<PAGE> 1
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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 SEPTEMBER 30, 2000.
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
------------------------
VCAMPUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 54-1290319
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1850 CENTENNIAL PARK DRIVE 20191
SUITE 200, (Zip Code)
RESTON, VIRGINIA
(Address of principal executive offices)
</TABLE>
703-893-7800
(Registrant's telephone number, including area code)
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 8,388,141 shares
(Class) (Outstanding at November 14, 2000)
</TABLE>
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--------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Online tuition revenues................. $ 1,108,967 $ 1,218,929 $ 2,957,706 $ 3,709,852
Virtual campus software revenues........ 53,070 24,124 170,162 93,283
Development and other revenues.......... 265,244 311,689 841,443 633,034
Product sales revenues.................. 133,541 62,267 844,686 337,027
Other service revenues.................. 81,044 49,292 231,360 129,413
Instructor-led training revenues........ 1,434,622 631,274 3,995,201 2,274,735
----------- ----------- ----------- -----------
Net revenues.............................. 3,076,488 2,297,575 9,040,558 7,177,344
Costs and expenses:
Cost of revenues........................ 1,568,453 820,766 4,518,376 2,613,671
Sales and marketing..................... 1,107,623 1,892,571 3,304,063 4,644,471
Product development and operations...... 477,248 1,061,380 1,488,879 2,618,557
General and administrative.............. 584,156 746,362 1,906,199 2,171,487
Depreciation and amortization........... 707,861 792,884 2,246,677 2,230,603
Compensation expense in connection with
the acquisition of HTR............... -- -- -- 654,294
Stock based compensation.................. -- 184,175 -- 184,175
----------- ----------- ----------- -----------
Total costs and expenses.................. 4,445,341 5,498,138 13,464,194 15,117,258
----------- ----------- ----------- -----------
Loss from operations...................... (1,368,853) (3,200,563) (4,423,636) (7,939,914)
Gain on the sale of subsidiary............ -- -- 1,446 --
Interest income (expense)................. (158,440) 58,352 (450,758) 147,779
----------- ----------- ----------- -----------
Net loss.................................. $(1,527,293) $(3,142,211) $(4,872,948) $(7,792,135)
=========== =========== =========== ===========
Dividends to preferred stockholders....... (74,535) (399,150) (222,172) (1,012,391)
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders............................ $(1,601,828) $(3,541,361) $(5,095,120) $(8,804,526)
=========== =========== =========== ===========
Net loss per share........................ $ (0.33) $ (0.43) $ (1.12) $ (1.13)
=========== =========== =========== ===========
Net loss per share -- assuming dilution... $ (0.33) $ (0.43) $ (1.12) $ (1.13)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 3
VCAMPUS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 204,455 $ 1,307,964
Accounts receivable, less allowance of $142,000 and
$144,000 at December 31, 1999 and September 30, 2000,
respectively........................................... 1,349,332 1,483,026
Loans receivable from related parties..................... 124,182 130,182
Loans receivable -- current............................... 1,213,717 1,072,959
Prepaid expenses and other current assets................. 599,645 395,080
------------ ------------
Total current assets.............................. 3,491,331 4,389,211
Property and equipment, net................................. 1,464,483 1,796,642
Capitalized software costs and courseware development costs,
net....................................................... 1,543,520 1,056,718
Acquired online publishing rights, net...................... 169,624 69,207
Loans receivable -- less current portion.................... 150,226 130,442
Other assets................................................ 180,988 246,956
Other intangible assets, net................................ 1,913,259 1,606,041
Goodwill, net............................................... 1,754,682 1,539,150
------------ ------------
Total assets...................................... $ 10,668,113 $ 10,834,367
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,819,956 $ 1,417,091
Accrued expenses.......................................... 2,672,160 1,432,149
Notes payable -- current portion.......................... 1,877,509 --
Deferred revenues......................................... 1,276,283 1,432,553
Accrued dividends payable................................. -- 74,277
------------ ------------
Total current liabilities......................... 8,645,908 4,356,070
Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $7,910,172;
1,000,000 shares authorized; 623,339 and 623,339 shares
issued and outstanding at December 31, 1999 and
September 30, 2000, respectively....................... 6,233 6,233
Series D convertible Preferred Stock, $0.01 par value per
Share; aggregate liquidation preference of $8,855,303
and $8,832,805 at December 31, 1999 and September 30,
2000, respectively; 1,200,000 shares authorized;
1,073,370 and 1,070,643 shares issued and outstanding
at December 31, 1999 and September 30, 2000,
respectively........................................... 10,734 10,706
Series E convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $860,370 and
$3,700,791 at December 31, 1999 and September 30, 2000,
respectively; 3,000,000 shares authorized; 214,928 and
390,704 shares issued and outstanding at December 31,
1999 and September 30, 2000, respectively.............. 2,149 3,907
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 5,684,110 and 8,284,472 shares issued and
outstanding at December 31, 1999 and September 30,
2000, respectively..................................... 56,840 82,845
Additional paid-in capital................................ 58,578,078 71,750,795
Accumulated deficit....................................... (56,631,829) (65,376,189)
------------ ------------
Total stockholders' equity........................ 2,022,205 6,478,297
------------ ------------
Total liabilities and stockholders' equity........ $ 10,668,113 $ 10,834,367
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(4,872,948) $(7,792,135)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 773,613 880,459
Amortization.............................................. 1,473,061 1,350,144
Gain on sale of subsidiary................................ (1,446) --
Loss on sale of fixed assets.............................. 16,134 918
Stock, option and warrant compensation.................... 176,904 184,175
(Decrease) increase in allowance for doubtful accounts.... (355,436) 2,848
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable............. 1,313,881 (136,542)
Increase in prepaid expenses and other current
assets................................................ (531,039) (27,986)
Decrease (increase) in other assets.................... (1,316) (65,981)
Decrease in accounts payable and accrued expenses...... (16,359) (2,553,372)
(Decrease) increase in deferred revenues............... (63,870) 156,270
----------- -----------
Net cash used in operating activities....................... (2,088,821) (8,001,202)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (55,996) (1,213,522)
Capitalized software and courseware development costs....... (264,384) (240,171)
Proceeds from loans from related parties.................... 23,541 --
Proceeds from loans receivable.............................. 275,225 239,288
Proceeds from sale of subsidiary............................ 75,000 --
Advances under loans (interest) receivable.................. (30,439) (78,746)
Advances under loans receivable from related parties........ -- (6,000)
----------- -----------
Net cash used in investing activities....................... 22,947 (1,299,151)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 2,426,469 6,798,496
Proceeds from Series E convertible Preferred Stock.......... -- 4,141,000
Proceeds from notes payable................................. 2,300,000 --
Repayments of notes payable and short-term debt............. (2,827,562) (535,634)
----------- -----------
Net cash provided by financing activities................... 1,898,907 10,403,862
----------- -----------
Net (decrease) increase in cash and cash equivalents........ (166,967) 1,103,509
Cash and cash equivalents at the beginning of the period.... 336,194 204,455
----------- -----------
Cash and cash equivalents at the end of the period.......... $ 169,227 $ 1,307,964
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 311,500 $ 26,600
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
VCAMPUS CORPORATION
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, 2000. For further information, refer to the audited financial
statements and footnotes thereto included in the VCampus Corporation ("VCampus"
or the "Company") Annual Report on Form 10-K for the year ended December 31,
1999.
NOTE B -- EQUITY TRANSACTIONS
In January 2000, the Company completed a private placement of its Common
Stock to iGate Capital Corporation (formerly Mastech Corporation). The Company
issued 1,136,253 shares of Common Stock at $3.62 per share, a 20% premium over
the average closing price for a 15-day trailing period, resulting in gross
proceeds to VCampus of approximately $4,000,000. No obligations with respect to
the delivery of goods or the performance of services were involved in
determining this purchase price. The Company also issued warrants to purchase
450,000 shares of its Common Stock at exercise prices between $4.34 and $6.125
per share. The warrants expire in January 2001.
During the three months ended March 31, 2000, the Company issued 482,574
shares of its common stock to its convertible debenture holders, at an average
price of $3.30 per share, in exchange for the conversion of the remaining
balance of approximately $1,590,000 in principal and accrued interest under the
convertible debentures.
During the nine months ended September 30, 2000, the Company drew down
$4,141,000 under the terms of its equity line agreement with Hambrecht & Quist
Guaranty Finance, LLC ("H&QGF"), and issued to H&QGF 605,515 shares of Series E
Preferred Stock at an average price of $6.84 per share.
In April 2000, the Company raised $2,500,000 through a private placement of
its common stock to US West Internet Ventures, Inc.. The Company issued 357,142
shares of common stock at $7.00 per share and five-year warrants to purchase
714,285 shares of the Company's Common Stock at $7.00 per share.
NOTE C -- NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss................................ $(1,527,293) $(3,142,211) $(4,872,948) $(7,792,135)
Accrued dividends to preferred
stockholders......................... (74,535) (399,150) (222,172) (1,012,391)
----------- ----------- ----------- -----------
Net loss available to common
stockholders......................... $(1,601,828) $(3,541,361) $(5,095,120) $(8,804,526)
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per
share --
weighted-average shares.............. 4,838,668 8,197,783 4,553,835 7,764,310
=========== =========== =========== ===========
Denominator for diluted earnings per
share --
adjusted weighted-average shares..... 4,838,668 8,197,783 4,553,835 7,764,310
=========== =========== =========== ===========
Basic net loss per share.................. $ (0.33) $ (0.43) $ (1.12) $ (1.13)
=========== =========== =========== ===========
Diluted net loss per share................ $ (0.33) $ (0.43) $ (1.12) $ (1.13)
=========== =========== =========== ===========
</TABLE>
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 September 30, 2000 Compared to Three Months Ended
September 30, 1999
Summary
For the three months ended September 30, 2000, the Company incurred a net
loss of $3,541,361 (or $0.43 per share after accrual of dividends for preferred
stockholders) as compared to a net loss of $1,601,828 (or $0.33 per share) for
the three months ended September 30, 1999. The increase in the net loss in the
three months ended September 30, 2000 as compared to the three months ended
September 30, 1999 was due primarily to increased investments in sales and
marketing and product development and operations.
Net Revenues
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1999 2000
------------------ ------------------
<S> <C> <C> <C> <C>
Online tuition revenues..................... $1,108,967 36.0% $1,218,929 53.1%
Virtual campus software revenues............ 53,070 1.7 24,124 1.0
Online development and other revenues....... 265,244 8.6 311,689 13.6
Product sales revenues...................... 133,541 4.4 62,267 2.7
Other service revenues...................... 81,044 2.6 49,292 2.1
Instructor-led training revenues............ 1,434,622 46.7 631,274 27.5
---------- ----- ---------- -----
Total net revenues................ $3,076,488 100.0% $2,297,575 100.0%
========== ===== ========== =====
</TABLE>
Online tuition revenues increased 9.9% to $1,218,929 in the third quarter
of 2000, compared to $1,108,967 for the same period in 1999. The Company
believes that online tuition revenues will continue to increase in absolute
dollars and as a percentage of total revenue as the Company targets new
customers and its existing customer base matures.
Virtual campus software revenues decreased 54.5% to $24,124 in the third
quarter of 2000, compared to $53,070 in the third quarter of 1999. The Company
continues to derive virtual campus software revenues primarily from existing
customers who renew their agreements.
Online development and other revenues increased 17.5% to $311,689 in the
third quarter of 2000, compared to $265,244 for the third quarter of 1999.
During the third quarter of 2000, VCampus developed a total of 74 online
courses, compared to 48 courses for the same period in 1999.
Product sales revenues decreased 53.4% to $62,267 in the third quarter of
2000, compared to $133,541 for the same period in 1999. The decrease was
primarily due to the decrease in Teletutor product sales as that portion of the
customer base migrates from traditional CD-ROM to online delivery.
Other service revenues decreased 39.2% to $49,292 in the third quarter of
2000, compared to $81,044 for the same period in 1999. The decrease was
primarily due to the decline of CYBIS-related revenues.
6
<PAGE> 7
Instructor-led training revenues decreased 56.0% to $631,275 in the third
quarter of 2000, compared to $1,434,622 for the same period in 1999. The
decrease was due primarily to the closing of the Boston, MA and Atlanta, GA
instructor-led training facilities in September 1999 and December 1999,
respectively, as a result of management reorganization plans designed to
increase the Company's focus on development of online revenues.
The following table sets forth selected financial data:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1999 2000
---------------------- ----------------------
<S> <C> <C> <C> <C>
Revenue.................................. $ 3,076,488 100.0% $ 2,297,575 100.0%
Cost of revenues......................... 1,568,453 51.0 820,766 35.7
Sales and marketing.................... 1,107,623 36.0 1,892,571 82.4
Product development and operations..... 477,248 15.5 1,061,380 46.2
General and administrative............. 584,156 19.0 746,362 32.5
Depreciation and amortization.......... 707,861 23.0 792,884 34.5
Stock based compensation............... -- -- 184,175 8.0
----------- ----- ----------- ------
Loss from operations................... (1,368,853) (44.5) (3,200,563) (139.3)
Interest income (expense).............. (158,440) (5.2) 58,352 2.5
----------- ----- ----------- ------
Net loss............................... (1,527,293) (49.7) (3,142,211) (136.8)
Accrued dividends to preferred
stockholders........................... (74,535) (2.4) (399,150) (17.4)
----------- ----- ----------- ------
Net loss to common stockholders........ $(1,601,828) (52.1)% $(3,541,361) (154.2)%
=========== ===== =========== ======
</TABLE>
Cost of Revenues
Cost of revenues decreased 47.7% to $820,766 in the third quarter of 2000
as compared to $1,568,453 for the third quarter of 1999. The decrease was due
primarily to the closing of two low margin instructor-led training facilities at
the end of the third and fourth quarters of 1999, and the increase in
higher-margin online revenues as a percentage of total revenues. Cost of
instructor-led training revenues in the third quarter of 2000 was $547,094
compared to $1,318,803 for the third quarter of 1999. Cost of online tuition
revenues in the third quarter of 2000 was $92,145 compared to $69,338 for the
third quarter of 1999.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 70.9% to
$1,892,571 in the third quarter of 2000 as compared to $1,107,623 for the third
quarter in 1999. The increase was due primarily to the Company's expansion of
its sales force and increased marketing investments.
Product Development. Product development expenses increased 122.4% to
$1,061,380 in the third quarter of 2000 as compared to $477,248 for the third
quarter of 1999. The increase was due primarily to additional costs incurred
transitioning to a new hosting facility, re-configuring the architecture of the
courseware delivery platform, and leasing certain hardware designed to improve
capacity and performance of delivering courseware, as well up-front costs
related to establishing an application hosting platform under the Company's
application hosting agreement with a large reseller.
General and Administrative. General and administrative expenses increased
27.8% to $746,362 in the third quarter of 2000 as compared to $584,156 for the
third quarter of 1999. The increase was primarily due to the hiring of
additional personnel and related costs, including the Company's new Chief
Executive Officer.
Depreciation and Amortization. Depreciation and amortization expense
increased 12.0% to $792,884 in the third quarter of 2000 as compared to $707,861
for the third quarter of 1999. The increase was due primarily to depreciation of
hardware purchased during 2000.
7
<PAGE> 8
Stock Based Compensation Expense was $184,175 for the three months ended
September 30, 2000. Stock based compensation expense consists primarily of Chief
Executive Officer stock and stock options issued to the Company's newly
appointed President and Chief Executive Officer in September 2000.
Interest Income (Expense). Interest income in the third quarter of 2000
was primarily derived from income earned on divestiture related notes receivable
and cash raised in the Company's private placements. Interest expense for the
third quarter 1999 was primarily attributable to the Company's borrowings under
its then convertible debentures and credit facilities.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Summary
For the nine months ended September 30, 2000, the Company incurred a net
loss of $8,804,526 (or $1.13 per share after accrual of dividends for preferred
stockholders) as compared to a net loss of $5,095,120 (or $1.12 per share) for
the nine months ended September 30, 1999. The increase in the net loss for the
nine months ended September 30, 2000 was primarily due to increased investments
in sales and marketing, product development and operations, as well as amounts
paid to former HTR executives in the first quarter of 2000 pursuant to their
employment agreements.
Net Revenues
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1999 2000
------------------ ------------------
<S> <C> <C> <C> <C>
Online tuition revenues..................... $2,957,706 32.7% $3,709,852 51.7%
Virtual campus software revenues............ 170,162 1.9 93,283 1.3
Online development and other revenues....... 841,443 9.3 633,034 8.8
Product sales revenues...................... 844,686 9.3 337,027 4.7
Other service revenues...................... 231,360 2.6 129,413 1.8
Instructor-led training revenues............ 3,995,201 44.2 2,274,735 31.7
---------- ----- ---------- -----
Total net revenues................ $9,040,558 100.0% $7,177,344 100.0%
========== ===== ========== =====
</TABLE>
Online tuition revenues increased 25.4% to $3,709,852 for the nine months
ended September 30, 2000, compared to $2,957,706 for the same period in 1999.
The Company believes that online tuition revenues will continue to increase in
absolute dollars and as a percentage of total revenue as the Company targets new
customers and its existing customer base matures.
Virtual campus software revenues decreased 45.2% to $93,283 for the nine
months ended September 30, 2000, compared to $170,162 for the same period in
1999. The Company continues to derive virtual campus software revenues primarily
from existing customers who renew their agreements.
Online development and other revenues decreased 24.8% to $633,034 for the
nine months ended September 30, 2000, compared to $841,443 for the same period
in 1999. The decrease was primarily due to a decrease in courseware development
for one of the Company's largest customers.
Product sales revenues decreased 60.1% to $337,027 for the nine months
ended September 30, 2000, compared to $844,686 for the same period in 1999. The
decrease was primarily due to the decrease in Teletutor product sales as that
portion of the customer base migrates from traditional CD-ROM to online
delivery.
Other service revenues decreased 44.1% to $129,413 for the nine months
ended September 30, 2000, compared to $231,360 for the same period in 1999. The
decrease was primarily due to the decline of CYBIS-related revenues.
Instructor-led training revenues decreased 43.1% to $2,274,736 for the nine
months ended September 30, 2000, compared to $3,995,201 for the same period in
1999. The decrease was due primarily to the closing of the instructor-led
training facilities in Boston, MA and Atlanta, GA in September 1999, and
December 1999,
8
<PAGE> 9
respectively, as a result of management reorganization plans designed to
increase the Company's focus on development of online revenues.
The following table sets forth selected financial data:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1999 2000
---------------------- ----------------------
<S> <C> <C> <C> <C>
Revenue.................................. $ 9,040,558 100.0% $ 7,177,344 100.0%
Cost of revenues......................... 4,518,376 50.0 2,613,671 36.4
Sales and marketing.................... 3,304,063 36.5 4,644,471 64.7
Product development.................... 1,488,879 16.5 2,618,557 36.5
General and administrative............. 1,906,199 21.1 2,171,487 30.3
Depreciation and amortization.......... 2,246,677 24.8 2,230,603 31.1
Compensation expense in connection with
the acquisition of HTR.............. -- -- 654,294 9.1
Stock based compensation............... -- -- 184,175 2.6
----------- ----- ----------- ------
Loss from operations................... (4,423,636) (48.9) (7,939,914) (110.7)
Gain on sale of subsidiary............. 1,446 0.0 -- 0.0
Interest expense....................... (450,758) (5.0) 147,779 2.1
----------- ----- ----------- ------
Net loss............................... (4,872,948) (53.9) (7,792,135) (108.6)
Accrued dividends to preferred
Stockholders........................... (222,172) (2.5) (1,012,391) (14.1)
----------- ----- ----------- ------
Net loss to common stockholders........ $(5,095,120) (56.4)% $(8,804,526) (122.7)%
=========== ===== =========== ======
</TABLE>
Cost of Revenues
Cost of revenues decreased 42.2% to $2,613,671 for the nine months ended
September 30, 2000 as compared to $4,518,376 for the same period in 1999. The
decrease was due primarily to the closing of two low margin instructor-led
training facilities at the end of the third and fourth quarters of 1999, the
sale of Knowledgeworks in the second quarter of 1999, and the increase in higher
margin online revenues as a percentage of total revenues. Cost of instructor-led
training revenues for the nine months ended September 30, 2000 was $1,886,461
compared to $3,524,378 for the same period in 1999. Cost of online tuition
revenues for the nine months ended September 30, 2000 was $325,667 compared to
$222,906 for the same period in 1999.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 40.6% to
$4,644,471 for the nine months ended September 30, 2000 as compared to
$3,304,063 for the same period in 1999. The increase was due primarily to the
Company's expansion of its sales force and increased marketing investments.
Product Development. Product development expenses increased 75.9% to
$2,618,557 for the nine months ended September 30, 2000 as compared to
$1,488,879 for the same period in 1999. The increase was due primarily to
additional costs incurred transitioning to a new hosting facility,
re-configuring the architecture of the courseware delivery platform, and leasing
certain hardware designed to improve capacity and performance of delivering
courseware, as well up-front costs related to establishing an application
hosting platform under the Company's application hosting agreement with a large
reseller.
General and Administrative. General and administrative expenses increased
13.9% to $2,171,487 for the nine months ended September 30, 2000 as compared to
$1,906,199 for the same period in 1999. The increase was primarily due to the
hiring of additional personnel and related costs, including the Company's new
Chief Executive Officer.
Depreciation and Amortization. Depreciation and amortization expense
remained relatively unchanged. Depreciation expense for the nine months ended
September 30, 2000 was $2,230,603 as compared to $2,246,677 for the same period
in 1999.
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Compensation Expense in Connection with the Acquisition of
HTR. Compensation expense in connection with the acquisition of HTR consists of
$654,294 paid to former HTR executives in the first quarter of 2000 pursuant to
their employment agreements.
Stock Based Compensation Expense was $184,175. Stock based compensation
expense consists primarily of stock and stock options issued to the Company's
newly appointed President and Chief Executive Officer in September 2000.
Gain on Sale of Subsidiary. The Company recognized a gain of $1,446 on the
sale of its Knowledgeworks line of business in the second quarter of 1999.
Interest Income (Expense). Interest income in the nine months ended
September 2000 was primarily derived from income earned on divestiture-related
notes receivable and cash raised in the Company's private placements. Interest
expense for the nine months ended September 30, 1999 was primarily attributable
to the Company's borrowings under its then convertible debentures and credit
facilities.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had $1,307,964 in cash and cash
equivalents. Cash used in operating activities was $8,001,202 for the nine
months ended September 30, 2000, funded by the $4,000,000 private placement of
common stock to iGate Capital, $4,141,000 raised through the H&QGF equity line,
$2,500,000 raised through the US West private placement, and customer
prepayments. Net cash used in operating activities for the same period in 1999
was $2,088,821. The increase in cash used in operating activities is primarily
due to amounts paid to former HTR executives in the first quarter of 2000
pursuant to their employment agreements, an increase in expenditures for sales
and marketing designed to increase online revenues, and expenditures to increase
capacity, performance, and reliability of the VCampus platform.
Net cash used in investing activities was $1,299,151 for the nine months
ended September 30, 2000 and cash generated from investing activities was
$22,947 for the nine months ended September 30, 1999. The use of cash for
investing activities was primarily attributable to purchases of equipment and
software development costs that were capitalized.
Net cash provided by financing activities was $10,403,862 for the nine
months ended September 30, 2000 and $1,898,907 for the nine months ended
September 30, 1999. During the nine months ended September 30, 2000, the Company
completed a private placement of its common stock to iGate Capital Corporation.
The Company issued 1,136,253 shares of common stock at $3.62 per share,
resulting in net proceeds to the Company of approximately $4,000,000. The
Company also issued one-year warrants to purchase 450,000 shares of its common
stock at exercise prices between $4.34 and $6.125 per share. Under the terms of
the H&QGF equity line agreement, the Company drew down $4,141,000 during the
nine months ended September 30, 2000, and issued to H&QGF 605,515 shares of
Series E Preferred Stock at an average price of $6.84 per share. The Company
also issued 482,574 shares of its common stock to its convertible debenture
holders at an average price of $3.30 per share, upon conversion of the remaining
balance of approximately $1,590,000 in principal and accrued interest in the
first quarter of 2000. In April 2000, the Company raised $2,500,000 through a
private placement of 357,142 shares of common stock to US West Internet
Ventures, Inc. at $7.00 per share and five-year warrants to purchase 714,285
shares of the Company's common stock at $7.00 per share.
In October 2000, H&QGF agreed to increase the borrowing capacity under its
equity line to VCampus from $5,000,000 to $7,000,000 and to extend the term
through December 31, 2000. The Company's right to draw down the remaining
$2,000,000 under this equity line is subject to NASD and other regulatory
approvals, which the Company expects to obtain as early as the end of November
2000.
The Company expects negative cash flow from operations to continue for at
least the next six months until the online revenue stream matures. The Company
recognizes that it must raise additional funding to meet its working capital
requirements and fund anticipated ongoing operating losses, particularly in the
near term. The Company expects the H&QGF equity line, together with additional
short-term private equity bridge financings, to provide working capital through
the end of 2000 and through the first quarter of 2001.
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Although the Company expects to achieve breakeven sometime during 2001, the
Company expects it will need to secure more substantial long-term private equity
financings during the first or second quarter of 2001 to satisfy its working
capital needs in 2001. If the Company does not achieve substantial positive cash
flow from operations during 2001 or 2002, it will need to continue to raise
additional funds in those years to support operations and fund its efforts to
grow online revenues. Additional financing might not be available to the
Company, or might not be available on terms acceptable to the Company.
If the Company does not address its funding needs, it may 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.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On June 26, 2000, the SEC deferred the effective date of SAB 101 to
require adoption by the fourth quarter of the first fiscal year beginning after
December 15, 1999. Although the Company does not expect the adoption of SAB 101
to have a material impact on the consolidated financial position or results of
operations of the Company, management is currently reviewing the additional
guidance recently released by the Staff.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) No modifications.
(b) No limitations or qualifications.
(c) From July 1, 2000 to September 30, 2000, the Company issued the
following unregistered securities:
1. 2,727 shares of Common Stock in connection with the conversion of
2,727 shares of Series D Preferred Stock.
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, 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 6. EXHIBITS
(a) Exhibits
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 three months ended
September 30, 2000.
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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.
VCAMPUS CORPORATION
By: /s/ DANIEL J. NEAL
------------------------------------
Daniel J. Neal
Chief Executive Officer
By: /s/ MICHAEL A. SCHWIEN
------------------------------------
Michael A. Schwien
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: November , 2000
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