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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD
FROM TO .
-------------------- --------------------
COMMISSION FILE NUMBER
0-21421
UOL PUBLISHING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1290319
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
8251 GREENSBORO DRIVE, SUITE 500, MCLEAN, VIRGINIA 22102
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (703) 893-7800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $0.01 PAR VALUE 3,186,167 SHARES
(Class) (Outstanding at August 14, 1997)
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Online revenues....................... $ 20,000 $ 1,022,839 $ 37,500 $ 1,529,093
Development and other revenues........ 9,200 680,623 20,985 1,188,268
Product sales revenues................ -- 732,206 -- 824,163
Licensing and support revenues........ 88,450 81,108 173,262 176,292
---------- ----------- ----------- -----------
Net revenues............................... 117,650 2,516,776 231,747 3,717,816
COSTS AND EXPENSES:
Cost of online revenues............... 5,381 118,696 10,732 187,423
Cost of development and other
revenues............................ -- 56,947 579 90,634
Cost of product sales revenues........ -- 81,319 -- 90,893
Cost of licensing and support
revenues............................ 16,925 26,105 34,665 33,492
Sales and marketing................... 356,032 826,370 596,314 1,534,184
Product development................... 172,445 1,012,228 374,523 2,194,952
General and administrative............ 318,170 353,848 512,717 736,128
Depreciation and amortization......... 9,285 154,648 18,433 245,754
Acquired in-process research,
development and content............. -- 2,700,000 -- 2,700,000
---------- ----------- ----------- -----------
Total costs and expenses................... 878,238 5,330,161 1,547,963 7,813,460
LOSS FROM OPERATIONS....................... (760,588) (2,813,385) (1,316,216) (4,095,644)
Other income (expense):
Other income.......................... 86,253 -- 205,529 --
Interest income (expense)............. (20,196) 134,597 (33,388) 320,825
---------- ----------- ----------- -----------
NET LOSS................................... $ (694,531) $(2,678,788) $(1,144,075) $(3,774,819)
Accrued dividends to preferred
stockholders............................. (62,067) -- (114,077) --
---------- ----------- ----------- -----------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS............................. $ (756,598) $(2,678,788) $(1,258,152) $(3,774,819)
========== =========== =========== ===========
Net loss per share to common
stockholders............................. $ (0.69) $ (0.84) $ (1.15) $ (1.18)
========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING........ 1,095,712 3,186,167 1,093,550 3,186,167
========== =========== =========== ===========
</TABLE>
See accompanying notes.
2
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UOL PUBLISHING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................... $ 15,474,030 $ 7,898,667
Accounts receivable, less allowance of $36,100 at December
31, 1996 and $85,600 at June 30, 1997..................... 412,095 2,207,183
Loans receivable from related parties....................... 101,444 104,015
Prepaid expenses and other current assets................... 132,128 702,190
------------ ------------
Total current assets............................................. 16,119,697 10,912,055
Property and equipment, net...................................... 622,958 1,351,103
Capitalized courseware development costs, net.................... -- 924,894
Acquired online publishing rights................................ -- 315,000
Other assets..................................................... 89,995 115,937
Goodwill and other intangible assets, net........................ 656,503 3,065,636
------------ ------------
Total assets..................................................... $ 17,489,153 $ 16,684,625
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses....................... $ 1,259,166 $ 1,806,886
Notes payable -- current portion............................ -- 737,742
Deferred revenues........................................... 28,000 81,774
Deferred income taxes....................................... -- 334,600
------------ ------------
Total current liabilities........................................ 1,287,166 2,961,002
Notes payable, less current portion.............................. -- 1,230,880
Stockholders' equity:
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 3,186,167 shares issued and outstanding at
December 31, 1996 and June 30, 1997....................... 31,861 31,861
Additional paid-in capital.................................. 27,553,128 27,618,703
Accumulated deficit......................................... (11,383,002) (15,157,821)
------------ ------------
Total stockholders' equity....................................... 16,201,987 12,492,743
------------ ------------
Total liabilities and stockholders' equity....................... $ 17,489,153 $ 16,684,625
============ ============
</TABLE>
See accompanying notes.
3
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UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................... $(1,144,075) $(3,774,819)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 18,433 252,108
Acquired in-process research, development and content......... -- 2,700,000
Stock option and stock warrant compensation................... 76,500 54,350
Changes in operating assets and liabilities:
Accounts receivable...................................... 18,738 (1,419,516)
Prepaid expenses and other current assets................ 762 (534,753)
Other assets............................................. -- (3,816)
Accounts payable and accrued expenses.................... 85,460 (181,142)
Accrued interest......................................... 28,298 --
Deferred revenues........................................ (76,250) 53,774
----------- -----------
Net cash used in operating activities.............................. (992,134) (2,853,814)
INVESTING ACTIVITIES
Purchases of property and equipment................................ (8,811) (619,407)
Acquired online publishing rights.................................. -- (315,000)
Capitalized courseware development costs........................... -- (438,387)
Acquisitions of businesses, net of cash acquired................... -- (3,214,435)
Additions to intangible assets..................................... -- (219,977)
Advances under loans receivable from related parties............... (9,083) --
----------- -----------
Net cash used in investing activities.............................. (17,894) (4,807,206)
FINANCING ACTIVITIES
Proceeds from issuance of Series A convertible Preferred Stock..... 416,498 --
Adjustment of expenses related to the initial public offering...... -- 11,225
Proceeds from loans payable to related parties..................... 430,000 --
Proceeds from notes payable........................................ 300,000 --
Proceeds from short-term debt...................................... -- 157,500
Repayments of notes payable and short-term borrowings.............. (49,697) (83,068)
----------- -----------
Net cash provided by financing activities.......................... 1,096,801 85,657
Net increase (decrease) in cash and cash equivalents............... 86,773 (7,575,363)
Cash and cash equivalents at the beginning of the period........... 104,178 15,474,030
----------- -----------
Cash and cash equivalents at the end of the period................. $ 190,951 $ 7,898,667
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................................... $ -- $ 9,309
=========== ===========
</TABLE>
See accompanying notes.
4
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for any future period, including the year ended
December 31, 1997. For further information, refer to the audited financial
statements and footnotes thereto included in the UOL Publishing, Inc. ("UOL" or
the "Company") Annual Report on Form 10-K for the year ended December 31, 1996.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany activity and
transactions eliminate upon consolidation.
CASH EQUIVALENTS
Cash equivalents, which are stated at cost, consist of highly liquid
investments with original maturities of three months or less.
PRODUCT DEVELOPMENT
The Company capitalizes certain costs related to developing and testing
new, or significantly enhancing courseware and software products in accordance
with the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Generally, amortization of these costs is based on the straight-line
method over the remaining estimated economic life of the products, typically
five years. As of June 30, 1997 the Company's unamortized courseware and
software costs were $924,894.
NOTE C -- ACQUISITIONS
COGNITIVE TRAINING ASSOCIATES, INC.
In August 1996, the Company acquired by merger substantially all of the
assets and liabilities (with the exception of the building, vehicle, certain
equipment, and certain notes payable) of Cognitive Training Associates, Inc., a
Texas corporation ("CTA"), for 42,487 shares of the Company's Common Stock. In
conjunction with the acquisition, the Company has recorded goodwill in the
amount of $579,312 and other intangible assets (contracts and underlying
courseware) in the amount of $200,000. This transaction was accounted for as a
purchase, and accordingly the operating results of CTA are included in the
Company's financial statements since the date of acquisition.
IVY SOFTWARE, INC.
In March 1997, the Company acquired Ivy Software, Inc. ("Ivy"), a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and potential future
payments not to exceed approximately $862,000, which are based upon integration
of operations, conversion of software and operating results. In connection with
this transaction, the President and sole shareholder of Ivy entered into a
three-year consulting agreement with the Company. This transaction was accounted
for as a purchase, and accordingly the operating results of Ivy are included in
the Company's financial statements since the effective date of the acquisition.
5
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COOPER & ASSOCIATES, INC. (D.B.A. TELETUTOR)
In April 1997, the Company acquired Cooper & Associates, Inc., d.b.a.
Teletutor ("Teletutor") an Illinois corporation that develops, distributes and
supports computer-based training courses for the data and telecommunications
industry. The terms of the transaction included a $3.0 million cash payment at
closing and $2.0 million (which includes principal payments and interest) to be
paid in cash ratably ($666,667) on the first, second and third anniversary dates
of the acquisition. All of the executive officers of Teletutor have entered into
employment contracts with UOL. This transaction was accounted for as a purchase,
and accordingly the operating results of Teletutor are included in the Company's
financial statements since the effective date of the acquisition. In conjunction
with this acquisition, the Company allocated the excess of the purchase price
over the fair market value of the acquired net assets as follows (i) $2,017,182
to identifiable intangible assets, and (ii) $2,700,000 to acquired in-process
research, development and content.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Form 10-Q that are not descriptions of historical facts
are forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth herein and in the Company's other
SEC filings, and including, in particular, risks relating to uncertainties
relating to dependence on strategic partners and third party relationships,
management of rapid growth, dependence on online distribution, the risks and the
Company's payment obligations relating to the acquisitions of Ivy and Teletutor,
the availability of sufficient capital to finance the Company's business plan on
terms satisfactory to the Company, security risks, government regulations,
regulatory filings and competition.
OVERVIEW
The Company believes it is a leading publisher of high quality educational
courseware for the online education and training market through the World Wide
Web ("Web"). The Company offers its courseware to part-time students and working
adults in partnerships with academic institutions and business partners. The
Company was formed in 1984 as IMSATT Corporation, a multimedia research and
development company. In 1991, the Company acquired from Control Data certain
rights to resell the CYBIS online courseware, which consisted primarily of
courses in language arts, mathematics, social studies, science, business and a
variety of technical subjects. In 1993, the Company modified its business focus
to capitalize on market opportunities for online education resulting from
technological advances relating to the Internet. Subsequently, the Company
raised additional financing and focused its development efforts on migrating its
technology to the Web in preparation for the launch of its first Web-based
course in November 1995. Having demonstrated its ability to deliver online
courseware through the Web and recognizing the opportunity to be a leader in
this market, the Company began forming strategic partnerships with key academic
institutions and business partners to develop and market its online products and
services. Prior to the fourth quarter of 1996, the Company generated a
substantial majority of its revenues from the licensing and maintenance of CYBIS
courseware under the Control Data subcontracts. However, the Company believes
that online revenues and product sales of computer-based training will be the
primary sources of its revenues in the future.
RESULTS OF OPERATIONS
(i) THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE
30, 1996
Net Revenues
Net revenues increased from $117,650 for the three months ended June 30,
1996 to $2,516,776 for the three months ended June 30, 1997. Online revenues
were $1,022,839 (41% of net revenues) for the three months ended June 30, 1997
compared to $20,000 (17% of net revenues) for the three months ended June 30,
1996. Online revenues are generated primarily from the sale of online licenses
to the Company's Virtual Campus(TM) product offerings and online tuition derived
from academic and corporate partners. In 1997, the Company began to market its
on-line learning environment, the Virtual Campus. Sales of Virtual Campuses
during the second quarter of 1997 were the primary reason for the increase in
online revenues.
6
<PAGE> 7
Development and other revenues were $680,623 (27% of net revenues) for the
three months ended June 30, 1997 compared to $9,200 (8% of net revenues) for the
prior year's quarter. Development and other revenues in the second quarter of
1997 included $325,000 recorded pursuant to a development funding agreement with
InternetU entered into in September 1996, as amended. Under this agreement,
InternetU provides the Company funding for the development of the Company's
Autodesk Virtual Campus in exchange for a share of the net revenues derived from
the operation of such campus, and warrants to purchase Common Stock of the
Company. Development revenues also include payments from certain of the
Company's partners for the Company's development of online courses.
Product sales revenues were $732,206 (29% of net revenues) for the three
months ended June 30, 1997. Product sales revenues are derived from the sale of
computer based training ("CBT") courses that are delivered through traditional
CBT format (e.g. CD-ROM). Product sales revenues are generated by sales of the
courseware acquired from both Ivy Software and Teletutor (see Note C).
Licensing and support revenues were $81,108 (3% of net revenues) for the
three months ended June 30, 1997 compared to $88,450 (75% of net revenues) for
the same quarter in 1996. Licensing and support revenues consist primarily of
revenue derived from the Company's Control Data subcontracts. This source of
revenue is expected to decline on a year-to-year basis due to budgetary
constraints of government agencies and the continued migration of Control Data
customers away from mainframe applications.
Cost of Revenues
Total cost of revenues increased from $22,306 for the three months ended
June 30, 1996 to $283,087 for the three months ended June 30, 1997. The increase
in absolute dollars was primarily due to the inclusion of the results of
operations of CTA, Ivy and Teletutor in the 1997 period, and certain third party
royalties payable under a contract entered into during the second quarter of
1997. Cost of revenues primarily consists of certain personnel costs directly
related to certain CTA development contracts and mainframe-based courseware
support, third party royalties, reseller costs, as well as communication costs
related to online revenues. The Company believes that in the future, total cost
of revenues will increase due to increases in third party royalties payable to
content providers.
Operating Expenses
Sales and Marketing. Sales and marketing expense increased from $356,032
for the three months ended June 30, 1996 to $826,370 for the three months ended
June 30, 1997. Sales and marketing expense consisted primarily of costs related
to personnel, sales commissions, travel, market research, advertising and
marketing materials. The increase was primarily due to increased staffing and
marketing campaigns, and the inclusion of the results of operations of CTA, Ivy
and Teletutor. During the latter part of 1996, the Company expanded its sales
and marketing organization in order to build an infrastructure to support the
anticipated revenue opportunities for online courseware. The Company expects
sales and marketing expense to increase substantially in the future as the
Company continues to expand its sales and marketing efforts.
Product Development. Product development expense increased from $172,445
for the three months ended June 30, 1996 to $1,012,228 for the three months
ended June 30, 1997. Product development expense consisted primarily of certain
costs associated with the design, programming, testing, documenting and support
of the Company's new and existing courseware and software. The increase was
primarily attributable to the overall staffing and other cost increases aimed at
maintaining and enhancing the Company's courseware library and Virtual Campus
software. The Company is incurring significant expenses to convert traditional
educational and training content to courseware that can be delivered online over
the Web. Contributing to the increase in product development costs in the second
quarter of 1997 was the inclusion of the results of CTA and Teletutor. Product
development costs for the second quarter of 1997 are net of $438,387 of costs
capitalized in accordance with the Company's policy. No product development
costs were capitalized during the second quarter of 1996. The Company expects
that product development expense will substantially increase in the future as
the Company continues to expand its courseware library.
7
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General and Administrative. General and administrative expense increased
from $318,170 for the three months ended June 30, 1996 to $353,848 for the three
months ended June 30, 1997. General and administrative expense consisted
primarily of personnel costs, facilities and related costs, as well as legal,
accounting and other costs. General and administrative expense increased
primarily due to increases in all of the above costs to support the Company's
growth and additional operations due to acquisitions, and generally to cover
increased expenses associated with operating as a public company.
Depreciation and Amortization. Depreciation and amortization expense
increased from $9,285 for the three months ended June 30, 1996 to $154,648 for
the three months ended June 30, 1997. In August 1996, the Company recorded
goodwill and other intangibles in connection with its acquisition of CTA (see
Note C) in the amount of approximately $705,000, adjusted to $779,312 in the
second quarter of 1997. The Company is amortizing such goodwill and other
intangibles over 10 and three years, respectively. In March 1997, the Company
recorded approximately $300,000 in goodwill in connection with the acquisition
of Ivy. The Company is amortizing such goodwill over 10 years. In April 1997,
the Company recorded approximately $2,017,000 in intangible assets in connection
with the acquisition of Teletutor. The Company is amortizing such intangibles
over periods of between five and ten years. The increase in depreciation and
amortization is also attributable to increased depreciation expense of computer
equipment and other assets purchased by the Company to support its product
development, technical operations and personnel needs.
Acquired In-Process Research, Development and Content. During the second
quarter of 1997, the Company recorded a non-recurring, non-cash $2,700,000
expense which was deemed to be the fair market value of acquired in-process
research, development and content expense, in connection with the acquisition of
Teletutor.
Interest and Other Income (Expense). Interest expense for the three months
ended June 30, 1996 was $20,196, while interest income for the three months
ended June 30, 1997 was $134,597. Interest income is derived primarily from
investing funds raised in the Company's private and public securities offerings
during 1996. Other income of $86,253 for the three months ended June 30, 1996
consists of income recognized in connection to the release from a contract under
which the Company had received development funding.
(ii) SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996
Net Revenues
Net revenues increased from $231,747 for the six months ended June 30, 1996
to $3,717,816 for the six months ended June 30, 1997. Online revenues were
$1,529,093 (41% of net revenues) for the six months ended June 30, 1997 compared
to $37,500 (16% of net revenues) for the six months ended June 30, 1996. Online
revenues are generated primarily from the sale of online licenses to the
Company's Virtual Campus product offerings and online tuition derived from
academic and corporate partners. In 1997, the Company began to market its
on-line learning environment, the Virtual Campus. Sales of Virtual Campuses
during the first six months of 1997 were the primary reason for the increase in
online revenues.
Development and other revenues were $1,188,268 (32% of net revenues) for
the six months ended June 30, 1997 compared to $20,985 (9% of net revenues) for
the prior year period. Development and other revenues in 1997 included $560,000
recorded pursuant to a development funding agreement with InternetU entered into
in September 1996, as amended. Under this agreement, InternetU provides the
Company funding for the development of the Company's Autodesk Virtual Campus in
exchange for a share of the net revenues derived from the operation of such
campus, and warrants to purchase Common Stock of the Company. Development
revenues for the six months ended June 30, 1997 also include payments from
certain of the Company's partners for the Company's development of online
courses.
Product sales revenues were $824,163 (22% of net revenues) for the six
months ended June 30, 1997. Product sales revenues are derived from the sales of
computer based training ("CBT") courses that are delivered through traditional
CBT format (e.g. CD-ROM). Product sales revenues are generated by sales of the
courseware acquired from both Ivy Software and Teletutor (see Note C).
8
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Licensing and support revenues were $176,292 (5% of net revenues) for the
six months ended June 30, 1997 compared to $173,262 (75% of net revenues) for
the same period in 1996. Licensing and support revenues consist primarily of
revenue derived from the Company's Control Data subcontracts. This source of
revenue is expected to decline on a year-to-year basis due to budgetary
constraints of government agencies and the continued migration of Control Data
customers away from mainframe applications.
Cost of Revenues
Total cost of revenues increased from $45,976 for the six months ended June
30, 1996 to $402,442 for the six months ended June 30, 1997. The increase in
absolute dollars was primarily due to the inclusion of the results of operations
of CTA, Ivy, and Teletutor in the 1997 period, and certain third party royalties
payable on a contract entered into during the second quarter of 1997.
Operating Expenses
Sales and Marketing. Sales and marketing expense increased from $596,314
for the six months ended June 30, 1996 to $1,534,184 for the six months ended
June 30, 1997. The increase was primarily due to increased staffing and
marketing campaigns, and the inclusion of the results of operations of CTA, Ivy
and Teletutor. During the latter part of 1996, the Company expanded its sales
and marketing organization in order to build an infrastructure to support the
anticipated revenue opportunities for online courseware.
Product Development. Product development expense increased from $374,523
for the six months ended June 30, 1996 to $2,194,952 for the six months ended
June 30, 1997. The increase was primarily attributable to the overall staffing
and other cost increases aimed at maintaining and enhancing the Company's
courseware library and Virtual Campus software. The Company is incurring
significant expenses to convert traditional educational and training content to
courseware that can be delivered online over the Web. Contributing to the
increase in product development costs in 1997 was the inclusion of the results
of CTA and Teletutor. Product development costs for the six months ended June
30, 1997 are net of $438,387 of costs capitalized in accordance with the
Company's policy. No product development costs were capitalized during the six
months ended June 30, 1996.
General and Administrative. General and administrative expense increased
from $512,717 for the six months ended June 30, 1996 to $736,128 for the six
months ended June 30, 1997. General and administrative expense consisted
primarily of personnel costs, facilities and related costs, as well as legal,
accounting and other costs. General and administrative expense increased
primarily due to increases in all of the above costs to support the Company's
growth and additional operations due to acquisitions, and generally to cover
increased expenses associated with operating as a public company.
Depreciation and Amortization. Depreciation and amortization expense
increased from $18,433 for the six months ended June 30, 1996 to $245,754 for
the six months ended June 30, 1997. The increase in depreciation and
amortization is attributable to increased amortization associated with the CTA,
Ivy and Teletutor acquisitions, and to increased depreciation expense of
computer equipment and other assets purchased by the Company to support its
product development, technical operations and personnel needs.
Acquired In-Process Research, Development and Content. During the second
quarter of 1997, the Company recorded a non-recurring, non-cash $2,700,000
expense which was deemed to be the fair market value of acquired in process
research, development and content expense, in connection with the acquisition of
Teletutor.
Interest and Other Income (Expense). Interest expense for the six months
ended June 30, 1996 was $33,388, while interest income for the six months ended
June 30, 1997 was $320,825. Interest income is derived primarily from investing
funds raised in the Company's private and public securities offerings during
1996. Other income of $205,529 for the six months ended June 30, 1996 primarily
consists of a $119,276 settlement with a former vendor and $86,253 of income
recognized in connection to the release from a contract under which the Company
had received development funding.
9
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had $7,898,667 in cash and cash
equivalents. Since its inception, the Company has financed its operating cash
flow needs primarily through offerings of equity securities and, to a lesser
extent, borrowings from stockholders. Cash utilized in operating activities was
$2,853,814 for the six months ended June 30, 1997 and $992,134 for the six
months ended June 30, 1996. Use of cash was primarily attributable to the net
loss recorded during the first quarter of 1997, two advance payments of $300,000
each in March and May 1997 to a joint marketing partner for development of
online courseware, and an increase in the level of accounts receivable at June
30, 1997 due to increased revenues.
The use of cash for investing activities was primarily attributable to cash
payments of $3,300,000 in March and April 1997 in connection with the
acquisitions of Teletutor and Ivy, purchases of equipment in both periods, and
$315,000 for the acquisition of online publishing rights for certain content the
Company plans to market. Cash utilized in investing activities was $4,807,206
for the six months ended June 30, 1997 and $17,894 for the six months ended June
30, 1996. Cash provided by financing activities was $85,657 in the 1997 period
and $1,096,801 in the 1996 period.
The Company expects negative cash flow from operations to continue for at
least the next six to nine months, as it continues product development and
expansion of its sales and marketing and administrative capabilities. The
Company believes that existing cash balances, together with existing sources of
liquidity, will satisfy its anticipated working capital and capital equipment
requirements for at least one year. The Company's future capital requirements
will depend on many factors, including, but not limited to, acceptance of and
demand for its products and services, the types of arrangements that the Company
may enter into with partners and customers, cash used for acquisitions and the
extent to which the Company invests in new technology and research and
development projects.
The Company and its bank lender have entered into a secured lending
arrangement, which expires in November 1999, in the aggregate principal amount
of $100,000. Amounts borrowed under this arrangement will bear interest at the
lender's prime rate plus 1% and are collateralized by the assets purchased with
the amounts so borrowed. As of June 30, 1997, the Company had no borrowings
against this arrangement.
During 1996, Teletutor entered into a secured lending arrangement, which
expires in May 1998, with its bank in the aggregate principal amount of
$150,000. Amounts borrowed under this arrangement bear interest at the bank's
prime rate plus 2% and are collateralized by all business assets of Teletutor.
This line-of-credit facility requires monthly interest payments. As of June 30,
1997, the balance outstanding under this line-of-credit was $150,000.
Depending on its rate of growth and profitability, if any, the Company may
require additional equity or debt financings to meet its working capital
requirements or capital equipment needs in the future or to fund and provide
working capital for its acquisitions. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's
stockholders would be reduced. There can be no assurance that additional
financing will be available when required, or, if available, will be on terms
satisfactory to the Company.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted in the December 31,
1997 financial statements. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for the
interim periods presented herein, is not expected to be material.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) No modifications.
(b) No limitations or qualifications.
10
<PAGE> 11
(c) From March 31, 1997 to June 30, 1997, the Company has issued the
following unregistered securities:
1. Options to purchase an aggregate of 351,000 shares of Common Stock
to employees of the Company.
2. Warrants to purchase an aggregate of 15,342 shares of Common Stock
to InternetU, Inc. ("InternetU") pursuant to the terms of the Project
Development and Financing Agreement between the Company and InternetU.
The sales of the above securities were deemed to be exempt from
registration under the Act in reliance upon section 4(2) of the Securities Act
of 1933, as amended (the "Act"), or Regulation D or Rule 701 promulgated
thereunder as transactions by an issuer not involving a public offering.
Recipients of the securities in each such transaction represented their
intentions to acquire such securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the instruments issued in such transactions. All recipients had
adequate access to information about the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 28, 1997.
The following is a brief description of each matter voted upon at the meeting
and the number of affirmative votes and the number of negative votes cast with
respect to each matter.
(a) The stockholders elected the following persons as directors of the
Company: Narasimhan P. Kannan, Carl N. Tyson, Edson D. deCastro, Dennis J.
Dougherty, Barry K. Fingerhut, William E. Kimberly, and Wayne Silby. The votes
for and against (withheld) each nominee were as follows:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
NOMINEE FOR WITHHELD ABSTAINED
- --------------------- --------- -------- ---------
<S> <C> <C> <C>
Narasimhan P. Kannan 2,369,390 18,838 0
Carl N. Tyson 2,369,390 18,838 0
Edson D. deCastro 2,369,390 18,838 0
Dennis J. Dougherty 2,369,390 18,838 0
Barry K. Fingerhut 2,369,390 18,838 0
William E. Kimberly 2,369,390 18,838 0
D. Wayne Silby 2,369,390 18,838 0
</TABLE>
(b) The stockholders approved amendments to the Company's 1996 Stock Plan
to increase the number of shares reserved for issuance thereunder by 388,933
shares and to establish an automatic grant program for non-employee directors
with 1,630,010 shares voting for, 629,054 shares subject to broker non-votes,
67,838 shares voting against and 61,326 shares abstained.
(c) The stockholders ratified the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Re: Computation of Per Share Loss
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
(b) Reports on Form 8-K
11
<PAGE> 12
During the Registrant's fiscal quarter ended June 30, 1997, the
Registrant filed the following report on Form 8-K:
<TABLE>
<CAPTION>
DATE EXPLANATION
------------- ----------------------------------------------------------------------
<S> <C>
May 14, 1997 The registrant reported the acquisition of Teletutor. (On July 14,
1997 the Registrant filed Form 8-K, Amendment No. 1 to Current Report
to include the financial statements required in connection with the
acquisition of Teletutor.)
</TABLE>
12
<PAGE> 13
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY EACH OF THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
UOL PUBLISHING, INC.
By: /s/ NARASIMHAN P. KANNAN
------------------------------------
NARASIMHAN P. KANNAN
CHIEF EXECUTIVE OFFICER
By: /s/ LEONARD P. KURTZMAN
------------------------------------
LEONARD P. KURTZMAN
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Date: August 14, 1997
13
<PAGE> 1
EXHIBIT 11.1
UOL PUBLISHING, INC.
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1996 1997 1996 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss per share:
Weighted average shares of Common Stock
outstanding.............................. 787,851 3,186,167 785,689 3,186,167
Shares of Series A and Series B Preferred
Stock and Preferred Stock
Dividends issued during the 12-month
period prior to the initial filing
of the S-1 (using the treasury stock
method)............................. 187,787 -- 187,787 --
Shares of Common Stock issued during the
12-month period prior to the initial
filing of the S-1 (using the treasury
stock method)............................ 2,098 -- 2,098 --
Common equivalent shares from options,
warrants and convertible debt issued
during the 12-month period prior to the
initial filing of the S-1 (using the
treasury stock method)................... 117,976 -- 117,976 --
---------- ----------- ----------- -----------
Total................................. 1,095,712 3,186,167 1,093,550 3,186,167
---------- ----------- ----------- -----------
Net loss................................... $ (694,531) $(2,678,788) $(1,144,075) $(3,774,819)
Accrued dividends to preferred
stockholders............................. (62,067) -- (114,077) --
---------- ----------- ----------- -----------
Net loss available to common
stockholders............................. $ (756,598) $(2,678,788) $(1,258,152) $(3,774,819)
Net loss per share to common
stockholders............................. $ (0.69) $ (0.84) $ (1.15) $ (1.18)
========== =========== =========== ===========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,898,667
<SECURITIES> 0
<RECEIVABLES> 2,292,745
<ALLOWANCES> 85,562
<INVENTORY> 0
<CURRENT-ASSETS> 10,912,055
<PP&E> 1,849,374
<DEPRECIATION> 498,271
<TOTAL-ASSETS> 16,684,625
<CURRENT-LIABILITIES> 2,961,002
<BONDS> 0
0
0
<COMMON> 31,861
<OTHER-SE> 12,460,882
<TOTAL-LIABILITY-AND-EQUITY> 16,684,625
<SALES> 3,717,816
<TOTAL-REVENUES> 3,717,816
<CGS> 402,442
<TOTAL-COSTS> 402,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,774,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,774,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,774,819)
<EPS-PRIMARY> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
