<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
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 OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8251 GREENSBORO DRIVE, 22102
SUITE 500, (ZIP CODE)
MCLEAN, VIRGINIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
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.
COMMON STOCK, $0.01 PAR VALUE
(Class)
4,728,909 SHARES
(Outstanding at May 12, 1999)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues:
Instructor-led training revenues.......................... $ 1,673,817 $ 1,394,444
Online tuition revenues................................... 272,205 881,248
Product sales revenues.................................... 950,206 399,635
Development and other revenues............................ 96,481 235,874
Other service revenues.................................... 565,651 81,716
Virtual campus software revenues.......................... 42,500 42,166
----------- -----------
Net revenues................................................ 3,600,860 3,035,083
Costs and expenses:
Cost of revenues.......................................... 2,582,899 1,882,848
Sales and marketing....................................... 1,630,558 1,042,556
Product development....................................... 2,716,619 357,454
General and administrative................................ 1,900,513 688,161
Depreciation and amortization............................. 633,165 503,376
Reorganization costs...................................... 467,640 --
----------- -----------
Total costs and expenses.................................... 9,931,394 4,474,395
----------- -----------
Loss from operations........................................ (6,330,534) (1,439,312)
Interest expense............................................ (129,852) (127,767)
----------- -----------
Net loss.................................................... $(6,460,386) $(1,567,079)
=========== ===========
Dividends to preferred stockholders......................... -- (73,411)
----------- -----------
Net loss attributable to common stockholders................ $(6,460,386) $(1,640,490)
=========== ===========
Net loss per share.......................................... $ (1.70) $ (0.39)
=========== ===========
Net loss per share -- assuming dilution..................... $ (1.70) $ (0.39)
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 3
UOL PUBLISHING, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 336,194 $ 125,147
Accounts receivable, less allowance of approximately
$567,000 and $481,000 at December 31, 1998 and March
31, 1999, respectively................................. 3,087,268 2,679,291
Loans receivable from related parties..................... 143,515 133,752
Loans receivable -- current............................... 232,375 199,818
Prepaid expenses and other current assets................. 172,926 353,741
------------ ------------
Total current assets........................................ 3,972,278 3,491,749
Property and equipment, net................................. 2,436,534 2,175,825
Capitalized software costs and courseware development costs,
net....................................................... 2,130,665 2,018,327
Acquired online publishing rights, net...................... 407,552 364,831
Loans receivable -- less current portion.................... 380,234 380,234
Other assets................................................ 194,644 182,893
Other intangible assets, net................................ 2,508,664 2,339,230
Goodwill, net............................................... 2,840,460 2,764,294
------------ ------------
Total assets...................................... $ 14,871,031 $ 13,717,383
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 4,617,418 $ 4,292,171
Notes payable -- current portion.......................... 3,075,139 2,473,474
Deferred revenues -- current portion...................... 911,072 1,201,985
Accrued dividends payable................................. -- 73,411
------------ ------------
Total current liabilities......................... 8,603,629 8,041,041
Deferred revenues -- less current portion................. 109,834 102,583
Notes payable -- less current portion..................... 337,235 353,199
------------ ------------
Total liabilities................................. 9,050,698 8,496,823
------------ ------------
Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $7,947,658;
1,000,000 shares authorized; 626,293 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively........................................... 6,263 6,263
Series D convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $8,931,656;
1,200,000 shares authorized; 1,082,625 shares issued
and outstanding at December 31, 1998 and March 31,
1999, respectively..................................... 10,826 10,826
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 3,990,046 and 4,276,668 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively........................................... 39,900 42,766
Additional paid-in capital................................ 53,460,264 54,498,115
Accumulated deficit....................................... (47,696,920) (49,337,410)
------------ ------------
Total stockholders' equity........................ 5,820,333 5,220,560
============ ============
Total liabilities and stockholders' equity........ $ 14,871,031 $ 13,717,383
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 4
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(6,460,386) $(1,567,079)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 801,507 770,429
Net write-off of acquired online publishing rights........ 241,000 --
Net write-off of capitalized courseware development
costs.................................................. 502,669 --
Increase (decrease) in allowance for doubtful accounts.... 1,074,669 (85,955)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............. (190,086) 493,932
Increase in prepaid expenses and other current
assets................................................ (245,502) (180,815)
Decrease in other assets............................... 29,658 11,751
Increase (decrease) in accounts payable and accrued
expenses.............................................. 932,008 (325,247)
Increase in deferred revenues.......................... 260,526 283,662
----------- -----------
Net cash used in operating activities....................... (3,053,937) (599,322)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (367,096) (132)
Capitalized software and courseware development costs....... (314,549) (111,995)
Additions to intangible assets.............................. (355,810) --
Proceeds from sale of property and equipment................ -- 3,066
Proceeds from loans receivable.............................. -- 42,320
Advances under loans receivable from related parties........ (27,994) --
----------- -----------
Net cash used in investing activities....................... (1,065,449) (66,741)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 75,620 1,040,717
Proceeds from Series C redeemable convertible Preferred
Stock..................................................... 5,240,008 --
Proceeds from notes payable and short-term debt............. 1,500,000 --
Repayments of notes payable and short-term debt............. (171,928) (585,701)
----------- -----------
Net cash provided by financing activities................... 6,643,700 455,016
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 2,524,314 (211,047)
Cash and cash equivalents at the beginning of the period.... 2,705,490 336,194
----------- -----------
Cash and cash equivalents at the end of the period.......... $ 5,229,804 $ 125,147
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 109,581 $ 80,000
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
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 ending
December 31, 1999. 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, 1998.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Through December 31, 1998 the Company recognized online tuition fees from
academic institutions once the drop/add period had expired. Beginning January 1,
1999 the Company changed its revenue recognition policy for academic
institutions to recognize revenue ratably over the semester period the services
are delivered.
NOTE D -- EQUITY TRANSACTIONS
For the three months ended March 31, 1999 the Company raised approximately
$1,050,000 through a private placement of 282,500 shares of its common stock at
$4.00 per share. In connection with this transaction, the Company also issued
warrants, exercisable over 3 years at $3.00 per share, for the purchase of
70,625 shares of common stock.
NOTE E -- NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Numerator:
Net loss................................................ $(6,460,386) $(1,567,079)
Accrued dividends to preferred stockholders............. -- (73,411)
----------- -----------
Net loss available to common stockholder................ $(6,460,386) $(1,640,490)
=========== ===========
Denominator:
Denominator for basic earnings per share --
weighted-average shares.............................. 3,811,428 4,169,225
=========== ===========
Denominator for diluted earnings per share -- adjusted
weighted-average shares.............................. 3,811,428 4,169,225
=========== ===========
Basic net loss per share.................................. $ (1.70) $ (0.39)
=========== ===========
Diluted net loss per share................................ $ (1.70) $ (0.39)
=========== ===========
</TABLE>
F-5
<PAGE> 6
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, the availability of sufficient
capital to finance the Company's business plan on terms satisfactory to the
Company, 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 acquisitions, security risks, government regulations and competition.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
Summary
For the three months ended March 31, 1999, the Company incurred a net loss
of $1,640,490 (or $0.39 per share after accrual of dividends for preferred
stockholders) as compared to a net loss of $6,460,386 (or $1.70 per share) for
the three months ended March 31, 1998. The improvement in first quarter results
as compared to the three months ended March 31, 1998 was due primarily to cost
controls initiated at the end of the first quarter of 1998 as a result of
management reorganization plans, and certain non-recurring charges in the same
period.
Total revenues for the first quarter of 1999 were $3,035,083 as compared to
$3,600,860 for the three months ended March 31, 1998. The decrease in revenues
reflects an increase in online tuition revenue and development and other
revenues, which was more than offset by a decrease in revenues generated by the
Company's non-online businesses ("the legacy businesses").
Net Revenues
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1998 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
Instructor-led training revenues............... $1,673,817 46.5% $1,394,444 45.9%
Online tuition revenues........................ 272,205 7.6 881,248 29.0
Product sales revenues......................... 950,206 26.4 399,635 13.2
Development and other revenues................. 96,481 2.6 235,874 7.8
Other service revenues......................... 565,651 15.7 81,716 2.7
Virtual campus software revenues............... 42,500 1.2 42,166 1.4
---------- ----- ---------- -----
Total net revenues........................ $3,600,860 100.0% $3,035,083 100.0%
========== ===== ========== =====
</TABLE>
Instructor-led training revenues decreased 16.7% to $1,394,444 in the first
quarter of 1999, compared to $1,673,817 for the same period in 1998. The
decrease was due primarily to the closing of two instructor-led training
facilities located in Baltimore and Los Angeles at the end of the second quarter
of 1998 as a result of management reorganization plans.
Online tuition revenues increased 223.7% to $881,248 in the first quarter
of 1999, compared to $272,205 for the same period in 1998. For the three months
ended March 31, 1999, sales of online courses jumped 236.9% to approximately
63,000 courses delivered during the quarter, up from first quarter 1998
deliveries of approximately 18,700 online courses. The Company believes that
online tuition revenues will continue to increase in absolute dollars and as a
percentage of total revenue as the Company completes the previously announced
divestitures of its non-online businesses, with the exception of Teletutor.
Product sales revenues decreased 57.9% to $399,635 in the first quarter of
1999, compared to $950,206 for the same period in 1998. The decrease was due to
the sale of Ivy at the end of the third quarter of 1998, a
F-6
<PAGE> 7
decrease in Teletutor product sales due to the downsizing its operations at the
end of the first quarter of 1998, and a decrease in product sales to a major
Knowledgeworks customer.
Development and other revenues increased 144.5% to $235,874 in the first
quarter of 1999, compared to $96,481 for the first quarter of 1998. The increase
was due primarily to an increase in courseware development orders from existing
customers.
Other service revenues decreased 85.6% to $81,716 in the first quarter of
1999, compared to $565,651 for the same period in 1998. The decrease was due to
the sale of HTR's consulting business at the end of the fourth quarter of 1998.
Virtual campus software revenues remained unchanged in the first quarter of
1999, compared to the first quarter of 1998 as a result of a new marketing
strategy implemented by the Company during the first quarter of 1998 to move
away from licensing the VCampus(TM) software towards sales of online
subscriptions. As such, virtual campus software revenues will be negligible in
the future.
The following table sets forth selected financial data:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
1998 1999
---------------------- ----------------------
<S> <C> <C> <C> <C>
Revenue................................... $ 3,600,860 100.0% $ 3,035,083 100.0%
Cost of revenues.......................... 2,582,899 71.7 1,882,848 62.0
Sales and marketing....................... 1,630,558 45.3 1,042,556 34.4
Product development....................... 2,716,619 75.4 357,454 11.8
General and administrative................ 1,900,513 52.8 688,161 22.7
Depreciation and amortization............. 633,165 17.6 503,376 16.6
Reorganization and other non-recurring
charges................................. 467,640 13.0 -- --
----------- ------ ----------- -----
Loss from operations.................... (6,330,534) (175.8) (1,439,312) (47.5)
Interest expense.......................... (129,852) (3.6) (127,767) (4.2)
----------- ------ ----------- -----
Net loss................................ (6,460,386) (179.4) (1,567,079) (51.7)
Accrued dividends to preferred
stockholders............................ -- -- (73,411) (2.4)
----------- ------ ----------- -----
Net loss to common stockholders......... $(6,460,386) (179.4)% $(1,640,490) (54.1)%
=========== ====== =========== =====
</TABLE>
Cost of Revenues
Cost of revenues decreased 27.1% to $1,882,848 in the first quarter of 1999
as compared to $2,582,899 for the first quarter of 1998. The decrease was due
primarily to the closing of two instructor-led training facilities at the end of
the second quarter of 1998, the sale of HTR's consulting business at the end of
the fourth quarter of 1998, and to a lesser extent, the sale of Ivy at the end
of the third quarter of 1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses decreased 36.1% to
$1,042,556 in the first quarter of 1998 as compared to $1,630,558 for the first
quarter in 1998. The decrease was due primarily to cost controls initiated at
the end of the first quarter of 1998 as a result of management reorganization
plans.
Product Development. Product development expenses decreased 86.8% to
$357,454 in the first quarter of 1999 as compared to $2,716,619 for the first
quarter of 1998. The decrease was due primarily to cost controls initiated at
the end of the first quarter of 1998 as a result of management reorganization
plans, and the write-off during the first quarter of 1998 of approximately
$750,000 related to previously capitalized content acquisition and development
costs.
General and Administrative. General and administrative expenses decreased
63.8% to $688,161 in the first quarter of 1999 as compared to $1,900,513 for the
first quarter of 1998. The decrease was due primarily to
F-7
<PAGE> 8
approximately $1,075,000 of bad debt expense in the first quarter of 1998, and
to a lesser extent, cost controls initiated at the end of the first quarter of
1998 as a result of management reorganization plans.
Depreciation and Amortization. Depreciation and amortization expense
decreased 20.5% to $503,376 in the first quarter of 1999 as compared to $633,165
for the first quarter of 1998. The decrease was due primarily to the sale of Ivy
at the end of the third quarter of 1998, the sale of HTR's consulting business
at the end of the fourth quarter of 1998, and the write-down of goodwill related
to the legacy businesses at the end of the fourth quarter of 1998 as a result of
the Company's plan to divest these assets in 1999.
Reorganization Costs. Reorganization costs of $467,640 incurred during the
three months ended March 31, 1998, primarily relate to the Company's workforce
reduction plan, which included a reduction in Teletutor's workforce in order to
consolidate its sales, marketing, finance and administrative functions with
those of UOL. The Company also eliminated and/or re-defined certain positions
within UOL and HTR to reduce costs and improve functionality.
Interest Expense. Interest expense remained relatively unchanged in the
first quarter of 1999 as compared to the first quarter of 1998. Interest expense
was primarily incurred in connection with the Company's borrowings on its line
of credit facility and term loan. See "Liquidity and Capital Resources".
YEAR 2000
Computers, software and microprocessors that use only two digits to
identify a year in a date field may be unable to process accurately certain
date-based information at or after the year 2000. This is commonly referred to
as the "Year 2000" issue. The Company is addressing the issue in several ways.
First, the Company has established a team to monitor product compliance and
believes that all Company products are Year 2000 compliant. Secondly, the
Company is in the process of seeking Year 2000 compliance certification from its
major suppliers and vendors related to their products and internal business
applications. Finally, the Company has established a team to coordinate Year
2000 compliance related to internal systems.
Many of the Company's systems use vendor-provided software, and Year 2000
compliance is expected to be achieved through vendor specific upgrades. For
other internal systems, testing will be completed internally to ensure Year 2000
compliance. As of March 31, 1999, the Company has completed its assessments of
Year 2000 compliance with respect to all of its own products, 90% of its own
internal systems and approximately 80% of its vendor-provided systems and
applications. The Company anticipates all of its systems will have been
addressed and updated through vendor provided upgrades or through completion of
internal testing prior to the end of the second quarter of 1999. The Company
does not believe that the cost of its Year 2000 compliance program will be
material to its financial condition or results of operations. The Company does
not believe that the Year 2000 issue will materially adversely affect its
business. However, the Company continues to bear risk related to Year 2000 and
could be materially adversely affected if significant customers or suppliers
fail to address the issue or if vendor upgrades are not provided to the Company
as required. The Company could be forced to spend significant resources and
funds to find alternative providers of systems and applications used by the
Company. The Company's contingency plan for any vendor-provided product found to
be non-Year 2000 compliant upon completion of the Company's assessment is to
insist upon vendor compliance within a reasonable time in advance of Year 2000
and to pursue alternative products with other Year 2000 compliant vendors.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $125,147 in cash and cash
equivalents. Cash utilized in operating activities was $599,322 for the three
months ended March 31, 1999, all of which was funded by a private placement of
common stock totaling approximately $1,050,000. Net cash used in operating
activities for the same period in 1998 was $3,053,937. The improvement primarily
reflects cost controls initiated at the end of the first quarter of 1998 as a
result of management reorganization plans.
Net cash utilized in investing activities was $66,741 for the three months
ended March 31, 1999 and $1,065,449 for the three months ended March 31, 1998.
The use of cash for investing activities was primarily
F-8
<PAGE> 9
attributable to purchases of equipment, software development costs that were
capitalized, and in 1998, approximately $356,000 paid to the former shareholder
of Ivy pursuant to the acquisition agreement.
Net cash provided by financing activities was $455,016 for the three months
ended March 31, 1999 and $6,643,700 for the three months ended March 31, 1998.
During the three months ended March 31, 1999 the Company raised approximately
$1,050,000 through a private placement of 282,500 shares of its common stock at
$4.00 per share. In connection with this transaction, the Company also issued
warrants, exercisable over 3 years at $3.00 per share, for the purchase of
70,625 shares of common stock. For the three months ended March 31, 1998 the
Company raised $5,300,000 through a private placement of 626,300 shares of its
Series C convertible Preferred Stock and borrowed on its then existing line of
credit facility.
As of March 31, 1999, the Company was in violation of certain covenants
related to the line of credit with its primary lender, the outstanding
borrowings under which were $1,477,222 as of that date. In February 1999, the
Company repaid a $500,000 term loan to this lender (originally due July 15,
2001) in exchange for which the maturity date of the Company's line of credit
was extended from February 15, 1999 to April 15, 1999. Effective May 6, 1999,
the primary lender agreed to extend the maturity date of the line of credit to
May 31, 1999 and agreed to continue to forbear from exercising any remedies that
it may have against the Company related to these covenant violations until May
31, 1999. Effective April 23, 1999, the maturity date for the Company's $500,000
subordinated term loan with another lending institution was extended from
February 15, 1999 to July 15, 1999 provided the Company gives proper notice and
pays a $15,000 extension fee plus additional payments of $10,000 and $20,000 for
any amounts still outstanding as of May 14, 1999, and July 14, 1999,
respectively. The Company is also required to issue this lender 1,000 warrants
per day for any amounts outstanding from May 14, 1999 through July 15, 1999. In
addition, the Company issued warrants to its lenders for the purchase of up to
95,000 shares of Series D Preferred and/or common stock at an aggregate exercise
price of up to $387,500 in exchange for these extensions.
In May 1999, the Company raised approximately $1,315,000 through a private
placement of 448,297 shares of its common stock at $2.9375 per share.
Management recognizes the need to raise additional funds in order to retire
existing debt and to fund anticipated ongoing operating losses, which are
expected to continue at least until the legacy businesses are sold. The Company
has also taken the following actions to provide future funding for operations:
- The Company has retained investment-banking services to assist in the
divestiture of the HTR instructor-led training business. The Company
expects to complete this divestiture sometime in the second or third
quarter of 1999.
- The Company signed an agreement to sell the HTR Knowledgeworks legacy
business for $1,500,000. The Company expects this transaction to be
completed during the second quarter of 1999.
- The Company is in the process of negotiating a $3,000,000 line of credit
facility with a new lender to refinance its existing bank debt.
- The Company has retained advisory services to identify a strategic
partner to provide both global marketing leverage and additional capital.
- The Company is negotiating an agreement with an investment company to
provide private equity financing through December 31, 1999.
If the Company does not address its funding needs, it will be materially
adversely affected. 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 customers and resellers, and the extent to which the Company invests in new
technology and research and development projects.
F-9
<PAGE> 10
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) No modifications.
(b) No limitations or qualifications.
(c) From January 1, 1999 to March 31, 1999, the Company has issued the
following unregistered securities:
1. 282,500 shares of Common Stock and Warrants to purchase 70,625 of
Common Stock to nine accredited investors.
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 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 6. EXHIBITS
(a) Exhibits
10.41 Form of Subscription Agreement
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1999.
F-10
<PAGE> 11
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/ JOANNE O'ROURKE HINDMAN
------------------------------------
Joanne O'Rourke Hindman
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: May 14, 1999
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<S> <C>
10.41 Form of Subscription agreement.
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
</TABLE>
<PAGE> 1
EXHIBIT 10.41
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY THE SECURITIES REGULATORY
AUTHORITY OF ANY OTHER JURISDICTION, NOR HAS ANY COMMISSION OR AUTHORITY PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION CONTRARY TO THE
FOREGOING IS UNLAWFUL. THE SHARES MAY NOT BE TRANSFERRED OR RESOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
SUBSCRIPTION AGREEMENT
COMMON STOCK
UOL PUBLISHING, INC.
1. Subscription. The undersigned (hereinafter referred to as
"Subscriber") hereby subscribes for and agrees to purchase the number of shares
of Common Stock of UOL Publishing, Inc. (the "Company"), par value $0.01 per
share, set forth on the signature page hereto (the "Shares") in consideration
for payment by the Subscriber of $2.9375 per Share (the closing price of the
Company's Common Stock on April 20, 1999) pursuant to this Subscription
Agreement (the "Agreement"). The Subscriber herewith tenders the entire amount
of such purchase price by check or wire transfer payable to the order the
Company; wire transfer instructions attached.
The Subscriber acknowledges that at the time of issuance the Common Stock
will not be registered under the Securities Act of 1933, as amended (the "Act"),
in reliance upon an exemption from registration contained in the Act, and that
the Company's reliance upon such exemption is based, at least partially, on the
Subscriber's representations and warranties contained in this Subscription
Agreement.
2. Acceptance or Rejection of Subscription. Subscriber acknowledges and
agrees that this subscription shall not be effective until accepted in writing
by the Company, and that the Company reserves the right to reject this
subscription in whole or in part. Subscriptions may be rejected for insufficient
documentation or for such other reason as the Company may determine, in its sole
discretion, to be in the best interests of the Company. In the event
Subscriber's subscription is accepted by the Company, Subscriber's Shares shall
be issued as of the date specified by the Company at the time of acceptance.
3. Subscriber's Representations and Warranties. Subscriber represents,
warrants, acknowledges and agrees to the following.
a. Subscriber is a resident of the state indicated on the signature
page hereof, is legally competent to execute this Agreement, and:
(i) if Subscriber is an individual, has his or her principal
residence in such state; or
(ii) if Subscriber is a corporation, partnership, trust or other
form of business organization, has its principal office in such state;
and
(iii) if Subscriber is a corporation, partnership, trust or other
form of business organization, Subscriber has not been organized for the
specific purpose of acquiring the Shares.
b. This Agreement is and shall be irrevocable, except that the
Subscriber shall have no obligations hereunder in the event that the
subscription is not accepted by the Company in whole or in part.
c. The Subscriber has read this Agreement carefully and, to the
extent believed necessary, has discussed the representations, warranties
and agreements and the applicable limitations upon the Subscriber's resale
of the Common Stock with counsel.
<PAGE> 2
d. The Subscriber represents that, if an individual, the Subscriber
is at least 21 years of age.
e. The Subscriber understands that no federal or state agency has
made any finding or determination regarding the fairness of this offering,
or any recommendation or endorsement of this offering.
f. The Subscriber is an "accredited investor" as defined in Rule 501
of Regulation D promulgated under the Act.
ENTITIES THAT ARE ACCREDITED INVESTORS UNDER RULE 501
INCLUDE, AMONG OTHERS, CERTAIN BANKS, SAVINGS AND LOAN
ASSOCIATIONS, REGISTERED SECURITIES BROKER-DEALERS, INSURANCE
COMPANIES, REGISTERED INVESTMENT COMPANIES AND TRUSTS.
INDIVIDUALS THAT ARE ACCREDITED INVESTORS UNDER RULE 501
INCLUDE, AMONG OTHERS, ANY NATURAL PERSON WHOSE INDIVIDUAL NET
WORTH, OR JOINT NET WORTH WITH THAT PERSON'S SPOUSE, EXCEEDS $1
MILLION; OR WHO HAD INCOME IN EXCESS OF $200,000 IN EACH OF THE
TWO MOST RECENT YEARS OR JOINT INCOME WITH THAT PERSON'S SPOUSE
IN EXCESS OF $300,000 IN EACH OF THOSE YEARS AND WHO HAS A
REASONABLE EXPECTATION OF REACHING THE SAME INCOME LEVEL IN THE
CURRENT YEAR.
g. The Subscriber has received from the Company or others and has
read copies of the Company's filings with the U.S. Securities and Exchange
Commission (the "SEC"), and has had an adequate opportunity to ask
questions of and receive answers from the Company regarding these documents
(the "SEC Filings").
h. The Subscriber represents that the Subscriber, if an individual,
has adequate means of providing for his/her current needs and personal and
family contingencies and has no need for liquidity in his/her investment in
this offering.
i. The Subscriber is financially able to bear the economic risk of
this investment, including the ability to afford holding the Common Stock
for an indefinite period, or to afford a complete loss of its investment.
The Subscriber's total investment in the Company will not exceed ten
percent (10%) of net worth as determined exclusive of principal residence,
mortgage thereon, home furnishings and automobiles.
j. The Subscriber is purchasing the Common Stock for the Subscriber's
own account, with the intention of holding the Common Stock for investment
purposes and not for the purpose of reselling or otherwise participating,
directly or indirectly, in a distribution of the Common Stock, and shall
not make any sale, transfer or other disposition of any portion of the
Common Stock purchased hereby without registration under the Act and any
applicable securities act of any state or unless an exemption from
registration is available under such acts.
k. The Subscriber's overall commitment to investments that are not
readily marketable is not disproportionate to the Subscriber's net worth,
and the Subscriber's investment in the Common Stock will not cause such
overall commitment to become excessive.
l. The Subscriber understands that an investment in the Common Stock
is a highly illiquid investment, and that, the Subscriber will have to bear
the economic risk of the investment indefinitely (or at least until such
shares may become registered as provided under this Agreement) because the
Common Stock has not been registered under the Act and is being issued
pursuant to a private placement exemption under Regulation D, on the
grounds that no public offering is involved. Therefore, the Common Stock
cannot be offered, sold, transferred, pledged or hypothecated to any
person, unless either it is subsequently registered under the Act and
applicable state securities laws or an exemption from registration is
available and the Subscriber obtains a favorable opinion of the Company's
counsel to that effect.
m. Absent or prior to registration of the Shares by the Company
pursuant to Section 4 hereof, the Subscriber understands that the
provisions of Rule 144 promulgated under the Act are not available for at
least one (1) year, to permit resale of the Common Stock, and there can be
no assurance that the conditions necessary to permit routine sales of the
Common Stock under Rule 144 will ever be satisfied, and, if Rule 144 should
become available, routine sales made in reliance on its provisions could be
made
2
<PAGE> 3
only in limited amounts and in accordance with the terms and conditions of
the Rule. The Subscriber further understands that in connection with sales
for which Rule 144 is not available, compliance with some other
registration exemption will be required, which may not be available.
n. The Subscriber understands that the Company is under a reasonable
efforts obligation to the Subscriber to register the Common Stock for
public sale under the Act within and that such obligation is subject to
certain limitations as provided in Section 4 hereof.
o. The Subscriber understands and agrees that stop transfer
instructions will be given to the Company's transfer agent or the officer
in charge of its stock records and noted on the appropriate records of the
Company to the effect that the Common Stock may not be transferred out of
the Subscriber's name unless either the Shares become registered under the
Act or it is established to the satisfaction of counsel for the Company
that an exemption from the registration provisions of the Act and
applicable state securities laws is available therefore. The Subscriber
further agrees that there will be placed on the certificates for the Common
Stock, or any substitutions therefore, a legend stating in substance as
follows, that the Subscriber understands and agrees that the Company may
refuse to permit the transfer of the stock out of its name and that the
stock must be held indefinitely in the absence of compliance with the terms
of such legend.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES ACT AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE CORPORATION
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE
CORPORATION) REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER
MAY BE MADE IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND REGULATIONS.
p. The Subscriber has been given the opportunity to review the
Company's SEC Filings, and to ask questions of, and receive answers from,
Company representatives concerning the Company and the terms and conditions
of the offering and to obtain such other information as the Subscriber
desires in order to evaluate an investment in the Common Stock.
q. The Subscriber agrees to indemnify the Company, its directors,
officers and employees, and to hold them harmless from and against any and
all liability, damages, costs or expenses, including reasonable attorney
fees, on account of or arising out of (i) any inaccuracy in the
Subscriber's representations and warranties hereinabove set forth; (ii) the
disposition of any of the Common Stock which it will receive, contrary to
its foregoing representations and warranties; and (iii) any action, suit or
proceeding based upon either the claim that its representations or
warranties were inaccurate or misleading or otherwise cause for obtaining
damages or redress from the Company, its directors, officers or employees,
or the disposition of any portion of the Common Stock.
4. Company Representations and Warranties. The Company represents,
warrants acknowledges and agrees to the following.
a. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as
now conducted and as currently proposed to be conducted. The Company is
duly qualified and authorized to do business, and is in good standing as a
foreign corporation, in Virginia and in each other jurisdiction where the
nature of its activities and of its properties (both owned and leased)
makes such qualification necessary, except where a failure to do so would
not have a material adverse effect on the Company.
b. Capitalization. The authorized capital of the Company, immediately
prior to the Closing, will consist of: 1,200,000 shares of Series D
Convertible Preferred Stock, $0.01 par value per share, 1,082,625 of which
are issued and outstanding; 1,000,000 shares of Series C Convertible
Preferred Stock, $0.01 par value per share, 626,293 shares of which are
issued and outstanding; 7,800,000 shares of undesignated
3
<PAGE> 4
Preferred Stock, $0.01 par value per share; and 36,000,000 shares of Common
Stock, $0.01 par value per share, 4,276,668 of which were issued and
outstanding as of March 31, 1999. All of the outstanding shares of Common
Stock and Preferred Stock that have been duly authorized and validly
issued, are fully paid and nonassessable and were issued in compliance with
all applicable federal and state securities laws. The Company has duly and
validly reserved the Shares for issuance as contemplated hereby and
sufficient shares of Common Stock for issuance upon exercise of warrants
issued to certain parties and options granted to officers, directors,
employees and consultants of the Company under the Company's stock option
plan. Except as disclosed in the SEC Filings, there are no outstanding
rights of first refusal, preemptive rights or other rights, options,
warrants, conversion rights or other agreements, either directly or
indirectly, for the purchase or acquisition from the Company of any shares
of its capital stock.
c. Authorization. All corporate action on the part of the Company and
its directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all the Company's
obligations hereunder and thereunder, and the authorization, issuance, sale
and delivery of the Shares has been taken. This Agreement, when executed
and delivered by the Company and the respective other parties thereto,
shall constitute a valid and legally binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors,
rules and laws governing specific performance, injunctive relief and other
equitable remedies.
d. Validity of the Shares. The Shares, when issued pursuant to the
terms of this Agreement, will be validly issued, and fully paid and
nonassessable and will be free of any liens or encumbrances; provided,
however, that the Shares will be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein.
e. Compliance with Other Instruments. The Company is not in violation
of any provisions of its Certificate of Incorporation or its Bylaws as
amended, or of any provisions of any material agreement or any judgment,
decree or order by which it is bound or any statute, rule or regulation
applicable to the Company. Subject to the compliance with such filings as
may be required to be made with the SEC, the National Association of
Securities Dealers, Inc. (the "NASD") and certain state securities
commissions, the execution, delivery and performance of this agreement and
the issuance and sale of the Shares pursuant hereto, will not result in any
such violation or be in conflict with or constitute a default under any
such provisions or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company.
f. Governmental Consents. All consents, approvals, orders or
authorization of, or registrations, qualifications, designations,
declarations or filings with, any federal or state governmental authority
on the part of the Company required in connection with the valid execution
and delivery of this agreement, the offer, sale or issuance of the Shares,
or the consummation of any other transaction contemplated hereby, have been
obtained, except for the registration of the Shares as provided in Section
4 hereof and the notices required to be filed with the SEC, the NASD and
certain state securities commissions thereafter, which notices will be
filed on a timely basis.
g. Accuracy of Reports. The SEC Filings required to be filed by the
Company within the year prior to the date of this Agreement under the
Securities Exchange Act of 1934 have been duly filed, were in substantial
compliance with the requirements of their respective forms, were complete
and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
h. Disclosure. No representation or warranty of the Company contained
in this Agreement contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they
were made, not misleading.
4
<PAGE> 5
5. Revocation. Subscriber acknowledges and agrees that Subscriber shall
not and cannot cancel, terminate or revoke this Agreement or any agreement
of Subscriber made hereunder, except as otherwise provided by applicable
state law, and that (if Subscriber is an individual) this Agreement shall
survive the death, disability, or incompetence of Subscriber.
6. Assignment. This Agreement is not transferable or assignable by the
Subscriber.
7. Expenses. The Company and each of the Purchasers shall bear his, her
or its own expenses with respect to this Agreement and the transactions
contemplated hereby.
8. Correct Information. All information which the Subscriber has
provided concerning the Subscriber, his, her or its financial position and
the Subscriber's knowledge of financial and business matters is correct and
complete as of the date hereof, and if there should be any material change
in such information prior to the Company's acceptance of the subscription,
the Subscriber will immediately provide the Company with such information.
9. Miscellaneous. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware. This Agreement
constitutes the entire agreement among the parties hereto with respect to
the subject matter hereof and may be amended only by a writing executed by
all parties.
5
<PAGE> 6
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Subscriber has executed this Subscription Agreement
on this ___ day of ________ 1999.
____________ = Shares of Common Stock
____________ = total payment by Subscriber
- ------------------------------------------------------
Signature of Subscriber
- ------------------------------------------------------
Printed or typed name of Subscriber (in exactly the form in which securities are
to be registered)
- ------------------------------------------------------
Printed or Typed Name and Title of person signing
(if Subscriber is not an individual)
- ------------------------------------------------------
- ------------------------------------------------------
Address
- ------------------------------------------------------
Social Security Number(s) (if an individual)
FOR COMPANY USE ONLY:
ACCEPTED THIS ___ DAY OF ________ 1999, ON BEHALF OF UOL PUBLISHING, INC.,
FOR ______ SHARES OF COMMON STOCK.
BY:
- -------------------------------------------------
NAME:
- ----------------------------------------------
TITLE:
- -----------------------------------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 125,147
<SECURITIES> 0
<RECEIVABLES> 3,160,476
<ALLOWANCES> 481,185
<INVENTORY> 0
<CURRENT-ASSETS> 3,491,749
<PP&E> 4,184,291
<DEPRECIATION> 2,008,466
<TOTAL-ASSETS> 13,717,383
<CURRENT-LIABILITIES> 8,496,823
<BONDS> 0
0
17,089
<COMMON> 42,766
<OTHER-SE> 5,160,705
<TOTAL-LIABILITY-AND-EQUITY> 13,717,383
<SALES> 3,035,083
<TOTAL-REVENUES> 3,035,083
<CGS> 1,882,848
<TOTAL-COSTS> 1,882,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,767
<INCOME-PRETAX> (1,567,079)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,567,079)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,567,079)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
