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, 2000
( ) 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
(Issuer'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: 4,350,243 shares of Common
Stock as of August 1, 2000.
<PAGE>
Table of Contents
Part I
Financial Information
Item 1. Financial Statements Page
----
Consolidated Balance Sheet as of June 30, 2000 (unaudited)
and as of December 31, 1999 (audited) 3
Consolidated Statement of Operations for the three
and six month periods ended June 30, 2000 (unaudited)
and June 30, 1999 (unaudited) 4
Consolidated Statement of Cash Flows for the
six month periods ended June 30, 2000 (unaudited)
and June 30, 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
Second Quarter Developments 9
Comparison of the Three Month Periods Ended
June 30, 2000 and June 30, 1999 10
Comparison of the Six Month Periods Ended
June 30, 2000 and June 30, 1999 11
Liquidity and Capital Resources 12
Forward-Looking Statements and Risk Factors 12
Part II
Other Information
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on form 8-K 14
Signatures 15
Exhibit Index 16
2
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited) (audited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $2,176,608 $6,925,823
Accounts receivable, net of allowance for doubtful accounts
of $135,000 and $75,000 respectively........................... 2,221,848 461,234
Inventory........................................................ 193,596 ____
Prepaid expenses and other current assets........................ 354,658 138,583
Deferred offering costs.......................................... 78,926 ____
----------- -------
Total current assets...................................................... 5,025,636 7,525,640
----------- ---------
Property and equipment, net............................................... 4,201,399 2,916,091
----------- ---------
Deferred income tax asset, net of valuation allowance..................... ____ ____
License agreement......................................................... 237,500 200,000
Equity and other investments.............................................. 145,283 240,533
Goodwill.................................................................. 919,908 ____
Other assets.............................................................. 57,966 15,246
----------- -----------
Total assets.............................................................. $10,587,692 $10,897,510
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses............................ 806,596 524,539
Current maturities of capitalized lease obligations.............. 15,717 15,717
----------- -----------
Total current liabilities................................................. 822,313 540,256
Capitalized lease obligations, net of current maturities.................. 34,331 46,034
----------- -----------
Total liabilities......................................................... 856,644 586,290
----------- -----------
Stockholders' equity:
Preferred stock - $.0001 par value; authorized 1,000,000 shares,
issuable in series; Series A, 400,000 shares designated and issued
and outstanding ....................................................... 3,408,994 ____
Common stock - $.0001 par value; authorized 20,000,000 shares, issued and
outstanding 4,350,243 shares and 4,347,243 shares, respectively........ 435 435
Additional paid-in capital............................................... 20,585,795 19,889,224
Accumulated deficit...................................................... 14,264,176) (9,578,439)
----------- -----------
Stockholders' equity.............................................................. 9,731,048 10,311,220
----------- -----------
Total liabilities and stockholders' equity........................................ $10,587,692 $10,897,510
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- -------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net revenue.................................................. $1,885,296 $ 192,274 $4,100,910 $ 339,795
Other income................................................. 8,517 ____ 33,794 ____
Interest income.............................................. 49,042 140,378 133,289 197,229
------ ------- ------- -------
Total revenue ............................................... 1,942,855 332,652 4,267,993 537,024
--------- ------- --------- -------
Operating expenses:..........................................
Cost of sales....................................... 712,474 73,148 1,241,605 131,606
Selling, general and administrative................. 3,659,446 1,193,314 7,093,331 2,316,654
---------- --------- --------- ---------
Total operating expenses..................................... 4,371,920 1,266,462 8,334,936 2,448,260
---------- --------- --------- ---------
Net loss..................................................... (2,429,065) (933,810) (4,066,943) (1,911,236)
---------- --------- --------- ---------
Beneficial conversion feature of preferred stock............. (264,705) ____ (441,176) ____
Accreted value of warrants................................... (31,567) ____ (52,618) ____
Accreted dividends on preferred stock........................ (75,000) (125,000)
---------- --------- --------- ---------
Net loss available to common stockholders'.................. $(2,800,337) $ (933,810) $(4,685,737) $(1,911,236)
========== ========= ========= =========
Basic and diluted loss per common share...................... $ (0.64) $ (0.21) $ (1.07) $ (.049)
========== ========= ========= =========
Weighted average number of common shares outstanding......... 4,347,309 4,347,243 4,347,276 3,944,655
========== ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
-------------------------------------------------
June 30, 2000 June 30, 1999
------------- -------------
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss............................................................................ $(4,066,943) $(1,911,236)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation............................................................... 423,123 159,999
Amortization of license agreement.......................................... 12,500 ____
Amortization of goodwill................................................... 40,000 ____
Allowance for doubtful accounts............................................ 10,000 20,000
Loss from equity method investment......................................... 50,250 ____
Changes in operating assets and liabilities, net of effects in the acquisition
of Interboro Institute, Inc:
Increase in accounts receivable............................................ (1,302,087) (109,283)
(Increase)/decrease in prepaid expenses and other current assets........... (27,332) 2,192
Increase in inventory...................................................... (96,444) ____
(Increase)/decrease in other assets........................................ (42,720) (18,051)
Decrease in accounts payable and accrued expenses.......................... (1,721,883) (733,545)
----------- ---------
Net cash used in operating activities............................................... (6,721,536) (2,589,924)
---------- -----------
Cash flows used in investing activities:
Purchase of Interboro Institute, Inc. net of cash acquired................. 16,057 ____
Net payments for other investments......................................... (50,000) ____
Purchase of equipment...................................................... (1,514,878) (515,516)
----------- ---------
Net cash used in investing activities............................................... (1,548,821) (515,516)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock................................. 6,000 13,398,905
(Increase)/decrease in deferred offering costs ............................ (78,926) 900,000
Principal payments under capital lease obligations......................... (11,703) ____
Net proceeds from issuance of preferred stock ............................. 3,730,000 ____
Additional expenses incurred in connection with the
issuance of preferred stock.............................................. (124,229) ____
----------- ----------
Net cash provided by financing activities .......................................... 3,521,142 14,298,905
----------- ----------
Net increase/(decrease) in cash and cash equivalents................................ (4,749,215) 11,193,465
Cash and cash equivalents at beginning of period.................................... 6,925,823 914,700
----------- ----------
Cash and cash equivalents at end of period.......................................... $ 2,176,608 $12,108,165
=========== ===========
</TABLE>
5
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements
Note 1 - Business and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Educational Video Conferencing, Inc. ("EVCI") and its wholly owned subsidiaries,
Interboro Institute, Inc. ("Interboro") and Interboro Holding, Inc. All
significant intercompany balances and transactions have been eliminated.
References below to EVCI include its subsidiaries unless the context requires
otherwise.
EVCI is a leading aggregator and distributor, via live interactive video
conferencing systems, of accredited college courses and degree programs, as well
as corporate training, professional development and continuing education
programs. The instructor can see and hear the students as the students see and
hear the instructor and communicate with the instructor and other students at
multiple locations. Educational content is currently being delivered by EVCI
over high speed point-to-point or multi-point digital data lines (T-1 or ISDN).
EVCI is deploying its proprietary broadband network design which, using Internet
Protocol infrastructure technology, permits EVCI to continue to provide two-way
multi-point, multi-media voice, video and data transmissions, including over the
Internet, but with controlled bandwidth and throughput. Using its broadband
network design, EVCI can deliver educational content at 30 frames per second
(broadcast quality) through DSL, ATM, T-1 lines, cable modems or satellite.
EVCI can deliver content to conference and training rooms and desktop computers
equipped with video conferencing capability. EVCI believes that its distance
learning technology and content delivery services comes closest to replicating
the classroom experience. EVCI also provides the consultative, marketing and
administrative services necessary to recruit and enroll students and deliver
courses and programs to them. EVCI receives a fee based on tuition payments
received by the education provider, typically after completion of courses.
Since January 14, 2000, EVCI has, through Interboro, owned and operated
Interboro Institute, a two year college in New York City. Interboro Institute
offers degree programs leading to the Associate of Occupational Studies Degree
in business administration (accounting and business management), ophthalmic
dispensing, paralegal studies, administrative secretarial arts (executive,
legal, correspondence or medical secretary) and security services and
management. Interboro Institute continues to operate as a campus college and
will also provide content for remote delivery by EVCI after requisite regulatory
approvals are obtained. Most of Interboro Institute's student body consists of
non-traditional students who pay their tuition using Federal (Pell) and New York
State (TAP) tuition grants.
EVCI acquired the outstanding stock of Interboro on January 14, 2000 for (i)
$672,500, payable out of Interboro's earnings before interest, taxes, debt and
amortization ("EDITDA"), plus (ii) 50% of EBITDA for the three years ending June
30, 2001, 2002 and 2003.
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, 1999.
6
<PAGE>
EVCI'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 EVCI as of December 31, 1999 and for the year then ended and the notes
thereto in EVCI's 10-KSB for the year ended December 31, 1999.
The information in this report gives effect to a one-for-two reverse split of
the common stock effective February 23, 1999.
Note 2 - 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 available to common stockholders 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 convertible securities. Potential common stock has
not been included in the computation of diluted EPS since the effect would be
antidilutive.
Note 3 - Revenue Recognition
EVCI recognizes income ratably over the semester in which courses are given and
as services are performed. Unearned revenue from advance billings is offset
against accounts receivable for financial statement reporting. For the most
recent semester beginning in May, at June 30, 2000 advance billings amounted to
$742,947, which amounts are expected to be recognized as revenue over the third
quarter of 2000.
Note 4 - Deferred Offering Costs
Deferred offering costs represent costs that are related to a proposed private
placement of securities, and that EVCI intends to offset against the proceeds
from the transaction. In the event the offering is not completed these costs
will be charged to operating expenses.
Note 5 - Preferred Stock
On February 3, 2000, EVCI received gross proceeds of $4,000,000 for the issuance
of 400,000 shares of 7.5% Series A Convertible Preferred Stock and three year
warrants to purchase 40,000 shares of EVCI's common stock at $21.27 per share.
The transaction costs of this private placement were approximately $260,000. A
value of $378,918 was assigned to the warrants. The preferred stock is
convertible into shares of EVCI's common stock at a discount from the "market
price", as defined. EVCI is accounting for the issuance of the preferred stock
in accordance with "Emerging Issues Task Force Issue No. 98-5," which addresses
the issuance of convertible securities that have a beneficial conversion
feature. The conversion feature is recognized and measured by allocating a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. The amount is calculated as the difference between
the conversion price and the fair market value of EVCI's common stock at the
date of the issuance. Any discount resulting from the allocation of proceeds to
the beneficial conversion feature is analogous to a dividend and will be
recognized as a return to the preferred stockholder over the period from the
date of issuance through the date of the earliest conversion, as defined.
Accordingly, EVCI recorded a $441,176 dividend for the six month period ended
June 30, 2000 and will record a dividend of $264,705 in the next fiscal quarter.
EVCI may redeem the preferred stock at any time until the mandatory conversion
date in February 2003 at 110%-120% of the stated value as defined.
7
<PAGE>
Note 6 - Income Taxes
No provision for income taxes has been made for all periods presented since EVCI
has net operating losses. These net operating losses have resulted in a deferred
tax asset of approximately $856,000 at June 30, 2000. Due to the uncertainty
regarding the ultimate amount of income tax benefits to be derived from EVCI's
net operating losses, EVCI has recorded a full valuation allowance.
Note 7 - Segment Reporting
EVCI follows SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." As a result of the acquisition of Interboro, EVCI has two
operating segments: (1) aggregator and distributor, via live interactive video
conferencing systems, of accredited college courses and degree programs, as well
as corporate training, professional development and continuing education
programs and (2) operator of Interboro Institute, a post secondary two-year
degree-granting college.
For the six month period ended June 30, 2000, Reportable segment data were as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 2000 June 30, 2000
<S> <C> <C>
Operating revenue:
EVCI student course registrations $ 268,373 $ 568,895
Interboro Institute 1,616,923 3,532,015
--------- ---------
Total operating revenue $ 1,885,296 $4,100,910
=========== ===========
Operating companies net income (loss):
EVCI student course registrations $ (2,486,128) $(4,646,498)
Interboro Institute 57,063 579,555
--------- ---------
Total operating companies net loss $ (2,429,065) $(4,066,943)
=========== ===========
Assets:
EVCI $ 9,529,217
Interboro Institute 1,058,475
---------
Total assets $ 10,587,692
===========
</TABLE>
8
<PAGE>
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, 1999
included in EVCI's 10-KSB for the year ended December 31, 1999 and in also
conjunction with the financial statements and notes thereto for the six months
ended June 30, 2000 and 1999 included in Item 1 of this report.
Second Quarter Developments
EVCI continued to implement its business strategy during the second quarter by
activities that include:
o EVCI continued to place significantly greater emphasis on the marketing
of training and professional development content to corporations. EVCI signed a
multi-year agreement with Telecommunications Research Associates ("TRA"), a
premier global provider of top-quality education for telecommunications
professionals. TRA will introduce EVCI's content delivery services as a way to
satisfy TRA's customer demands for top-quality communications courses, while
EVCI will introduce TRA to companies outside of TRA's traditional client base.
Charles Edinger became president of EVCI's new insurance and financial services
division that was formed to offer the delivery by EVCI of corporate training,
professional development and continuing education programs aggregated by EVCI,
initially to the insurance and financial services industries. Prior to joining
EVCI, Mr. Edinger was executive vice president of the College of Insurance.
o EVCI continued to deploy EVCI's proprietary broadband network design with
the expectation that, in the third quarter, EVCI will have the ability to begin
delivering content over this network. There have been delays in deployment
because EVCI had to wait for appropriate locations for the installation of its
equipment that are proximate to the line termination points of major
communications carriers.
o EVCI recruited, hired or retained, and trained and redeployed management,
marketing, sales, technical and administrative personnel. Bill Talbot became
EVCI's vice president of marketing and sales. Prior to joining EVCI, Mr. Talbot
was marketing director for vertical markets at Bell Atlantic. Staffing changes
during the second quarter also included Mr. Edinger joining EVCI and the
appointment by Interboro Institute of Stephen H. Adolphus as its president.
Prior to joining Interboro, Mr. Adolphus was chief administrator and academic
officer of Touro College's School of General Studies.
o EVCI allocated more time, personnel and other resources to accelerating
the implementation of agreements with corporate customers.
o EVCI signed a multi-year agreement with New York City Correction
Officers' Benevolent Association to co-market EVCI's educational
video-conferencing services to the Association's approximately 11,000 members.
o EVCI expanded into the large medical education market, by entering into a
multi-year agreement with the American Academy of Professional Coders to offer
its extensive educational program to facilities and individuals nationwide via
EVCI's video conferencing services.
o With Bell Atlantic Remote Learning Solutions, EVCI continued a marketing
campaign that bundles the offering of Bell Atlantic's DSL services with EVCI's
content, video conferencing and other services. Of the approximately 900 Bell
Atlantic account executives targeted for training to sell the Bell Atlantic/EVCI
Remote Learning Solutions, approximately 800 had completed training by June 30,
2000.
9
<PAGE>
o EVCI has installed two demonstration sites at Bell Atlantic facilities,
one in Manhattan and one in Westchester County, New York. EVCI is currently
installing six other demonstration sites at various Bell Atlantic facilities in
Massachusetts, New Jersey and New York.
o EVCI received the Computerworld-Smithsonian Medallion, an award presented
jointly by the Smithsonian Institution and Computerworld Magazine to honor those
leading the information technology revolution.
Comparison of Three Month Periods Ended June 30, 2000 (second quarter of 2000)
and June 30, 1999 (second quarter of 1999)
Net revenues for the second quarter of 2000 increased to $1,885,296 from
$192,274 for the second quarter of 1999 due primarily to a 325% increase in EVCI
student course registrations to 157 and the addition of Interboro Institute's
2,450 student course registrations. The Interboro Institute registrations
resulted in additional net revenue of $1,614,051. Total student course
registrations were 2,607 in the second quarter of 2000 as compared to 37 in the
second quarter of 1999. Interboro Institute had approximately 725 full time
students attending school for the spring semester and approximately 500 for the
summer semester which started in May 2000. To increase the rate and amount of
EVCI student course registrations, EVCI has been:
o increasing the number of student recruiters (from 10 in the second
quarter of 1999 to 14 in the second quarter of 2000),
o working more closely with education providers and customers to implement
and administer their agreements with EVCI,
o focusing on obtaining education providers with national and international
reputations or regional appeal outside of the Northeast,
o focusing on increasing corporate training programs, and
o providing training to EVCI's co-marketing partners regarding student
recruitment.
Other income of $8,517 for the second quarter of 2000 includes miscellaneous
income from tuition applications fees and other college related fees.
Interest income decreased to $49,042 for the second quarter of 2000 from
$140,378 for the second quarter of 1999 due to the use of the proceeds from
EVCI's IPO for the purposes indicated in Item 2 of Part II of this report.
Cost of sales increased to $712,474 for the second quarter of 2000 from $73,148
for the second quarter of 1999 due primarily to an increase of $473,769 for the
direct cost of wages of Interboro Institute's professors and adjunct professors.
Salaries and benefits increased by 250% to $2,028,000 for the second quarter of
2000 from $579,270 for the second quarter of 1999. EVCI staff increased during
the second quarter of 2000 by 2 to 135 employees. On June 30, 1999, EVCI had 30
employees as compared to 29 on April 1, 1999. Of the increase during the second
quarter of 2000, $638,872 is attributable to administrative staff at Interboro
Institute. During the second quarter of 2000, Interboro had an increase of 3
employees and EVCI had a decrease of 1 employee. The 105 employees added since
June 30, 1999 are engaged as follows: 69 at Interboro Institute and, at EVCI, 17
in sales, 5 in
10
<PAGE>
recruiting, 5 in operations, 1 in business development, 2 in artwork and design,
2 in development and training and 4 in administration.
Marketing, brochures and student registrations costs decreased to $217,580 for
the second quarter of 2000 from $228,705 for the second quarter of 1999
primarily due to the replacement of outside agents and brokers with EVCI
salesman and EVCI's reduced attendance at trade shows. These decreases were
offset by increases required for marketing EVCI's services to an increasing
number of potential students.
Professional fees increased to $276,636 for the second quarter of 2000 from
$29,519 for the second quarter of 1999 primarily due to legal and accounting
fees resulting mostly from compliance with SEC disclosure requirements and for
general corporate services and fees for outside enrollment services
administration.
Depreciation and amortization increased to $258,305 for the second quarter of
2000 from $76,154 for the second quarter of 1999 as a result of purchases of
video conferencing and other equipment, including for the deployment of EVCI's
proprietary broadband network design, and $65,336 of the additional expense
attributable to Interboro Institute.
Other expenses increased to $853,925 for the second quarter of 2000 from
$279,665 for second quarter of 1999 primarily due to increases in rent,
communications, postage, insurance, computer expenses, travel and entertainment
costs, office expenses and investor relations costs that were incurred to
support EVCI's growth. $239,567 of the increase relates to the to rent,
telephone and other expenses of operating Interboro Institute.
Comparison of Six Month Period Ended June 30, 2000 (first six months of 2000)
and June 30, 1999 (first six months of 1999)
Net revenues for the first six months of 2000 increased to $4,100,910 from
$339,795 for the first six months of 1999 primarily due to a 79% increase in
EVCI student course registrations to 1,066 and the addition of Interboro
Institute's 5,450 student course registrations. The Interboro registrations
resulted in additional net revenue of $3,532,015. Total student course
registrations were 6,516 for the first six months of 2000 and from approximately
596 for the first six months of 1999.
Other income of $33,794 for the first six months of 2000 includes miscellaneous
income from tuition applications fees and other Interboro Institute related
fees.
Interest income decreased to $133,289 for the first six months of 2000 from
$197,229 for the first six months of 1999 due to the use of the proceeds from
EVCI's IPO for the purposes indicated in Item 2 of Part II of this report.
Cost of sales increased to $1,241,605 for the first six months of 2000 from
$131,606 for the first six months of 1999 due primarily to an increase of
$917,225 for the direct cost of wages of Interboro Institutes professors and
adjunct professors.
Salaries and benefits increased by 239% to $3,772,886 for the first six months
of 2000 from $1,113,179 for the first six months of 1999. EVCI staff increased
during the six months of 2000 by 73 to 135 from 62 on January 1, 2000. On June
30, 1999, EVCI had 30 employees as compared to 18 on January 1, 1999. Of the
increase during the first six months of 2000, $1,246,908 is attributable to the
addition of the administrative staff at Interboro Institute. The 73 additional
employees are engaged as follows: 72 at Interboro Institute and, one at EVCI,
after giving effect to redeployment and reduction of staff.
11
<PAGE>
Marketing, brochures and student registrations costs increased to $588,191 for
the first six months of 2000 from $473,332 for the first six months of 1999 due
primarily to costs of marketing EVCI's services to an increasing number of
potential students. The increase was offset by decreases, of approximately
$130,000, resulting from the replacement of outside agents and brokers with EVCI
salesman and EVCI's reduced attendance at trade shows.
Professional fees increased to $468,410 for the first six months of 2000 from
$60,609 for the first six months of 1999 primarily due to legal and accounting
fees resulting mostly from compliance with SEC disclosure requirements and for
general corporate services and fees for outside enrollment services
administration.
Depreciation and amortization increased to $498,476 for the first six months of
2000 from $159,999 for the first six months of 1999 as a result of purchases of
videoconferencing and other equipment, including for the testing and deployment
of EVCI's proprietary broadband network design and $92,587 of additional expense
attributable to Interboro Institute.
Other expenses increased to $1,715,368 for the first six months of 2000 from
$509,535 for the first six months of 1999 primarily due to increases in rent,
communications, postage, insurance, computer expenses, travel and entertainment
costs, office expenses and investor relations costs that were incurred to
support EVCI's growth. $419,620 of the increase relates to the to rent,
telephone and other expenses of Interboro Institute.
Liquidity and Capital Resources
EVCI's initial public offering was completed in the first quarter of 1999,
resulting in gross proceeds to EVCI of $16,060,000 and net proceeds to EVCI of
approximately $13,399,000.
During the first quarter of 2000, EVCI infused $1,800,000 into Interboro for
working capital to satisfy certain net worth and other financial requirements.
EVCI does not currently anticipate that Interboro will require additional cash
infusions from EVCI for the foreseeable future.
On February 3, 2000, EVCI received gross proceeds of $4,000,000 and net proceeds
of approximately $3,740,000 for the issuance of 400,000 shares of its Series A
7.5% Convertible Preferred Stock to The Shaar Fund Ltd.
Capital expenditures for the first six months of 2000 increased to $1,514,878
compared to $515,516 for the first six of 1999. This increase was primarily
attributable to purchases of video conferencing equipment required at EVCI's
education providers' and corporate customers' sites where EVCI's video
conferenced programs are offered and for the purchase of equipment to test and
deploy EVCI's proprietary broadband network design.
EVCI anticipates, based on current plans and assumptions relating to its
operations, that the proceeds from its Series A Preferred private placement and
cash flow from its operations will be sufficient to satisfy its cash
requirements for at least the next three months. With the assistance of an
investment banker, EVCI is in the process of offering up to $20 million of its
equity securities in a private placement to institutional investors. EVCI
currently believes it can complete this private placement prior to year- end. In
the interim, it is in the process of negotiating the terms of a $4 million
private placement of a new series of its prefferred stock. EVCI believes that
the proceeds of a $4 million placement would satisfy its cash needs for up to
four additional months. After that, EVCI expects it will require additional
funding in order to grow. However, EVCI's ability to obtain needed financing and
its cost to EVCI are uncertain. Accordingly, EVCI may be forced to curtail its
operations and/or its planned business expansion.
12
<PAGE>
Forward-Looking Statements and Risk Factors
This Form 10-QSB contains forward looking statements that involve assumptions,
risks and uncertainties. The words "anticipates," "estimates," "believes,"
"expects," "will," "could," "may," "plans," and similar words are intended to
identify forward-looking statements. EVCI's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including:
o the need for substantial additional capital to operate and grow,
o insufficient demand for EVCI's content and broadband services,
o delays in rolling out marketing programs or in implementing existing
customer agreements,
o delays in deploying EVCI's proprietary broadband network design,
o an inability to satisfy demand for EVCI's services,
o competition,
o dependence on EVCI's chairman, president and other management and
o the other specific risk factors included in EVCI's filings with the SEC,
including its form S-3 registration statement effective June 2, 2000 (file no.
333-34190).
Should any of these or other risks and uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated by forward-looking statements. EVCI undertakes no obligation
to update forward-looking statements.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Through June 2000, the net proceeds of the IPO has been used as follows:
Cash and investment grade obligations $ - 0 -
Purchasing and installing video conferencing equipment 4,521,000
Marketing 1,876,000
Hiring and training additional personnel 2,104,000
Investment in Visiocom USA Incorporated 250,000
Interboro working capital 1,800,000
Other working capital and operating expenses 2,848,000
-----------
$13,399,000
===========
-----------------------------------
*At June 30, 2000.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
Exhibit No. Description of Exhibit
----------- ----------------------
4.7 - Warrant Agreement, dated as of April 18, 2000, between the
Registrant and Peter J. Solomon Company Limited.
*10.53 - Agreement, dated April 27, 2000, between Registrant and
Telecommunications Research Associates for the Offering of
Interactive Video Conferenced Courses.
10.54 - Agreement, dated May 31, 2000, between Registrant and the
Correction Officer's Benevolent Association of the City of New
York for the Offering of Interactive Video Conferenced Courses
in Criminal Justice and other appropriate College Degree
Programs.
*10.55 - Agreement, dated June 1, 2000, between Registrant and American
Academy of Professional Coders, Inc. for the Offering of
Interactive Video Conferenced Courses.
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by EVCI during the quarter ended June 30,
2000.
14
--------------------
* Confidential treatment has been requested with respect to the redacted
portions of this exhibit.
<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, 2000 By: /s/ Richard Goldenberg
-----------------------------
Richard Goldenberg
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
4.7 -- Warrant Agreement, dated as of April 18, 2000, between the
Registrant and Peter J. Solomon Company Limited.
*10.53 -- Agreement, dated April 27, 2000, between Registrant and
Telecommunications Research Associates for the Offering of
Interactive Video Conferenced Courses.
10.54 -- Agreement, dated May 31, 2000, between Registrant and the
Correction Officer's Benevolent Association of the City of New
York for the Offering of Interactive Video Conferenced Courses
in Criminal Justice and other appropriate College Degree
Programs.
*10.55 -- Agreement, dated June 1, 2000, between Registrant and
American Academy of Professional Coders, Inc. for the Offering
of Interactive Video Conferenced Courses.
27 -- Financial Data Schedule
16
--------------------
* Confidential treatment has been requested with respect to the redacted
portions of this exhibit.
