SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 May 31, 2000
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 000-23180
WASATCH INTERACTIVE LEARNING CORPORATION
-------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Washington 91-1253514
-------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5250 South Commerce Drive, Suite 101, Salt Lake City, Utah 84107
----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 261-1001
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 [
]
Number of shares of the registrant's $0.0001 par value common stock outstanding
at May 31, 2000: 7,657,312.
Transitional Small Business Disclosure Format Yes [X] No [ ]
1
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING MAY 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I PAGE
Item 1. Financial Statements
Balance Sheet as of May 31, 2000 (Unaudited)...................................... 3
Statements of Operations for the three months ended May 31, 2000 and 1999
(unaudited)....................................................................... 4
Statements of Cash Flows for the three months ended May 31, 2000 and 1999
(unaudited)....................................................................... 5
Notes to Financial Statements (Unaudited)......................................... 6-8
Item 2. Management's Discussion and Analysis or Plan of Operation......................... 9-12
PART II
Item 1. Legal Proceedings................................................................. 13
Item 2. Changes in Securities and Use of Proceeds......................................... 13
Item 3. Defaults upon Senior Securities................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............................... 13
Item 5. Other Information................................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................................. 13
Signatures .................................................................................. 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEET
May 31, 2000
____________________________________________________________________________________
(Unaudited)
<S> <C>
Assets
Current assets:
Cash $ 3,326,000
Receivables 158,000
Other 55,000
__________
Total current assets 3,539,000
Property and equipment, net 162,000
License agreement, net 525,000
Other intangibles, net 391,000
_________
$ 4,617,000
__________
____________________________________________________________________________________
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 108,000
Accrued expenses 196,000
Income tax payable 1,000
Deferred revenue 69,000
Current portion of long-term debt 15,000
__________
Total current liabilities 389,000
Long-term debt 4,053,000
__________
Total liabilities 4,442,000
__________
Stockholders' equity:
Common stock, $.0001, par value, 100,000,000 shares authorized;
7,657,312 shares issued and outstanding 1,000
Additional paid-in capital 4,092,000
Stock subscription receivable (84,000)
Accumulated deficit (3,834,000)
__________
Total stockholders' equity 175,000
__________
$ 4,617,000
__________
____________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended May 31,
______________________________________________________________________________________
2000 1999
______________________________
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 161,000 $ 371,000
Cost of sales 140,000 150,000
_____________________________
Gross profit 21,000 221,000
_____________________________
Operating expenses:
Sales and marketing 410,000 108,000
Research and development 255,000 147,000
General and administrative 384,000 139,000
_____________________________
1,049,000 394,000
_____________________________
Loss from operations (1,028,000) (173,000)
Other income (expense):
Interest income 36,000 --
Interest expense (58,000) (21,000)
______________________________
Loss before benefit for
income taxes (1,050,000) (194,000)
Benefit for income taxes -- --
______________________________
Net loss $ (1,050,000) $(194,000)
______________________________
Net loss per share - basic and diluted $ (.14) $ (.06)
______________________________
Weighted average common shares - basic and diluted 7,658,000 3,375,000
______________________________
______________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended May 31,
______________________________________________________________________________________
2000 1999
____________________________
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,050,000) $ (194,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 118,000 94,000
Common stock issued for services 5,000 --
(Increase) decrease in:
Receivables 734,000 71,000
Increase (decrease) in:
Accounts payable 50,000 (6,000)
Accrued expenses (87,000) 102,000
Deferred revenue (9,000) (57,000)
____________________________
Net cash provided by (used in)
operating activities (239,000) 10,000
____________________________
Cash flows from investing activities:
Purchases of property and equipment (63,000) --
Cash flows from financing activities:
Cash overdraft -- 28,000
Payments on long-term debt (24,000) (38,000)
Proceeds from long-term debt 3,580,000 --
_____________________________
Net cash provided by (used in)
financing activities 3,556,000 (10,000)
_____________________________
Net increase in cash 3,254,000 --
Cash, beginning of period 72,000 --
_____________________________
Cash, end of period $ 3,326,000 $ --
_____________________________
Non-cash investing and financing activities:
During the three months ended May 31, 2000, the Company acquired equipment
totaling $9,000 in exchange for a lease payable and incurred expenses of
$420,000 that were deducted from the proceeds of a convertible debenture
issued on March 16, 2000.
_______________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
________________________________________________________________________________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of Regulation
S-B. Accordingly, the statements do not contain all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statement presentation. However, in the opinion of
Management, all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation of financial position, have been included in
the accompanying unaudited financial statements of Wasatch Interactive Learning
Corporation (the "Company") at May 31, 2000, and the results of operations for
the three months ended May 31, 2000 and 1999 and cash flows for the three months
ended May 31, 2000 and 1999. The results of operations for the three months
ended May 31, 2000 and 1999 or for any other interim period are not necessarily
indicative of the results that may be expected for the year ending February 28,
2001. It is suggested that these financial statements and related notes be read
in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended February 29, 2000.
Organization and Business
The Company was incorporated on May 17, 1984 under the laws of the State of
Washington under the name Image Productions, Inc., subsequently changing its
name to Bahui USA, Inc., and then to AG Holdings, Inc. On January 20, 2000, the
Company entered into an Agreement and Plan of Reorganization with Wasatch
Interactive Learning Corporation, a Utah corporation (WILC-Utah) and
simultaneously changed its corporate name from AG Holdings, Inc. to Wasatch
Interactive Learning Corporation (WILC). Pursuant to the terms of the
Reorganization Agreement, the stockholders of WILC-Utah received 3,605,205
shares of WILC common stock.
The statements of operations and cash flows for the three months ended May
31, 1999 are presented on the assumption that acquisition of WILC-Utah by WILC
occurred March 1, 1998. Because the shares issued in the acquisition of
WILC-Utah represent control of the total shares of WILC's common stock issued
and outstanding immediately following the acquisition, WILC-Utah is deemed for
financial reporting purposes to have acquired WILC in a reverse acquisition. The
business combination has been accounted for as a recapitalization of WILC giving
effect to the acquisition of 100% of the outstanding common shares of WILC-Utah.
The surviving entity reflects the assets and liabilities of WILC and WILC-Utah
at their historical book value and the historical operations of the Company is
that of WILC-Utah. The issued common stock is that of WILC and the accumulated
deficit is that of WILC-Utah. The statement of operations is that of the Company
(WILC) for the three months ended May 31, 2000 and that of WILC-Utah for the
three months ended May 31, 1999. Separate breakout of operations for WILC for
the three months ended May 31, 1999 have not been presented, as the amounts not
related to WILC-Utah are immaterial.
Wasatch Interactive Learning Corporation develops and sells
curriculum-based educational software and related services to the kindergarten
through eighth grade, adult basic education and GED markets. Wasatch Interactive
Learning's Math Expeditions product series consists of 402 lessons designed to
teach mathematics skills for grades K-Adult and can be delivered on an
individual computer running from a CD-ROM, over local area and wide area
networks, and online via the Internet, using Microsoft or Netscape browsers. The
Company's Projects for the Real World, K-3 and 4-8 product series contains 485
and 235 activities, respectively, targeted to teach and reinforce the skills in
reading, writing, mathematics, science, social studies and geography taught in
grades kindergarten through eighth. The Company also offers a Beginning
Reading/Phonics K-5 product series, which consists of 56 lessons for the
kindergarten through fifth grade market, and is designed to give users the
skills to become independent readers, writers and thinkers.
6
<PAGE>
The Company's offerings of adult education courseware consist of Basic
Skills and Job Skills For The Real World. Basic Skills For The Real World
contains 80 hours of instruction, arranged in 159 lessons, designed to teach and
reinforce reading, writing, mathematics, problem-solving, and job skills in
meaningful contexts, targeted at the grade seven to adult basic education
market. Our Job Skills For The Real World product series contains approximately
30 hours of instruction, arranged in 28 lessons, targeted at the grade seven to
adult education market. This product series is designed to teach and reinforce
the job skills and competencies outlined in the U.S. Department of Labor
publication, "What Work Requires of Schools."
All of these products have been integrated under the Company's
Internet-compatible courseware management system. This courseware management
system allows a teacher to monitor student progress, provides automatic tracking
of student time-on-task, assigns software, administers online testing, and
prints progress reports. This product features a teacher-friendly design, online
help, notice of student difficulty, and customizable features and can be
accessed remotely by the teacher via the Internet.
Revenue Recognition
Wasatch Interactive Learning Corporation derives its revenue from the
licensing of educational courseware. The Company also generates revenue from
fees charged for installation, training, renewal and customer support services.
Courseware revenue is recognized when the software is shipped, collectibility is
probable, and there are no significant obligations remaining. Installation and
training revenue is generally recognized when installation and training is
complete, which normally occurs within 30 days after product shipment. Renewal
fee revenue is recognized ratably over a 12-month contractual period.
Research and Development
Research and development costs are charged to operations as incurred.
Income Taxes
Income taxes are accounted for using the liability method wherein deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
estimated tax rates in effect for the year in which the differences are expected
to reverse. An allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will be not be realized in the future.
Cash & Cash Equivalents
The Company considers all highly liquid investments with an original
maturity date of three months or less when purchased to be cash equivalents.
Cash and cash equivalents are placed with federally insured financial
institutions. Cash and cash equivalent balances in excess of Federal Deposit
Insurance Corporation (FDIC) limits are invested in short-term interest bearing
accounts collateralized by U.S. Treasury securities.
Accounts Receivable and Concentration of Credit Risk
The Company provides credit terms to its customers in the normal course of
business. The Company performs ongoing credit evaluations of its customers and
presently does not carry an allowance for doubtful receivables since there has
been no history of credit losses.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization on property and equipment and
capital leases is determined using the straight-line method over the estimated
useful lives of the assets or terms of the lease. Gains and losses on
disposition of property and equipment are reflected separately in the statement
of operations.
7
<PAGE>
License Agreement
The Company has a license agreement in place reflecting the payment of cash
in exchange for exclusive rights to market and sell certain software in the
education market. The license agreement is being amortized on a straight-line
basis over five years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, primarily related to software revenue recognition, that affect the
reported amounts of assets, liabilities, net sales and expenses during the
reported period. Estimates also affect the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain reclassifications have been made to the 1999 financial statements
to conform to the 2000 presentation.
2. LONG TERM DEBT
On March 16, 2000, the Company issued to one institutional investor, a $4
million convertible debenture along with warrants to purchase up to 196,078
shares of the Company's common stock at an exercise price of $5.31 per share.
The debenture bears an interest rate of 7% per annum with interest payable
quarterly. The debenture is convertible with certain limitations, into shares of
the Company's common stock at the lesser of $6.25 per share or 80% of the
closing bid price of the Company's common stock for any five non-consecutive
trading days during the 20-day trading period prior to conversion. The Company
realized $3,580,000 in net proceeds from the sale of the debenture. Under the
terms of an agreement with a major shareholder, the Company paid a $100,000
commission to the shareholder for their assistance in obtaining the debenture
financing.
Long-term debt (including current maturities thereof), at May 31, 2000 also
includes $68,000 of capital lease obligations. The terms of the leases include
options to purchase the equipment at the end of the lease period, and have
imputed interest rates ranging from 11% to 18%.
3. STOCKHOLDERS' EQUITY
Basic earnings (loss) per common share are computed by dividing net income
(loss) by the weighted average number of common shares outstanding during each
reporting period. The computation of diluted earnings per common share is based
on the weighted average number of shares outstanding during each reporting
period plus the common stock equivalents, which would arise from the exercise of
stock options and warrants outstanding using the treasury stock method. Common
stock equivalents are not included in the computation of diluted earnings per
share when their effect is anti-dilutive. At May 31, 2000, the Company had
630,000 employee stock options outstanding with exercise prices ranging from
$4.00 to $10.00 per share, and 3,265,412 warrants outstanding with exercise
prices ranging from $5.31 to $28 per share. Diluted shares issued upon exercise
of outstanding stock options and warrants and inclusion of additional common
shares assuming the conversion of the $4 million convertible debenture for the
three months ended May 31, 2000 were excluded as they were anti-dulitve because
of the net loss incurred during the period. In as much as the Company did not
have any common stock equivalents outstanding during the three months ended May
31, 1999, diluted earnings per share are the same as basic earnings per share.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, relating to the Company's
operations that are based on Management's and third parties' current
expectations, estimates, and projections. The forward-looking statements in this
report reflect the good faith judgment of our management. However,
forward-looking statements can only be based on facts and factors currently
known. Consequently, these statements are not guarantees of future performances
and actual results could differ materially.
Statements made by the Company concerning future financial results, rapid
sales growth, its ability to grow rapidly and expand its marketing and sales
efforts nationwide, the introduction of new products and services for school and
home usage, the effectiveness of the Company's products, online delivery of its
products and instructional management system by Fall 2000 are all
forward-looking statements that involve risks and uncertainties. These risks and
uncertainties include the Company's ability to market its products and services
both online and offline, the timely development and acceptance of the new
products and services, the impact of competitive products and pricing, the
timely funding of school budgets, customer payments to the Company and other
risks contained from time to time in the Company's SEC reports.
Overview
The Company develops, markets, and sells curriculum-based educational
courseware and related services to schools, school districts, and adult
education sites located in the United States. Our comprehensive courseware
library includes over 1,400 hours of instruction addressing the curriculum
objectives for grades K-8, adult basic education, and GED preparation. The
subject areas covered include reading, writing, mathematics, science, social
studies, self-esteem, conflict resolution, and life and job skills. All of our
products have been integrated under our Internet-compatible courseware
management system, which allows the delivery of our courseware on local area and
wide area networks, by a teacher on a demonstration teaching station, in a
computer laboratory setting, or at home through online access via the Internet
and monitors student progress, tracks time-on-task, assigns courseware, and
prints progress reports. By Fall 2000, we expect that virtually all of our
products will be Internet-deliverable and available for purchase from our fully
functional e-commerce Web site.
Revenue
Our revenue is derived substantially from the sale of curriculum-based
educational courseware licenses to U.S. schools and school districts in the K-8
market, and adult education sites, which includes adult basic education and GED
preparation. We also generate revenue from installation, training, and customer
support services, for which we charge fees. Annual renewal fees are charged to
existing customers based on the number of file servers loaded with our software
at each school or adult education site. The renewal fee includes access to our
customer support representatives for a 12-month period and one-software upgrade
of their licensed courseware.
The majority of our revenue has been derived from the sale to schools and
adult education sites of workstation licenses of our licensed courseware and our
proprietary courseware.
Licensed courseware. Licensed courseware includes six suites entitled,
"Beginning Reading," "Projects for the Real World K-3," "Projects for the Real
World 4-8," "Basic Skills," "Job Skills," and "Windows Instructional Management
System." Wasatch Education Systems Corporation "WESC" originally developed this
courseware, and we have the exclusive license to sell these products in the
education market. We have enhanced these products during the last three years,
updating the products to run on Microsoft's Windows 95, 98, and NT operating
systems. Under our license agreement with WESC, we own these enhanced products.
The majority of our revenues over the last three years have been generated from
the sale of WESC licensed courseware. When we sold WESC licensed courseware, we
were required to pay WESC a royalty based on 10% of net sales of licensed
courseware. However, our license agreement with WESC was amended to reduce
royalties to 2.5% of our net sales effective 3/1/ 2000.
9
<PAGE>
Proprietary courseware. The following five suites of products constitute
our proprietary courseware:
* our comprehensive "Math Expeditions" courseware, which reinforces the
necessary mathematics skills for K-adult education market;
* our interactive set of tools and manipulatives that make abstract
mathematical skills concrete;
* our Java-based instructional management system;
* our Student TRAX curriculum manager; and
* video test assessment product.
Proprietary courseware products do not have a royalty fee.
Installation, Training, Customer Support, and Print Revenue. Service
revenue includes fees for installation, on-site customer training, customer
support access via an 800 help number, and printed materials such as teachers'
manuals.
Future Revenue Sources. We anticipate that our revenue mix will change over
time. In the future, we plan to generate revenue from other sources, such as
subscriptions to the online offering of our educational courseware, new titles
that may be developed to expand our proprietary courseware offering, and related
services.
Cost of Revenue
Costs associated with our revenue include CD-ROMs, software documentation,
packaging, shipping, customer support labor, training support labor, royalties,
amortization of our licensed courseware capital costs, and other costs
associated with the production and delivery of our courseware and services.
Operating Expenses
Our operating expenses are comprised of:
* research and development costs, which consist of employee labor costs
associated with the programming, graphic design, art production,
development, maintenance, and testing of our educational courseware
content and for making our content available online over the Internet. We
retain outside contractors from time to time to develop proprietary
software products. The decision to use our employees or outside
contractors to develop products rests with management and is usually
based on time constraints and cost effectiveness. It is our policy to
charge research and development costs to expense as incurred.
* sales and marketing costs, which consists of salaries, commissions,
related payroll and travel costs of our sales force, advertising,
promotion and displays at educational conferences, and marketing costs
associated with reaching our customers.
* general and administrative expense, which include salaries, benefits and
related payroll costs for our executive officers and administrative
personnel, office rent and equipment lease costs, professional fees, and
other general corporate expenses associated with being a public company.
Comparison of Three Months Ended May 31, 2000 and 1999
Revenues
Our total revenue decreased by approximately $210,000 or 57% for the three
months ended May 31, 2000 compared to the three months ended May 31, 1999. The
10
<PAGE>
decrease was due to a $172,000 reduction in sales of our licensed courseware and
a $54,000 reduction in service revenue, which was partially offset by a $16,000
increase in sales of our proprietary courseware. The decrease in revenue was
specifically attributable to the following factors:
* The Company concentrated its efforts on recruiting, hiring and training
nine new direct sales representatives during the quarter ended May 31,
2000 in an effort to significantly expand its marketing and sales
presence. Our senior sales representative was promoted to National Sales
Manager effective March 1, 2000 and focused his full-time effort on
recruiting, hiring and training the nine new direct sales
representatives. This reduced our direct sales staff by 50% for the
quarter, which significantly impacted our short-term ability to make new
courseware sales. The Company anticipates that its sales performance will
improve significantly in the third and fourth quarter as a result of the
new direct sales representatives.
* Historically, our sales have fluctuated greatly from quarter to quarter,
with the first quarter consistently being the lowest due to the fact that
the majority of the schools and school districts to which we sell our
products close-out the school year in May and operate on a July 1 to June
30 fiscal year. School district decision-makers are usually reluctant to
make capital expenditures near or at the end of the school year when
installation and training cannot be scheduled.
Our deferred revenue of $69,000 at May 31, 2000, consisted of renewal
customer support fees of $57,000, training revenue of $6,000 and installation
revenue of $6,000.
Cost of Revenues
Our cost of revenues decreased 7% to $140,000 for the three months ended
May 31, 2000, down from $150,000 for the comparable period in 1999. Gross
margin, as a percentage of total revenues for the quarters ended May 31, 2000
and 1999 was 13% and 60%, respectively. Although certain variable costs such as
royalties decreased as a result of fewer licensed courseware sales, there was
not a significant decrease in our fixed cost of sales primarily because our
staffing levels remained unchanged and installation expenses increased as
additional personnel were trained at school sites across the country. The
decrease in gross margin during the quarter ended May 31, 2000 was primarily
attributable to the above-mentioned fixed costs being spread over fewer
courseware sales.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses increased
$302,000 or 280% for the three months ended May 31, 2000, as compared to the
previous year. The significant increase was attributable to payroll and
payroll-related costs (taxes, insurance, recruiting fees, travel, training,
etc.) associated with the hiring of nine new direct sales representatives during
the quarter. The addition of these new sales representatives has allowed the
Company to expand its coverage to twenty states. The Company's sales force now
stands at eleven and we expect to further expand our direct sales force by
August 2000. We expect our sales and marketing expenses will increase as we
continue to expand our marketing and sales force.
Research and Development Costs. Research and development costs increased
$108,000 or 74% to $255,000 for the three months ended May 31, 2000 as compared
to the same period in 1999. The variance was due in part to a $40,000 increase
in payroll and payroll-related costs associated with the hiring of ten
product-development professionals during the quarter as well as a $68,000
increase in outside contract fees. The product-development professionals were
hired to maximize our current courseware for Internet delivery. The increase in
outside contract fees was attributable to new product development and adaptation
of the K-3 language arts program for Internet delivery. We anticipate our
research and development costs will continue to increase as we complete
development of our e-commerce web site, adapt all our courseware for Internet
delivery and develop new products.
General and Administrative Expenses. General and administrative expenses
increased $245,000, or 176%, from $139,000 for the three months ended May 31,
1999 to $384,000 for the three months ended May 31, 2000. The increase reflects
higher office lease expense and personnel costs associated with increased
staffing requirements as well as increased legal, accounting and filing fees
attributable to the Company's recent Form SB-2 registration statement filing. We
11
<PAGE>
expect our general and administrative expenses will increase as our business
grows and we expand our staff and capital infrastructure and incur costs
associated with being a public company.
Operating Loss
Loss from operations for the three months ended May 31, 2000 was
$1,028,000, as compared to a loss of $173,000 for the same period in 1999. The
loss from operations was the result of the cumulative effect of the
above-described factors. Loss from operations for the three months ended May 31,
2000 and 1999 include non-cash charges for asset depreciation and intangible
asset amortization of $118,000 and $94,000, respectively.
Other Income (Expense)
Interest income increased $36,000 for the three months ended May 31, 2000
compared to the year ago level as a result of the Company maintaining
significantly higher cash balances in interest bearing accounts during the
quarter. Interest expense of $58,000 for the three months ended May 31, 2000
increased $37,000, or 176%, from $21,000 for the same period in 1999. The
increase was attributable to our borrowing $4 million through the issuance of a
convertible debenture.
Net Loss
As a result of the foregoing factors, we had a net loss of $1,050,000 for
the three months ended May 31, 2000, as compared to a loss of $194,000 for the
same period in 1999.
Liquidity and Capital Resources
Historically, we have financed our operations by borrowings under secured
term loans, working capital lines of credit and loans from related parties.
During the three months ended May 31, 2000, we completed a $4 million private
placement of a 7% convertible debenture. The debenture is convertible into
shares of our common stock at the lesser of $6.25 per share or 80% of the
closing bid price of our common stock for any five non-consecutive trading days
during the 20-day trading period prior to conversion. Warrants to purchase up to
196,078 shares of our common stock at an exercise price of $5.31 were also
issued to the institutional investor who purchased the debenture. The proceeds
from the debenture after deducting commissions and legal fees amounted to
$3,580,000 and are being used to expand our sales and marketing and product
development staffs and for working capital purposes.
Our cash position was $3,326,000 at May 31, 2000. Net cash used in
operating activities for the quarter ended May 31, 2000 was $239,000, as
compared to $10,000 provided by operating activities during the same period in
1999. We used $63,000 for equipment purchases during the quarter ended May 31,
2000. No cash was used for equipment purchases during the quarter ended May 31,
1999. Net cash flow provided to us from financing activities was $3,556,000 for
the quarter ended May 31, 2000 and $10,000 of net cash was used by us in
financing activities during the same period in 1999.
Current and long-term debt of $4,068,000 at May 31, 2000 is composed of a
$4 million convertible debenture and capital lease obligations of $68,000. The
leases have imputed interest rates ranging from 11% to 18% per annum and expire
in 2005. A $16,000 note payable to a financial institution, bearing interest at
a rate of 11% per annum and maturing on April 30, 2000 was paid off during the
quarter ended May 31, 2000.
As of May 31, 2000, we believe that our cash and cash equivalents will be
sufficient to fund our operations for the next twelve months. Our future capital
requirements will depend on a variety of factors, including market acceptance of
our products and the resources we devote to developing, marketing, selling, and
supporting our products. We plan to raise at least an additional $3.0 million of
capital within the next six months through the sale of equity or debt securities
as determined by our board of directors at their sole judgment. We currently
plan to use the proceeds from the sale of our securities for continued
implementation of our growth plan and working capital purposes.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal or administrative
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
1. The Registrant filed a current report on Form 8-K dated March 16, 2000
reporting events under Items 5 and 7.
2. The Registrant filed a current report on Form 8-K dated March 23, 2000
reporting events under Items 4, 7 and 8.
3. The Registrant filed a current report on Form 8-K/A dated April 7, 2000
reporting an event under Item 7.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WASATCH INTERACTIVE LEARNING CORPORATION
(Registrant)
July 13, 2000 /S/ Barbara J. Morris
Chief Executive Officer, President and Director
Principal Executive Officer)
July 13, 2000 /S/ Todd F. Brashear
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
