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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM
TO .
COMMISSION FILE NUMBER
0-21421
UOL PUBLISHING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1290319
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
8251 GREENSBORO DRIVE, SUITE 500, MCLEAN, VIRGINIA 22102
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (703) 893-7800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $0.01 PAR VALUE 3,826,357 SHARES
(Class) (Outstanding at August 14, 1998)
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Instructor-led training revenues....... $ -- $ 1,428,723 $ -- $ 3,102,540
Product sales revenues................. 732,206 877,005 824,163 1,827,211
Other service revenues................. 81,108 594,960 176,292 1,160,611
Online tuition revenues................ 272,839 258,177 404,093 530,382
Virtual campus software revenues....... 750,000 834 1,125,000 43,334
Development and other revenues......... 680,623 267,772 1,188,268 364,253
----------- ----------- ----------- ------------
Net revenues............................. 2,516,776 3,427,471 3,717,816 7,028,331
Costs and expenses:
Cost of revenues....................... 283,067 2,393,360 402,442 4,976,259
Sales and marketing.................... 826,370 1,636,766 1,534,184 3,267,324
Product development.................... 1,012,228 1,796,146 2,194,952 4,512,765
General and administrative............. 353,848 648,188 736,128 2,548,701
Depreciation and amortization.......... 154,648 590,389 245,754 1,223,554
Acquired in-process research,
development and content............. 2,700,000 -- 2,700,000 --
Reorganization costs................... -- 928,870 -- 1,396,510
----------- ----------- ----------- ------------
Total costs and expenses................. 5,330,161 7,993,719 7,813,460 17,925,113
----------- ----------- ----------- ------------
Loss from operations..................... (2,813,385) (4,566,248) (4,095,644) (10,896,782)
Interest income (expense)................ 134,597 (165,018) 320,825 (294,870)
----------- ----------- ----------- ------------
Net loss................................. $(2,678,788) $(4,731,266) $(3,774,819) $(11,191,652)
=========== =========== =========== ============
Net loss per share....................... $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
Net loss per share -- assuming
dilution............................... $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
</TABLE>
See accompanying notes.
2
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UOL PUBLISHING, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,705,490 $ 2,246,154
Accounts receivable, less allowance of approximately
$739,000 and $1,779,000 at December 31, 1997 and June
30, 1998, respectively................................. 4,413,170 3,325,929
Loans receivable from related parties..................... 133,516 164,504
Prepaid expenses and other current assets................. 481,516 265,737
------------ ------------
Total current assets........................................ 7,733,692 6,002,324
Property and equipment, net................................. 2,809,619 2,897,665
Capitalized software costs and courseware development costs,
net....................................................... 2,354,159 2,080,414
Acquired online publishing rights, net...................... 845,000 574,560
Other assets................................................ 358,208 334,881
Goodwill and other intangible assets, net................... 12,364,554 12,060,530
------------ ------------
Total assets................................................ $ 26,465,232 $ 23,950,374
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 6,398,488 $ 6,312,216
Notes payable -- current portion.......................... 4,551,950 4,845,644
Deferred revenues......................................... 572,390 866,127
------------ ------------
Total current liabilities................................... 11,522,828 12,023,987
Notes payable, less current portion....................... 1,531,121 685,978
------------ ------------
Total liabilities........................................... 13,053,949 12,709,965
------------ ------------
Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share:
1,000,000 shares authorized; no shares issued and
outstanding at December 31, 1997; 626,293 shares
issued and outstanding at June 30, 1998.............. -- 6,263
Series D convertible Preferred Stock, $0.01 par value per
share:
1,200,000 shares authorized; no shares issued and
outstanding at December 31, 1997; 1,082,625 shares
issued and outstanding at June 30, 1998.............. -- 10,826
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 3,785,210 and 3,825,587 shares issued and
outstanding at December 31, 1997 and June 30, 1998,
respectively........................................... 37,852 38,256
Additional paid-in capital................................ 40,901,196 52,124,466
Preferred Stock subscribed................................ -- (2,219,985)
Accumulated deficit....................................... (27,527,765) (38,719,417)
------------ ------------
Total stockholders' equity.................................. 13,411,283 11,240,409
============ ============
Total liabilities and stockholders' equity.................. $ 26,465,232 $ 23,950,374
============ ============
</TABLE>
See accompanying notes.
3
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UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,774,819) $(11,191,652)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 252,108 1,549,074
Non-monetary transaction revenues......................... (315,000) --
Acquired in-process research, development and content..... 2,700,000 --
Net write-off of acquired online publishing rights........ -- 241,000
Net write-off of capitalized courseware development
costs.................................................. -- 502,669
Stock option and stock warrant compensation............... 54,350 --
Increase in allowance for doubtful accounts............... -- 1,039,991
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............. (1,419,516) 47,250
(Increase) decrease in prepaid expenses and other
current assets........................................ (534,753) 215,779
(Increase) decrease in other assets.................... (3,816) 23,327
Increase (decrease) in accounts payable and accrued
expenses.............................................. (181,142) 301,127
Increase (decrease) in accrued interest................ -- 59,315
Increase (decrease) in deferred revenues............... 53,774 293,737
----------- ------------
Net cash used in operating activities....................... (3,168,814) (6,918,383)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (619,407) (601,767)
Capitalized software and courseware development costs....... (438,387) (525,002)
Acquisitions of businesses, net of cash acquired............ (3,214,435) --
Additions to intangible assets.............................. (219,977) (355,810)
Advances under loans receivable from related parties........ -- (30,988)
----------- ------------
Net cash used in investing activities....................... (4,492,206) (1,513,567)
FINANCING ACTIVITIES
Proceeds from exercises of stock warrants and options....... -- 75,922
Proceeds from Series C convertible Preferred Stock.......... -- 5,244,824
Proceeds from Series D convertible Preferred Stock.......... -- 2,895,561
Adjustment of expenses related to the initial public
offering.................................................. 11,225 --
Proceeds from short-term debt............................... 157,500 1,594,902
Repayments of short-term borrowings......................... (83,068) (1,838,595)
----------- ------------
Net cash provided by (used in) financing activities......... 85,657 7,972,614
----------- ------------
Net increase (decrease) in cash and cash equivalents........ (7,575,363) (459,336)
Cash and cash equivalents at the beginning of the period.... 15,474,030 2,705,490
----------- ------------
Cash and cash equivalents at the end of the period.......... $ 7,898,667 $ 2,246,154
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 9,309 $ 188,165
=========== ============
</TABLE>
See accompanying notes.
4
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for any future period, including the year ending
December 31, 1998. 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, 1997.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
The Company derives its revenues from the following sources -- instructor-
led training revenues, product sales revenues, other service revenues, online
tuition revenues, virtual campus ("VCampus") software revenues, and development
and other revenues.
Revenues for instructor-led training and other services are recognized as
the services are delivered.
The Company recognizes product sales revenues, online tuition revenues and
virtual campus software revenues in accordance with Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). The Company recognizes revenues
from product sales upon delivery of the product to the customer, provided no
significant obligations remain. The costs of remaining Company obligations
(which are insignificant) are accrued when the related revenues are recognized.
For online tuition fees, revenue is recognized at the time the student has
accessed the selected course and is contractually obligated to pay for the
course or the drop/add period (for academic partners) has expired. For online
tuition fees purchased in bulk and virtual campus software revenues (which are
derived from sales of VCampus licenses) the Company recognizes revenue ratably
over the period during which customers are entitled to use the courseware and
the duration of the VCampus licenses, respectively.
Development and other revenues earned under courseware conversion contracts
are recognized using the percentage-of-completion method. For these contracts,
revenues are recognized based on the ratio that total costs incurred to date
bear to the total estimated costs of the contract. Provisions for losses on
contracts are made in the period in which they are determined.
During the three months ended June 30, 1997, one customer individually
represented 16.7% of net revenues. During the three months ended June 30, 1998,
no individual customer represented more than 10% of net revenues.
CAPITALIZED SOFTWARE COSTS
Through March 31, 1997, the Company expensed its software development costs
as incurred because realizability of capitalizing such costs had not been
established. During the three months ended June 30, 1997, the Company began
capitalizing certain software development costs. Capitalization of software
costs began upon the establishment of technological feasibility, which
management deemed to have occurred upon the completion of a working model of the
Company's VCampus product. The establishment of technological
5
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
feasibility and the ongoing assessment of recoverability of capitalized software
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technology. Amortization of such costs is based on the
greater of (a) the ratio of current gross revenues to the sum of current and
anticipated gross revenues, or (b) the straight-line method over the remaining
economic life of the VCampus, typically five years. It is possible that those
estimates of future gross revenues, the remaining economic life of the products
or both may be reduced as a result of future events. In January 1998, the
Company determined that the estimated useful economic life of the VCampus was
three years and began amortizing its VCampus product development costs over such
period.
CAPITALIZED COURSEWARE DEVELOPMENT COSTS
Through March 31, 1997, the Company expensed its courseware development
costs as incurred because realizability of capitalizing such costs had not been
established. During the three months ended June 30, 1997, the Company began
capitalizing certain courseware development costs. Capitalization of courseware
development costs began upon the establishment of technological feasibility,
which management deemed to have occurred upon the completion of a working model
of the relevant courseware. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized courseware development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technology. Amortization of such costs is based on the
greater of (a) the ratio of current gross revenues to the sum of current and
anticipated gross revenues, or (b) the straight-line method over the remaining
economic life of the product, typically two to four years. It is possible that
those estimates of future gross revenues, the remaining economic life of the
products or both may be reduced as a result of future events.
In March 1998, the Company wrote off approximately $500,000 of courseware
development costs for courses within certain industry segments that the Company
does not anticipate pursuing in the immediate future or courses that have not
shown meaningful activity during a three- to six-month publication period.
ACQUIRED ONLINE PUBLISHING RIGHTS
During 1997, the Company acquired rights to publish certain courseware in
an online format. In most cases, this courseware, at the time of licensing to
the Company, was in a non-online format, i.e., CD-ROM, diskette or printed
formats. The Company capitalizes the costs to acquire this content. The Company
amortizes acquired online publishing rights based on the greater of (a) the
ratio of current gross revenues to the sum of current and anticipated gross
revenues, or (b) the straight-line method over the remaining economic life of
the product, typically two to four years. Amortization begins when the online
course becomes available for sale.
In March 1998, the Company wrote off approximately $250,000 of acquired
online publishing rights to courses belonging to certain industry segments that
the Company does not anticipate pursuing in the immediate future.
IMPAIRMENT OF LONG-LIVED ASSETS
At each balance sheet date, management determines whether any property and
equipment or any other assets have been impaired based on the criteria
established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of." The Company made no adjustments to its
assets during the three months ended June 30, 1998.
6
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the three months ended March 31, 1998, the Company wrote off
approximately $500,000 in capitalized courseware development costs and
approximately $250,000 in capitalized acquired online publishing rights. (See
Note B)
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses. As of June 30, 1998, management deemed such reserves
to be adequate.
During the three months ended March 31, 1998, the Company increased its
allowance for doubtful accounts to approximately $1,814,000 in order to reserve
for certain receivables for which collection became doubtful as of the March 31,
1998 balance sheet date.
COSTS OF REVENUES
Costs of instructor-led training revenues and other service revenues
consist primarily of the salaries and other related costs for instructors and
consulting personnel, as well as rent and related costs for the training
facilities.
Costs of product sales revenue consist of the production and shipping costs
to create and distribute the diskettes and other education material (manuals,
etc.).
Costs of online tuition revenues include costs related to the amortization
of capitalized courseware development costs, royalties to content providers, and
salaries, communication and other costs associated with operating and
maintaining the Company's servers.
Costs of VCampus software revenues include software development costs
involved in configuring the VCampus model to specific parameters requested by
the customer, costs related to the amortization of capitalized software
development costs, and salaries, communication and other costs associated with
operating and maintaining the Company's servers.
Costs of development and other revenues include the salaries and other
related personnel costs for the employees who develop online courses that are
proprietary in nature to a specific customer.
ROYALTIES
The Company has royalty arrangements with certain entities that have
provided development funding. Royalties will become due and payable by the
Company upon the completion and sale of products currently under development.
Additionally, royalties will become due and payable by the Company upon the sale
of those courses in which the Company acquired the online content rights.
Royalties due could be as great as 50% of the tuition related to that course. No
significant royalty obligations have been incurred to date.
NOTE C -- ACQUISITIONS
The following transactions were accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired based on
their estimated fair values, and each of the subsidiaries' operating results
have been included in the Company's financial statements since the respective
acquisition date.
IVY SOFTWARE, INC.
In March 1997, the Company acquired Ivy Software, Inc. ("Ivy"), a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and
7
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
potential future payments not to exceed approximately $862,000, which are based
upon integration of operations, conversion of software and operating results. In
connection with this transaction, the President and sole shareholder of Ivy
entered into a three-year consulting agreement with the Company. In conjunction
with the acquisition, the Company recorded goodwill in the amount of $300,000,
which was subsequently adjusted to $869,643 upon scheduled payments to the
former shareholder of Ivy.
COOPER & ASSOCIATES, INC. (D/B/A TELETUTOR)
In April 1997, the Company acquired Cooper & Associates, Inc., d/b/a
Teletutor ("Teletutor"), an Illinois corporation that develops, distributes and
supports computer-based training courses for the data and telecommunications
industry. The terms of the transaction included a $3,000,000 cash payment at
closing and $2,000,000 (which includes principal payments and interest) to be
paid in three ratable installments, on the first, second and third anniversary
dates of the acquisition. During the three months ended June 30, 1998, the
Company made the first scheduled payment to the former shareholders of Teletutor
in the amount of $666,667. In conjunction with this acquisition, the Company
allocated the excess of the purchase price over the fair market value of the
acquired net assets as follows: (i) $829,575 to developed content, $273,858 to
workforce, $456,875 to trademarks and names, $456,875 to customer base and
contracts and $5,138 to goodwill and (ii) $2,700,000 to acquired in-process
research, development and content.
The Company's management, in accordance with its impairment policy for
long-lived assets, determined that the Teletutor employee workforce asset had
been impaired as of December 31, 1997 due to planned workforce reductions. As a
result, the Company wrote-off the carrying amount of the asset, which was
approximately $250,000. This amount was included in reorganization and
non-recurring expenses in the statements of operations for the year ended
December 31, 1997.
HTR, INC.
In October 1997, the Company acquired HTR, Inc. ("HTR"), a Delaware
corporation primarily engaged in the business of providing technical training,
publishing and consulting services for the information technology industry. UOL
acquired HTR for common stock, warrants and options totaling 620,000 shares in
exchange for all of the outstanding equity securities of HTR. In addition, UOL
paid the former HTR stockholders $600,000 in a combination of cash and
short-term notes and assumed approximately $3,500,000 of HTR debt. The executive
officers of HTR will receive bonuses granted in conjunction with the signing of
three-year employment agreements no later than December 31, 1998. As of June 29,
1998, the executive officers of HTR agreed to convert approximately $420,000 of
their sign-on bonuses and $320,000 of acquisition related indebtedness into
134,447 shares of UOL Series D convertible Preferred Stock. In addition, UOL
created a stock option pool of 180,000 shares of Common Stock and an incentive
bonus pool with a potential payout not to exceed approximately $3,300,000 for
three years, contingent upon the financial performance of HTR. In conjunction
with this acquisition, the Company allocated the excess of the purchase price
over the fair market value of the acquired net assets as follows (i) $8,010,590
to goodwill, $700,000 to developed content, $500,000 to workforce, $600,000 to
trademarks and names, and (ii) $8,400,000 to acquired in-process research,
development and content.
NOTE D -- EQUITY TRANSACTIONS
In March 1998, the Company raised approximately $5,300,000 in a private
placement of its Series C convertible Preferred Stock and warrants (the "Series
C Private Placement"). In this transaction, the Company issued 626,293 shares of
its Series C Preferred Stock, which are convertible into approximately
8
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
759,100 shares of Common Stock. The Company also issued five-year warrants to
purchase 626,293 shares of Common Stock at an exercise price of $8.46 per share
(the five-day average of closing bid prices calculated prior to the closing of
the transaction). The Series C convertible Preferred Stock has a liquidation
preference of $12.69 per share upon sale or liquidation of the Company. The
Company Stock underlying both the Series C convertible Preferred Stock and the
warrants has certain registration rights. In June 1998, the Company raised
approximately $5,200,000 in a private placement of its Series D convertible
Preferred Stock (the "Series D Private Placement"). In this transaction, the
Company issued 1,082,625 shares of its Series D convertible Preferred Stock,
which are convertible into Common Stock on a one-to-one ratio. 137,174 of such
shares and 5,194 shares of UOL Common Stock were issued in connection with the
conversion of approximately $805,000 of indebtedness mainly to certain former
shareholders of HTR. The non-cash portion of this transaction has been excluded
from the consolidated statements of cash flows.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss................................. $(2,678,788) $(4,731,266) $(3,774,819) $(11,191,652)
=========== =========== =========== ============
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....... 3,186,167 3,822,299 3,186,167 3,816,898
=========== =========== =========== ============
Denominator for diluted earnings per
share -- adjusted weighted-average
shares................................. 3,186,167 3,822,299 3,186,167 3,816,898
=========== =========== =========== ============
Basic net loss per share................. $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
Diluted net loss per share............... $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
</TABLE>
9
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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: February 17, 1999
10
