UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 November 30, 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
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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 November 30, 2000: 8,842,114.
Transitional Small Business Disclosure Format Yes [ ] No [X]
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WASATCH INTERACTIVE LEARNING CORPORATION
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING NOVEMBER 30, 2000
TABLE OF CONTENTS
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PART I PAGE
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Item 1. Condensed Financial Statements
Balance Sheet as of November 30, 2000 (Unaudited).............................. 3
Statements of Operations for the three and nine months ended November 30, 2000 4
and 1999 (Unaudited)...........................................................
Statements of Cash Flows for the nine months ended November 30, 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............................ 14
Item 5. Other Information.............................................................. 14
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
WASATCH INTERACTIVE LEARNING CORPORATION
CONDENSED BALANCE SHEET
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November 30, 2000
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(Unaudited)
ASSETS
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Current assets:
Cash $ 1,807,000
Receivables, net 490,000
Other 34,000
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Total current assets 2,331,000
Property and equipment, net 191,000
License agreements, net 375,000
Other intangibles, net 1,261,000
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Total assets $ 4,158,000
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current liabilities:
Accounts payable $ 80,000
Accrued expenses 342,000
Deferred revenue 128,000
Current portion of long-term debt 25,000
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Total current liabilities 575,000
Long-term debt 3,962,000
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Total liabilities 4,537,000
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Stockholders' deficit
Common stock, $.0001 par value, 100,000,000 shares 1,000
authorized; 8,842,114 shares issued and outstanding
Additional paid-in capital 4,450,000
Stock subscription receivable (209,000)
Accumulated deficit (4,621,000)
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Total stockholders' deficit (379,000)
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Total liabilities and stockholders' deficit $ 4,158,000
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WASATCH INTERACTIVE LEARNING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
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Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
November 30, 2000 November 30, 1999 November 30, 2000 November 30, 1999
----------------- ----------------- ----------------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 465,000 $ 359,000 $ 1,118,000 $ 1,125,000
Cost of sales 225,000 121,000 522,000 403,000
---------- ---------- ------------ ------------
Gross profit 240,000 238,000 596,000 722,000
Operating expenses:
Sales and marketing 322,000 78,000 1,023,000 282,000
Research and development 159,000 129,000 334,000 445,000
General and administrative 368,000 119,000 952,000 388,000
---------- ---------- ------------ ------------
849,000 326,000 2,309,000 1,115,000
---------- ---------- ------------ ------------
Loss from operations (609,000) (88,000) (1,713,000) (393,000)
Other income (expense):
Interest income 31,000 (37,000) 103,000 --
Interest expense (96,000) (18,000) (226,000) (61,000)
---------- ---------- ------------ ------------
Loss before provision for income taxes (674,000) (143,000) (1,836,000) (454,000)
Income taxes (1,000) (1,000) (1,000) (1,000)
---------- ---------- ------------ ------------
Net loss $ (675,000) $ (144,000) $ (1,837,000) $ (455,000)
========== ========== ============ ============
Net loss per share - basic and diluted $ (.08) $ (.04) $ (.24) $ (.13)
Weighted average common shares -basic and 7,954,000 3,375,000 7,760,000 3,375,000
diluted
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WASATCH INTERACTIVE LEARNING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
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Nine Months Nine Months
Ended Ended
November 30, 2000 November 30, 1999
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(Unaudited) (Unaudited)
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Cash flows from operating activities:
Net loss $ (1,837,000) $ (455,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 375,000 283,000
Gain on disposition of assets -- (1,000)
Common stock issued for services 137,000 --
(Increase) decrease in:
Receivables 402,000 142,000
Other assets 21,000 --
Increase (decrease) in:
Accounts payable 22,000 (22,000)
Accrued expenses 58,000 260,000
Deferred revenue 50,000 (44,000)
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Net cash provided by (used in) operating activities (772,000) 163,000
Cash flows from investing activities:
Software development (941,000) --
Purchase of property and equipment (91,000) (8,000)
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Net cash used in investing activities (1,032,000) (8,000)
Cash flows from financing activities:
Cash overdraft -- (15,000)
Proceeds from notes payable -- 83,000
Proceeds from issuance of stock -- 120,000
Proceeds from long-term debt 3,580,000 --
Payments on long-term debt (41,000) (111,000)
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Net cash provided by financing activities 3,539,000 77,000
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Net increase in cash 1,735,000 232,000
Cash, beginning of period 72,000 --
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Cash, end of period $ 1,807,000 $ 232,000
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Non-cash investing and financing activities:
During the nine months ended November 30, 2000, the Company;
* converted debt totaling $101,000 into equity through the issuance of
423,213 shares of the Company's common stock;
* issued 250,000 shares of the Company's common stock in exchange for a
note receivable in the amount of $125,000;
* incurred expenses of $420,000 that were deducted from the proceeds of a
convertible debenture issued on March 16, 2000;
* acquired equipment totaling $46,000 in exchange for a lease payable.
During the nine months ended November 30, 1999, the Company acquired equipment
totaling $35,000 in exchange for a lease payable.
5
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NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
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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 November 30, 2000, and the results of operations
for the three and nine month periods ended November 30, 2000 and 1999 and cash
flows for the nine month periods ended November 30, 2000 and 1999. The results
of operations for the three and nine month periods ended November 30, 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 nine month periods ended
November 30, 1999 and cash flows for the nine month period ended November 30,
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 nine month periods ended November 30, 2000 and
that of WILC-Utah for the three and nine-month periods ended November 30, 1999.
Separate breakout of operations for WILC for the three and nine month periods
ended November 30, 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
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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 (customer support) 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 November 30, 2000 consists of a $3,899,000 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 nine months ended November 30, 2000, $101,000 of debenture debt was
converted into 423,213 shares of the Company's common stock.
Long-term debt (including current maturities thereof), at November 30, 2000
also includes $88,000 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 November 30, 2000, the Company had
895,000 employee stock options outstanding with an exercise price of $.40 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 $3,899,000 convertible debenture for the three and nine month
periods ended November 30, 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 nine-month
periods ended November 30, 1999, diluted earnings per share have not been
calculated.
8
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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 Spring 2001 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, or in a
computer laboratory setting. Our courseware management system also provides for
the monitoring of student progress, tracks time-on-task, assigns courseware, and
prints progress reports.
We are currently completing the final phase of testing our comprehensive
reading and math programs for cross-platform and online delivery. The Company
also launched the first two phases of its new e-commerce web site, "wilearn.com"
during the quarter. We anticipate completing the final phase of our web site by
Spring 2001. Once complete, 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 Spring 2001, 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
9
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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. Prior to March 1, 2000, we were required
to pay WESC a royalty based on 10% of net sales of licensed courseware.
Subsequent to March 1, 2000, we are required to pay WESC a royalty based on 2.5%
of our net licensed courseware sales.
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 Nine-Month Periods Ended November 30, 2000 and 1999
Revenues
Our total sales revenue increased $106,000, or 30%, for the three months
ended November 30, 2000 compared to the same period in 1999. The growth in
revenue was attributable to an increase in sales of our proprietary courseware
and service revenue of $249,000 and $20,000, respectively, which was offset by a
$163,000 decrease in sales of our licensed courseware. The favorable growth in
sales revenue during the quarter was attributable to increased marketing efforts
by the Company's expanded sales force.
Our total sales revenue of $1,118,000 for the nine months ended November
30, 2000 decreased $7,000, or 1%, from $1,125,000 for the nine months ended
November 30, 1999. The decrease was due to a $291,000 reduction in sales of our
licensed courseware and a $112,000 reduction in service revenue, which was
partially offset by a $396,000 increase in sales of our proprietary courseware.
The decrease in revenue during the nine months ended November 30, 2000 was also
attributable to the Company concentrating its efforts on recruiting, hiring and
training a total of fourteen new direct sales representatives during the first
and second quarters. The Company continues to evaluate its sales and marketing
needs and may increase its direct sales force in the future as market
opportunities materialize. The Company still anticipates that its sales
performance will continue to improve in the future as our direct sales
representatives become more productive.
Our deferred revenue of $128,000 at November 30, 2000, consists of renewal
customer support fees of $64,000, training revenue of $41,000 and installation
revenue of $23,000.
Cost of Revenues
Our cost of sales increased 86% to $225,000 for the three months ended
November 30, 2000, up from $121,000 for the comparable period in 1999. The
$104,000 increase was due to a $67,000 increase in service costs (installation,
training and support) and a $37,000 increase in royalty fees associated with our
licensed courseware. The increase in royalty fees during the quarter was
specifically attributable to the Company amortizing $45,000 of pre-paid royalty
fees it had previously capitalized in exchange for reduced future royalties.
Gross margin, as a percentage of total revenues for the quarters ended November
30, 2000 and 1999 was 52% and 66%, respectively.
Our cost of sales increased 30% to $522,000 for the nine months ended
November 30, 2000 from $403,000 for the nine months ended November 30, 1999. The
$119,000 increase was attributable to a $101,000 increase in service costs and
an $18,000 increase in licensed courseware royalty fees. Service costs increased
as a result of the Company adding one full-time customer support/trainer in the
second quarter as well as a greater number of personnel were trained at school
sites across the country. Gross margin, as a percentage of total revenues for
the nine months ended November 30, 2000 and 1999 was 53% and 64%, respectively.
The 11% decrease in our gross margin during the nine months ended November 30,
2000 was primarily attributable to the increased above-mentioned fixed and
variable costs being spread over slightly lower sales revenue.
We expect our gross margin to increase in the future as our sales activity
increases with the addition of the new sales representatives and as we introduce
new proprietary products into the marketplace.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses increased
$244,000 or 313% for the three months ended November 30, 2000 compared to the
three months ended November 30, 1999, and $741,000 or 263% for the nine months
ended November 30, 2000 compared to the nine months ended November 30, 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 fourteen new direct sales representatives during the first
and second quarters of the fiscal year. The Company's direct sales force
presently stands at twelve 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 increased
$30,000 or 23% for the three months ended November 30, 2000 as compared to the
three months ended November 30, 1999. The increase was attributable to the
development of the Company's e-commerce web site. Research and development costs
for the nine months ended November 30, 2000 decreased $111,000 or 25% as
compared to the nine months ended November 30, 1999. The decrease was primarily
the result of the Company capitalizing $367,000 of software development costs in
the third quarter and $575,000 in the first and second quarters. The software
development costs were capitalized in accordance with FAS86, "Statement of
Financial Accounting Standards No. 86." Management continually evaluates the
economic recoverability of our capitalized intangible software costs based on
technological feasibility, market acceptance and sales recoverability. We
anticipate completing our current software development and courseware
enhancement projects by January 2001 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 $249,000 or 209%, for the three months ended November 30,
2000 compared to the three months ended November 30, 1999, and $564,000 or 145%
for the nine months ended November 30, 2000 compared to the nine months ended
November 30, 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 November 30, 2000 was
$609,000, as compared to a loss of $88,000 for the three months ended November
30, 1999, and the loss from operations for the nine months ended November 30,
2000 was $1,713,000 compared to a loss of $393,000 for the nine months ended
November 30, 1999. The losses were the result of the cumulative effect of the
above-described factors. Loss from operations for the three months ended
November 30, 2000 and 1999 include non-cash charges for asset depreciation and
intangible asset amortization of $130,000 and $94,000, respectively. Loss from
operations for the nine months ended November 30, 2000 and 1999 include non-cash
charges for asset depreciation and intangible asset amortization of $375,000 and
$283,000, respectively.
Other Income (Expense)
Interest income for the three months ended November 30, 2000 increased
$68,000 compared to the three months ended November 30, 1999 as a result of the
Company making certain reclassifications to the 1999 interest income account in
order to conform it with the 2000 presentation. Interest income for the nine
months ended November 30, 2000 increased $103,000 compared to the year ago level
as a result of the Company maintaining significantly higher cash balances in
interest bearing accounts during the first, second and third quarters of the
fiscal year. Interest expense of $96,000 for the three months ended November 30,
2000 increased $78,000, or 433%, from $18,000 for the same period in 1999.
Interest expense of $226,000 for the nine months ended November 30, 2000
increased $165,000 or 270% 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 $675,000 for the
three months ended November 30, 2000, as compared to a loss of $144,000 for the
same period in 1999. Net loss for the nine months ended November 30, 2000 was
$1,837,000 compared to a net loss of $455,000 for the nine months ended November
30, 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.
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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.
Our cash position was $1,807,000 at November 30, 2000. Net cash used in
operating activities for the nine months ended November 30, 2000 was $772,000,
as compared to $163,000 provided by operating activities during the same period
in 1999. We used $1,032,000 for investing activities during the nine months
ended November 30, 2000 as compared to $8,000 during the nine months ended
November 30, 1999. Net cash flow provided to us from financing activities during
the nine months ended November 30, 2000 was $3,539,000, while $77,000 was
provided to us by financing activities during the nine months ended November 30,
1999.
Current and long-term debt of $3,987,000 at November 30, 2000 is composed
of a $3,899,000 convertible debenture and capital lease obligations of $88,000.
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.
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.
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
Recent Sales of Unregistered Securities:
On November 6, 2000, and in connection with registrant entering into an
investor relations consulting agreement, the registrant authorized up to an
aggregate of 250,000 shares of its common stock to the Company's investor
relations firm in exchange for a $125,000 promissory note. The promissory note
bears interest at a rate of 6.15% annually and matures on November 6, 2003.
There were no underwriters involved in the transaction and the registrant
believes that the securities were issued in a transaction not involving a public
offering in reliance upon the exemption from registration provided by Section 4
(2) of the Securities Act of 1933, as amended.
On November 30, 2000, the registrant issued an aggregate of 511,589 shares
of its common stock to the Founders of the Company pursuant to anti-dilution
provisions contained in their respective employment agreements for no additional
cash paid by said employees. There were no underwriters involved in the
transaction and the registrant believes that the securities were issued in a
transaction not involving a public offering in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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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
None
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K during
the three months ended November 30, 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)
January 15, 2001 /S/ Barbara J. Morris
----------------------
Chief Executive Officer, President and Director
(Principal Executive Officer)
January 15, 2001 /S/ Todd F. Brashear
---------------------
Chief Financial Officer
(Principal Financial and Accounting Officer)
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