UNITED STATES 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 August 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
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(Exact name of small business issuer as specified in its charter)
Washington 91-1253514
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5250 South Commerce Drive, Suite 101, Salt Lake City, Utah 84107
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(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 August 31, 2000: 7,703,303.
Transitional Small Business Disclosure Format Yes [ ] No [X]
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WASATCH INTERACTIVE LEARNING CORPORATION
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING AUGUST 31, 2000
TABLE OF CONTENTS
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PART I PAGE
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Item 1. Condensed Financial Statements
Balance Sheet as of August 31, 2000 (Unaudited)............................... 3
Statements of Operations for the three and six months ended August 31, 2000 4
and 1999 (Unaudited)..........................................................
Statements of Cash Flows for the six months ended August 31, 2000 and 1999 5
(Unaudited)...................................................................
Notes to Condensed Financial Statements (Unaudited)........................... 6-8
Item 2. Management's Discussion and Analysis or Plan of Operations.................... 9-13
PART II
Item 1. Legal Proceedings............................................................. 13
Item 2. Changes in Securities......................................................... 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.............................................. 14
Signatures .............................................................................. 14
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
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WASATCH INTERACTIVE LEARNING CORPORATION
CONDENSED BALANCE SHEET
August 31, 2000
(Unaudited)
ASSETS
Current assets:
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Cash $ 2,401,000
Receivables, net 471,000
Other 91,000
-----------
Total current assets 2,963,000
Property and equipment, net 168,000
License agreements, net 450,000
Other intangibles, net 931,000
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Total assets $ 4,512,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,000
Accrued expenses 184,000
Deferred revenue 101,000
Current portion of long-term debt 24,000
-----------
Total current liabilities 412,000
Long-term debt 3,997,000
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Total liabilities 4,409,000
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Stockholders' equity
Common stock, $.0001 par value, 100,000,000 shares 1,000
authorized; 7,703,303 shares issued and outstanding
Additional paid-in capital 4,132,000
Stock subscription receivable (84,000)
Accumulated deficit (3,946,000)
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Total stockholders' equity 103,000
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Total liabilities and stockholders' equity $ 4,512,000
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WASATCH INTERACTIVE LEARNING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Net sales $ 492,000 $ 395,000 $ 653,000 $ 766,000
Cost of sales 155,000 131,000 297,000 282,000
--------- --------- ---------- ---------
Gross profit 337,000 264,000 356,000 484,000
Operating expenses:
Sales and marketing 292,000 96,000 701,000 204,000
Research and development 156,000 170,000 174,000 316,000
General and administrative 200,000 129,000 585,000 269,000
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648,000 395,000 1,460,000 789,000
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Loss from operations (311,000) (131,000) (1,104,000) (305,000)
Other income (expense):
Interest income 36,000 -- 72,000 37,000
Interest expense (72,000) (21,000) (130,000) (43,000)
--------- --------- ---------- ---------
Loss before benefit for income taxes (347,000) (152,000) (1,162,000) (311,000)
Benefit for income taxes -- -- -- --
--------- --------- ---------- ---------
Net loss $ (347,000) $ (152,000) $(1,162,000) $ (311,000)
========= ========= ========== =========
Net loss per share - basic and diluted $ (.05) $ (.05) $ (.15) $ (.09)
Weighted average common shares - basic and 7,666,000 3,375,000 7,662,000 3,375,000
diluted
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WASATCH INTERACTIVE LEARNING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Six Months
Ended Ended
August 31, 2000 August 31, 1999
(Unaudited) (Unaudited)
Cash flows from operating activities:
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Net loss $ (1,162,000) $ (311,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 245,000 189,000
Common stock issued for services 5,000 --
(Increase) decrease in:
Receivables 421,000 69,000
Other assets (36,000) --
Increase (decrease) in:
Accounts payable 45,000 (31,000)
Accrued expenses (99,000) 204,000
Deferred revenue 23,000 (40,000)
----------- ----------
Net cash provided by (used in) operating activities (558,000) 80,000
Cash flows from investing activities:
Software development (575,000) --
Purchase of property and equipment (86,000) --
----------- ----------
Net cash (used in) provided by investing activities (661,000) --
Cash flows from financing activities:
Cash overdraft -- (15,000)
Proceeds from notes payable -- 83,000
Proceeds from long-term debt 3,580,000 --
Payments on long-term debt (32,000) (76,000)
----------- ----------
Net cash provided by (used in) financing activities 3,548,000 (8,000)
----------- ----------
Net increase in cash 2,329,000 72,000
Cash, beginning of period 72,000 --
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Cash, end of period $ 2,401,000 $ 72,000
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Non-cash investing and financing activities:
During the six months ended August 31, 2000, the Company;
* converted debt totaling $40,000 into equity through the issuance of
45,991 shares of the Company's common stock;
* incurred expenses of $420,000 that were deducted from the proceeds of a
convertible debenture issued on March 16, 2000;
* acquired equipment totaling $9,000 in exchange for a lease payable.
During the six months ended August 31, 1999, the Company acquired equipment
totaling $35,000 in exchange for a lease payable.
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NOTES TO CONDENSED 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 August 31, 2000, and the results of operations
for the three and six month periods ended August 31, 2000 and 1999 and cash
flows for the six month periods ended August 31, 2000 and 1999. The results of
operations for the three and six month periods ended August 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 for the three and six month periods ended
August 31, 1999 and cash flows for the six month period ended August 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 statements of operations is that of the
Company (WILC) for the three and six month periods ended August 31, 2000 and
that of WILC-Utah for the three and six-month periods ended August 31, 1999.
Separate breakout of operations for WILC for the three and six month periods
ended August 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.
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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
Software development costs expended by the Company prior to establishing
technological feasibility are charged to expense when incurred. All software
development costs incurred by the Company subsequent to establishing
technological feasibility are capitalized and reported at the lower of cost or
net realizable value. Capitalized software development costs are being amortized
on a straight-line basis over the estimated useful lives of the software
products.
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
adjusts its allowance for doubtful receivables as circumstances dictate.
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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.
License Agreement
The Company has license agreements in place reflecting the payment of cash
in exchange for certain rights to market and sell software in the education
market. The license agreements are 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
Long-term debt at August 31, 2000 consists of a $3,960,000 convertible
debenture issued to one institutional investor due March 16, 2003. 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 convertible debenture was
originally issued in the amount of $4 million on March 16, 2000, however, during
the quarter ended August 31, 2000, $40,000 of debenture debt was converted into
45,991 shares of the Company's common stock.
Long-term debt (including current maturities thereof), at August 31, 2000
also includes $61,000 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 antidilutive. At August 31, 2000, the Company had
630,000 employee stock options outstanding with exercise prices ranging from
$4.00 to $10.00 per share, and 3,259,412 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 $3,960,000 convertible debenture for the
three and six month periods ended August 31, 2000 were excluded as they were
antidulitve because of the net loss incurred during the periods. In as much as
the Company did not have any common stock equivalents outstanding during the
three and six month periods ended August 31, 1999, diluted earnings per share
have not been calculated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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,
increased sales and gross margin performance, 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.
We are currently in the last phase of testing our comprehensive reading and
math programs for cross-platform and online delivery. The Company is also in the
final stage of testing its new e-commerce web site, "wilearn.com". Our new web
site will offer two levels of subscription for online delivery of our
educational software, interactive demos, and will highlight our comprehensive
offering. By Fall 2000, we expect that virtually all of our products will be
Internet-deliverable and available for purchase from our 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 March 1, 2000.
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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.
* 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.
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Comparison of the Three and Six Month Periods Ended August 31, 2000 and 1999
Revenues
Our total sales revenue increased $97,000, or 25%, for the three months
ended August 31, 2000 compared to the same period in 1999. The growth in revenue
was attributable to an increase in sales of our proprietary and licensed
courseware of $131,000 and $46,000, respectively, which was offset by a $80,000
decrease in service revenue. The increase in revenue for the quarter is the
direct result of our new sales representatives making an impact on school and
school district decision makers looking to provide their students with a
comprehensive educational solution.
Our total sales revenue of $653,000 for the six months ended August 31,
2000 decreased $113,000, or 15%, from $766,000 for the six months ended August
31, 1999. The decrease was due to a $128,000 reduction in sales of our licensed
courseware and a $133,000 reduction in service revenue, which was partially
offset by a $148,000 increase in sales of our proprietary courseware. The
decrease in revenue during the six months ended August 31, 2000 was specifically
attributable to the Company concentrating its efforts on recruiting, hiring and
training nine new direct sales representatives during the first quarter. The
Company also hired five more sales representatives during the second quarter in
an effort to continue the expansion of its marketing and sales presence. The
Company anticipates that its sales performance will continue to improve in the
future as our direct sales representatives become more productive.
Our deferred revenue of $101,000 at August 31, 2000, consisted of renewal
customer support fees of $79,000, training revenue of $16,000 and installation
revenue of $6,000.
Cost of Revenues
Our cost of sales increased 18% to $155,000 for the three months ended
August 31, 2000, up from $131,000 for the comparable period in 1999. The $24,000
increase was due to a $38,000 increase in service costs (installation, training
and support) which were partially offset by a $14,000 decrease in royalty fees
associated with our licensed courseware. Gross margin, as a percentage of total
revenues for the quarters ended August 31, 2000 and 1999 was 68% and 67%,
respectively.
Our cost of sales increased 5% to $297,000 for the six months ended August
31, 2000 from $282,000 for the six months ended August 31, 1999. The $15,000
increase was attributable to a $31,000 increase in service costs which were
primarily offset by a $16,000 decrease in licensed courseware royalty fees.
Gross margin, as a percentage of total revenues for the six months ended August
31, 2000 and 1999 was 55% and 63%, 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 and training
expenses increased as additional personnel were trained at school sites across
the country. The 8% decrease in our gross margin during the six months ended
August 31, 2000 was primarily attributable to above-mentioned fixed costs being
spread over lower service revenue.
We expect our gross margin to increase in the future as our sales activity
increases with the addition of five new sales representatives and as we
introduce new proprietary products into the marketplace.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses increased
$196,000 or 204% for the three months ended August 31, 2000 compared to the
three months ended August 31, 1999, and $497,000 or 244% for the six months
ended August 31, 2000 compared to the six months ended August 31, 1999. The
significant increases were entirely 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 first
quarter of the fiscal year and five more sales representatives during the
quarter ended August 31, 2000. The Company's direct sales force presently stands
at thirteen with coverage in twenty states. We expect our sales and marketing
expenses to increase in the future as we broaden our market base and attract new
customers.
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Research and Development Costs. Research and development costs decreased
$14,000 or 8% for the three months ended August 31, 2000 as compared to the
three months ended August 31, 1999, and $142,000 or 45% for the six months ended
August 31, 2000 as compared to the six months ended August 31, 1999. The
decreases were the result of the Company capitalizing $235,000 and $340,000 of
software development costs in the first and second quarters, respectively. The
software development costs were capitalized in accordance with FAS86, Statement
of Financial Accounting Standards No. 86. We anticipate completing our current
software development and courseware enhancement projects by November 2000 and
will begin amortization of such costs as the products become available for sale
to our customers. We anticipate our research and development expenses will
increase in the future as we complete development of our e-commerce web site,
adapt all of our courseware for Internet delivery and continue to develop new
products.
General and Administrative Expenses. Our general and administrative
expenses increased $71,000 or 55%, for the three months ended August 31, 2000
compared to the three months ended August 31, 1999, and $316,000 or 117% for the
six months ended August 31, 2000 compared to the six months ended August 31,
1999. The increases reflect higher personnel costs associated with increased
staffing requirements as well as increased legal, accounting and Securities and
Exchange Commission filing fees. We 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 August 31, 2000 was
$311,000, as compared to a loss of $131,000 for the three months ended August
31, 1999, and the loss from operations for the six months ended August 31, 2000
was $1,104,000 compared to a loss of $305,000 for the six months ended August
31, 1999. The losses were the result of the cumulative effect of the
above-described factors. Loss from operations for the three months ended August
31, 2000 and 1999 include non-cash charges for asset depreciation and intangible
asset amortization of $127,000 and $95,000, respectively. Loss from operations
for the six months ended August 31, 2000 and 1999 include non-cash charges for
asset depreciation and intangible asset amortization of $245,000 and $189,000,
respectively.
Other Income (Expense)
Interest income for the three and six months ended August 31, 2000
increased $36,000 and $35,000, respectively, compared to the year ago levels as
a result of the Company maintaining significantly higher cash balances in
interest bearing accounts during the first and second quarters of the fiscal
year. Interest expense of $72,000 for the three months ended August 31, 2000
increased $51,000, or 243%, from $21,000 for the same period in 1999. Interest
expense of $130,000 for the six months ended August 31, 2000 increased $87,000
or 202% compared to the same period in 1999. The increases were 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 $347,000 for the
three months ended August 31, 2000, as compared to a loss of $152,000 for the
same period in 1999. Net loss for the six months ended August 31, 2000 was
$1,162,000 compared to a net loss of $311,000 for the six months ended August
31, 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 first quarter of the fiscal year, 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.
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Our cash position was $2,401,000 at August 31, 2000. Net cash used in
operating activities for the six months ended August 31, 2000 was $558,000, as
compared to $80,000 provided by operating activities during the same period in
1999. We used $661,000 for investing activities during the six months ended
August 31, 2000 while no cash was provided by or used in investing activities
during the six months ended August 31, 1999. Net cash flow provided to us from
financing activities during the six months ended August 31, 2000 was $3,548,000,
while $8,000 was used in financing activities during the six months ended August
31, 1999.
Current and long-term debt of $4,021,000 at August 31, 2000 is composed of
a $3,960,000 convertible debenture and capital lease obligations of $61,000. 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 was paid off during the first quarter of the fiscal
year.
As of August 31, 2000, we believe that our cash and cash equivalents will
be sufficient to fund our operations for at least 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.
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
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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K during the
three months ended August 31, 2000.
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)
October 12, 2000 /S/ Barbara J. Morris
_________________________
Chief Executive Officer, President and Director
(Principal Executive Officer)
October 12, 2000 /S/ Todd F. Brashear
__________________________
Chief Financial Officer
(Principal Financial and Accounting Officer)
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