<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 31, 1997
---------
UOL PUBLISHING, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-21421 54-1290319
- ------------------------ ------------------------
(Commission file Number) (IRS Employer ID Number)
8251 Greensboro Drive, Suite 500, McLean, Virginia 22012
---------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (703) 893-7800
---------
N/A
------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. As required by Item 7 of Form
8-K promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), the following financial statements of the business acquired are
filed with this report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Independent Auditors .......................... F-1
HTR, Inc. Balance Sheets
as of June 30, 1996 and 1997 and September 30, 1997...... F-2
HTR, Inc. Statements of Operations for the Years
Ended June 30, 1996 and 1997 and for the Three
Month Periods Ended September 30, 1996 and 1997.......... F-3
HTR, Inc. Statements of Stockholders' Deficit for
the Years Ended June 30, 1996 and 1997 and for
the Three Month Period Ended September 30, 1997.......... F-4
HTR, Inc. Statements of Cash Flows for the Years
Ended June 30, 1996 and 1997 and for the Three
Month Periods Ended September 30, 1996 and 1997.......... F-5
Notes to Financial Statements .......................... F-6
</TABLE>
(b) Pro Forma Financial Information. As required by Item 7 of Form 8-K
promulgated by the Commission under the Act, the following pro forma
financial information is filed with this report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Unaudited Pro Forma Combined
Balance Sheet as of September 30, 1997 ................. F-17
Unaudited Combined Pro Forma Statements of
Operations for the Year Ended December 31, 1996 and
the Nine Month Period Ended September 30, 1997 ........ F-18
Notes to Pro Forma Balance Sheet
and Statements of Operations ........................... F-20
</TABLE>
<PAGE> 3
(c) Exhibit.
2.3* Agreement and Plan of Merger dated as of October 31, 1997, by
and among the Registrant, HTR, Inc. and shareholders of HTR,
Inc.
*Previously filed.
<PAGE> 4
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 the
undersigned hereunto duly authorized.
UOL PUBLISHING, INC.
Date: January 16, 1998 /s/ Narasimhan P. Kannan
-------------------------------
Narasimhan P. Kannan
Chief Executive Officer
(Principal Executive Officer)
<PAGE> 5
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
HTR, INC.
We have audited the accompanying balance sheets of HTR, Inc. as of June 30,
1996 and 1997, and the related statements of operations, stockholders' deficit
and cash flows for each of the two years in the period ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HTR, Inc. at June 30, 1996 and
1997, and the results of its operations and its cash flows for each of the two
years in the period ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
November 4, 1997
F-1
<PAGE> 6
HTR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1997 1997
----------------- ----------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 169,660 $ 870,849 $ 270,587
Accounts receivable, less allowance of $150,000 at June
30, 1996 and 1997, respectively 1,904,105 881,075 1,141,746
Inventories, less allowance of $46,891 and $106,929 at
June 30, 1996 and 1997, respectively 218,560 180,702 109,031
Prepaid expenses and other current assets 8,773 118,270 37,674
----------------- ----------------- ----------------
Total current assets 2,301,098 2,050,896 1,559,038
Property and equipment, net 905,249 875,114 801,930
Other assets 102,173 69,293 69,293
Debt issuance costs, net of accumulated amortization of
$38,873 at June 30, 1997 - 252,672 248,095
----------------- ----------------- ----------------
Total assets $ 3,308,520 $ 3,247,975 $ 2,678,356
================= ================= ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 1,348,564 $ 1,110,531 $ 1,640,760
Accrued compensation and benefits 595,913 419,403 457,913
Line of credit - 455,973 479,384
Current portion of long-term debt 428,361 48,868 49,624
Current portion of capital lease obligations 237,204 198,857 173,591
Deferred revenues 509,451 333,033 377,195
Deferred rent 128,967 80,225 63,957
----------------- ----------------- ----------------
Total current liabilities 3,248,460 2,646,890 3,242,424
Long-term debt, less current portion - 2,610,000 2,632,500
Capital lease obligations, less current portion 211,404 20,590 650
Commitments - - -
Series A redeemable convertible Preferred Stock; $0.001
par value; 1,900,000 shares authorized; 1,724,953 shares
issued and outstanding; liquidation preference of
$1,144,927 at June 30, 1997 1,080,120 1,144,927 1,144,927
Stockholders' deficit:
Common Stock, $0.001 par value; 20,000,000 shares
authorized; 10,819,801 and 11,469,801 shares issued
and outstanding at June 30, 1996 and 1997, respectively 10,820 11,470 11,470
Additional paid-in capital 203,043 1,372,301 1,372,301
Receivable from sale of Common Stock - (5,000) (5,000)
Unearned compensatory stock options (68,898) (226,967) (205,689)
Accumulated deficit (1,376,429) (4,326,236) (5,515,227)
----------------- ----------------- ----------------
Total stockholders' deficit (1,231,464) (3,174,432) (4,342,145)
----------------- ----------------- ----------------
Total liabilities and stockholders' deficit $ 3,308,520 $ 3,247,975 $ 2,678,356
================= ================= ================
</TABLE>
See accompanying notes.
F-2
<PAGE> 7
HTR, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
1996 1997 1996 1997
---------------- ----------------- ---------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Training revenues $ 11,794,441 $ 10,299,442 $ 3,031,501 $ 2,008,555
Consulting revenues 1,848,826 1,763,228 599,511 345,192
---------------- ----------------- ---------------- -----------------
Net revenues 13,643,267 12,062,670 3,631,012 2,353,747
Cost of revenues:
Cost of training revenues 7,856,088 8,690,120 2,178,887 1,915,562
Cost of consulting revenues 783,953 621,818 148,407 214,469
---------------- ----------------- ---------------- -----------------
Total cost of revenues 8,640,041 9,311,938 2,327,294 2,130,031
Costs and expenses:
General and administrative 1,784,674 2,644,350 535,339 418,935
Sales and marketing 1,945,765 1,856,490 468,724 402,471
Product development 141,517 498,209 41,082 391,111
Depreciation and amortization 147,492 146,578 33,653 39,310
---------------- ----------------- ---------------- -----------------
Total costs and expenses 4,019,448 5,145,627 1,078,798 1,251,827
Income (loss) from operations 983,778 (2,394,895) 224,920 (1,028,111)
Other income (expense):
Interest income 1,602 61,999 504 9,603
Interest expense (129,228) (552,104) (21,507) (170,483)
---------------- ----------------- ---------------- -----------------
Net income (loss) $ 856,152 $ (2,885,000) $ 203,917 $ (1,188,991)
================ ================= ================ =================
</TABLE>
See accompanying notes.
F-3
<PAGE> 8
HTR, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
RECEIVABLE
ADDITIONAL FROM SALE OF
COMMON STOCK PAID-IN COMMON
-----------------------------
SHARES AMOUNTS CAPITAL STOCK
------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 10,784,051 $ 10,784 $ 120,110 $ (15,000)
Issuance of common stock pursuant
to exercise of stock options 35,750 36 3,539 -
Issuance of compensatory stock options - - 79,394 -
Amortization of unearned
compensatory stock options - - - -
Payment of receivable from sale of
common stock - - - 15,000
Net income - - - -
------------- -------------- ------------- ------------------
Balance at June 30, 1996 10,819,801 10,820 203,043 -
Issuance of common stock pursuant
to exercise of stock options 650,000 650 44,350 -
Loan to stockholder to purchase
common stock - - - (5,000)
Issuance of compensatory stock options - - 674,908 -
Amortization of unearned compensatory
stock options - - - -
Issuance of common stock warrants in
conjunction with note payable - - 450,000 -
Declaration of dividends to holders
Series A Preferred Stock - - - -
Net loss - - - -
------------- -------------- ------------- ------------------
Balance at June 30, 1997 11,469,801 11,470 1,372,301 (5,000)
Amortization of unearned compensatory
stock options (unaudited) - - - -
Net loss (unaudited) - - - -
------------- -------------- ------------- ------------------
Balance at September 30, 1997 (unaudited) 11,469,801 $ 11,470 $1,372,301 $ (5,000)
============= ============== ============= ==================
<CAPTION>
UNEARNED TOTAL
COMPENSATORY ACCUMULATED STOCKHOLDERS'
STOCK OPTIONS DEFICIT DEFICIT
---------------- ----------------- ----------------
<S> <C> <C> <C>
Balance at June 30, 1995 $ (41,423) $ (2,232,581) $ (2,158,110)
Issuance of common stock pursuant
to exercise of stock options - - 3,575
Issuance of compensatory stock options (79,394) - -
Amortization of unearned
compensatory stock options 51,919 - 51,919
Payment of receivable from sale of
common stock - - 15,000
Net income - 856,152 856,152
---------------- ----------------- ----------------
Balance at June 30, 1996 (68,898) (1,376,429) (1,231,464)
Issuance of common stock pursuant
to exercise of stock options - - 45,000
Loan to stockholder to purchase
common stock - - (5,000)
Issuance of compensatory stock options (674,908) - -
Amortization of unearned compensatory
stock options 516,839 - 516,839
Issuance of common stock warrants in
conjunction with note payable - - 450,000
Declaration of dividends to holders
Series A Preferred Stock - (64,807) (64,807)
Net loss - (2,885,000) (2,885,000)
---------------- ----------------- ----------------
Balance at June 30, 1997 (226,967) (4,326,236) (3,174,432)
Amortization of unearned compensatory
stock options (unaudited) 21,278 - 21,278
Net loss (unaudited) - (1,188,991) (1,188,991)
---------------- ----------------- ----------------
Balance at September 30, 1997 (unaudited) $ (205,689) $ (5,515,227) $ (4,342,145)
================ ================= ================
</TABLE>
See accompanying notes.
F-4
<PAGE> 9
HTR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
1996 1997 1996 1997
------------ ------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $856,152 $(2,885,000) $ 203,917 $ (1,188,991)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 315,153 355,772 81,681 95,413
Issuance of compensatory stock options in lieu of payment
for services - 25,000 - -
Amortization of unearned compensatory stock options 51,919 516,839 15,141 21,278
Interest expense associated with warrants issued in
connection with note payable agreement - 60,000 - 22,500
Amortization of debt issuance costs - 38,873 - 4,577
(Gain) loss on sale of property and equipment (6,028) 988 - -
Changes in operating assets and liabilities:
Accounts receivable (846,399) 1,023,030 (191,776) (260,671)
Inventories 61,104 37,858 (69,995) 71,671
Prepaid expenses and other current assets 4,236 (109,497) (95,770) 80,596
Other assets (30,230) 32,880 (43,399) -
Accounts payable and accrued expenses (99,218) (238,033) (292,337) 530,229
Accrued compensation and benefits 213,671 (176,510) 171,963 38,510
Deferred revenues 309,678 (176,418) 157,018 44,162
Deferred rent 7,215 (48,742) 634 (16,268)
------------ ------------- ------------ --------------
Net cash provided by (used in) operating activities 837,253 (1,542,960) (62,923) (556,994)
------------ ------------- ------------ --------------
INVESTING ACTIVITIES:
Purchases of property and equipment (181,842) (326,625) (112,256) (17,899)
Proceeds from sale of property and equipment 15,000 - - -
------------ ------------- ------------ --------------
Net cash used in investing activities (166,842) (326,625) (112,256) (17,899)
------------ ------------- ------------ --------------
FINANCING ACTIVITIES:
Proceeds from notes payable - 2,550,000 - -
Proceeds allocated to warrants issued in connection with notes
payable - 450,000 - -
Principal payments of notes payable (58,560) - - -
Proceeds from notes payable - related party 140,000 1,390 - 1,256
Principal payments of notes payable - related party (19,455) (98,525) (3,390) (500)
Debt issuance costs - (291,545) - -
Principal payments on capital lease obligations (259,919) (229,161) (46,449) (49,536)
Borrowings on line of credit - 770,331 402,743 23,411
Repayments of line of credit (321,392) (596,716) (282,358) -
Payment of receivable from sale of Common Stock 15,000 - - -
Proceeds from issuance of common stock pursuant to exercise of
stock options 3,575 15,000 - -
------------ ------------- ------------ --------------
Net cash (used in) provided by financing activities (500,751) 2,570,774 70,546 (25,369)
------------ ------------- ------------ --------------
Net increase (decrease) in cash and cash equivalents 169,660 701,189 (104,633) (600,262)
Cash and cash equivalents at beginning of the period - 169,660 169,660 870,849
------------ ------------- ------------ --------------
Cash and cash equivalents at end of the period $ 169,660 $ 870,849 $ 65,027 $ 270,587
============ ============= ============ ==============
Supplemental disclosure of cash flow information:
Interest paid $ 129,228 $ 552,104 $ 29,864 $ 223,203
============ ============= ============ ==============
Income taxes paid $ - $ 15,985 $ - $ -
============ ============= ============ ==============
</TABLE>
See accompanying notes.
F-5
<PAGE> 10
HTR, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
HTR, INC. (the "Company") was incorporated under the laws of the State of
Maryland in May 1987. In July 1994, the Company was reincorporated in the
State of Delaware. The Company is principally engaged in the business of
providing technical training, publishing, and consulting services to the
client/server segment of the computer industry in locations throughout the
United States.
2. MANAGEMENT PLANS
The Company, including UOL, recognize that they must generate additional
capital in order to continue operations and meet business development
initiatives. Should the Company and UOL (the "Combined Companies") be unable
to generate sufficient cash from operations or complete a private or public
offering of its equity securities, the Combined Companies' ability to fund
operations and satisfy debt payments through November 1998 will be dependent on
the Combined Companies' implementation of a plan to significantly reduce
operating expenses (such as marketing, development costs and costs of personnel
and related benefits).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company maintains cash balances which may exceed federally insured limits.
The Company does not believe that this results in any significant credit risks.
The Company considers all highly liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. On June 30, 1997,
the Company purchased $1,101,652 of U.S. Government securities under agreements
to resell on July 1, 1997. Due to the short-term nature of the agreements, the
Company did not take possession of the securities which were held by the
Company's asset manager. The market value of the securities approximated the
carrying amount.
INVENTORIES
Inventories consist of training documentation kits purchased from outside
vendors. The inventories are stated at the lower of cost or market, as
determined using the first-in, first-out ("FIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over an estimated useful life of five to seven years.
Leasehold improvements are amortized over the lesser of the lease term or the
estimated useful life.
F-6
<PAGE> 11
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUANCE COSTS
The Company capitalized $291,545 of debt issuance costs, which were incurred in
connection with the Company's promissory note agreement (See Note 6). The debt
issuance costs are being amortized to interest expense using the effective
interest method over the period the related debt is expected to be outstanding
(five years).
REVENUE RECOGNITION
Revenue is recognized for information technology training as the services are
rendered. Deferred revenue consists of fees paid in advance for services which
have not yet been rendered.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs amounted
to approximately $0 and $90,000 during the years ended June 30, 1996 and
1997, respectively.
PRODUCT DEVELOPMENT
Through June 30, 1997, the Company expensed its product development costs as
incurred since realizability of capitalizing such costs had not been
established.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123"). SFAS No. 123 allows companies to account for stock-based
compensation under either the new provisions of SFAS No. 123 or the provisions
of Accounting Principles Board No. 25, Accounting for Stock Issued to
Employees, ("APB 25"), but requires pro forma disclosures in the footnotes to
the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. The Company accounts for its stock-based compensation in
accordance with the provisions of APB No. 25.
INCOME TAXES
The Company provides for income taxes in accordance with the liability method.
F-7
<PAGE> 12
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years
beginning after December 31, 1997. SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is the total of
net income and all other nonowner changes in equity.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997. SFAS
No. 131 requires an enterprise to report certain additional financial and
descriptive information about its reportable operating segments.
Management does not expect that the implementation of either SFAS No. 130 or
No. 131 will have a material impact on the Company's financial position or
results of future operations.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1998.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
-------------- -------------
<S> <C> <C>
Equipment under capital leases $ 1,181,810 $ 1,181,810
Equipment 347,497 640,039
Leasehold improvements 113,144 113,144
Furniture and fixtures 202,313 211,085
-------------- -------------
1,844,764 2,146,078
Less accumulated depreciation and amortization (939,515) (1,270,964)
-------------- -------------
$ 905,249 $ 875,114
============== =============
</TABLE>
F-8
<PAGE> 13
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LINE OF CREDIT AND RECEIVABLES FINANCING LINE
During fiscal 1996, the Company had a $1,000,000 line of credit with a bank
which matured on March 15, 1996. In March 1996, the line of credit expired and
the outstanding balance was converted to a term loan due on October 31, 1996,
with interest payable monthly at an annual rate of 10.25% (prime rate plus
2.5%). The term loan was guaranteed by the principal stockholders of the
Company and was secured by the Company's accounts receivable and inventory. At
June 30, 1996, the outstanding balance was $282,358. During 1997, the
outstanding balance was repaid.
On September 11, 1996, the Company entered into a Receivables Financing Line
with a third party. Under the Receivables Financing Line, the Company may
borrow funds not to exceed an aggregate borrowing level of the Company's
eligible accounts receivable less 25% of the Company's deferred revenue times
50%. Any borrowings under the agreement are due and payable on demand.
Interest is payable monthly at an annual rate of 20%. This debt is guaranteed
by the principal stockholders and is secured by the Company's accounts
receivable and inventory. As of June 30, 1997, outstanding borrowings totaled
$455,973.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
---------------- ----------------
<S> <C> <C>
Note payable to the Company's principal stockholders, bearing interest
at an annual rate of 18% and 13.5%, respectively, and payable on
demand. $ 106,003 $ 33,868
Term note payable to a bank, due on October 31, 1996, with interest
payable monthly at an annual rate payable of 10.25% (prime rate plus
2.5%). The note payable was guaranteed by the principal stockholders
and was secured by the Company's accounts receivable and inventory.
The note payable balance was repaid during 1997. 282,358 -
Unsecured promissory note payable to a related party, bearing interest
at an annual rate of 20% and payable on demand. 40,000 15,000
Secured promissory note to third party, due on October 28, 2001, with
interest payable monthly at an annual rate of 13.5%. The note
payable is secured by all the assets of the Company and the pledge
of stock by the principals. The third party was issued warrants to
purchase the Company's Common Stock in conjunction with the
promissory notes agreement. (See Note 9.) - 2,610,000
---------------- ----------------
428,361 2,658,868
Current portion of long-term debt 428,361 48,868
---------------- ----------------
Long-term debt, less current portion $ - $2,610,000
================ ================
</TABLE>
F-9
<PAGE> 14
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt at June 30, 1997 were as follows:
<TABLE>
<S> <C>
1998 $ 48,868
1999 -
2000 -
2001 -
2002 2,610,000
---------------
$2,658,868
===============
</TABLE>
7. LEASE COMMITMENTS
OPERATING LEASES
The Company leases various office space under noncancelable operating lease
agreements. One of the leases provides for a rent abatement during its initial
term. The minimum lease obligation is being expensed over the term of the lease
obligation on a straight-line basis, with expense in access of cash outlays
recorded as deferred rent. Certain of the Company's leases include scheduled
base rent increases over the term of the leases. The total minimum lease
obligation is being expensed on a straight-line basis over the term of the
lease with the expense in excess of cash outlays recorded as deferred rent. At
June 30, 1996 and 1997, the deferred rent balance was $128,967 and $80,225,
respectively.
Rent expense under these leases for the years ended June 30, 1996 and 1997,
amounted to approximately $823,000 and $934,000, respectively.
As of June 30, 1997, payments due under noncancelable operating leases were as
follows:
<TABLE>
<S> <C>
1998 $ 687,253
1999 313,198
2000 200,432
2001 136,267
---------------
$ 1,337,150
===============
</TABLE>
Remaining lease payments for facilities vacated as a result of relocation and
consolidation were accrued in 1997. The amount, included in accrued expenses,
at June 30, 1997 is approximately $204,000.
F-10
<PAGE> 15
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LEASE COMMITMENTS (CONTINUED)
CAPITAL LEASES
The Company leases furniture and equipment under noncancelable agreements that
are accounted for as capital leases. The leases are payable in monthly
installments ranging from approximately $250 to $4,800. At June 30, 1996 and
1997, there was $1,181,810 of equipment held under capital leases. Accumulated
amortization of the equipment amounted to approximately $623,000 and $851,000
at June 30, 1996 and 1997, respectively. Amortization expense related to
capital leases is classified as depreciation and amortization in the statements
of operations.
Future minimum lease payments under capital leases are as follows as of June
30, 1997:
<TABLE>
<S> <C>
1998 $ 214,058
1999 21,016
------------
235,074
Less amounts representing interest 15,627
------------
219,447
Less current portion of capital lease obligations 198,857
------------
Capital lease obligations, less current portion $ 20,590
============
</TABLE>
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's net deferred tax assets were as follows:
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 335,000 $ 1,107,000
Reserve for inventory obsolescence 18,000 42,000
Allowance for doubtful accounts 59,000 59,000
Deferred rent 20,000 86,000
Amortization of unearned compensatory stock options 20,000 222,000
Accrued expenses 53,000 91,000
--------------- ----------------
Total deferred tax assets 505,000 1,607,000
Deferred tax liabilities:
Tax depreciation in excess of book depreciation (58,000) (43,000)
Other (1,000) (9,000)
--------------- ----------------
Total deferred tax liabilities (59,000) (52,000)
--------------- ----------------
Valuation allowance (446,000) (1,555,000)
--------------- ----------------
Net deferred tax assets $ - $ -
=============== ================
</TABLE>
F-11
<PAGE> 16
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
As of June 30, 1996 and 1997, the Company had approximately $860,000 and
$2,800,000, respectively, in tax net operating loss carryforwards which expire
at varying dates through 2011. These carryforwards may be significantly
limited under Section 382 of the Internal Revenue Service Code and the SRLY
rules.
9. STOCKHOLDERS' DEFICIT
COMMON STOCK
On March 29, 1994, the Company sold 500,000 shares of Common Stock later
converted to 588,037 shares of Common Stock to an officer of the Company for
approximately $15,000. At June 30, 1995, the cash payment had not been paid and
the related receivable is reflected as a receivable from sale of Common Stock
in the accompanying statements of stockholders' deficit. The purchase amount
was paid in full during 1996. The Company considered whether an expense should
be recorded for the difference between the purchase price and the fair market
value of the Common Stock on the date of purchase and the Company concluded
that the difference was immaterial to the financial statements.
STOCK OPTIONS
During 1994, the Company's Board of Directors adopted the 1994 Stock Plan (the
"Option Plan") under which 1,111,111 shares of Common Stock were reserved for
issuance upon exercise of granted options. The Option Plan provides for grants
of incentive stock options to key employees and non-qualified options to key
employees, directors and outside consultants. Options are granted at the fair
market value of the Company's Common Stock on the date of grant. The term of
the stock options granted under the Option Plan may not exceed ten years. The
vesting period of the options is determined by the Board of Directors and is
generally five years. Additional information with respect to stock option
activity is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1996 1997
----------------------- ------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the year 635,500 $ 0.10 527,600 $ 0.10
Granted 350,850 0.10 1,044,000 0.08
Exercised (35,750) 0.10 (650,000) 0.07
Canceled or expired (423,000) 0.10 (471,950) 0.10
---------- --------- ----------- -----------
Outstanding at the end of the year 527,600 $ 0.10 449,650 $ 0.10
========== ========= =========== ===========
Options exercisable at year end 69,978 $ 0.09 70,718 $ 0.10
========== ========= =========== ===========
</TABLE>
F-12
<PAGE> 17
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' DEFICIT (CONTINUED)
STOCK OPTIONS (CONTINUED)
The following table summarizes information about fixed-price stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices June 30, 1997 Life Price June 30, 1997 Price
----------------- ---------------- ------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.10 449,650 9.2 $ 0.10 70,718 $ 0.10
</TABLE>
As of June 30, 1997, there were no options available for future grants.
The Company applies APB No. 25 in accounting for the stock option plan, and,
accordingly, recognizes compensation expense for the difference between the
deemed fair value of the underlying Common Stock and the grant price of the
option at the date of grant. During 1996 and 1997, the Company recognized
unearned compensatory stock options of $79,394 and $674,908, respectively, for
the difference between the option exercise price and the deemed fair value on
the date of grant of stock options. The Company is amortizing such amounts
ratably over the vesting period of the options, which is generally five years.
During the years ended June 30, 1996 and 1997, the Company recognized $51,919
and $451,305, respectively, of compensation expense related to Common Stock
options.
During the year ended June 30, 1997, the Company granted 250,000 options to
purchase the Company's common stock to an outside consultant. The fair value of
these options was estimated on the grant date using the minimum value
option-pricing fair value model with the following weighted-average
assumptions: dividend yield of 0%; risk-free interest rate of 6.5%; and
expected life of the option term of 3 years. Based on this model, the fair
value of the options was estimated to be $.65 per share or $162,500. The
Company will expense $162,500 ratably over the vesting period of the options,
which is two years. During the year ended June 30, 1997, the Company
recognized $65,534 of compensation expense related to these Common Stock
options.
During 1997, the Company adopted the disclosure-only provisions of SFAS No.
123. Accordingly, no compensation expense has been recognized for the fair value
of options granted during 1996 and 1997, other than as disclosed above. Had
compensation expense related to the Company's stock option plan been determined
based on the fair value at the grant date for options granted in 1996 and 1997
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
would have been approximately $837,449 and $(2,891,372). The effect of
applying SFAS No. 123 on 1996 and 1997 pro forma net loss as
F-13
<PAGE> 18
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' DEFICIT (CONTINUED)
STOCK OPTIONS (CONTINUED)
stated above is not necessarily representative of the effects on reported net
loss for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options in future years.
The fair value of each option grant is estimated on the date of grant using the
minimum value option-pricing fair value model with the following
weighted-average assumptions used for grants in 1996: dividend yield of 0%;
risk-free interest rate of 6.5%; and expected life of the option term of 3
years. The fair value of each option grant is estimated on the date of grant
using the minimum value option-pricing fair value model with the following
weighted-average assumptions used for grants in 1997: dividend yield of 0%;
risk-free interest rate of 6.5%; and expected life of the option term of 3
years. The weighted average fair value of the options granted in 1996 with a
stock price greater than the exercise price is $.62. The weighted average fair
value of the options granted in 1997 with a stock price greater than the
exercise price is $.74.
WARRANTS
In connection with the promissory note payable (See Note 6), the Company
issued warrants to purchase 849,341 shares of Common Stock at a price of $.01
per share to the third party. The warrants expire on October 28, 2001. The
Company allocated $450,000 of the note payable proceeds to the warrants issued.
The $450,000 allocated to the warrants is being amortized to interest expense
using the effective interest method over the period (five years) the related
debt is expected to be outstanding. The effect of this allocation results in an
effective interest rate of 18%. During the year ended June 30, 1997, the
Company recognized additional interest expense of $60,000 related to this
allocation. Beginning in year four and provided the note payable balance has
not been repaid, the third party will be issued additional warrants at a rate
of 1% per year. The third party was granted an option to put the shares
issuable pursuant to the warrants back to the Company on October 28, 2001 at a
repurchase price equal to the then fair market value.
In connection with this transaction, the Company issued 220,000 warrants to
purchase shares of Common Stock at a price of $.79 per share to a placement
agent. On the date of this transaction, the fair value of the warrants was
considered immaterial. The warrants expire on October 28, 2001. In addition,
the Company incurred, in connection with the note payable transaction, debt
issuance costs of $291,545, which will be amortized to expense over the term of
the note payable (five years).
F-14
<PAGE> 19
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. PREFERRED STOCK
In July 1994, the Company sold 1,724,953 shares of its Series A mandatory
redeemable, convertible, 9% noncumulative preferred stock (the "Preferred
Stock") to a group of investors at an aggregate cash price of $1,080,120, or
approximately $.63 share.
Each share of Preferred Stock is convertible into one share of Common Stock at
the option of the holder. The Company has reserved 1,900,000 shares of Common
Stock for issuance upon conversion of the Preferred Stock. The conversion price
is subject to an adjustment formula that would prevent dilution in the event
the Company issues additional stock at a per share price that is less than
$.63. The Preferred Stock will automatically convert into shares of Common
Stock upon the consummation of a public stock offering if certain conditions
are met. On a liquidation or sale of the Company, including a merger or
acquisition, proceeds are to be distributed first to holders of the Preferred
Stock in an amount equal to their original investment with any remaining net
proceeds to be distributed to holders of Common and Preferred Stock on a pro
rata basis. After five years, the Preferred Stock is redeemable at its original
purchase price at the option of the holders of a majority of the Preferred
Stock. The Company's Board of Directors may, but it is not required to, declare
a 9% dividend on the Preferred Stock. Since the authority to declare dividends
resides solely with the Company, the carrying amount of the Preferred Stock has
not been increased to include the payout of dividends.
The Preferred Stock contains certain protective provisions which require that
certain actions of the Company such as any changes to the capital structure of
the Company, merger or liquidation be approved by the holders of a majority of
the Preferred Stock. Each holder of Preferred Stock shall be entitled to the
number of votes equal to the convertible number of shares of Common Stock on
all matters except for the election of directors. The holders of the Preferred
Stock, voting together as a class, shall be entitled to elect one director. The
holders of Common Stock shall be entitled to elect four directors. In the event
that the number of directors is increased to a number greater than five, the
holders of the Preferred Stock shall be entitled to elect a number of directors
that represents at least 10% of the total directors.
In conjunction with the sale of the Preferred Stock, two stockholders of the
Company, who together owned approximately 92% of the outstanding Common Stock
of the Company at June 30, 1996, agreed to subject 50% of their Common Stock
holdings to repurchase by the Company if they voluntarily terminated employment
within a three-year period. The repurchase price is equal to $10,000, the price
paid by the stockholders. This repurchase option expired in October 1997, in
connection with the sale of 100% of the Company's outstanding stock (See Note
12).
During October 1996 and in conjunction with the promissory note payable (See
Notes 6 and 9), the Board of Directors declared a 9% dividend to be paid to the
holders of the Company's Series A Preferred Stock. The dividend began accruing
on the closing date of the promissory note payable and shall be paid on
December 31 of each calendar year, beginning on December 31, 1997.
F-15
<PAGE> 20
HTR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. RETIREMENT PLAN
The Company maintains a tax deferred savings and retirement plan (the "Plan")
to provide retirement benefits for all eligible employees. The Plan, which
covers all employees who have completed three months of service, stipulates
that employees may elect an amount between 1% and 15% of their total
compensation to contribute to the Plan. Employee contributions are subject to
Internal Revenue Service limitations. All employees who have completed 1,000
hours of service during the plan year and are employed by the Company on the
last day of the plan year are eligible to share in discretionary Company
contributions. Employees vest in employer contributions over four years.
During the years ended June 30, 1996 and 1997, the contributions by
the Company were $23,787 and $5,211, respectively.
12. SUBSEQUENT EVENTS
On September 29, 1997, the Board of Directors approved an amendment to increase
the number of shares available for issuance from 1,111,111 to 1,350,000
options.
On October 31, 1997, the Company entered into an Agreement and Plan of Merger
with UOL Publishing, Inc. (UOL). In the transaction, UOL will issue common
stock, warrants and options totaling 620,000 shares in exchange for all of the
outstanding equity securities of HTR, Inc. In addition, UOL will pay the
stockholders of the Company $600,000 in a combination of cash and short-term
notes, and assume approximately $3,610,000 of the Company's debt.
F-16
<PAGE> 21
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AND STATEMENTS OF OPERATIONS
The unaudited pro forma combined balance sheet gives effect to the acquisition
of HTR, Inc. completed by UOL Publishing, Inc. (the "Company" or "UOL") on
October 31, 1997, as if it had occurred on September 30, 1997.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1996 gives effect to the acquisition of HTR, Inc. as if it had
occurred on January 1, 1996. The unaudited pro forma combined statement of
operations for the nine months ended September 30, 1997 gives effect to the
acquisition of HTR, Inc. as if it had occurred on January 1, 1996.
The unaudited pro forma combined balance sheet and statements of operations are
based on available information and on certain assumptions and adjustments
described in the accompanying notes which the Company believes are reasonable.
The unaudited pro forma combined statements of operations are provided for
informational purposes only and does not purport to present the results of
operations of the Company had the transactions assumed therein occurred on or
as of the dates indicated, nor are they necessarily indicative of the results
of operations which may be achieved in the future. The unaudited pro forma
combined statements of operations should be read in conjunction with the
financial statements of the Company, including the notes thereto and the
financial statements of HTR, Inc.
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Historical Historical Acquisition Pro Forma
UOL (a) HTR, Inc. (a) Adjustments(b) Combined
-------------- -------------- ------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,591,565 $ 270,587 $ - $ 5,862,152
Accounts receivable 2,986,128 1,141,746 (c)(341,667) 3,786,207
Inventories - 109,031 - 109,031
Loans receivable from related parties 105,986 - - 105,986
Prepaid expenses and other current assets 583,864 37,674 - 621,538
-------------- -------------- ---------------- ------------------
Total current assets 9,267,543 1,559,038 (341,667) 10,484,914
Property and equipment, net 1,603,890 801,930 - 2,405,820
Capitalized product development costs, net 1,763,381 - - 1,763,381
Acquired online publishing rights 805,000 - - 805,000
Debt issuance costs, net - 248,095 (d)(248,095) -
Other assets 129,189 69,293 - 198,482
Goodwill and other intangibles, net 3,110,298 - (e)9,677,667 12,787,965
-------------- -------------- ---------------- ------------------
Total assets $16,679,301 $2,678,356 $9,087,905 $28,445,562
============== ============== ================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 1,511,428 $2,098,673 (f)$158,333 $ 3,768,434
Notes payable - current portion 737,742 49,624 (g)282,550 1,069,916
Deferred revenues 426,623 377,195 - 803,818
Deferred income taxes 334,600 - - 334,600
Deferred rent - 63,957 - 63,957
Capital lease obligations - current portion - 173,591 - 173,591
Line of credit - 479,384 - 479,384
-------------- -------------- ---------------- ------------------
Total current liabilities 3,010,393 3,242,424 440,883 6,693,700
Notes payable - less current portion 1,230,880 2,632,500 (g)658,645 4,522,025
Capital lease obligations - less current portion - 650 - 650
Series A redeemable convertible preferred stock - 1,144,927 (h)(1,144,927) -
Stockholders' equity (deficit):
Common Stock 31,861 11,470 (h)(5,610) 37,721
Additional paid-in capital 27,635,833 1,372,301 (h)11,812,998 40,821,132
Receivable from the sale of Common Stock - (5,000) (h) 5,000 -
Unearned compensatory stock options - (205,689) (h) 205,689 -
Accumulated deficit (15,229,666) (5,515,227) (i) (2,884,773) (23,629,666)
-------------- -------------- ---------------- ------------------
Total stockholders' equity (deficit) 12,438,028 (4,342,145) 9,133,304 17,229,187
-------------- -------------- ---------------- ------------------
Total liabilities and stockholders' equity (deficit) $16,679,301 $2,678,356 $9,087,905 $28,445,562
============== ============== ================ ==================
</TABLE>
F-17
<PAGE> 22
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Historical
Historical Historical Coopers & Historical Acquisition
UOL HTR, Inc. Associates CTA Adjustments
(j) (j) Inc. (j) (k) (l)
------------- ------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net revenues $942,426 $14,202,635 $2,917,808 $463,112 $ -
Costs and expenses
Cost of revenues 194,730 9,590,172 681,678 175,929 -
Sales and marketing 1,592,668 1,990,291 578,852 20,482 -
Product development 1,482,179 201,059 911,090 131,321 -
General and administrative 2,477,144 2,107,946 240,558 172,253 (m) 15,610
Acquired in-process research,
development and content - - - - (n)11,100,000
Depreciation and amortization 144,284 227,097 29,003 - (o)1,411,053
------------- ------------- ------------ ----------- ----------------
Income (loss) from operations (4,948,579) 86,070 476,627 (36,873) (12,526,663)
Other income (expense):
Other income 303,983 - 27,957 - -
Interest income (expense) 3,893 (249,127) 717 (22,479) (p)(133,468)
------------- ------------- ------------ ----------- ----------------
Income (loss) before income taxes (4,640,703) (163,057) 505,301 (59,352) (12,660,131)
Income tax expense (benefit) - - 279,400 (3,859) -
------------- ------------- ------------ ----------- ----------------
Net income (loss) (4,640,703) (163,057) 225,901 (55,493) (12,660,131)
Accrued dividends to preferred
stockholders (330,706) - - - -
------------- ------------- ------------ ----------- ----------------
Net income (loss) available to
common stockholders $(4,971,409) $(163,057) $225,901 $(55,493) $(12,660,131)
============= ============= ============ =========== ================
Net loss per share (v) $ (3.88)
=============
Weighted average shares
outstanding (v) 1,282,964
=============
<CAPTION>
Pro Forma
Combined
--------------
<S> <C>
Net revenues $18,525,981
Costs and expenses
Cost of revenues 10,642,509
Sales and marketing 4,182,293
Product development 2,725,649
General and administrative 5,013,511
Acquired in-process research,
development and content 11,100,000
Depreciation and amortization 1,811,437
--------------
Income (loss) from operations (16,949,418)
Other income (expense):
Other income 331,940
Interest income (expense) (400,464)
---------------
Income (loss) before income taxes (17,017,942)
Income tax expense (benefit) 275,541
---------------
Net income (loss) (17,293,483)
Accrued dividends to preferred
stockholders (330,706)
---------------
Net income (loss) available to
common stockholders $(17,624,189)
===============
Net loss per share (v) $ (9.22)
===============
Weighted average shares
outstanding (v) 1,911,411
===============
</TABLE>
F-18
<PAGE> 23
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Historical Historical Historical Acquisition Pro Forma
UOL HTR, Inc. Coopers & Adjustments Combined
(q) (q) Associates (s)
Inc. (r)
------------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 6,475,001 $ 7,692,919 $ 626,639 (w)$(341,667) $14,452,892
Costs and expenses
Cost of revenues 795,949 6,029,039 103,458 (w)(341,667) 6,586,779
Sales and marketing 2,473,428 1,255,748 179,092 - 3,908,268
Product development 3,061,530 769,625 239,040 - 4,070,195
General and administrative 1,172,434 1,868,332 164,622 - 3,205,388
Acquired in-process research,
development and content 2,700,000 - - (t)8,400,000 11,100,000
Depreciation and amortization 485,420 115,808 11,061 (u)898,842 1,511,131
------------------- --------------- -------------- -------------- -------------
Income (loss) from operations (4,213,760) (2,345,633) (70,634) (9,298,842) (15,928,869)
Other income (expense):
Interest income (expense) 367,096 (499,517) (1,660) (21,546) (155,627)
------------------- --------------- -------------- -------------- -------------
Net loss $ (3,846,664) $ (2,845,150) $ (72,294) $(9,320,388) $(16,084,496)
=================== =============== ============== ============== =============
Net loss per share (v) $ (1.21) $ (4.26)
=================== =============
Weighted average shares outstanding (v) 3,186,167 3,772,127
=================== =============
</TABLE>
F-19
<PAGE> 24
(a) Balance Sheet as of September 30, 1997.
(b) Represents adjustments for the HTR, Inc. ("HTR") acquisition based on
a purchase price of approximately $600,000 in cash and short-term
notes and an aggregate of 585,960 shares of UOL Common Stock and
options and warrants exercisable for an aggregate of an additional
34,040 shares. The 585,960 shares of the Company's Common Stock were
recorded at $21.50, which represents the closing market price of the
Company's Common Stock on October 31, 1997, the date of acquisition.
The options and warrants were recorded as follows: options were
recorded in accordance with intrinsic value method of Accounting
Principles Bulletin No. 25, Accounting for Stock Issued to Employees,
and the warrants were recorded at fair value using the Black-Scholes
fair value model. The purchase price has been allocated on a
preliminary basis to the assets and liabilities acquired based on the
estimated fair values of such assets and liabilities acquired.
(c) Represents elimination of receivable to UOL from HTR.
(d) Represents elimination of debt issuance costs of $248,095.
(e) Represents certain intangible assets identified by the Company. The
amounts allocated to intangible assets were as follows: $700,000 to
developed content, $500,000 to work force and $8,477,667 to goodwill
and trademarks. The intangible assets will be amortized on a
straight-line basis over the following lives: developed content will
be amortized over four years, work force will be amortized over five
years and goodwill and trademarks will be amortized over ten years.
(f) Represents $500,000 in estimated investment banking, legal, accounting
and printing expenses related to the HTR acquisition offset by the
elimination of a payable by HTR to UOL of $341,667.
(g) Represents the notes payable due to the shareholders of HTR. The
Company owes the shareholders of HTR $600,000, due in equal
installments of $300,000 over the next two years. Adjustments have
been recorded to the stated amount of notes payable to shareholders as
well as to a note payable to a third party to adjust the stated amount
to fair value.
(h) Represents elimination of HTR's stockholders' equity accounts, and
issuance of 585,960 shares of the Company's Common Stock valued at a
price of $21.50 per share.
(i) Represents elimination of HTR's accumulated deficit of $5,515,227.
(j) Statements of Operations for the year ended December 31, 1996.
(k) Statement of Operations from January 1, 1996 to July 31, 1996 (date of
CTA acquisition).
(l) Represents adjustments for the HTR, Cooper & Associates,
Inc. ("CAI"), and Cognitive Training Associates, Inc. ("CTA")
acquisitions.
(m) Represents CTA acquisition adjustments to reflect $30,000 of rent
expense related to the building, pursuant to a lease agreement
executed with the owner of the building, who is also the former, sole
stockholder of CTA which is offset by $14,390 of depreciation expense
related to the building, vehicle and certain equipment, which were not
acquired by the Company.
(n) Represents $8,400,000 and $2,700,000 allocated to acquired in-process
research, development and content related to the HTR and CAI
acquisitions, respectively.
(o) Represents amortization expense of $1,122,767, $227,100, $61,186
related to the intangible assets acquired in the HTR, CAI and CTA
acquisitions, respectively.
(p) Represents interest expense associated with the debt of $600,000 and
$1,798,622 related to HTR and CAI acquisitions, respectively. In
addition, reflects CTA acquisition adjustment to eliminate $16,750 of
interest expense related to notes payable associated with the building
and vehicle.
(q) Statements of Operations for the nine months ended September 30, 1997.
(r) Statement of Operations from January 1, 1997 to March 31, 1997.
(s) Represents adjustments for the HTR and CAI acquisitions.
(t) Represents $8,400,000 allocated to acquired in-process research,
development and content related to the HTR acquisition.
(u) Represents amortization expense of $842,067 and $56,775 related to the
intangible assets acquired in the HTR and CAI acquisitions,
respectively.
(v) The Company's net loss per share calculations are based upon the
weighted average number of shares of Common Stock outstanding.
Pursuant to the requirements of the Securities and Exchange Commission
Staff Accounting Bulletin No. 83, convertible Preferred Stock, Common
Stock, debt convertible into shares of Common Stock, Common Stock
purchase warrants and options to purchase Common Stock issued at
prices below the estimated initial public offering ("IPO") price
during the 12 months immediately preceding the initial filing of the
registration statement relating to the IPO, (collectively the "cheap
stock") have been included in the computation of net loss per share as
if they were outstanding for all periods presented (using the treasury
method assuming repurchase of Common Stock at the estimated IPO
price). For the year ended December 31, 1996, the cheap stock is
weighted for the period outstanding through the effective date of the
IPO. Other shares issuable upon the exercise of stock options and
warrants, conversion of debt into shares of Common Stock and
conversion of Preferred Stock have been excluded from the computation
because the effect of their inclusion would be antidilutive due to the
Company's net losses. Subsequent to the Company's IPO, convertible
Preferred Stock, Common Stock purchase warrants, options to purchase
Common Stock and debt convertible into shares of Common Stock under
the treasury stock method is included only to the extent they are
dilutive. For the proforma net loss per share and weighted average
shares outstanding calculation, 585,960 shares and 42,487 shares of
Common Stock related to the HTR and CTA acquisitions, respectively,
have been included as if the acquisitions occurred on January 1, 1996.
(w) Represents elimination of revenues and cost of revenues between UOL
and HTR.
F-20
