relationship.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information regarding the executive
officers, directors and key employees of EVC
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Dr. Arol I. Buntzman(1)......................... 55 Chairman of the board and chief executive
officer
Dr. John J. McGrath(1).......................... 45 President and director
Richard Goldenberg(1)........................... 53 Chief financial officer, secretary and director
Dr. Norman E. Puffett........................... 56 Vice president of enrollment management
Wallace J. Caven................................ 48 Vice president/director of distance learning
James H. Mollitor............................... 53 Vice president of operations
Royce N. Flippin, Jr.(2)........................ 64 Director designee
Arthur H. Goldberg(2)........................... 56 Director designee
</TABLE>
- ------------------
(1) Executive officer.
(2) The board of directors has elected Messrs. Flippin and Goldberg to, and they
have agreed to become members of, the board of directors effective upon the
commencement of this offering.
Dr. Arol I. Buntzman has served as chairman and chief executive officer of
EVC since its inception in March 1997. From October 1996 until he founded EVC
with Dr. McGrath, Dr. Buntzman worked with Dr. McGrath on the development of
EVC's business plan. From August 1995 until October 1996, Dr. Buntzman was the
chairman of the board, the chief executive officer and a principal stockholder
of Educational Televideo Communications, Inc., a provider of distance learning
delivery services. From July 1995 through June 1996, Dr. Buntzman served as
director of interactive video conferencing distance learning of Fordham
University. From September 1992 through July 1995, Dr. Buntzman was an adjunct
professor and the director of the weekend program, a college program for working
adults, at Mercy College, Dobbs Ferry, New York.
Dr. Buntzman received a doctorate in education through the executive
leadership program of Fordham University Graduate School of Education in May
1995, a professional diploma in educational administration from Fordham
University Graduate School of Education in May 1993 and a Masters of Business
Administration from Arizona State University in finance and management in
September 1970. Dr. Buntzman's doctoral dissertation focused on the use of live
interactive video conferencing as an educational delivery method and its use for
graduate education programs.
Dr. John J. McGrath has served as president of EVC since its inception in
March 1997. From October 1996 until he founded EVC with Dr. Buntzman,
Dr. McGrath worked with Dr. Buntzman on the development of EVC's business plan.
From August 1995 to October 1996, Dr. McGrath was president, a director and a
principal stockholder of Educational Televideo. From January 1995 to February
1997, Dr. McGrath served as a special assistant to the president of Mercy
College, Dobbs Ferry, New York. From September 1992 through December 1994, he
also served as assistant vice-president for extension centers of Mercy College
and as the dean of its White Plains campus from 1990 through 1993.
Dr. McGrath's experience includes establishing and managing college extension
centers and identifying and developing new student markets, academic programs
and strategies for non-traditional students. Dr. McGrath holds a Ph.D. in
sociology from Fordham University with a specialization in law and criminal
justice.
Richard Goldenberg has served as EVC's chief financial officer since its
inception. From October 1996 until October 1997, Mr. Goldenberg served as chief
financial officer, treasurer and secretary of RDX Acquisition Corp., a company
that provides proprietary electronic messaging and automation software. From
1986 through
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September 1996, he served as vice president, treasurer and secretary of Celadon
Group, Inc., a transportation company. Mr. Goldenberg holds a B.B.A. in
accounting from Baruch College, C.U.N.Y.
Dr. Norman E. Puffett has served as vice president for enrollment
management of EVC since January 1998. From September 1995 through December 1997,
Dr. Puffett was dean of admissions for graduate and adult baccalaureate programs
at Lesley College in Cambridge, Massachusetts. From January 1986 through
September 1995, he served as dean of graduate studies and enrollment management
at Western Connecticut State University. He has also served as a faculty member
and administrator at New York University, The University of Connecticut, Mercy
College and Long Island University. At Mercy College, Dr. Puffett created the
first branch campus in New York State intended exclusively for adults.
Dr. Puffett is a founder of the National Association of Graduate Admissions
Professionals and lectures on strategies for the future of America's colleges
and universities. He holds a Ed.D. in Higher and Adult Education from Columbia
University Teachers College.
Wallace J. Caven has served as EVC's vice president/director of distance
learning since May 1997. From 1970 until May 1997, Mr. Caven was employed by
NYNEX and, from 1992 to April 1997, he served as staff director/producer of
distance learning of NYNEX.
James H. Mollitor has served as EVC's vice president of operations since
July 1998. From May 1997 to May 1998, Mr. Mollitor served as director of the
Manhattan Data Center of Lockheed Martin Corporation, a defense contractor. From
June 1976 to March 1997, Mr. Mollitor served as chief information officer of
Loral Electronics Systems, Inc., a military electronics manufacturer.
Royce N. Flippin, Jr. has served, since 1992, as president of Flippin
Associates, a consulting firm focusing on the development of resources, programs
and new markets and human resource management for career planning, communication
and leadership skills. After serving as a tenured professor and director of
athletics at MIT from 1980 to 1992, he has been a director of program
advancement at MIT from 1992 to the present, in which capacity he has been
providing consulting services to the MIT Office of Individual Giving--Resource
Development regarding projects that include technology transfers, individual
gift bequests and the planned MIT athletic center. Mr. Flippin is a trustee or
board member of several profit and non-profit organizations, including Ariel
Capital Management Mutual Funds (trustee since 1986), Radkowsky Thorium Power
Corporation, a privately-held company that is developing non-proliferative
nuclear fuels (director since 1994 and chairman from 1995 to 1997), Kinematic,
Inc., a privately-held company that is developing a virtual environment training
system for the improvement of human motor skills under an exclusive license from
MIT (director since 1994), Newark Boys Chorus School (trustee since 1993) and
Asphalt Green Aqua Center, New York, NY (director since 1993). Mr. Flippin holds
an A.B. degree from Princeton University and a M.B.A degree from Harvard
University Graduate School of Business Administration.
Arthur H. Goldberg has served as president of Manhattan Associates, L.L.C.,
an investment and merchant banking firm, since 1994. From 1990 through 1993, he
served as chairman of Reich & Co., a New York Stock Exchange member firm that
specialized in investment banking and corporate finance for small-cap companies.
Mr. Goldberg holds a B.S. degree from New York University Stern School of
Business and a J.D. degree from New York University School of Law.
Executive officers of EVC are appointed by the board of directors and serve
at the discretion of the Board. There are no family relationships among any of
the directors or executive officers of EVC.
As set forth above, each of Drs. Buntzman and McGrath was an executive
officer, director and principal stockholder of Educational Televideo. From
February 1995 through July 1996, Educational Televideo had delivered courses to
one customer, using video conferencing equipment and dedicated phone lines. Drs.
Buntzman and McGrath terminated their affiliation with Educational Televideo in
October 1996 when it became apparent to them that anticipated financing needed
to resume Educational Televideo's business would not be provided. Educational
Televideo ceased business operations in September 1996. Drs. Buntzman and
McGrath believe that, when they resigned, Educational Televideo's remaining
liabilities consisted solely of approximately $300,000 of accounts payable to
vendors, primarily for equipment and supplies. To the knowledge of Drs. Buntzman
and McGrath, bankruptcy proceedings have not been commenced or threatened by or
against Educational Televideo.
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<PAGE>
CLASSIFIED BOARD
In December 1998, EVC adopted a classified board of directors effective as
of the date of this prospectus. The directors will be divided into three
classes. The term of office of each class of directors will expire as follows:
o Class 1, at the first annual meeting of stockholders following the date
of this prospectus.
o Class 2, at the second annual meeting of stockholders following the date
of this prospectus.
o Class 3, at the third annual meeting of stockholders following the date
of this prospectus.
Thereafter, the term of office of each director will expire at the third
annual meeting of stockholders following his or her election. The initial
directors in each class will be as follows: Class 1: Arol I. Buntzman; Class 2,
John J. McGrath and Royce N. Flippin, Jr.; and Class 3, Richard Goldenberg and
Arthur H. Goldberg.
The underwriting agreement provides that Prime Charter has the right to
designate a representative to observe meetings of EVC's board of directors or
require EVC to use its best efforts to elect Prime Charter's nominee to EVC's
board of directors. Prime Charter has not designated an observer or a director
nominee.
EVC believes Arthur H. Goldberg will be deemed an independent director even
though he may earn a commission and has received options under a consulting
agreement with EVC that is discussed under "Certain Transactions."
BOARD COMMITTEES
Upon the commencement of this offering, the board of directors will have an
audit committee, comprised of two independent directors, and a compensation
committee.
The audit committee will be comprised of Royce N. Flippin, Jr. and Arthur
H. Goldberg. The audit committee will review and, as it deems appropriate,
recommend to the board of directors the internal accounting and financial
controls for EVC and accounting principles and auditing practices and procedures
to be employed in preparation and review of EVC's financial statements. The
audit committee will also make recommendations to the board concerning
engagement of independent public auditors and the scope of the audits to be
undertaken.
The compensation committee will be comprised of Dr. Buntzman and Arthur H.
Goldberg. The compensation committee will review and, as it deems appropriate,
recommend to the board of directors policies, practices and procedures relating
to the compensation of officers and other managerial employees and the
establishment and administration of employee benefit plans. The compensation
committee will also administer EVC's 1998 incentive plan. The board of directors
will determine issues relating to Dr. Buntzman's compensation.
DIRECTOR COMPENSATION
Upon consummation of this offering, those directors who are not officers or
employees of EVC will be paid $1,000 for attendance at each meeting of the board
of directors or any committee thereof and travel expenses. EVC has recently
established the 1998 incentive plan which authorizes the granting of options to
non-employee directors commencing upon consummation of this offering. See
"--1998 Incentive Plan."
LIMITATION ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of Delaware corporation law authorizes a Delaware corporation
to include a provision in its certificate of incorporation limiting or
eliminating the personal liability of its directors to the corporation or its
stockholders for monetary damages for breach of the directors' fiduciary duty of
care. The duty of care generally requires that, when acting on behalf of the
corporation, directors exercise an informed business judgment based on all
material information reasonably available to them. In the absence of the
limitations authorized by such provision, directors are accountable to the
corporation and its stockholders for monetary damages for conduct
29
<PAGE>
constituting gross negligence in the exercise of the directors' duty of care.
Although Section 102 does not change a director's duty of care, it enables
corporations to limit available relief to equitable remedies such as injunction
or rescission. EVC's certificate of incorporation and by-laws include provisions
which limit or eliminate the personal liability of its directors to the fullest
extent permitted by such Section. Consequently, a director or officer will not
be personally liable to EVC or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for:
o any breach of the director's duty of loyalty to EVC or its stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock purchases, redemptions
or other distributions; and
o any transaction from which the director derived an improper personal
benefit.
EVC's certificate of incorporation and by-laws provide that EVC will
indemnify to the fullest extent permitted by law any person made or threatened
to be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person or such
person's testator or intestate is or was a director, officer or employee of EVC
or serves or served at the request of EVC as a director, officer or employee of
another corporation or entity.
EVC intends to enter into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in EVC's certificate
of incorporation and by-laws. These agreements, among other things, will
indemnify EVC's directors and officers for certain expenses (including advancing
expenses for attorneys' fees), judgments, fines and settlement amounts incurred
by any such person in any action or proceedings, including any action by or in
the right of EVC, arising out of such person's services as a director or officer
of EVC, any subsidiary of EVC or any other company or enterprise to which the
person provides services at the request of EVC. In addition, EVC intends to
obtain directors' and officers' insurance providing indemnification for EVC's
directors and officers for certain liabilities. EVC believes that these
indemnification provisions and agreements and related insurance are necessary to
attract and retain qualified directors and officers.
The limited liability and indemnification provisions in EVC's certificate
of incorporation and by-laws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty (including breaches
resulting from grossly negligent conduct) and may have the effect of reducing
the likelihood of derivative litigation against directors and officers, even
though such an action, if successful, might otherwise benefit EVC and its
stockholders. A stockholder's investment in EVC, furthermore, may be adversely
affected to the extent that EVC pays the costs of settlement and damage awards
against directors and officers pursuant to the indemnification agreements and
the indemnification provisions in EVC's certificate of incorporation and by-
laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of EVC, pursuant
to the foregoing provisions, or otherwise, including pursuant to the
underwriting agreement, EVC has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by EVC of expenses incurred or paid by a director,
officer or controlling person of EVC in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with this offering, EVC will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by EVC is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
There is no currently pending litigation or proceeding involving any
director, officer or employee of EVC, and EVC is not aware of any threatened
litigation or proceeding, that might result in a claim by a director, officer or
employee for indemnification.
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<PAGE>
EXECUTIVE COMPENSATION
The following table shows compensation paid to our executive officers for
the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------ ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION
- ----------------------------------------------------------------- -------- -------- ------- ------------
<S> <C> <C> <C> <C>
Arol I. Buntzman,
chairman of the board and chief executive officer.............. 1998 $210,000 $70,000 $ 780(1)
1997 136,250 35,600 7,020(1)
John J. McGrath,
president...................................................... 1998 126,500 5,750 2,725(1)
1997 50,000 -- 2,700(1)
Richard Goldenberg,
chief financial officer........................................ 1998 102,000 4,750 13,200(3)
1997 18,750 -- 11,100(2)
</TABLE>
- ------------------
(1) car allowance.
(2) consulting fees prior to becoming a full-time employee.
(3) consulting fees prior to becoming a full-time employee that were not paid
until 1998.
EMPLOYMENT AGREEMENTS
Each of Dr. Buntzman, Dr. McGrath and Messrs. Goldenberg, Caven and
Mollitor has entered into an employment agreement with EVC.
The employment agreement with Dr. Buntzman provides for his employment as
chairman and chief executive officer at an annual salary of $240,000.
The employment agreement with Dr. McGrath provides for his employment as
president at an annual salary of $138,000.
The employment agreement with Mr. Goldenberg provides for his employment as
chief financial officer at an annual salary of $114,000.
The employment agreement with Mr. Caven provides for his employment as vice
president / director of distance learning at an annual salary of $70,000.
The employment agreement with Mr. Mollitor provides for his employment as
vice president of operations at an annual salary of $120,000.
Each of the employment agreements expires December 31, 2001. The employment
agreements entitle the officers to participate in the health, insurance, pension
and other benefits, if any, generally provided to employees of EVC and
Dr. Buntzman's and Dr. McGrath's agreements entitle them to additional life
insurance equal to three times their respective salaries. The employment
agreements also provide that, with certain exceptions, until 18 months after the
termination of employment with EVC, the officer may not induce employees to
leave the employ of EVC or participate in any capacity in any business
activities that compete with the business conducted by EVC during the term of
the employment agreement.
EVC may terminate the employment of the officers upon death or extended
disability or for cause (as defined in each respective agreement), except that
Mr. Mollitor's agreement can be terminated by EVC at any time. If employment is
terminated by EVC without cause, the agreements generally provide EVC must pay
the officer's salary and health and insurance benefits until the earlier of a
specified date or the scheduled termination date of the employment agreement or,
in the case of Drs. Buntzman and McGrath, until 36 months after termination of
their employment.
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<PAGE>
On October 1, 1998, EVC entered into an agreement with Dr. Arol I. Buntzman
providing for payments to him, in the event his employment with EVC is
terminated after a change in control of EVC during the term of the agreement. A
change of control means any of the following:
o any person becomes the beneficial owner of 25% or more of EVC's voting
securities; or
o during any consecutive three years, EVC's directors at the beginning of
such three year period and any new director whose election was approved
by at least 66 2/3% of the directors, cease to constitute a majority of
the board; or
o EVC's stockholders approve a merger or consolidation other than one where
EVC's outstanding voting securities before the transaction constitute 50%
or more of the outstanding securities of the entity surving the
transaction or where a recapitalization is effected in which no person
acquires 25% or more of EVC's voting securities; or
o EVC's stockholders approve a total liquidation of EVC or sale of all or
substantially all of EVC's assets.
The agreement expires September 30, 2001, but is subject to automatic
extension to December 31, 2001, and, thereafter, for successive one-year terms,
unless otherwise terminated by either party. The agreement requires severance
payments to Dr. Buntzman of 2.99 times the sum of his base salary and the
highest annual bonus, if any, paid to him during the three previous years and
the continuation of his medical and dental insurance benefits. The agreement
requires these payments to be made in equal installments over a 36 month period
and for the insurance benefits to continue for 36 months.
1998 INCENTIVE PLAN
The 1998 incentive plan, which was adopted by the board of directors in
October 1998 and subsequently approved by EVC's stockholders and is intended to
benefit EVC by:
o assisting it in recruiting and retaining employees and non-employee
directors, advisors and independent consultants with ability and
initiative;
o providing greater incentive for employees and consultants of EVC; and
o associating the interest of employees and consultants with those of EVC
and its stockholders through opportunities for increased stock ownership.
EVC's board of directors or the compensation committee can administer the
1998 incentive plan. Upon completion of this offering, the administration of the
1998 incentive plan will be delegated by the board of directors to the
compensation committee.
EVC's employees, advisors, independent consultants, and directors are
eligible to participate in the 1998 incentive plan. The compensation committee
will select the individuals who will participate in the 1998 incentive plan. The
compensation committee may, from time to time, grant stock options or stock
awards.
Options granted under the 1998 incentive plan may be qualified incentive
stock options or non-qualified stock options. The option price will be fixed by
the compensation committee at the time the option is granted, but the price
cannot be less than the fair market value of the stock on the date of grant in
the case of an incentive stock option. The option price must be paid in cash or,
if permitted by the compensation committee, may be paid with shares of common
stock or with a combination of cash and common stock or in installments. Options
are non-transferable except upon death. The compensation committee will also
determine the vesting and exercisability of options, except that incentive stock
option cannot be exercised more than 10 years after being granted.
Participants may also be awarded shares of common stock pursuant to a stock
award. The compensation committee, in its discretion, may prescribe that a
participant's right in a stock award shall be nontransferable, forfeitable or
otherwise restricted.
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<PAGE>
The 1998 incentive plan provides that in most circumstances outstanding
options will become exercisable and outstanding stock awards will be earned in
full and nonforfeitable in the event of a "change in control" of EVC (as defined
in the 1998 incentive plan).
All stock options and stock awards granted under the 1998 incentive plan
will be evidenced by written agreements between EVC and the participant. The
maximum aggregate number of shares of common stock which may be issued under the
1998 incentive plan is 356,000.
No option or stock award may be granted under the 1998 incentive plan after
September 30, 2008. The Board may terminate the 1998 incentive plan sooner
without further action by stockholders. The Board also may amend the 1998
incentive plan, except that no amendment may adversely affect the rights of a
participant without the participant's consent.
Generally, unless the applicable stock option agreement provides otherwise,
a stock option may be exercised only while the optionee remains employed by EVC
or within 90 days thereafter, or up to six months after his or her death or
total permanent disability. Also a stock option will terminate immediately if
the optionee's employment is terminated for cause or he or she leaves EVC
voluntarily without the consent of EVC. In general, stock options may not be
transferred, assigned, pledged or otherwise transferred.
The 1998 incentive plan also provides that, upon completion of this
offering, each director that is not also an officer or employee of EVC will be
automatically granted an option to purchase 5,000 shares of common stock on the
date on which such person first becomes a non-employee director. Each
non-employee director will also be automatically granted an option to purchase
5,000 shares on March 1 of each year, provided he or she is then a non-employee
director and, as of such date, he or she has served on the board of directors
for at least the preceding six months. Options granted to non-employee directors
vest in three annual installments commencing on the first anniversary of the
date of grant and have a term of ten years. The exercise price of options
granted to non-employee directors will be 100% of the fair market value per
share of common stock on the date of grant. A non-employee director who has been
granted stock or options by EVC under a consulting or other arrangement is
ineligible to receive any subsequent automatic grants unless the compensation
committee determines otherwise. Accordingly, Royce N. Flippin, Jr., a director
designee, will receive options to purchase 5,000 shares of common stock upon
commencement of this offering, while Arthur H. Goldberg, another director
designee, will not. See "Certain Transactions" regarding options granted to
Mr. Goldberg.
CERTAIN TRANSACTIONS
In connection with EVC's organization in March 1997, Drs. Buntzman and
McGrath and Mr. Goldenberg, all of whom are executive officers and directors of
EVC, purchased 1,000,000, 500,000 and 100,000 shares of common stock,
respectively, for $.0002 per share. EVC subsequently issued an additional 1,500
shares of common stock to Mr. Goldenberg for financial consulting services
rendered from March 1997 to October 1997 when he changed his status from
part-time to full-time chief financial officer of EVC. In September 1998,
Dr. McGrath sold 68,000 shares of common stock to B&H Investments Limited, a
principal stockholder of EVC, at $8.00 per share. Drs. Buntzman and McGrath may
be deemed promoters of EVC.
In January and February 1998, EVC issued to Tayside Trading Ltd., a
principal stockholder of EVC, warrants to purchase 17,705 shares of common stock
at $6.00 per share as a finder's fee in connection with EVC's receipt of a
portion of the gross proceeds of $1,072,500 from the issuance in a private
placement of 195,000 shares of common and warrants to purchase 78,000 shares of
common stock at $6.00 per share. Tayside and B & H acquired their other EVC
securities described under "Principal Stockholders" prior to the foregoing
transactions and at a time when they had no relationship with EVC or any officer
or director of EVC.
In March 1998, EVC entered into a three year consulting agreement with
Arthur H. Goldberg, who will become a director of EVC upon the commencement of
this offering. The agreement provides that Mr. Goldberg will help EVC to obtain
financing and agreements with corporate customers and education providers and in
strategic planning and corporate development. The agreement entitles
Mr. Goldberg to 5% of revenues received by EVC from activities, if any, with one
education provider with which EVC does not currently have an
33
<PAGE>
agreement. The agreement also grants Mr. Goldberg seven year options to purchase
25,000 shares of common stock at $7.00 per share, of which options to purchase
12,500 shares vested immediately and options to purchase an additional 12,500
shares vested in September 1998, and an additional 75,000 shares of common stock
at $7.00 per share, of which options to purchase 25,000 shares vest on each
anniversary of the agreement while the agreement remains in effect.
The transactions described above between EVC and each of Tayside, B&H and
Mr. Goldberg were consummated when such companies and individuals were not
affiliates of EVC. EVC believes the terms of such transactions were negotiated
at arms length and were as favorable to EVC as it could obtain from unaffiliated
third parties.
Upon completion of this offering, EVC will have two independent directors.
Any material transactions, including material loans with officers, directors,
stockholders holding greater than 5% of EVC's outstanding shares or affiliates,
will be ratified or approved by a majority of the directors who do not have an
interest in the transaction, and will be on terms which are at least as
favorable to EVC as those that can be obtained by unaffiliated third parties.
All such transactions will be entered into by EVC for a bona fide purpose. Such
disinterested directors will have full access, at EVC's expense, to EVC's
counsel or other independent counsel in connection with such ratification or
approval of any transaction.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 1, 1999, the beneficial
ownership of common stock by each person (or group of affiliated persons) known
by EVC to own beneficially more than 5% of the outstanding shares of common
stock, each director and director designee and the chief executive officer of
EVC, and all directors, director designees and executive officers as a group.
Except as indicated in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF TOTAL SHARES
COMMON STOCK ---------------------------------
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Arol I. Buntzman.............................................. 1,518,500(2) 50.5% 36.1%(3)
John J. McGrath............................................... 432,000(2) 14.4 10.3 (3)
Richard Goldenberg............................................ 86,500(2)(4) 2.9 2.1 (3)
Tayside Trading Ltd(5) ....................................... 367,705(6) 11.8 8.5
125/5 Sanhebria Murchevet
Jerusalem, Israel
DEWI Investments Limited(7) .................................. 533,334 17.8 12.7
37 Bar Ilan Street
Jerusalem, Israel
B&H Investments Limited(8) ................................... 268,409(9) 8.8 6.3
50 Town Range
Gibraltar
Royce N. Flippin, Jr.*........................................ -- -- --
Arthur H. Goldberg*........................................... 64,000(10) 2.1 1.5
All directors, director designees and executive officers as a
group (5 persons)........................................... 1,582,500(4)(10) 51.7 37.1
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Director designee.
(1) Unless otherwise indicated, the address for each stockholder is c/o Educational Video Conferencing, Inc., 35
East Grassy Sprain Road, Yonkers, New York 10710.
(2) Includes the 432,000 and 86,500 shares beneficially owned, respectively, by Dr. McGrath and Mr. and
Mrs. Goldenberg. An agreement between Drs. Buntzman and McGrath, gives Dr. Buntzman the right to direct the
vote of the shares of common stock owned by Dr. McGrath as Dr. Buntzman directs until March 1, 2000, and
also grants Dr. Buntzman a right of first refusal to purchase Dr. McGrath's shares if Dr. McGrath elects to
sell all or any part of his shares or leaves EVC's employ for any reason prior to March 1, 2000, other than
as a result of his death, permanent disability or termination of his employment by EVC without cause. The
price to be paid by Dr. Buntzman for such shares will be the lower of $4.00 per share or the average trading
price of the common stock during the 30-day period prior to the date of the termination of Dr. McGrath's
employment. See "Certain Transactions." Additionally, Dr. Buntzman has the right to direct the vote of the
shares owned by Mr. and Mrs. Goldenberg until March 1, 2000 pursuant to an agreement with them.
(3) If the underwriters elect to exercise in full their overallotment option, Dr. Buntzman will beneficially own
1,476,834 shares of common stock, representing 34.0% of the outstanding shares, Dr. McGrath will own 420,146
shares of common stock, representing 9.7% of the outstanding shares, Mr. Goldenberg will own 84,127 shares
of common stock, representing 1.9% of the outstanding shares and all directors and executive officers as a
group will own shares of common stock, representing 34.9% of the outstanding shares. See "Underwriting."
(4) Owned jointly by Mr. Goldenberg and his wife and excludes 15,000 shares of common stock owned by
Mr. Goldenberg's adult children, as to which shares Mr. and Mrs. Goldenberg disclaim beneficial ownership.
(5) The ultimate beneficial owner is Mr. Esriel Pines.
(6) Includes currently exercisable warrants to purchase 117,705 shares of common stock. Excludes warrants to
purchase 50,000 shares of common stock which are not exercisable prior to October 27, 1999. See "Certain
Transactions" and "Shares Eligible for Future Sale."
(7) The ultimate beneficial owner is Mr. Aron Gee.
(8) The ultimate beneficial owners are Mr. Chaim Segal and Mr. Simcha Senerovitch.
(9) Includes currently exercisable warrants to purchase 46,545 shares of common stock. See "Shares Eligible for
Future Sale."
(10) Includes currently exercisable warrants and options to purchase 54,000 shares of common stock. Excludes
options to purchase 50,000 shares of common stock which are not currently exercisable. See "Certain
Transactions" and "Shares Eligible for Future Sale."
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the material terms of the common stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of EVC's certificate of incorporation and by-laws, copies
of which have been filed as exhibits to the registration statement of which this
prospectus is a part.
GENERAL
Effective the date of this prospectus, the authorized common stock of EVC
will consist of 20,000,000 shares, par value $.0001 per share. In addition EVC
has authorized preferred stock of 1,000,000 shares, par value $.0001 per share.
The 3,008,909 currently outstanding shares of EVC common stock are owned by
36 holders of record. Upon consummation of this offering, 4,208,909 shares of
common stock and no shares of preferred stock will be issued and outstanding. An
additional 138,334 shares of common stock will be outstanding if the
underwriters' over-allotment option is exercised in full and an additional
120,000 shares of common stock will be issuable upon exercise of the
representative's warrants.
COMMON STOCK
Voting Rights. Each holder of common stock outstanding is entitled to one
vote per share on all matters submitted to a vote of EVC's stockholders,
including the election of directors. Holders will not have cumulative voting
rights in connection with the election of directors or any other matter.
Any action that may be taken at a meeting of the stockholders may be taken
by written consent in lieu of a meeting if EVC receives consents signed by
stockholders having the minimum number of votes that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present and voted. This could permit Drs. Buntzman and McGrath and
certain other principal stockholders to take action regarding certain matters
without providing other stockholders the opportunity to voice dissenting views
or raise other matters.
Liquidation. In the event of any dissolution, liquidation or winding up of
the affairs of EVC, whether voluntary or involuntary, holders of the common
stock are entitled to share ratably in all assets remaining after payment of the
debts and other liabilities of EVC and after satisfaction of the liquidation
preference of any shares of preferred stock then outstanding.
Dividends, distributions and stock splits. Subject to the preferential
rights of any preferred stock that may at the time be outstanding, each share of
common stock will have an equal and ratable right to receive dividends when, if
and as declared from time to time by the board of directors out of funds legally
available therefor. EVC does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
Other provisions. The holders of common stock are not entitled to
preemptive rights. There are no redemption or sinking fund provisions applicable
to the common stock.
PREFERRED STOCK
The board of directors has the authority to issue up to 1,000,000 shares of
preferred stock in one or more series, to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued shares of
preferred stock and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. The board of directors, without stockholder approval, will be able
to issue preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of common stock. EVC has no present plans
to issue any preferred stock.
CERTAIN ANTI-TAKEOVER EFFECTS OF LAW AND CERTIFICATE OF INCORPORATION
Following consummation of the offering, EVC will be subject to the
"business combination" provisions of Section 203 of Delaware corporation law. In
general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder"
36
<PAGE>
(in general, a stockholder owning 15% of a corporation's outstanding voting
securities) for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
o the transaction is approved by the corporation's board of directors prior
to the date the stockholder became an interested stockholder;
o upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the stockholder owned at least 85% of
the shares of stock entitled to vote generally in the election of
directors of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned by (i) persons who are directors and also
officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
o on or after such date, the business combination is approved by the board
of directors and authorized by the affirmative vote of at least 66 2/3%
of such outstanding voting stock not owned by the interested stockholder.
EVC has adopted a classified board of directors effective upon the
commencement of this offering. The directors will be divided into three classes,
two consisting of two directors and one consisting of one director. The
existence of a classified board of directors may inhibit a change of control of
EVC. See "Management--Classified Board."
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company of New Jersey has been appointed
as transfer agent and registrar for the common stock.
LISTING
The common stock has been approved for listing on the Nasdaq SmallCap
Market under the symbol "EVCI." EVC has applied for listing of the common stock
on the Pacific Exchange and the Boston Stock Exchange under the symbol "EVI."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. EVC cannot predict the effect, if any, that sales of shares of the common
stock to the public or the availability of shares for sale to the public will
have on the market price of the common stock prevailing from time to time.
Upon consummation of this offering, EVC will have 4,208,909 shares of
common stock outstanding (4,347,243 shares if the Underwriters' over-allotment
option is exercised in full). Of the shares outstanding after this offering, the
1,200,000 shares of common stock sold in this offering (1,380,000 shares if the
underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction under the Securities Act of 1933, except that
shares owned by an "affiliate" of EVC will be subject to the volume limitations
of Rule 144 under the Securities Act of 1933. As defined in Rule 144, an
"affiliate" of an issuer is a person who, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, such issuer.
The remaining 3,008,909 shares of common stock will be "restricted
securities" (as that phrase is defined in Rule 144) and may not be resold in the
absence of registration under the Securities Act or pursuant to an exemption
from such registration, including the exemption provided by Rule 144 under the
Securities Act.
In addition to the demand and piggyback registration rights of the holders
of the representative's warrants, holders of 1,197,909 shares of the common
stock and warrants to purchase 385,252 shares of common stock have piggyback
registration rights following this offering. Such holders include Tayside
Trading Ltd., Dewi Investments Limited and B & H Investments Limited, as to a
total of 1,005,198 shares of common stock and
37
<PAGE>
232,546 shares of common stock subject to warrants, and Arthur H. Goldberg as to
10,000 shares of common stock and 4,000 shares of common stock subject to
warrants.
Subject to the foregoing and to the lock-up agreements described below,
under Rule 144 as currently in effect, a stockholder, including an affiliate,
who has beneficially owned his or her restricted shares for at least one year
from the date they were acquired from EVC or an affiliate of EVC may sell,
within any three-month period, a number of such shares that does not exceed
certain volume restrictions, provided that certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. In addition, under Rule 144(k), if a period of at least two years has
elapsed from the date any restricted shares were acquired from EVC or an
affiliate, a stockholder that is not an affiliate of EVC at the time of sale and
that has not been an affiliate for at least three months prior to the sale is
entitled to sell those shares without compliance with the requirements of
Rule 144 set forth above. An affiliate of EVC, however, must comply with the
volume restrictions and the other requirements referred to above.
Immediately after this offering, there will be options and warrants to
purchase approximately 670,252 shares of common stock outstanding. Subject to
the provisions of existing lock-up agreements, holders of options to purchase
165,000 shares may rely on the resale provisions of Rule 701 under the
Securities Act, which permits nonaffiliates to sell their shares without having
to comply with the current public information, holding period, volume limitation
or notice provisions of Rule 144 and permits affiliates to sell their shares
without having to comply with the holding period requirement of Rule 144, in
each case beginning 90 days after the consummation of this offering. In
addition, 90 days after this offering, EVC intends to file a registration
statement on Form S-8 covering up to 356,000 shares issuable under the 1998
incentive plan and up to 65,000 shares issuable upon exercise of options granted
to two employees prior to the adoption of the 1998 incentive plan. Shares of
common stock registered under such registration statement will, subject to
Rule 144 volume limitations applicable to affiliates, be available for sale in
the open market, unless such shares are subject to vesting restrictions with EVC
or existing lock-up agreements.
EVC and its existing security holders have agreed that they will not,
without the prior written consent of Prime Charter, for a period of 12 months
after the date of this prospectus, directly or indirectly sell, offer to sell,
solicit an offer to buy, contract to sell, pledge, grant any option for the sale
of, or otherwise transfer or dispose of or cause the transfer or disposition of,
any securities of EVC held by them. The foregoing restrictions do not apply to
grants or awards under the 1998 incentive plan or to shares sold to the
underwriters to cover over-allotments.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the form
of which has been filed as an exhibit to the registration statement of which
this prospectus forms a part, the underwriters named below, acting through Prime
Charter as representative, have severally agreed to purchase from EVC, and EVC
has agreed to sell, an aggregate of 1,200,000 shares of common stock. The
underwriters' obligations to pay for and accept delivery of the shares of common
stock are subject to certain conditions set forth in the underwriting agreement,
including, but not limited to, satisfactory completion of due diligence,
delivery of a comfort letter from EVC's auditors, receipt of an opinion of EVC's
counsel and other closing conditions. The underwriters are committed to purchase
all of the shares of common stock if any shares are purchased. If one or more
underwriters does not purchase the number of shares which it has agreed to
purchase, the commitments of non-defaulting underwriters may be increased on a
pro rata basis, except that the non-defaulting underwriters will not be
obligated to purchase any shares if the aggregate number of additional shares
exceeds 10% of the total number of shares offered.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Prime Charter Ltd................................................................ 980,000
C.E. Unterberg, Towbin........................................................... 40,000
Sands Brothers & Co. Inc......................................................... 40,000
Van Kasper & Company............................................................. 40,000
Gilford Securities Incorporated.................................................. 20,000
Chatsworth Securities LLC........................................................ 20,000
Kaufman Bros., L.P............................................................... 20,000
J.J.B. Hilliard, W.L. Lyons, Inc................................................. 20,000
Drake & Company, Inc............................................................. 20,000
---------
Total....................................................................... 1,200,000
---------
---------
</TABLE>
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to certain dealers, who are members of the NASD, at such price less a concession
not in excess of $.50 per share. The underwriters may allow, and such dealers
may reallow, a concession not in excess of $.10 per share to other dealers that
are members of the NASD. Until completion of this offering, the public offering
price, the concession and the reallowance will not be changed.
EVC has agreed to pay Prime Charter a non-accountable expense allowance of
3% of the aggregate offering price of the shares of common stock sold in this
offering (including any shares of common stock purchased pursuant to the
over-allotment option), of which $100,000 has been paid by EVC, to cover some of
the due diligence expenses and underwriting costs related to this offering. EVC
has also agreed to pay the fees and expenses of counsel to the underwriters up
to a maximum of $200,000.
EVC has agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933 in connection with this offering.
The underwriting agreement provides that Prime Charter, during the three
years after the date of this prospectus, has the right to designate a person to
observe meetings of EVC's board of directors or, during the five years after the
date of this prospectus, has the right to require EVC to use its best efforts to
elect Prime Charter's nominee to EVC's board of directors.
EVC has agreed to sell to Prime Charter or its designees, for nominal
consideration, the representative's warrants to purchase an aggregate of 120,000
shares of common stock. The shares of common stock subject to the
representative's warrants will be identical to the shares of common stock
offered to the public hereby in all respects. The representative's warrants will
be exercisable for a four-year period commencing one year after the date of the
consummation of this offering at a per share exercise price equal to 165% of the
initial public offering price of the common stock. The representative's warrants
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year from the effective date of this prospectus, except to officers or
partners of the underwriters. During the period beginning one year from the date
of the consummation of this offering and ending five years thereafter, the
holder of the representative's warrants may require EVC to register for resale
to the public the shares of common stock issued or issuable upon exercise of the
representative's warrants. Such demand registration right may be exercised once
during such period. In addition, during the period ending seven years from the
date of this prospectus, EVC has agreed to include such shares of common stock
in any
39
<PAGE>
appropriate registration statement filed by EVC. The representative's warrants
will contain anti-dilution provisions providing for appropriate adjustment of
the exercise price and number of shares that may be purchased upon the
occurrence of certain events.
EVC and Drs. Buntzman and McGrath and Mr. Goldenberg, EVC's executive
officers, have granted to the underwriters options, exercisable during the
45-day period after the date of this prospectus, to purchase up to 180,000
additional shares of common stock at the public offering price, less the
underwriting discounts and commissions and a pro rata portion of the
non-accountable expense allowance. Of this amount, the first 138,334 shares will
be sold by EVC and the remaining 41,666 shares will be sold by such executive
officers. The underwriters may exercise these options solely to cover
over-allotments, if any, made in the sale of the shares of common stock offered
hereby. Generally, to the extent that these options are exercised, each
underwriter will become obligated to purchase approximately the same percentage
of such additional shares of common stock as the percentage of shares of common
stock it was originally obligated to purchase as set forth above.
Prior to this offering, there has been no public market for the common
stock. Accordingly, the public offering price for the common stock was
determined by negotiation between EVC and Prime Charter. Among the factors
considered in determining the public offering price were the services, the
experience of management, the economic conditions of EVC's industry in general,
the general condition of the equity securities market and the demand for similar
securities of companies considered comparable to EVC and other relevant factors.
There can be no assurance, however, that the prices at which the common stock
will sell in the public market after this offering will not be lower than the
price at which the shares of common stock are sold by the underwriters.
Until the distribution of common stock in this offering is completed, rules
of the SEC may limit the ability of the underwriters and certain selling group
members to bid for and purchase the common stock. As an exception to these
rules, the underwriters are permitted to engage in certain transactions that
stabilize the price of the common stock. Such transactions consist of bids or
purchases for the purpose of maintaining the price of the common stock. If the
underwriters create a short position in the common stock in connection with this
offering, i.e., if they sell more shares of common stock than are set forth on
the cover page of this prospectus, the underwriters may reduce the short
position by purchasing common stock in the open market. Prime Charter may also
elect to reduce any short position by exercising all or part of the
over-allotment option described above. In addition, Prime Charter may impose a
penalty bid on certain underwriters and selling group members. This means that
if Prime Charter purchases shares of common stock in the open market to reduce
the underwriters' short position or to stabilize the price of the common stock,
it may reclaim the amount of the selling concession from the underwriters and
selling group members that sold those shares as part of this offering. In
general, purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of the security to be higher than it might
be in the absence of such purchases. The imposition of a penalty bid might also
have an effect on the price of a security to the extent that it discouraged
resales of that security. Neither EVC nor any of the underwriters makes any
representation or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price ofthe common stock.
In addition, neither Prime Charter nor any of the underwriters makes any
representation that Prime Charter or any such underwriter will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
The underwriters have informed EVC that sales to any account over which the
underwriters exercise discretionary authority will not exceed 1% of this
offering.
LEGAL MATTERS
The legality of the common stock offered hereby will be passed upon for EVC
by FischbeinoBadillooWagneroHarding, New York, New York. Certain legal matters
will be passed upon for the underwriters by Proskauer Rose LLP, New York, New
York.
EXPERTS
The financial statements of EVC for the periods ended December 31, 1997 and
December 31, 1998 included in this prospectus and registration statement have
been so included in reliance upon the report of Goldstein Golub Kessler LLP,
independent certified public accountants, given upon the authority of such firm
as experts in accounting and auditing.
40
<PAGE>
[This page intentionally left blank]
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report........................................................................ F-2
Financial Statements:
Balance Sheet as of December 31, 1997 and December 31, 1998......................................... F-3
Statement of Operations for the Period from March 4, 1997 (date of inception) to December 31, 1997
and for the Year Ended December 31, 1998.......................................................... F-4
Statement of Stockholders' Equity for the Period from March 4, 1997 (date of inception) to
December 31, 1997 and for the Year Ended December 31, 1998........................................ F-5
Statement of Cash Flows for the Period from March 4, 1997 (date of inception) to December 31, 1997
and for the Year Ended December 31, 1998.......................................................... F-6
Notes to Financial Statements....................................................................... F-7--F-13
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Educational Video Conferencing, Inc.
We have audited the accompanying balance sheets of Educational Video
Conferencing, Inc. ("EVC") as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the period
from March 4, 1997 (date of inception) to December 31, 1997 and for the year
ended December 31, 1998. These financial statements are the responsibility of
EVC's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Educational Video Conferencing,
Inc. as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for the period from March 4, 1997 (date of inception) to
December 31, 1997 and for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that EVC will
continue as a going concern. As discussed in Note 8 to the financial statements,
EVC has had limited revenue, little working capital, recurring losses and an
accumulated deficit that raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 8. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 21, 1999
F-2
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 127,279 $ 914,700
Accounts receivable, net of allowance for doubtful accounts of $35,000 at
December 31, 1998............................................................... -- 226,776
Subscriptions receivable........................................................... 690,000 --
Prepaid expenses................................................................... 11,238 80,846
---------- -----------
Total current assets................................................................. 828,517 1,222,322
Property and Equipment, net of accumulated depreciation of $234,984 at December 31,
1998............................................................................... 1,190,251 1,405,150
Deferred Income Tax Asset, net of valuation allowance of $77,000 and
$520,000, respectively............................................................. -- --
Other Assets......................................................................... 14,292 7,832
Debt Issue Costs..................................................................... 81,903 --
Deferred Offering Costs.............................................................. -- 900,000
---------- -----------
Total Assets......................................................................... $2,114,963 $ 3,535,304
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses.............................................. $ 534,648 $ 920,643
Current portion of notes payable................................................... 210,177 --
---------- -----------
Total current liabilities............................................................ 744,825 920,643
Notes Payable, net of current portion................................................ 235,000 --
---------- -----------
Total liabilities.................................................................... 979,825 920,643
---------- -----------
Commitments
Stockholders' Equity:
Preferred stock--$.0001 par value; authorized 1,000,000 shares, none issued........ -- --
Common stock--$.0001 par value; authorized 20,000,000 shares, issued and
outstanding 2,329,278 shares and 3,008,909 shares, respectively................. 233 301
Additional paid-in capital......................................................... 1,857,027 6,064,920
Accumulated deficit................................................................ (722,122) (3,450,560)
---------- -----------
Stockholders' equity................................................................. 1,135,138 2,614,661
---------- -----------
Total Liabilities and Stockholders' Equity........................................... $2,114,963 $ 3,535,304
---------- -----------
---------- -----------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-3
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 4, 1997
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
------------------- -------------------
<S> <C> <C>
Net revenue.................................................................. -- $ 351,598
Interest income.............................................................. -- 56,369
----------- -----------
Total revenue................................................................ -- 407,967
----------- -----------
Operating expenses:
Cost of sales.............................................................. -- 210,326
Salaries and benefits...................................................... $ 333,661 1,435,525
Marketing, brochures and student registration costs........................ 158,486 591,827
Professional fees.......................................................... 60,842 96,915
Interest and financing costs............................................... 58,536 105,681
Depreciation............................................................... -- 234,984
Other...................................................................... 110,597 461,147
----------- -----------
Operating expenses........................................................... 722,122 3,136,405
----------- -----------
Net loss..................................................................... $ (722,122) $(2,728,438)
----------- -----------
----------- -----------
Basic loss per common share.................................................. $ (.38) $ (1.03)
----------- -----------
----------- -----------
Weighted-average number of common shares outstanding......................... 1,922,951 2,641,636
----------- -----------
----------- -----------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-4
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash and
reduction of additional paid-in capital
for stock split........................... 1,845,000 $184 $ 16 -- $ 200
Issuance of common stock for cash............ 250,000 25 844,975 -- 845,000
Issuance of common stock for video
conferencing equipment.................... 58,824 6 391,054 -- 391,060
Issuance of common stock for services related
to raising equity......................... 50,000 5 (5) -- --
Issuance of common stock in connection with
private placement......................... 125,455 13 620,987 -- 621,000
Net loss..................................... -- -- -- $ (722,122) (722,122)
--------- ---- ---------- ----------- ----------
Balance at December 31, 1997................... 2,329,279 233 1,857,027 (722,122) 1,135,138
Issuance of common stock for cash............ 533,334 53 3,599,954 -- 3,600,007
Issuance of common stock in connection with
private placement......................... 69,546 7 349,130 -- 349,137
Issuance of common stock upon conversion of
notes payable............................. 66,250 7 248,310 -- 248,317
Issuance of common stock for services
relating to raising equity................ 7,000 1 (1) -- --
Issuance of common stock for services........ 3,500 -- 10,500 -- 10,500
Net loss..................................... -- -- -- (2,728,438) (2,728,438)
--------- ---- ---------- ----------- ----------
Balance at December 31, 1998................... 3,008,909 $301 $6,064,920 $(3,450,560) $2,614,661
--------- ---- ---------- ----------- ----------
--------- ---- ---------- ----------- ----------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-5
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 4, 1997
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
------------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $(722,122) $ (2,728,438)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................. -- 234,984
Amortization of debt issue costs......................................... 36,819 81,903
Allowance for doubtful accounts.......................................... -- 35,000
Common stock issued for services......................................... -- 10,500
Changes in operating assets and liabilities:
Increase in accounts receivable.......................................... -- (261,776)
Increase in prepaid expenses............................................. (11,238) (69,608)
(Increase) decrease in other assets...................................... (14,292) 6,460
Increase in accounts payable and accrued expenses........................ 534,648 385,995
--------- ------------
Net cash used in operating activities........................................... (176,185) (2,304,980)
--------- ------------
Cash flows used in investing activity--purchase of property and equipment....... (695,074) (449,883)
--------- ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable....................................... 350,000 --
Debt issue costs.............................................................. (118,722) --
Net proceeds from issuance of common stock.................................... 767,260 4,639,144
Deferred offering costs....................................................... -- (900,000)
Repayment of notes payable.................................................... -- (160,177)
Expenses incurred in the conversion of notes payable to common stock.......... -- (36,683)
--------- ------------
Net cash provided by financing activities....................................... 998,538 3,542,284
--------- ------------
Net increase in cash and cash equivalents....................................... 127,279 787,421
Cash and cash equivalents at beginning of period................................ -- 127,279
--------- ------------
Cash and cash equivalents at end of period...................................... $ 127,279 $ 914,700
--------- ------------
--------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................................... $ -- $ 47,979
--------- ------------
--------- ------------
Supplemental schedule of noncash investing and financing activities:
Conversion of notes payable to common stock................................... $ -- $ 285,000
--------- ------------
--------- ------------
Issuance of common stock in exchange for video conferencing equipment......... $ 400,000 $ --
--------- ------------
--------- ------------
Property and equipment acquired for note payable.............................. $ 95,177 $ --
--------- ------------
--------- ------------
Subscription receivable for issuance of common stock.......................... $ 690,000 $ --
--------- ------------
--------- ------------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-6
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Educational Video Conferencing, Inc. ("EVC") was formed on March 4, 1997.
EVC delivers educational courses and programs to employees of major corporations
via interactive video conferencing systems. Interactive video conferencing
allows the instructor to see, hear and interact with students as the students
see, hear and interact with their instructor and other students at multiple
locations. EVC provides its corporate customers with access to a number of
educational providers and the marketing and administrative services necessary to
recruit, enroll and deliver courses and programs to the corporation's employees.
EVC serves as a marketing and technology bridge between accredited colleges,
universities and training organizations that want to increase enrollment and
tuition revenue from student populations they otherwise could not serve, and
corporations that want to raise the education and skill levels of their
employees.
EVC commenced its planned principal operations in February 1998.
In April 1998, pursuant to an agreement and plan of merger
(reincorporation), Educational Video Conferencing, Inc. ("EVC-NY"), a New York
corporation, merged into and with Educational Video Conferencing, Inc.
("EVC-DE"), a newly formed, inactive Delaware corporation owned by the
stockholders of EVC-NY. EVC-DE is the surviving corporation and EVC-NY has
ceased to exist. The merger was accounted for at historical cost in a manner
similar to a pooling of interests.
EVC considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
EVC maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. It has not experienced any losses in such accounts.
EVC recognizes income ratably over the semester in which courses are given.
EVC began offering courses in February 1998. The courses range from eight-week
to 16-week periods meeting one or two times a week.
During the year ended December 31, 1998, three education providers
accounted for 100% (64%, 19% and 17%) of EVC's net revenue.
Property and equipment is recorded at cost. Depreciation is provided for by
the straight-line method over the estimated useful lives of the property and
equipment. All property and equipment purchased in 1997 was placed in service in
January 1998. Accordingly, no depreciation is recorded for the period ended
December 31, 1997.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates by management.
Actual results could differ from these estimates.
Debt issue costs associated with the private placement financings described
in Note 4 are being amortized by the straight-line method over the term of the
related debt. Accumulated amortization was $36,819 and $118,722 at December 31,
1997 and 1998, respectively.
Deferred offering costs represent costs attributable to a proposed initial
public offering ("IPO") (see Note 8). EVC intends to offset these costs against
the proceeds from this transaction. In the event that such offering is not
completed, these costs will be charged to operations.
Advertising costs are expensed as incurred. Marketing, brochures and
student registration costs are capitalized and amortized over the semester to
which the specific courses relate.
EVC employs the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 109, under which method
recorded deferred income taxes reflect the tax consequences on future years of
temporary differences (differences between the tax basis of assets and
liabilities and their financial amounts at year-end). EVC provides a valuation
allowance that reduces deferred tax assets to their net realizable value.
F-7
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:--(CONTINUED)
The carrying values of financial instruments, including cash equivalents,
subscriptions receivable and short-and long-term debt, approximate fair market
values because of short maturities on interest rates that approximate current
rates available to a development stage company.
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share, requires dual presentation of basic earnings per share ("EPS") and
diluted EPS on the face of all statements for all entities with complex capital
structures. Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation including stock options, restricted stock
awards, warrants and other convertible securities. Diluted EPS is not presented
since the effect would be antidilutive.
In December 1998, EVC's board of directors approved a 1-for-2 reverse stock
split which will be effective on the date of the public offering prospectus. All
references to the number of common shares and per share amounts elsewhere in the
financial statements and related footnotes have been restated as appropriate to
reflect the effect of the reverse split for all periods presented.
EVC accounts for employee stock options in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB No. 25, EVC applies the intrinsic value method of
accounting and therefore does not recognize compensation expense for options
granted, because options are only granted at a price equal to the market price
on the day of grant. SFAS No. 123, Accounting for Stock-Based Compensation,
prescribes the recognition of compensation expense based on the fair value of
options as determined on the grant date. However, SFAS No. 123 allows companies
to continue applying APB No. 25 if certain pro forma disclosures are made
assuming hypothetical fair value method application (see Note 6).
During the year ended December 31, 1998, EVC adopted SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 modifies the format EVC uses to
report total nonowner changes in stockholders' equity. These changes will be
shown together with net income in a new financial statement category entitled
"comprehensive income." Adoption of SFAS No. 130 had no effect on EVC's
financial position or results of operations and since EVC has no items of other
comprehensive income, it is not required to report comprehensive income.
2. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ ESTIMATED
1997 1998 USEFUL LIFE
---------- ---------- -----------
<S> <C> <C> <C>
Furniture and fixtures......................................... $ 10,286 $ 58,187 7 years
Office computers............................................... 26,439 182,865 5 years
Video teaching equipment....................................... 1,153,526 1,292,813 5 years
Computer software.............................................. -- 83,946 5 years
Automobile..................................................... -- 22,233 5 years
---------- ----------
1,190,251 1,640,044
Less accumulated depreciation.................................. -- 234,894
---------- ----------
$1,190,251 $1,405,150
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Accounts payable................................................................ $ 55,258 $101,652
Accrued bonuses................................................................. 35,600 77,445
Accrued professional fees....................................................... 22,091 586,285
Accrued marketing brochures..................................................... -- 74,405
Accrued computer and video equipment............................................ -- 80,856
Payable to video equipment provider............................................. 308,349 --
Accrued interest................................................................ 21,000 --
Accrued finder's fees........................................................... 92,350 --
-------- --------
$534,648 $920,643
-------- --------
-------- --------
</TABLE>
4. NOTES PAYABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
-------- -----
<S> <C> <C>
Promissory notes payable(a).......................................................... $115,000 $--
Convertible notes payable(b)......................................................... 235,000 --
Note payable--equipment loan, noninterest-bearing and equipment note payable due on
September 30, 1998................................................................. 95,177 --
-------- ---
Total notes payable................................................................ 445,177 --
Less current portion................................................................. 210,177 --
-------- ---
Notes payable, net of current portion.............................................. $235,000 $--
-------- ---
-------- ---
</TABLE>
- ------------------
(a) In June 1997, EVC completed a private placement in which it received in the
aggregate gross proceeds of $115,000 for the issuance of its 18% promissory
notes and warrants to purchase 11,500 shares of common stock for $2.00 per
share during the five-year period commencing one year after commencement of
EVC's proposed IPO. The transaction costs attributable to this private
placement were $36,166. No value was assigned to the warrants due to
immateriality.
In April 1998, $100,000 principal amount of the promissory notes was
converted into 20,000 shares of common stock and warrants to purchase 8,000
shares of common stock for $6.00 per share. Transaction costs incurred in
connection with this conversion were $9,171. The remaining $15,000 principal
amount of promissory notes was repaid in June and July 1998.
(b) Between August and December 1997, EVC completed private placements for which
it received in the aggregate gross proceeds of $235,000 from the issuance of
18% convertible promissory notes and warrants, expiring in 2002, to purchase
23,500 shares of common stock at $4.00 per share. No value was assigned to
the warrants due to immateriality. The notes are due and payable on
October 15, 2000 and are convertible into common stock at the rate of $4.00
per share. In June and July 1998, $185,000 principal amount of notes was
converted into 46,250 shares of common stock and $50,000 principal amount
was repaid in October 1998. In connection with these private placements, EVC
incurred transaction costs amounting to $82,556 and, upon conversion,
incurred $27,512 of expenses and issued 7,000 shares of common stock as a
broker's commission.
F-9
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES:
The tax effects of loss carryforwards and the valuation allowance that give
rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- ---------
<S> <C> <C>
Net operating losses........................................................... $ 77,000 $ 520,000
Less valuation allowance....................................................... (77,000) (520,000)
-------- ---------
Deferred tax assets............................................................ $ -0- $ -0-
-------- ---------
-------- ---------
</TABLE>
As of December 31, 1998, EVC had net operating loss carryforwards available
to offset future taxable income of approximately $3,400,000 which expire in
various years through 2013. Between October 1997 and August 1998, EVC completed
private offerings of securities. EVC intends to have an IPO of its securities.
Under Section 382 of the Internal Revenue Code, these activities effect an
ownership change and thus may severely limit, on an annual basis, EVC's ability
to utilize its net operating loss carryforwards. EVC uses the lowest marginal
U.S. corporate tax of 15% to determine deferred tax amounts and the related
valuation allowance because EVC had no taxable earnings through December 31,
1998.
6. COMMITMENTS:
EVC leases office space under noncancelable operating leases which expire
in August 2002. EVC also leases space and other services for its multiport
control units that expires in 2000. The leases are subject to escalations for
increases in EVC's share of increases in real estate taxes and other expenses.
Minimum future obligations under these leases are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999......................................................................................... $258,717
2000......................................................................................... 264,549
2001......................................................................................... 153,418
2002......................................................................................... 105,527
--------
$782,211
--------
--------
</TABLE>
Rent expense charged to operations for the period from March 4, 1997 (date
of inception) to December 31, 1997 and for the year ended December 31, 1998
amounted to approximately $7,700 and $160,000, respectively.
EVC has entered into employment agreements with executive officers of EVC
which provide for compensation and other benefits as defined in the agreements.
Aggregate compensation under the agreements is as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999......................................................................................... $ 682,000
2000......................................................................................... 682,000
2001......................................................................................... 682,000
----------
$2,046,000
----------
----------
</TABLE>
EVC has a consulting agreement with an individual which entitles the
consultant to 2.5% of payments actually collected by EVC for services provided
by it to corporate customers with which EVC contracts as a result of the
consultant's direct involvement. The agreement also provides for payment of
$5,000 per month to the consultant. The agreement expires in May 2003, unless
earlier terminated, including upon 30 days notice to the consultant.
F-10
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS:--(CONTINUED)
EVC has a consulting agreement with another individual who will become a
director of EVC upon the commencement of the proposed IPO. The agreement
entitles the consultant to 5% of revenue received by EVC from activities, if
any, with an education provider with which EVC does not currently have an
agreement. The agreement grants the consultant seven-year options to purchase up
to 100,000 shares of common stock, at $7.00 per share, of which options to
purchase 25,000 shares are vested and options to purchase an additional 25,000
shares of common stock vest each March of the years 1999 through 2001.
7. STOCKHOLDERS' EQUITY:
Effective October 1997, EVC's board of directors approved, prior to the
reverse stock split described in the next paragraph, a 20,052-for-1 stock split,
whereby the number of shares of outstanding common stock was increased from 184
to 3,690,000. The stated par value of each share was changed from no par value
to $.0001. A total of $169 was reclassified from EVC's additional paid-in
capital account to EVC's common stock account prior to the reverse stock split
described in the next paragraph.
In December 1998, EVC's board of directors approved a 1-for-2 reverse stock
split which will be effective on the date of the public offering prospectus. All
references to the number of common shares and per share amounts elsewhere in the
financial statements and related footnotes have been restated as appropriate to
reflect the effect of the reverse split for all periods presented.
In May 1997, in connection with an employment agreement, EVC issued options
to this employee to purchase 15,000 shares of common stock at $4.80 per share.
The options, which vest at the rate of 5,000 per year, are not exercisable until
one year from the effective date of EVC's proposed IPO and expire 10 years from
the effective date of the IPO.
In May 1997, EVC issued warrants to an unaffiliated entity to purchase up
to 37,500 shares of common stock for $5.44 per share as additional consideration
for entering into a multiyear contract. The warrants are not exercisable until
one year from the effective date of EVC's proposed IPO and expire six years from
the effective date of the proposed IPO.
In October 1997, EVC received gross proceeds of $1,000,000 from the
issuance of 250,000 shares of common stock and warrants, expiring in 2002, to
purchase 150,000 shares of common stock. Of these warrants 100,000 are
exercisable at $4.00 per share and 50,000 are exercisable at $20.00 per share.
No value was assigned to the warrants due to immateriality. Transaction costs
incurred in connection with this issuance were $155,000. Additionally, in
November 1997, EVC issued 50,000 shares of common stock as a finder's fee in
connection with this transaction.
In October 1997, EVC entered into an agreement, as amended, with a provider
of interactive video equipment (the "Provider") under which EVC agreed to
purchase approximately $1,000,000 of video conferencing systems. The agreement
also obligates EVC to co-market the purchased products, among other things. The
purchase price was $505,163 in cash, $400,000 offset by the Provider's purchase
of 58,824 shares of EVC's common stock and a $95,177 noninterest-bearing note
due on September 30, 1998. At December 31, 1997, EVC owed the Provider $155,163
related to this transaction and $153,186 for additional purchases which are
included in accounts payable and accrued expenses in the accompanying financial
statements.
Between January 1998 and April 1998, EVC received gross proceeds of
$1,072,500 from the issuance of 195,000 shares of common stock and warrants,
expiring in 2003, to purchase 78,000 shares of common stock at $6.00 per share.
As of December 31, 1997, EVC had received subscriptions for an aggregate of
$690,000 to purchase 125,000 shares of common stock and warrants, expiring in
2003, to purchase 50,200 shares of common stock. The $690,000 was received by
EVC by January 13, 1998. Transaction costs incurred in connection with this
private placement were approximately $99,000. Additionally, warrants to purchase
51,752 shares of common stock for $6.00 per share were issued as a finder's fee
in connection with these transactions.
F-11
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY:--(CONTINUED)
In March 1998, in connection with the employment of a vice-president, EVC
issued options to purchase 50,000 shares of common stock. The options vest
ratably over 10 years with exercise prices ranging from $20.00 per share to
$40.00 per share.
Between May and August 1998, EVC received gross proceeds of $4,000,000 for
the issuance of 533,334 shares of common stock. The transaction costs incurred
in connection with this private placement were approximately $400,000 and the
issuance to a finder of warrants, expiring in 2003, to purchase 25,000 shares of
common stock at $12.00 per share.
In October 1998, the board of directors of EVC adopted an incentive plan in
which 356,000 shares of common stock have been reserved for future issuance
through September 30, 2008. The plan provides for grants of incentive stock
options, nonqualified stock options and shares of common stock to employees,
nonemployee directors and others. The option price cannot be less than the fair
market value of the shares of the incentive stock options at the date of grant.
Vesting of options and stock awards and certain other conditions are determined
by, or a committee appointed by, the board of directors. To date, no options
have been granted under this plan.
The following table represents the warrants outstanding as of December 31,
1997 and 1998:
<TABLE>
<CAPTION>
WARRANTS
OUTSTANDING
EXERCISE DECEMBER 31,
PRICE PER ------------------
EXPIRATION DATE WARRANT 1997 1998
- --------------------------------------------------------------------------------- --------- ------- -------
<S> <C> <C> <C>
August 2002...................................................................... $ 4.00 5,500 5,500
October 2002..................................................................... 4.00 100,000 100,000
October 2002..................................................................... 20.00 50,000 50,000
December 2002.................................................................... 4.00 18,000 18,000
January 2003..................................................................... 6.00 86,252 88,252
February 2003.................................................................... 6.00 -- 37,500
April 2003....................................................................... 6.00 -- 12,000
August 2003...................................................................... 12.00 -- 25,000
Six years from IPO............................................................... 2.00 11,500 11,500
Six years from IPO............................................................... 5.44 37,500 37,500
------- ------- -------
308,752 385,252
------- -------
------- -------
</TABLE>
The following table summarizes information for options currently
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
-------------------------------- ------------------
WTD.- WTD.- WTD.-
AVG. AVG. AVG.
EXERCISE REMAINING EXERCISE EXERCISE
PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
- ------------------------------------------------------------ ------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$ 4.80...................................................... 15,000 10 yrs. $ 4.80 -- --
$ 7.00...................................................... 100,000 7 yrs. $ 7.00 12,500 $ 7.00
$20.00--40.00............................................... 50,000 10 yrs. $30.00 -- --
------- ------- ------ ------ ------
$ 4.80--40.00 165,000 8 yrs. $13.76 12,500 $ 7.00
------- ------- ------ ------ ------
------- ------- ------ ------ ------
</TABLE>
EVC has elected, in accordance with the provisions of SFAS No. 123, to
apply the current accounting rules under APB Opinion No. 25 and related
interpretations in accounting for stock options and, accordingly, has presented
the disclosure-only information as required by SFAS No. 123. If EVC had elected
to recognize compensation cost
F-12
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY:--(CONTINUED)
based on the fair value of the options granted at the grant date as prescribed
by SFAS No. 123, EVC's net loss and net loss per common share would approximate
the pro forma amounts shown in the following table.
<TABLE>
<CAPTION>
MARCH 4, 1997
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
------------------- ------------
<S> <C> <C>
Reported net loss............................................................... $(722,122) $ (2,728,438)
--------- ------------
Pro forma net loss.............................................................. $(746,018) $ (2,805,468)
--------- ------------
Reported net loss per common share.............................................. $ (.38) $ (1.03)
--------- ------------
Pro forma net loss per common share............................................. $ (.39) $ (1.06)
--------- ------------
</TABLE>
The fair value of options granted (which is amortized to expense over the
option vesting period in determining the pro forma impact) is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<S> <C>
Expected life of options......................................................................... 7 to 10 yrs.
------------
Risk-free interest rate.......................................................................... 5.6% to 6.7%
------------
Expected volatility.............................................................................. N/A
------------
Expected dividend yield.......................................................................... --
------------
</TABLE>
The weighted-average fair value of options granted is as follows:
<TABLE>
<CAPTION>
MARCH 4, 1997
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
------------------- ------------
<S> <C> <C>
Fair value of each option granted................................................ $ 1.59 $ 1.54
Total number of options granted.................................................. 15,000 150,000
------- --------
Total fair value of all options granted................................... $23,896 $231,089
------- --------
------- --------
</TABLE>
In accordance with SFAS No. 123, the weighted-average fair value of stock
options granted is required to be based on a theoretical statistical model using
the preceding Black-Scholes assumptions. In actuality, because EVC's incentive
stock options do not trade on a secondary exchange, employees can receive no
value or derive any benefit from holding stock options under these plans without
an increase in the market price of EVC. Such an increase in stock price would
benefit all stockholders commensurately.
8. INITIAL PUBLIC OFFERING AND GOING CONCERN:
The accompanying financial statements have been prepared assuming EVC will
continue as a going concern. EVC has had limited revenue, little working
capital, recurring losses and an accumulated deficit that raise substantial
doubt about EVC's ability to continue as a going concern.
EVC is in the process of filing a registration statement on Form SB-2 under
the Securities Act of 1933. The registration statement contemplates an IPO of
common stock having a value of approximately $13,200,000 to $15,600,000.
Management believes that the successful completion of the proposed IPO will
allow EVC to continue as a going concern. If the proposed IPO is not
successfully completed or additional financing cannot be obtained, EVC would be
materially and adversely affected and there is substantial doubt about EVC's
ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary if EVC is unable to continue as a going
concern.
F-13
<PAGE>
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<PAGE>
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<PAGE>
================================================================================
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 5
Use of Proceeds and Plan of Operations......... 11
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Selected Financial Information................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 19
Management..................................... 27
Certain Transactions........................... 33
Principal Stockholders......................... 35
Description of Capital Stock................... 36
Shares Eligible for Future Sale................ 37
Underwriting................................... 39
Legal Matters.................................. 40
Experts........................................ 40
Index to Financial Statements.................. F-1
</TABLE>
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL MARCH 20, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
1,200,000 SHARES
[LOGO]
EDUCATIONAL VIDEO
CONFERENCING, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PRIME CHARTER LTD.
FEBRUARY 23, 1999
================================================================================
