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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
--------------------------------------------------
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 000-28393
---------------------------------------------------------
eCollege.com
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1351729
- ----------------------------------- ------------------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
10200 A East Girard Avenue, Denver, Colorado 80231
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 873-7400
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of May 8, 2000 was 15,476,371.
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eCollege.com(SM)
TABLE OF CONTENTS
PART I FINANCIAL STATEMENTS
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations. . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Condensed Financial Statements . . . . . 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . 8
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.13
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .13
ITEM 1 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . .13
ITEM 2 CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . .13
ITEM 3 DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . .13
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS . . . . .13
ITEM 5 OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . .14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . .14
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
eCollege.com(SM)
<TABLE>
<CAPTION>
BALANCE SHEETS
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............................................. $15,200,917 $46,307,674
Available-for-sale securities............................ 29,228,135 -
Accounts receivable, net of allowances
of $44,800 and $44,800, respectively.................... 2,316,802 1,509,453
Accrued revenue receivable............................... 176,908 126,477
Other current assets..................................... 1,090,441 639,360
----------- -----------
Total current assets................................... 48,013,203 48,582,964
PROPERTY AND EQUIPMENT, net............................... 5,578,374 4,553,661
Other assets.............................................. 589,100 630,100
----------- -----------
TOTAL ASSETS.............................................. $54,180,677 $53,766,725
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 1,429,922 $ 2,619,365
Accrued liabilities...................................... 3,301,187 2,192,966
Deferred revenue......................................... 3,276,361 2,431,164
Contract loss reserve.................................... 1,910,995 1,808,615
----------- -----------
Total current liabilities.............................. 9,918,465 9,052,110
Other liabilities......................................... 12,975 22,785
Contract loss reserve..................................... 318,521 679,440
----------- -----------
Total Liabilities 10,249,961 9,754,335
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 50,000,000
shares authorized; 15,381,530 and
14,711,893 shares, respectively, issued
and outstanding.......................................... 153,815 147,119
Additional paid-in capital................................ 81,319,713 75,388,591
Warrants and options for common stock..................... 3,564,682 4,252,376
Notes receivable.......................................... - (593,593)
Deferred compensation..................................... (2,581,442) (2,920,325)
Unrealized loss on available-for-sale securities.......... (26,920) -
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated deficit........................................ (38,499,132) (32,261,778)
----------- -----------
Total stockholders' equity................................ 43,930,716 44,012,390
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................................... $54,180,677 $53,766,725
=========== ===========
</TABLE>
The accompanying notes to the unaudited condensed financial statements are an
integral part of the (balance sheets/statements).
eCollege.com(SM)
STATEMENTS OF OPERATIONS
For the Three
Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
(Unaudited)
REVENUE:
Campus and course
development fees......... $ 1,167,260 $ 325,010
Student fees.............. 1,204,299 285,947
----------- -----------
Total revenue........... 2,371,559 610,957
COST OF REVENUE........... 2,576,909 1,223,712
----------- -----------
Gross profit (loss)..... (205,350) (612,755)
----------- -----------
OPERATING EXPENSES:
Selling and
marketing................ 2,869,031 1,305,341
General and
administrative........... 2,575,333 735,824
Product development....... 1,285,584 593,268
----------- -----------
Total operating
expenses............... 6,729,948 2,634,433
----------- -----------
LOSS FROM OPERATIONS...... (6,935,298) (3,247,188)
OTHER INCOME (EXPENSE):
Interest and other
income................... 757,513 119,896
Interest expense.......... (59,568) -
----------- -----------
NET LOSS................... (6,237,353) (3,127,292)
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS:
Net loss.................. $(6,237,353) $(3,127,292)
Dividends on
mandatorily
redeemable,
convertible preferred
stock.................... - (530,270)
Accretion of
mandatorily redeemable,
convertible preferred
stock.................... - (85,271)
----------- -----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS....... $(6,237,353) $(3,742,833)
=========== ===========
BASIC AND DILUTED NET
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LOSS PER SHARE............ $(0.42) $(0.73)
=========== ===========
The accompanying notes to the condensed financial statements are an
integral part of these statements.
eCollege.com(SM)
STATEMENT OF CASHFLOWS
Three Months Ended
March 31,
------------ -----------
2000 1999
------------ -----------
(Unaudited)
CASH FROM OPERATIONS.......................... $ (6,100,538) $(3,012,592)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........... (1,594,881) (327,751)
Purchases of marketable securities........... (29,255,055) -
------------ -----------
Net cash used in investing activities....... (30,849,936) (327,751)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock....... 5,636,830 12,540
Proceeds from issuance of preferred stock.... - 2,250,000
Payment of stock issuance costs.............. (386,706) (656,000)
Proceeds on notes receivable................. 593,593 -
------------ -----------
Net cash provided by financing activities... 5,843,717 1,606,540
------------ -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS................................... (31,106,757) (1,733,803)
CASH AND CASH EQUIVALENTS, beginning of period 46,307,674 11,661,186
------------ -----------
CASH AND CASH EQUIVALENTS, end of period...... $ 15,200,917 $ 9,927,383
============ ===========
The accompanying notes to the condensed financial statements are an
integral part of these statements.
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eCollege.com(SM)
NOTES TO UNAUDITED CONDENSED
FINANCIAL STATEMENTS
1. Organization and Nature of Business
The Company is a provider of technology and services that enable colleges,
universities and corporations to deliver an online campus and courses over the
Internet. The Company's integrated platform of software and services allows
colleges, universities and corporations to outsource the creation, launch,
management and support of online campuses and courses. The Company's services
include campus and course design, development, hosting, maintenance and customer
support services.
In December 1999, the Company completed an initial public offering of
5,000,000 shares of common stock at $11.00 per share. Net proceeds to the
Company aggregated to $51,150,000. On January 13, 2000, the Company received net
proceeds of $5,115,000 from the exercise of 500,000 shares of the underwriter's
over allotment option. The amount received was net of the estimated underwriting
offering expenses.
2. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. 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 such
regulations. The unaudited condensed financial statements reflect all
adjustments and disclosures that are, in the opinion of management, necessary
for a fair presentation. All such adjustments are of a normal recurring nature.
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation. Management does not believe the effects of
such reclassifications are material. The results of operations for the interim
period ended March 31, 2000, are not necessarily indicative of the results of
the full fiscal year. For further information, refer to the audited financial
statements and notes thereto included in the Company's Annual Report on Form 10-
K, for the year ended December 31, 1999.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 was amended by SAB 101A, which delayed the implementation
date of SAB 101 for calendar year end reporting companies, including
eCollege.com, to the quarter ending June 30, 2000. In March 2000, the Emerging
Issues Task Force reached a consensus on Issue No. 00-3, Application of AICPA
SOP 97-2, "Software Revenue Recognition to Arrangements That Include the Right
to Use Software Stored on Another Entity's Hardware" ("EITF Issue No. 00-3") to
be applicable for the quarter beginning after June 30, 2000. The consensus
identifies those software arrangements under which entities can account for
sales of software in accordance with SOP 97-2, and those arrangements that do
not qualify as a sale of software.
The Company is currently evaluating SAB 101 in conjunction with EITF Issue
No. 00-3 and is in the process of determining the impact these pronouncements
will have on its financial position, revenues and results of operations for the
quarter ending June 30, 2000 and subsequent periods. The impact of SAB 101 will
be reported as a change in accounting principle, computed as of March 31, 2000,
in accordance with FASB Statement No. 3. This may result in a significant
cumulative effect adjustment that would be reflected in the Company's results of
operations for the three months ended June 30, 2000.
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3. Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to
Common Stockholders for the period by the weighted-average number of common
shares outstanding for the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and potential common shares outstanding during the period if the effect of the
potential common shares is dilutive. The Company has excluded the weighted
average effect (using the treasury stock method) of Common Stock issuable upon
conversion of all convertible Preferred Stock, warrants and stock options from
the computation of diluted earnings per share as the effect of all such
securities is anti-dilutive for all periods presented. The shares excluded are
as follows:
For the quarter ended March 31,
2000.................................................. 962,220
=========
1999.................................................. 5,579,140
=========
At March 31, 2000, the Company had issued rights to 2,591,256 shares of
Common Stock under the Company's warrant and stock option agreements.
Net loss from continuing operations per share is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Numerator:
Net loss from continuing
operations................ $(6,237,353) $(3,127,292)
Dividends on
mandatorily redeemable,
convertible preferred
stock..................... - (530,270)
Accretion of mandatorily
redeemable, convertible
preferred stock........... - (85,271)
----------- -----------
Net loss from continuing
operations applicable to
common stockholders....... $(6,237,353) $(3,742,833)
=========== ===========
Denominator:
Weighted average shares
outstanding............... 14,745,694 5,116,230
=========== ===========
</TABLE>
4. Comprehensive income
During the three months ended March 31, 2000 and 1999, total comprehensive
loss was $6,264,273 and $3,127,292, respectively. Adjustments to the Company's
net loss to derive comprehensive loss are comprised of unrealized losses on the
Company's available-for-sale securities.
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5. Legal Matters
The Company is exposed to asserted and unasserted legal claims encountered
in the normal course of business. Management believes that the ultimate
resolution of any such matters will not have a material adverse effect on the
operating results or the financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect," "anticipate," "intend," and "project"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the Company, increasing competition, and other unanticipated events and
conditions. It is not possible to foresee or identify all such factors. The
Company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
Forward looking statements made in this Form 10-Q include references to our
development of our CampusPortal product, and the expected impact of this product
on our financial results. The CampusPortal product development contains certain
risks including possible delays in development, cost overruns and customer
acceptance. This form 10-Q also contains statements about our expected increases
in revenues and expected trends in our operating expenses. These statements are
forward looking statements and should be read in conjunction with certain risk
factors in our Form S-1 dated December 14, 1999, our Form 10-K dated March 30,
2000 and other filings we have made with the SEC.
Overview
eCollege.com(SM) is a leading provider of technology and services that
enable colleges, universities and corporations to offer an online environment
for distance and on-campus learning. Our technology enables our customers to
reach a large number of additional students who wish to take online courses at
convenient times and locations. Our customers can also use our technology to
supplement their on-campus courses with an online learning environment.
We were founded and began delivering our services to the University of
Colorado in 1996. In 1997, we grew our customer base and revenue while
developing our technology to support substantial growth. As of March 31, 2000,
the Company had 156 contracts covering 200 individual campuses. Since our
inception our customers have purchased or ordered more than 3,000 online courses
along with course building services. For the Spring 2000 academic term, we
had 113 customers offering online courses to students, and our customers had
approximately 19,000 student enrollments in online courses provided by us. We
have invested, and continue to invest, in expanding our service capabilities by
expanding our infrastructure and increasing our human resources. Our
expenditures have exceeded our revenues since our inception, and our losses have
increased as a result of our accelerated growth. We currently intend to continue
to increase our operating expenses to support anticipated growth, to fund
increased sales and marketing, and to enhance existing and develop new
technologies.
Business Strategy
Our objectives are to be the leading provider of technology to be used in
education and training, and for our services to be the highest standard in the
industry. Our strategy to achieve these objectives includes providing the
leading eteaching platform for teaching and learning on-campus, for distance
education and for corporate training; providing key front-office transactions
between educators and their students; and helping institutions create life-long
learning communities.
The Company is also developing technology that will allow eCollege.com(SM)
and its customers to include online advertising on their online campus portals
and to generate ecommerce revenue from the online communities of the customers
using the eCollege.com(SM) campus product. The new version of the
eCollege.com(SM) campus product
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(CampusPortal(SM)) will have options including courses and course
supplements, community or corporate information, faculty/instructor development,
customized personal homepages, and administrative student or employee services,
as well as advertising and ecommerce, as approved by our customers. We are
considering several pricing strategies for this product and are therefore not
yet able to estimate the impact of the release of this product on our financial
statements.
Revenue
We primarily generate revenue from three sources:
. an initial development and design services fee to build an online
campus;
. development and design services fees to build online courses; and
. enrollment fees for each student in an online course.
Historically, we offered an online campus bundled with a minimum number of
courses, as well as maintenance and support. In September 1999, we made the
strategic decision to unbundle our product and service offerings. We believe
that our unbundled services will attract a greater number of prospective
customers by allowing them to customize our offering to meet their needs.
Accordingly, while we continue to offer our online campus product either alone
or bundled with online courses, we have recently begun to generate revenues from
additional sources. These additional sources include:
. maintenance fees to manage the online campus during the term of the
agreement;
. service fees, including online campus implementation, faculty training
and support and technical consulting services; and
. fees for products that supplement traditional classroom courses
(eCompanion(SM) and eToolkit(SM)).
In the first quarter of 2000, revenue from these additional sources was
insignificant.
Two new products were introduced in 1999 including: eToolkit(SM), a basic
version of our online course development software, which allows web-based
communication between faculty and students and encourages professors to begin
using our technology and services; and eCompanion(SM), a course development
product specifically designed to enable instructors to supplement their existing
on-campus courses by providing class information, including lectures and notes
over the Internet. Due to the nature and requirements of these products,
especially eCompanion(SM), the Company expects to service a higher volume of
students. We intend to use these products as a marketing tool and do not
anticipate a significant amount of revenue derived from these products in the
coming year.
We typically enter into contracts with colleges, universities and
corporations to provide our online learning products and services. The average
term of our contracts is three to five years. Each contract is based on our
standard form, customized for each college, university, or corporation and
specifies the products and services we will provide. These contracts specify the
online campus purchased, the initial number of online courses purchased as well
as the price for additional online courses and services. We recognize our
development fees on a percentage of completion basis as the online campus and
course development and design services are performed. Our use of this method
requires management to estimate the degree of completion of each contract. To
the extent the original estimate proves to be inaccurate, the revenues and gross
profit or loss reported for the periods during which work on the contract is
ongoing may
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not accurately reflect the final results of the contract. Any anticipated losses
on contracts are charged to earnings when identified.
As noted in the recent accounting pronouncements section of this 10Q, we
are currently reviewing the impact that SAB 101 and EITF No. 00-3 could have on
our revenue recognition policy and on our financial statements. This change
would be reported as a cumulative adjustment as a result of a change in
accounting principle.
We charge our customers a student fee for each student enrolled in an
online course or on-campus class using online course supplements. These fees are
recognized ratably over the duration of the course.
Our business model is based upon a number of factors, including increasing
the acceptance of online learning among colleges, universities, and
corporations, adding new customers, developing additional courses for our
existing customers, increasing student enrollment in online courses, and selling
new products and services to our clients. For the quarter ending March 31, 2000,
we received approximately half of our revenue from development and design
services fees for building campuses and courses, and approximately half from
student fees. We expect that the development revenue stream will continue to
grow, but that the student fees will become a larger percentage of total revenue
as the number of online courses offered by our customers and the numbers of
students in those courses continue to increase. As our incremental cost to
service additional student enrollment declines as student enrollment increases,
we will be able to offer discounts to our customers who guarantee higher student
volumes. Additionally, our supplemental online teaching solutions are generally
priced lower than our full-course solutions. As our pricing and product mix
change, we anticipate that student enrollment will increase and the average
student fee may decline.
In October 1998, we were awarded a grant of approximately $1,900,000 by the
National Institute of Standards and Technology, or NIST, a department of the
U.S. Department of Commerce. We are entitled to receive payments under the grant
as we perform research related to automated course content creation and
organization, and tutoring delivery systems. Maximum payments under the NIST
grant are $713,000 in 1999, $583,000 in 2000 and $583,000 in 2001. Pursuant to
the terms of the NIST grant, work must be performed at a prescribed format and
pace. We believe we will be able to perform under the terms of the NIST grant,
however, there is no assurance we will continue to receive payments under the
NIST grant or that we will receive the maximum payments under the NIST grant. We
recognized $81,865 and $0 of NIST revenue for the three months ended March 31,
2000 and 1999, respectively. We do not intend that revenue from such grant will
constitute a significant portion of our revenue in the future. We may apply for
other grants in the future, although we have no present plans to do so.
Grant Program
We implemented a Grant Program in late 1999 designed to assist new and
existing customers in increasing the number of online courses they offer using
our products and services and the number of students pursuing online degrees.
Seventy Two Grants were awarded, at our discretion, to institutions based on
demonstrated commitment to a quality online degree program, the number of
current and potential students, the college or university's unique approach to
online learning and other factors. Pursuant to the Grant Program, we stopped
awarding additional grants in January 2000.
A portion of the grants are educational support funds and are considered
contract costs. If contract costs, including appropriate educational support
funds, are in excess of the revenue to build a customer's campus or courses,
such excess is expensed as a contract loss in the quarter in which the loss is
first identified. At December 31, 1999, the Company recognized a loss on such
contracts of $2,438,055. The determination of the contract loss requires
management to make estimates and assumptions regarding the total amount of costs
to be incurred. These estimates and assumptions may change and affect the
reported amounts of the contingent liability on the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. As contracts are completed, actual results could differ from
those estimated in prior periods and could impact reported amounts of revenue
and expense in that reporting period.
We have granted $7,402,268 which consists of $1,698,941 in grants for
marketing funds and $5,703,327 in educational support funds. Pursuant to the
terms of the grants, funds are paid to our customers after they have provided
receipts for reimbursement. For the three months ended March 31, 2000, we made
disbursements of $36,500 under the grant program. We expense the
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marketing fund component as we expect our customers to incur them. We expect
that our customers will incur these expenses equally throughout the year 2000,
and have expensed approximately $400,000 for the three months ended March 31,
2000. We expense educational support funds as they are incurred which is
generally as the courses under the grant are developed. For the three months
ended March 31, 2000, we have expensed $140,000 of educational support funds.
Results Of Continuing Operations
We have incurred significant losses since our inception, resulting in an
accumulated deficit of $38,499,132 as of March 31, 2000 compared to $12,779,696
as of March 31, 1999. We intend to continue to make investments in technology
which may involve the development, acquisition or licensing of technologies that
compliment or augment our existing services, technologies and products. We also
intend to continue to invest in marketing activities. Accordingly, we expect to
incur operating losses for the foreseeable future.
Three Months Ended March 31, 2000 and 1999
Revenue. Revenue increased to $2,371,559 for the three months ended March
31, 2000 from $610,957 for the three months ended March 31, 1999. Increases in
revenue are due to increased student enrollment in online courses, as well as an
increased number of online campuses and courses developed. Student fees
represented $1,204,299 and $285,947 of total revenue for the three months ended
March 31, 2000 and 1999, respectively. Campus and course development fees
represented $1,167,260 and $325,010 of total revenue, respectively, for these
same periods. Revenue from the NIST grant was $81,865 for the three months ended
March 31, 2000 and is included in development revenue.
Cost of Revenue. Cost of revenue increased to $2,576,909 for the three
months ended March 31, 2000 from $1,223,712 for the three months ended March 31,
1999. Our cost of revenue increased primarily due to additional personnel costs
to support our growth in revenue. Our operations and account management
personnel increased to 141 at March 31, 2000 from 79 at March 31, 1999. In
addition, cost of revenue increased as a result of accrued grant expenses of
approximately $140,000.
Gross Margin. We experienced a negative gross margin of $205,350 for the
three months ended March 31, 2000 as compared to a negative gross margin of
$612,755 for the three months ended March 31, 1999. The favorable increase in
gross margin was primarily due to a decrease in sales commissions, which was a
result of the Company changing its commission program to better align it with
revenue recognized, and an improved utilization of our professional services
staff.
Selling and Marketing. Selling and marketing expenses increased to
$2,869,031 for the three months ended March 31, 2000 from $1,305,341 for the
three months ended March 31, 1999. The increase was primarily due to increases
in the number of selling and marketing personnel, additional trade show
participation and other promotional activities, and increases in travel expense.
Our selling and marketing personnel increased to 64 at March 31, 2000 from 53 at
March 31, 1999. The increase in selling and marketing expenses also reflects an
increase in marketing costs associated with the grant program of approximately
$400,000 for the three months ended March 31, 2000 from $0 for the three months
ended March 31, 1999.
General and Administrative. General and administrative expenses increased
to $2,575,333 for the three months ended March 31, 2000 from $735,824 for the
three months ended March 31, 1999. The increase was primarily due the Company's
investment in building and developing management team and operating
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infrastructure. The number of general and administrative personnel increased to
54 at March 31, 2000 from 28 at March 31, 1999. In addition, outside consulting,
professional fees, recruiting fees and travel expenses increased, reflecting our
expanded business activities. We expect our general and administrative dollars
to grow in absolute dollars. However, we expect the increase in cost to be
slower than the increase in revenue and therefore expect the general and
administrative expenses to decline as a percent of revenue.
Since inception, we incurred aggregate deferred compensation of $4,139,631
in connection with the grant of options to employees. We have recorded this
amount as a reduction to equity and are amortizing this amount to compensation
expense over the vesting period of such options, which ranges from 2 to 3 years.
During the three months ended March 31, 2000 and 1999, we have recognized
compensation expense in the amount of $338,883 and $103,000, respectively. The
majority of compensation expense related to such options is included in general
and administrative expense. However, a portion of such compensation expense has
been allocated to cost of revenue, selling and marketing expense and product
development expense as appropriate. We expect approximate future per quarter
amortization related to deferred compensation to be as follows:
Quarters
in the
Year
Ended
December
31, Quarterly Amount
-------- --------------------
2000 $340,000 -- $350,000
2001 $280,000 -- $340,000
2002 $ 80,000 -- $200,000
Product Development. Product development expenses increased to $1,285,584
for the three months ended March 31, 2000 from $593,268 for the three months
ended March 31, 1999. The increase was primarily due to the development of our
CampusPortal(SM) product, enhancements for our eTeaching Solutions(SM) and an
investment in tools to improve our efficiency in developing campuses and
courses. We expect that product development costs will continue to increase as
we focus our spending on the development and enhancement of the CampusPortal(SM)
and eTeaching Solutions(SM) product.
Other Income (Expense). Interest and other income, which consists primarily
of interest earnings on our cash and cash equivalents and short term
investments, increased to $757,513 for the three months ended March 31, 2000
from $119,896 for the three months ended March 31, 1999. This increase is
primarily due to an increase in cash as a result of the equity financing that
occurred in the fourth quarter of 1999 and the first quarter of 2000 of
$51,150,000 and $5,115,000, respectively. Interest expense resulting from
amortization of warrants and prepaid fees associated with establishing the line
of credit entered into in 1999 was $59,568 for the quarter ending March 31,
2000.
Net loss. Our net loss applicable to common stockholders increased to
$6,237,353, or $.42 per share, from $3,742,833, or $.73 per share, for the three
months ended March 31, 2000 and 1999, respectively. The net loss applicable to
common stockholders in 1999 includes the impact of dividends and accretion
related to our mandatorily redeemable convertible preferred stock.
Liquidity and Capital Resources
Page 12
<PAGE>
The Company's cash, cash equivalents, and short term investments decreased
$1,878,622 from $46,307,674 at December 31, 1999 to $44,429,052 at March 31,
2000. Specifically, the Company had cash and cash equivalents (money market
funds and less than 90 days available for sale securities) of $15,200,917 and
available for sale securities of $29,228,135 at March 31, 2000. The decrease in
cash and cash equivalents was due to cash used in operating activities of
$6,100,538 and cash used in investing activities of $1,594,881. The decrease in
cash provided from operating and investing activities was offset by cash
provided by financing activities of $5,843,717.
We have financed the majority of our operations through the issuance of
equity securities. We have sold Common Stock and Preferred Stock generating
aggregate proceeds of $83,158,214 from inception through March 31, 2000.
In January 2000, we received net proceeds of $5,115,000 from the exercise
of the underwriter's over allotment option. The amount received was net of the
estimated underwriting offering expenses.
We used the net proceeds from our recent equity financing to fund capital
expenditures and to support sales and marketing activities, product development
activities, expanding our data center, investing in short term marketable
securities with maturities of one year or less, and for other expenses
associated with our growth. In the upcoming year, we specifically plan to
enhance our new data center, continue to develop new products and services, and
to continue to invest in new equipment to support our increasing human
resources. We also plan to implement new accounting and financial information
systems.
We expect the proceeds that we received from our initial public offering in
December 1999, the exercise of the underwriter's over allotment option in the
first quarter of 2000, together with cash generated from operations to meet our
working capital and capital expenditure requirements for at least the next 12
months. Beyond the next 12 months, we may need to obtain additional debt and/or
equity financing to fund our operations and anticipated growth. Although there
can be no guarantee, we believe such funds will be available to us.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
market prices and rates. The Company is, or may become, exposed to market risk
in the areas of changes in United States interest rates and changes in foreign
currency exchange rates as measured against the United States dollar. These
exposures are directly related to our normal operating and funding activities.
Historically and as of March 31, 2000, we have not used derivative instruments,
engaged in hedging activities or entered into any foreign currency transactions.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEDINGS
We are not a party to any material legal proceedings.
Item 2. CHANGES IN SECURITIES
On December 15, 1999, the Company consummated its initial public offering
(the "Offering") of its Common Stock, par value $.01 per share (the "Common
Stock"). The registration statement relating to the Offering (File No. 333-
78365) was declared effective on December 14, 1999. Banc of America Securities
LLC, William Blair & Company, and Prudential Volpe Technology were the managing
underwriters of the Offering. The Offering terminated on January 13, 2000 upon
the sale of 500,000 shares of the underwriters' overallotment option. The
Company registered and sold a total, including the underwriters' over-allotment,
of 5,500,000 shares with an aggregate registered price of $60,500,000.
The Company incurred underwriting discounts and commissions of $4,235,000
with respect to the Offering during the period December 15, 1999 through January
13, 2000, none of which were direct or indirect payments to directors, officers,
general partners of the Company or their associates or to persons owning 10% or
more of any class of equity securities of the Company or to affiliates of the
Company.
The net offering proceeds to the Company $56,265,000, of which $5,115,000
relates to the exercise of 500,000 shares of the underwriters' over-allotment
option on January 13, 2000. The Company used a portion of the proceeds to repay
$2,050,000 in bank debt. At the time of the initial public offering, 4,150,402
shares of the Company's Series A, B, and C Preferred Stock were converted to
$4,150,402 shares of Common Stock. The Company expects to use its remaining net
proceeds to enhance our new data center, continue to develop new products and
services, and to continue to invest in new equipment to support our increasing
human resources. We also plan to implement new accounting and financial
information systems.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Page 13
<PAGE>
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this Report
on Form 10-Q. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the
previous filing is indicated parenthetically except for in those
situations where the exhibit number was the same as set forth
below.
Exhibit
Number Description
------------- ---------------------------------------------------
11 Statement Regarding Computation of Per Share
Earnings (Loss) (included in notes to financial
statements)
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized in Denver, Colorado, on this 15th day of
May, 2000.
eCollege.com
/s/ Robert N. Helmick
----------------------------------------------
Name:Robert N. Helmick
Title:President, Chief Executive
Officer and Chairman of the Board of Directors
(principal executive officer)
/s/ Douglas H. Kelsall
----------------------------------------------
Name: Douglas H. Kelsall
Title: Chief Financial Officer and
Treasurer (principal financial
officer)
/s/ Linda Schmehl
----------------------------------------------
Name: Linda Schmehl C.P.A.
Title: Chief Accounting Officer
Page 14
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,200,917
<SECURITIES> 29,228,135
<RECEIVABLES> 2,538,510
<ALLOWANCES> (44,800)
<INVENTORY> 0
<CURRENT-ASSETS> 1,090,441
<PP&E> 7,863,659
<DEPRECIATION> (2,285,285)
<TOTAL-ASSETS> 54,180,677
<CURRENT-LIABILITIES> 9,918,465
<BONDS> 0
0
0
<COMMON> 87,473,528
<OTHER-SE> (37,542,812)
<TOTAL-LIABILITY-AND-EQUITY> 54,180,677
<SALES> 2,371,559
<TOTAL-REVENUES> 2,371,559
<CGS> 0
<TOTAL-COSTS> 2,576,909
<OTHER-EXPENSES> 6,729,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,568
<INCOME-PRETAX> (6,237,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,237,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,237,353)
<EPS-BASIC> (.42)
<EPS-DILUTED> (.42)
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