SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the transition period from ______________
to ________________
Commission file number 1-14827
EDUCATIONAL VIDEO CONFERENCING, INC.
(Exact name of small business as
specified in its charter)
Delaware 06-1488212
(State of other jurisdiction (IRS Employer Identification Number)
of incorporation of organization)
35 East Grassy Sprain Road, Yonkers,
NY 10710 (Address of principal
executive offices)
(914) 787-3500
(Issuers's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,347,243 shares of Common
Stock as of August 1, 1999.
<PAGE>
Table of Contents
Part I
Financial Information
Item 1. Financial Statements
Page
Balance Sheet as of June 30, 1999 (unaudited) and as of
December 31, 1998 (audited) 3
Statement of Operations for the three and six month periods
ended June 30, 1999 and June 30, 1998 (unaudited) 4
Statement of Cash Flows for the six month periods ended
June 30, 1999 and June 30, 1998 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
Second Quarter Developments 7
Comparison of the three month periods ended
June 30, 1999 and June 30, 1998 8
Comparison of the six month periods ended
June 30, 1999 and June 30, 1998 8
Liquidity and Capital Resources 9
Year 2000 Compliance 10
Forward-Looking Statements and Risk Factors 10
Part II
Other Information
Item 3. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index
2
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited) (audited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................... $12,108,165 $914,700
Accounts receivable, net of allowance for doubtful
accounts of $55,000 and $35,000 respectively............. 316,059 226,776
Prepaid expenses and other current assets................... 78,654 80,846
----------- ---------
Total current assets.......................................... 12,502,878 1,222,322
----------- ---------
Property and equipment, net................................... 1,760,667 1,405,150
---------- ---------
Deferred Income Tax Asset, net of
valuation allowance ........................................
Other assets .............................................. 25,883 7 ,832
Deferred offering costs....................................... -- 900,000
---------- ---------
Total assets.................................................. $14,289,428 $3,535,304
========== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses...................... $187,098 $920,643
------- -------
Total current liabilities.................................... 187,098 920,643
------- -------
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 4,347,243
shares and 3,008,909 shares, respectively............... 435 301
Additional paid-in capital................................. 19,463,691 6,064,920
Accumulated deficit........................................ (5,361,796) (3,450,560)
---------- -----------
Stockholders' equity....................................... 14,102,330 2,614,661
---------- ----------
Total liabilities and stockholders equity.................. $14,289,428 $3,535,304
========== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenue.................................. $192,274 $105,810 $339,795 $139,171
Interest income.............................. 140,378 7,167 197,229 11,549
-------- --------- -------- -------
Total revenue................................ 332,652 112,977 537,024 150,720
------- ------- ------- -------
Operating expenses:
Cost of sales.............................. 73,148 43,082 131,606 93,408
Salaries and benefits...................... 579,270 282,572 1,113,179 519,634
Marketing, brochures and student
registration costs....................... 228,705 153,991 473,332 188,672
Professional fees.......................... 29,519 16,334 60,609 38,976
Interest and financing costs............... - 38,832 - 85,546
Depreciation............................... 76,154 55,424 159,999 110,194
Other...................................... 279,666 84,331 509,535 137,543
------- ------- ------- -------
Operating expenses........................... 1,266,462 674,566 2,448,260 1,173,973
--------- ------- --------- ---------
Net loss..................................... $(933,810) $(561,589) $(1,911,236) $(1,023,253)
========= ========= =========== ===========
Basic loss per common share.................. ($0.21) ($0.23) ($0.49) ($0.43)
===== ======= ====== ======
Weighted average number of common
shares outstanding 4,347,243 2,429,754 3,944,655 2,393,494
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(1,911,236) $(1,023,253)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation.................................... 159,999 110,194
Amortization of debt issue costs................ -- 61,427
Allowance for doubtful accounts................. 20,000 --
Changes in operating assets and liabilities:
Increase in accounts receivable................. (109,283) (110,628)
Increase in subscriptions receivable............ -- (1,211,553)
(Increase)/decrease in prepaid expense and
other current assets..................... 2,192 (9,375)
(Increase)/decrease in other assets............. (18,051) 9,170
Decrease in accounts payable and accrued
expenses............................. (733,545) (205,648)
------- -------
Net cash used in operating activities.................... (2,589,924) (2,379,666)
--------- ----------
Cash flows used in investing activity:
Purchase of property and equipment......... (515,516) (84,190)
-------- -------
Cash flows from financial activities:
Net proceeds from issuance of common stock...... 13,398,905 4,766,331
Decrease in deferred offering costs 900,000 --
Repayment of notes payable...................... -- (170,000)
--------- ---------
Net cash provided by financing activities 14,298,905 4,596,331
---------- ---------
Net increase in cash and cash equivalents................ 11,193,465 2,132,475
Cash and cash equivalents at beginning of period......... 914,700 127,279
---------- ---------
Cash and cash equivalents at end of period............... $12,108,165 $2,259,754
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........ --- $ 25,035
------
Supplemental schedule of noncash investing
and financing activities:
Conversion of notes payable --- $ 170,000
-------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
Notes to Financial Statements
(unaudited)
Note 1- Business and Basis of Presentation
Educational Video Conferencing, Inc. ("EVC") delivers accredited college courses
and degree programs, as well as professional development, corporate training and
other programs, to corporations and others by means of 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 the other students at multiple locations. EVC
provides its customers with access to education providers and the marketing and
administrative services necessary to recruit and enroll students and deliver
courses and programs to them. EVC receives a fee based on tuition payments
received by the education provider, typically after completion of courses.
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the requirements of item 310(b) of regulation S-B. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management, are necessary for a fair presentation of the results for the
periods shown. There have been no significant changes of accounting policy since
December 31, 1998.
EVC's results of operations for the interim periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period and should be read in conjunction with the audited financial statements
of EVC as of December 31, 1998 and for the year then ended and the notes thereto
in the prospectus dated February 23, 1999 that was included in EVC's
Registration Statement filed on Form SB-2 (Registration No. 333-66085).
The information in this report gives effect to a one-for-two reverse split of
the common stock effective February 22, 1999.
Note 2-Initial Public Offering
See Item 3 of Part II for information about the use of the proceeds of EVC's
initial public offering that was completed in the first quarter of 1999("IPO").
Note 3-Earnings Per Share
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.
6
<PAGE>
Note 4-Income Taxes
No provision for income taxes has been made for all periods presented since EVC
had net operating losses. These net operating losses have resulted in a deferred
tax asset at June 30, 1999. Due to the uncertainty regarding the ultimate amount
of income tax benefits to be derived from EVC's net operating losses, EVC has
recorded a full valuation allowance for the deferred asset as of June 30, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements and notes thereto for the year ended December 31, 1998
included in EVC's prospectus dated February 23, 1999 and in conjunction with the
financial statements and notes thereto for the three and six-month periods ended
June 30, 1999 and 1998 included in Item 1 of this report.
Management believes EVC has made substantial progress since its initial public
offering in February 1999. A key element of its strategy continues to be signing
multi-year contracts with institutional employers and education providers and
establishing co-marketing alliances with major communications carriers, as
quickly as possible. Another key element of EVC's strategy is to implement its
contracts with institutional employers in stages by increasing, over time, the
number of locations to which EVC delivers courses and the number of employees to
whom EVC offers courses. This rollout strategy enables EVC to use its resources
more effectively to market to, service and sign multi-year contracts with, more
institutional customers.
First and Second Quarter Developments
EVC signed a multi-year agreement with Lockheed Martin Corporation that gives
EVC the ability to offer and deliver courses to employees of more than 50
Lockheed Martin companies located throughout the United States.
EVC entered into a multi-year agreement with Kaplan Educational Centers, Inc.
that gives EVC the ability to offer and deliver Kaplan SAT and GMAT test
preparation courses and K-12 after-school programs, as well as insurance and
securities training and licensing preparation courses given by Dearborn, a unit
of Kaplan's Professional division. EVC began delivering Kaplan courses in the
second quarter, and expects to be delivering Dearborn courses in the third
quarter, of 1999.
EVC began offering and delivering courses to Rochester, New York residents under
EVC's multi-year agreement with the Rochester City School District.
As part of the EVC and AT&T co-marketing program, AT&T included with the mailing
of its AT&T's Digital. Com magazine over 65,000 EVC direct mail marketing pieces
regarding EVC's Telecommute to College Program.
EVC announced that it has successfully completed the development of its
proprietary network, that significantly facilitates teaching classes via two
way, multipoint video conferencing over high-speed Internet connections that
include cable modems, DSL lines and satellite connections. EVC is planning to
market its new high-speed Internet service over the summer and expects this
service to begin delivering courses this fall.
EVC entered into a multi-year agreement with the Consortium for Worker Education
to provide access to a wide range of educational courses to workers in more than
36 participating union's.
7
<PAGE>
EVC also expanded its community outreach program by signing multi-year
agreements with the Jewish Community Council of the Far Rockaway, New York and
the New Testament Church of God in Brooklyn , New York. EVC's outreach program
has developed from what was initially a pilot program into a significant source
of student course registrations.
EVC retained Peter J. Solomon Company Limited as a strategic advisor for
acquisitions and joint ventures.
Three months ended June 30, 1999 (second quarter of 1999) compared with the
Three months ended June 30, 1998 (second quarter of 1998)
Net revenues increased by 82% to $192,274 in 1999 from $105,810 in 1998 due
primarily to a 165% increase in student enrollment and increases in the number
of sites where courses were delivered. Student enrollment increased to 596 in
1999 from 225 in 1998.
Interest income increased to $140,378 in 1999 from $7,167 in 1998 due to the
investment of the proceeds from the IPO.
Cost of sales increased to $73,148 in 1999 from $43,082 in 1998 due primarily to
the cost of the increased communications usage associated with operating EVC's
multipoint conferencing units, which enable live, interactive multimedia
communications between three or more end points.
Salaries and benefits increased by 105% to $579,270 in 1999 from $282,572 in
1998 primarily due to the increase in EVC staff to 30 employees from 15
employees. The 15 additional employees are engaged: 4 in operations, 2 in
enrollment management, 5 in recruiting and 4 in sales.
Marketing, brochures and student registrations costs increased to $228,705 in
1999 from $153,991 in 1998 due primarily to costs required to market EVC's
services to an increasing number of potential students.
Professional fees increased to $29,519 in 1999 from $16,334 in 1998 primarily
due to legal fees resulting from our becoming a public company.
Interest and financing costs of $38,832 in 1998 related to private placements in
1997 of debt that was retired in 1998.
Depreciation increased to $76,154 in 1999 from $55,424 in 1998 as a result of
purchases of videoconferencing equipment and purchases of equipment to test the
delivery of classes using our proprietary software, that are delivered via high
speed internet connections.
Other expenses increased to $279,666 in 1999 from $84,331 in 1998 primarily due
to: rent, communications, postage, insurance, computer expenses, travel and
entertainment costs, office expenses and investor relations costs that were
incurred to support EVC's growth.
Six months ended June 30, 1999 (first six months of 1999) compared with the six
months ended June 30, 1998 (first six months of 1998)
Net revenues increased by 144% to $339,795 in 1999 from $139,171 in 1998 due
primarily to a 165% increase in student enrollment. Most of the Company's sites
had increases in student enrollment from 1998 to 1999. Student enrollment
increased to 596 in 1999 from 225 in 1998.
Interest income increased to $197,229 in 1999 from $11,549 in 1998 due to the
investment of the proceeds of the IPO.
Cost of sales increased to $131,606 in 1999 from $93,408 in 1998 due primarily
to the cost of the increased communications usage associated with operating
EVC's multipoint conferencing units, which enable live, interactive multimedia
communications between three or more end points.
8
<PAGE>
Salaries and benefits increased by 114% to $1,113,179 in 1999 from $519,634 in
1998 primarily due to the increase in EVC staff to 30 employees from 15
employees. The 15 additional employees are engaged: 4 in operations, 2 in
enrollment management, 5 in recruiting and 4 in sales.
Marketing, brochures and student registration costs increased to $473,332 in
1999 from $188,672 in 1998 due primarily to costs required to market our
services to an increasing number of potential students.
Professional fees increased to $60,609 in 1999 from $38,976 primarily due to
legal fees resulting from our becoming a public company.
Interest and financing costs of $85,546 in 1998 related to private placements in
1997 of debt that was retired in 1998.
Depreciation increased to $159,999 in 1999 from $110,194 in 1998 as a result of
purchases of videoconferencing equipment and purchases of equipment to test the
delivery of classes, using our proprietary software, that are delivered via high
speed internet connections
Other expenses increased to $509,535 in 1999 from $137,543 in 1998 primarily due
to rent, communications, postage, insurance, computer expenses, travel and
entertainment costs, office expenses and investor relations costs that were
incurred to support EVC's growth.
Liquidity and Capital Resources
The gross proceeds from sales by EVC of its common stock in the IPO was
approximately $16,060,000 and the net proceeds received by EVC was approximately
$13,399,000.
Capital expenditures for the six months ended June 30, 1999 increased to
$515,516 compared to $84,190 for the six months ended June 30, 1998. This
increase was directly attributable to purchases of video conferencing equipment
required at EVC's education providers and at our corporate customers' sites
where EVC's video conferenced programs are offered and for the purchase of
equipment to test EVC's proprietary network that significantly facilitates
teaching classes via EVC's video conferencing systems using high speed Internet
connections. EVC will continue to use its cash resources as needed to implement
the plan of operations described in its IPO prospectus.
EVC anticipates, based on current plans and assumptions relating to its
operations, that the proceeds from its IPO will be sufficient to satisfy its
cash requirements for at least the next 10 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.
9
<PAGE>
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 database 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 education
providers that they are year 2000 compliant and that they have contingency plans
in place to back up their accounting and financial records.
Publicly available 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.
Forward-Looking Statements and Risk Factors
This Form 10-Q contains forward looking statements that are based on
management's beliefs, as well as assumptions made by, and information currently
available to, management. When used in this document, the words "anticipate",
"estimate", "expect", "will", "could", "may", and similar words are intended to
identify forward-looking statements. Such statements reflect EVC's current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions, including, but not limited to, the risk that EVC currently
relies on a limited number of education providers for courses and corporations
and other entities for students, the risk that there may not be sufficient
demand for EVC's services and the other specific risk factors described in EVC's
IPO prospectus, beginning on page 5. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated by these
forward-looking statements. EVC undertakes no obligation to update these
forward-looking statements and information.
10
<PAGE>
PART II
OTHER INFORMATION
Item 3. Changes in Securities and Use of Proceeds
Through June 30, 1999, the net proceeds of the IPO has been used as follows:
Cash and investment grade obligations $12,108,000*
Purchasing and installing video conferencing equipment 516,000
Marketing 340,000
Hiring and training additional personnel 87,000
Other working capital 348,000
------------
$13,399,000
------------
*At June 30,1999. Cash in non-interest bearing accounts was $12,000.
Item 6. Exhibits and Reports on Form 8-K
The exhibits filed as a part of this report are listed in the accompanying
Exhibit Index.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
EDUCATIONAL VIDEO CONFERENCING, INC.
Dated: August 11, 1999 By:/s/ Richard Goldenberg
----------------------------------
Richard Goldenberg
Chief Financial Officer (Principal
Financial and Accounting Officer)
12
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EDUCATIONAL VIDEO CONFERENCING, INC.
EXHIBIT INDEX
10.34 - EVC and CWE Co-Marketing Agreement dated May 21, 1999 between
Educational Video Conferencing, Inc. and the Consortium for Workers
Education.
27 - Financial Data Schedule
<PAGE>
Exhibit 10.34
EVC - CWE
CO-MARKETING AGREEMENT
AGREEMENT made this 21st day of May, 1999 between EDUCATIONAL VIDEO
CONFERENCING, INC., a Delaware corporation, with a principal address at 35 E.
Grassy Sprain Road, Yonkers, NY 10710 (hereinafter, "EVC"), and the CONSORTIUM
FOR WORKER EDUCATION, a New York Not-For-Profit corporation, with a principal
address at 275 7th Avenue, New York, NY 10001 (hereinafter, "CWE").
WHEREAS, CWE is a domestic not-for-profit corporation engaged in the
business of, among other things, providing education training programs; and
WHEREAS, EVC is a domestic corporation engaged in the business of
marketing and distributing educational and training programs via interactive
video conferencing; and
WHEREAS, EVC has entered into agreements with colleges, universities and
training organizations (Educational Providers), pursuant to which EVC has the
right to market and distribute certain accredited and non-accredited college
courses, degree programs and training programs (Educational Programs), via
interactive video conference distance learning (IVC/DL) and in certain cases via
other electronic/technology based delivery methods including CD-ROM and
Internet/WEB distance learning delivery methods (ET/DL); and
WHEREAS, the parties wish to enter into a co-marketing agreement on the
terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenant herein contained
and for other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties do agree as follows:
1. a) CWE will advise and give EVC the benefit of its knowledge,
information, expertise and contacts with unions, corporations and other
organizations so far as necessary to effectuate this Agreement. Such
services will included, but will not be limited to, developing markets
for EVC's services. For the purposes of this Agreement, developing
markets shall include, but not be limited to, directly and/or indirectly
recruiting students to enroll in education, professional development and
training programs of EVC's Educational Providers via IVC/DL, and
exercising CWE's best efforts to develop markets for EVC services
directly, and/or through vertical marketing alliances, and/or through
co-marketing agreement partners, (hereinafter "alliances, agents and
partners") with Educational Providers which have not previously entered
into agreements with EVC.
b)Student enrollment agreements, and contracts between EVC and
corporations, unions, and governmental institutions shall be on terms and
conditions acceptable to EVC, and on EVC forms when required by EVC.
Vertical marketing agreements and co-marketing agreements between CWE and
other parties shall be subject to all the terms of this Agreement, and
copies thereof shall be submitted to EVC within ten days after each is
duly executed.
1
<PAGE>
2. CWE and EVC shall jointly develop advertising and marketing brochures,
flyers and EVC/CWE Telecommute to College catalogs, together with other
appropriate advertised (hereinafter collectively "Marketing Materials").
All Marketing Materials and future modifications thereof, shall require
the prior written approval of EVC, CWE and all Educational Providers
whose courses and/or programs are mentioned therein, prior to printing
and/or distribution.
3. a)CWE shall identify and develop markets, directly and/or indirectly
recruit students and establish EVC/CWE Telecommute to College sites with
corporations, unions, and other organizations for IVC/DL and/or ET/DL
programs. CWE's activities directly and/or through vertical marketing
alliances and/or through co-marketing agreements shall include, but not
be limited to, making announcements of EVC programs, distributing program
information, distributing information about admission to courses,
programs or colleges and otherwise communicating with prospective and
enrolled students. CWE shall also engage, directly or indirectly, in
proactively recruiting cohort groups of students, and administering said
Program. Cohort is a group of students matriculated for one degree
program or training program who take all their classes together.
b)CWE, its alliances, agents and partners will undertake no academic
advising or counseling. Academic advising and counseling are herein
defined as assessing prospective students' academic background, planning
programs, evaluating transfer credits, or making decisions about student
admissions, progress, moral fitness, academic probation, suspension, or
expulsion from an EVC Educational Provider. This is to be distinguished
from CWE's activities of making announcements of programs, distributing
program information, distributing information about admission to courses,
programs or colleges, problem solving and otherwise communication with
prospective and enrolled students.
c) CWE may suggest modifications of existing degree programs and the
design of new programs to meet any special needs of potential target
markets. Subject to demand, EVC will use reasonable efforts to arrange
for agreed upon modifications to such degree programs and/or obtain said
new programs from current or new EVC Education Providers. Said
modifications and/or new programs shall require the prior written
approval of EVC and EVC's Educational Providers.
d) Establishment of EVC/CWE Telecommute to College programs in new
geographic communities or new program offerings require the prior written
approval of EVC.
4. CWE shall have the right, for the duration of this Agreement and any
renewal thereof, to market, directly and through vertical its alliances,
agents and partners, accredited and non-accredited courses and programs
listed in exhibit A to be delivered via EVC interactive video distance
learning or via ET/DL. Additional programs may be added subject to mutual
agreement in writing by and between CWE and EVC.
2
<PAGE>
5. Unless EVC and CWE agree otherwise in writing, the minimum class size for
the offering of IVC/DL courses will be cohorts of twenty (20) students
over PC's equipped for desktop video conferencing (DVC/DL) or twenty (20)
students over group video conferencing systems located at up to four (4)
sites.
a) EVC will provide desktop video conferencing software and/or systems
(EVC DVC Desktop Learning Systems or DVC/DL) if EVC determines it is
appropriate to provide access for IVC/DL courses to students
registered in EVC approved cohort degree and/or certificate programs
of 5 or more courses via desktop computers.
b) Students taking DVC/DL courses will need appropriate modern computers
capable of being video enabled (e.g., Pentium II 400) and appropriate
telecommunications access (Telecom Access) (e.g., ISDN, DSL, ADSL or
other high speed telephone line, Internet, cable or satellite
service). EVC and CWE will provide EVC/CWE customers assistance in
obtaining said Telecom Access. Subject to negotiation and terms
acceptable to EVC in writing, EVC will provide computers equipped for
video conferencing as well as Telecom Access.
c) EVC will provide group IVC/DL systems ( EVC IVC/DL systems) to
corporate and institutional customers or sites with at least 10
approved student degree program registrations (SDPR's) in cohorts at a
site. Said 10 SDPR's required for EVC to provide a EVC IVC/DL system
do not have to be in the same cohort degree or certificate program. A
minimum of five students must be registered in an EVC IVC/DL room
system cohort group at each site, with a minimum number of SDPR's in
the cohort group of no less than 20 students in four or less sites.
d) Except as otherwise provided herein, students registering for EVC
IVC/DL courses through CWE will pay the same tuition as students
registering for the same courses offered by the relevant EVC
Educational Provider on campus. Except as otherwise provided herein,
when course material and/or telecommunication transmission (Telecom
Costs) are bundled-in and/or packaged with the courses, a
videoconferencing/telecom fee may be added. In no event shall the
tuition and/or fees for students registering for EVC IVL/DL courses
through CWE be higher than for any other student registered for the
same course(s) provided by EVC IVL/DL.
e) With respect to programs developed through CWE in federal Empowerment
Zones or Enterprise Communities (EZ/EC), and for members of labor
unions without regard to location, EVC will exercise its best efforts
to assist EZ/EC and union-member workers and residents, who express
interest in registering for EVC IVC/DL courses, in qualifying for
federal and state assistance programs covering up to 100% of college
costs. Further, EVC agrees to make a particular effort to avoid adding
a videoconferencing/telecom fee applicable to such students when
Telecom Costs are bundled-in and/or packaged with a course or courses.
6. CWE shall assist EVC's Educational Providers obtain local or regional
information required to maintain accreditation for a program site and/or
program to operate in the states wherein courses are offered and programs
are established.
7. CWE will not engage or hire faculty or any employee on behalf of EVC or
an EVC Educational Provider, nor shall CWE hold itself out to third
parties, prospective students or faculty members as an agent, partner, or
division of EVC or any of EVC's Educational Providers. CWE is solely an
independent entity contracting with EVC for the purposes of co-marketing
EVC's services and developing strategic alliances.
3
<PAGE>
8. CWE, at its sole discretion, directly and/or through its alliances,
agents and partners shall use its best efforts to maintain a capability
and employ personnel whose duties include marketing and performing
services as shall be necessary to undertake and complete CWE's
responsibilities and obligations herein in a professional and responsible
manner.
9. CWE shall assist in the distribution, collection and administration of
evaluation instruments for teacher, student and EVC/CWE programs.
10. EVC's Educational Providers shall contract with all faculty employed to
teach in degree and credit courses and workshops to be conducted via
IVC/DL at the sites. Such faculty shall be governed by all rules and
regulations of the Educational Provider, from time to time adopted.
11. CWE will arrange for and supervise site coordinators for each site. Site
coordinators will report to CWE and EVC for all functions, including but
not limited to, administrative operation of the site, marketing and
recruitment of students. A site coordinator serves as an intermediary
between the professor and the student (i.e., trained by EVC in basic
operations of the system and acts as liaison with EVC technical support
staff in reporting and resolving basic problems). EVC typically
compensates the site program coordinator by reimbursing them for required
class textbooks.
12. EVC will print and provide CWE with appropriate course
schedule/registration materials and promotional brochures reasonably
required to market programs. CWE directly and/or through its alliances,
agents and partners will distribute said materials with appropriate
course schedule/registration material and promotional brochures necessary
to target corporations, unions, organizations and customers.
13. CWE will use its best efforts to help arrange meetings between EVC and
appropriate administrative personnel at corporations, unions and other
organizations in order to coordinate academic, administrative and
financial policies and procedures. All Tuition and Fee payments will be
made out to the EVC educational providers providing the course.
14. a)CWE shall be entitled to receive 15% (fifteen percent) of the gross
tuition revenue received by EVC derived from EVE/CWE student course
registrations; provided, however, that CWE shall be entitled to receive
10% (ten percent) of the gross tuition revenue received from EVC/CWE
financial aid based student course registrations.
b) EVC shall pay CWE on the 20th of the month following receipt of said
tuition revenue received for students registering for EVC courses through
CWE.
15. CWE will work exclusively with EVC to develop markets and sites for
delivery of accredited and non-accredited courses and degree programs via
IVC/DL, DVC/DL, or ET/DL.
16. CWE will assign at least one person who at all times will act as liaison
between CWE and EVC. EVC's designee will be Paul Lieberman, Vice
President of Sales.
4
<PAGE>
17. Each party shall, and does hereby agree to indemnify, hold harmless, save
and defend the other from and against all claims, liabilities, loss or
damage including, but not limited to, costs, expenses and attorneys'
fees, resulting from the actual claimed negligence of the other party,
its agents or employees, for damage to property or personal injuries,
including death at any time resulting therefrom, sustained by any person
or persons which damage or injuries arise out of or are in connection
with the development of IVC/DL markets and establishment of the sites
provided for herein.
18. Term of Agreement
a) The Basic term of this Agreement shall be FIVE (5) YEARS with
provision for an additional five (5) one (1) year renewal periods
subject to the written consent to said renewal by EVC and CWE prior to
the expiration of the term. Notwithstanding any provision to the
contrary, the 15% and 10% obligations specified in Paragraph 14 a)
above, and other EVC obligations with respect to such programs
pursuant to the terms of this Agreement shall apply for five (5) years
with respect to each program in a new community, beginning with the
month to which the obligation applies, as shall CWE's obligations to
provide services with respect to such programs pursuant to the terms
of this Agreement; and such obligations shall survive the Basic term
of this Agreement.
b) It is understood and agreed that in order to avoid conflicts of
interest and/or duplication of efforts, CWE shall not solicit any
corporation, union, governmental agency or any other institution known
to CWE as an EVC Educational Provider or customer, or their employees,
without prior written authorization of EVC's President or his designee
in connection with the provision of providing education training
programs. In the event that such unauthorized solicitation should
occur, no payment shall be due and owing to CWE for services by said
Education Provider to customers so solicited.
c) After no less than two years have passed from the effective date of
this Agreement, and upon thirty (30) days written notice to EVC, CWE
may terminate this Agreement without any penalty arising therefrom;
provided, however, that in the case of such termination EVC shall have
no obligation to make payments to CWE for any course that has not
actually begun on or before such termination date. All agreements with
Educational Providers, unions, corporations and other organizations in
existence at the time of such termination shall remain in effect as if
this Agreement were not terminated. Further, in the event of such
termination, CWE agrees not to compete with EVC for three (3) years
following such termination date.
19. Any modification to this Agreement shall be mutually agreed upon by the
parties hereto and shall be incorporated in a written amendment to this
Agreement, signed by their respective executive officers.
20. No rights or obligations of CWE under this Agreement, including but not
limited to the right to receive money pursuant to the terms above, shall
be assignable without the prior written consent of EVC. No rights or
obligations of EVC under this Agreement, including but not limited to the
obligations to provide distance learning courses and provide video
conferencing software and systems, pursuant to the terms above, shall be
assignable without the prior written consent of CWE.
5
<PAGE>
21. This Agreement shall be binding upon and inure to the benefit of the
parties.
22. Any notice or other communication required or permitted to be given a
party hereunder shall be in writing and service thereof shall be deemed
completed when personally delivered or if sent by registered or certified
mail five (5) days after the date of posting in the U.S. mail, a properly
addressed envelope containing such notice to the party. The respective
initial address of the parties shall be as follows:
Educational Video Conferencing, Inc.
Attn: Dr. John J. McGrath, President
35 East Grassy Sprain Road
Yonkers, NY 10710
Consortium for Worker Education
Attn: Robert G. Norris, Deputy Executive Director
275 7th Avenue, 27th Floor
New York, NY 10001
Notice may be sent to such other address as may from time to time be
designated in writing by the respective parties, with notice of change
provided in the manner aforesaid.
23. The laws of the State of New York shall govern the interpretation,
performance and enforcement of this Agreement.
24. The parties hereto shall not be liable to the other or any third party
for any failure to perform their respective obligations under this
Agreement due to any cause not withing their respective control,
including, but in no way of limitation to fire, strike or Acts of God.
25. This Agreement embodies the complete agreement between the parties and
supersedes all proposals, correspondence, and conversations heretofore
made or had by or between the parties hereto.
26. The waiver by either CWE or EVC of any breach, or of any term, condition
or agreement herein, or of a right of termination hereunder, shall not
thereafter be deemed to be a waiver of any subsequent breach, or of the
same, or any other term, condition or agreement herein, or of the same,
or any other right of termination hereunder.
27. This Agreement may be executed in counterpart copies, and such copies
shall thereupon be exchanged so that each party will have a copy of the
Agreement signed by the other. All such counterpart copies shall be
deemed originals of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
CONSORTIUM FOR WORKER EDUCATIONAL VIDEO
EDUCATION CONFERENCING, INC.
By:/s/ Robert G. Norris By:/s/ John J. McGrath
------------------------- ------------------------
Robert G. Norris Dr. John J. McGrath
Deputy Executive Director President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND THE BALANCE
SHEET FOR THE PERIOD THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,108,165
<SECURITIES> 0
<RECEIVABLES> 371,059
<ALLOWANCES> (55,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,502,878
<PP&E> 1,920,666
<DEPRECIATION> (159,999)
<TOTAL-ASSETS> 14,289,428
<CURRENT-LIABILITIES> 187,098
<BONDS> 0
0
0
<COMMON> 435
<OTHER-SE> 14,101,895
<TOTAL-LIABILITY-AND-EQUITY> 14,289,428
<SALES> 339,795
<TOTAL-REVENUES> 537,024
<CGS> 131,606
<TOTAL-COSTS> 2,448,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,911,236)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,911,236)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,911,236)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
