<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 JUNE 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 8,189,556 shares
(Class) (Outstanding at August 14, 2000)
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Online tuition revenues................. $ 967,491 $ 1,215,408 $ 1,848,739 $ 2,490,923
Virtual campus software revenues........ 74,926 31,563 117,092 69,159
Development and other revenues.......... 340,325 124,653 576,199 321,345
Product sales revenues.................. 311,510 145,200 711,145 274,760
Other service revenues.................. 68,600 41,391 150,316 80,121
Instructor-led training revenues........ 1,166,135 862,776 2,560,579 1,643,461
----------- ----------- ----------- -----------
Net revenues.............................. 2,928,987 2,420,991 5,964,070 4,879,769
Costs and expenses:
Cost of revenues........................ 1,481,484 877,926 2,949,923 1,792,905
Sales and marketing..................... 1,153,927 1,673,930 2,196,440 2,751,900
Product development and operations...... 506,749 758,976 1,011,631 1,557,177
General and administrative.............. 633,913 602,743 1,322,043 1,425,125
Depreciation and amortization........... 768,385 730,559 1,538,816 1,437,719
Compensation expense in connection with
the acquisition of HTR............... -- -- -- 654,294
----------- ----------- ----------- -----------
Total costs and expenses.................. 4,544,458 4,644,134 9,018,853 9,619,120
----------- ----------- ----------- -----------
Loss from operations...................... (1,615,471) (2,223,143) (3,054,783) (4,739,351)
Gain on the sale of subsidiary............ 1,446 -- 1,446 --
Interest income (expense)................. (164,551) 72,140 (292,318) 89,427
----------- ----------- ----------- -----------
Net loss.................................. $(1,778,576) $(2,151,003) $(3,345,655) $(4,649,924)
=========== =========== =========== ===========
Dividends to preferred stockholders....... (74,226) (539,649) (147,637) (613,241)
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders............................ $(1,852,802) $(2,690,652) $(3,493,292) $(5,263,165)
=========== =========== =========== ===========
Net loss per share........................ $ (0.40) $ (0.34) $ (0.79) $ (0.70)
=========== =========== =========== ===========
Net loss per share -- assuming dilution... $ (0.40) $ (0.34) $ (0.79) $ (0.70)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 3
VCAMPUS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 204,455 $ 3,064,946
Accounts receivable, less allowance of $142,000 and
$176,000 at December 31, 1999 and June 30, 2000,
respectively........................................... 1,349,332 1,241,018
Loans receivable from related parties..................... 124,182 128,182
Loans receivable -- current............................... 1,213,717 1,088,928
Prepaid expenses and other current assets................. 599,645 541,340
------------ ------------
Total current assets.............................. 3,491,331 6,064,414
Property and equipment, net................................. 1,464,483 1,587,011
Capitalized software costs and courseware development costs,
net....................................................... 1,543,520 1,210,202
Acquired online publishing rights, net...................... 169,624 101,290
Loans receivable -- less current portion.................... 150,226 150,226
Other assets................................................ 180,988 243,158
Other intangible assets, net................................ 1,913,259 1,655,588
Goodwill, net............................................... 1,754,682 1,663,853
------------ ------------
Total assets...................................... $ 10,668,113 $ 12,675,742
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,819,956 $ 1,549,688
Accrued expenses.......................................... 2,672,160 1,257,139
Notes payable -- current portion.......................... 1,877,509 --
Deferred revenues......................................... 1,276,283 2,023,021
------------ ------------
Total current liabilities......................... 8,645,908 4,829,848
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 June
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;
1,200,000 shares authorized; 1,073,370 and 1,073,370
shares issued and outstanding at December 31, 1999 and
June 30, 2000, respectively............................ 10,734 10,734
Series E convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $1,352,891;
3,000,000 shares authorized; 214,928 and 259,458 shares
issued and outstanding at December 31, 1999 and June
30, 2000, respectively................................. 2,149 2,594
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 5,684,110 and 8,122,652 shares issued and
outstanding at December 31, 1999 and June 30, 2000,
respectively........................................... 56,840 81,227
Additional paid-in capital................................ 58,578,078 69,640,100
Accumulated deficit....................................... (56,631,829) (61,894,994)
------------ ------------
Total stockholders' equity........................ 2,022,205 7,845,894
------------ ------------
Total liabilities and stockholders' equity........ $ 10,668,113 $ 12,675,742
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,345,655) $(4,649,924)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 514.423 538,090
Amortization.............................................. 1,024,392 899,629
Gain on sale of subsidiary................................ (1,446) --
Stock option and warrant compensation..................... 108,150 --
Increase (decrease) in allowance for doubtful accounts.... (270,554) 34,058
Changes in operating assets and liabilities:
Decrease in accounts receivable........................ 1,132,290 74,256
Increase in prepaid expenses and other current
assets................................................ (340,899) (174,246)
Decrease (increase) in other assets.................... 8,915 (62,183)
Decrease in accounts payable and accrued expenses...... (782,846) (2,595,781)
Increase in deferred revenues.......................... 57,559 746,738
----------- -----------
Net cash used in operating activities....................... (1,895,671) (5,189,363)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (20,430) (660,605)
Capitalized software and courseware development costs....... (186,406) (149,477)
Proceeds from loans receivable.............................. 72,508 178,246
Advances under loans (interest) receivable.................. 10,671 (53,457)
Proceeds from sale of subsidiary............................ 75,000 --
Advances under loans receivable from related parties........ (2,290) (4,000)
----------- -----------
Net cash used in investing activities....................... (50,947) (689,293)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 2,415,547 6,633,781
Proceeds from Series E convertible Preferred Stock.......... -- 2,641,000
Proceeds from notes payable................................. 2,300,000 --
Repayments of notes payable and short-term debt............. (2,800,252) (535,634)
----------- -----------
Net cash provided by financing activities................... 1,915,295 8,739,147
----------- -----------
Net increase (decrease) in cash and cash equivalents........ (31,323) 2,860,491
Cash and cash equivalents at the beginning of the period.... 336,194 204,455
----------- -----------
Cash and cash equivalents at the end of the period.......... $ 304,871 $ 3,064,946
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 308,800 $ 24,200
=========== ===========
</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. 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 six months ended June 30, 2000, the Company drew down $2,641,000
under the terms of its equity line agreement with Hambrecht & Quist Guaranty
Finance, LLC ("H&QGF"), and issued to H&QGF 376,514 shares of Series E Preferred
Stock at an average price of $7.01 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss................................ $(1,778,576) $(2,151,003) $(3,345,655) $(4,649,924)
Accrued dividends to preferred
stockholders......................... (74,226) (539,649) (147,637) (613,241)
----------- ----------- ----------- -----------
Net loss available to common
stockholders......................... $(1,852,802) $(2,690,652) $(3,493,292) $(5,263,165)
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per
share --
weighted-average shares.............. 4,646,281 7,986,226 4,409,067 7,545,529
=========== =========== =========== ===========
Denominator for diluted earnings per
share --
adjusted weighted-average shares..... 4,646,281 7,986,226 4,409,067 7,545,529
=========== =========== =========== ===========
Basic net loss per share.................. $ (0.40) $ (0.34) $ (0.79) $ (0.70)
=========== =========== =========== ===========
Diluted net loss per share................ $ (0.40) $ (0.34) $ (0.79) $ (0.70)
=========== =========== =========== ===========
</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 June 30, 2000 Compared to Three Months Ended June 30,
1999
Summary
For the three months ended June 30, 2000, the Company incurred a net loss
of $2,690,652 (or $0.34 per share after accrual of dividends for preferred
stockholders) as compared to a net loss of $1,852,802 (or $0.40 per share) for
the three months ended June 30, 1999. The increase in the net loss in the second
quarter of 2000 as compared to the three months ended June 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 JUNE 30,
----------------------------------------
1999 2000
------------------ ------------------
<S> <C> <C> <C> <C>
Online tuition revenues...................... $ 967,491 33.0% $1,215,408 50.2%
Virtual campus software revenues............. 74,926 2.6 31,563 1.3
Online development and other revenues........ 340,325 11.6 124,653 5.2
Product sales revenues....................... 311,510 10.6 145,200 6.0
Other service revenues....................... 68,600 2.3 41,391 1.7
Instructor-led training revenues............. 1,166,135 39.9 862,776 35.6
---------- ----- ---------- -----
Total net revenues................. $2,928,987 100.0% $2,420,991 100.0%
========== ===== ========== =====
</TABLE>
Online tuition revenues increased 25.6% to $1,215,408 in the second quarter
of 2000, compared to $967,491 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 adds new customers and its
existing customer base matures.
Virtual campus software revenues decreased 57.9% to $31,563 in the second
quarter of 2000, compared to $74,926 in the second quarter of 1999. The Company
continues to derive virtual campus license revenues primarily from certain
existing customers who renew their agreements.
Online development and other revenues decreased 63.4% to $124,653 in the
second quarter of 2000, compared to $340,325 for the second quarter of 1999. The
decrease was primarily due to the deferral of work into the third and fourth
quarters of 2000 by one of the Company's largest customers due to the Company's
move to a new hosting service provider.
Product sales revenues decreased 53.4% to $145,200 in the second quarter of
2000, compared to $311,510 for the same period in 1999. The decrease was
primarily due to the sale of Knowledgeworks in the second quarter of 1999, and a
decrease in Teletutor product sales as a portion of the customer base migrates
to online delivery.
Other service revenues decreased 39.7% to $41,391 in the second quarter of
2000, compared to $68,600 for the same period in 1999. The decrease was
primarily due to the decline of CYBIS-related revenues.
Instructor-led training revenues decreased 26.0% to $862,776 in the second
quarter of 2000, compared to $1,166,135 for the same period in 1999. The
decrease was due primarily to the closing of two instructor-led
6
<PAGE> 7
training facilities located in Boston and Atlanta at the end of the third and
fourth quarter of 1999, respectively, as a result of management reorganization
plans.
The following table sets forth selected financial data:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
-------------------------------------------
1999 2000
------------------- --------------------
<S> <C> <C> <C> <C>
Revenue................................... $ 2,928,987 100.0% $ 2,420,991 100.0%
Cost of revenues.......................... 1,481,484 50.6 877,926 36.3
Sales and marketing....................... 1,153,927 39.4 1,673,930 69.1
Product development and operations........ 506,749 17.3 758,976 31.3
General and administrative................ 633,913 21.6 602,743 24.9
Depreciation and amortization............. 768,385 26.2 730,559 30.2
----------- ----- ----------- ------
Loss from operations.................... (1,615,471) (55.1) (2,223,143) (91.8)
Gain on the sale of subsidiary.......... 1,446 0.0
Interest income (expense)............... (164,551) (5.6) 72,140 3.0
----------- ----- ----------- ------
Net loss................................ (1,778,576) (60.7) (2,151,003) (88.8)
Accrued dividends to preferred
stockholders............................ (74,226) (2.6) (539,649) (22.3)
----------- ----- ----------- ------
Net loss to common stockholders......... $(1,852,802) (63.3)% $(2,690,652) (111.1)%
=========== ===== =========== ======
</TABLE>
Cost of Revenues
Cost of revenues decreased 40.7% to $877,926 in the second quarter of 2000
as compared to $1,481,484 for the second quarter of 1999. The decrease was due
primarily to the closing of two low margin instructor-led training facilities at
the end of the second 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.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 45.1% to
$1,673,930 in the second quarter of 2000 as compared to $1,153,927 for the
second 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 49.8% to
$758,976 in the second quarter of 2000 as compared to $506,749 for the second
quarter of 1999. The increase was due primarily to costs aimed at improving
capacity and performance and up-front costs related to the Company's application
hosting agreement with US West.
General and Administrative. General and administrative expenses decreased
4.9% to $602,743 in the second quarter of 2000 as compared to $633,913 for the
second quarter of 1999.
Depreciation and Amortization. Depreciation and amortization expense
decreased 4.9% to $730,559 in the second quarter of 2000 as compared to $768,385
for the second quarter of 1999. The decrease was due primarily to the sale of
Knowledgeworks in the second quarter of 1999, partially offset by depreciation
of hardware purchased in the second quarter of 2000.
Interest Income (Expense). Interest income in the second 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
three months ended June 30, 1999 was primarily attributable to the Company's
borrowings.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Summary
For the six months ended June 30, 2000, the Company incurred a net loss of
$5,263,165 or $0.70 per share after accrual of dividends for preferred
stockholders) as compared to a net loss of $3,493,292 (or $0.79 per share) for
the six months ended June 30, 1999. The increase in the net loss for the six
months ended June 30, 2000 was primarily due to increased investments in sales
and marketing and product development
7
<PAGE> 8
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 SIX MONTHS ENDED JUNE 30,
----------------------------------------
1999 2000
------------------ ------------------
<S> <C> <C> <C> <C>
Online tuition revenues...................... $1,848,739 31.0% $2,490,923 51.1%
Virtual campus software revenues............. 117,092 2.0 69,159 1.4
Online development and other revenues........ 576,199 9.7 321,345 6.6
Product sales revenues....................... 711,145 11.9 274,760 5.6
Other service revenues....................... 150,316 2.5 80,121 1.6
Instructor-led training revenues............. 2,560,579 42.9 1,643,461 33.7
---------- ----- ---------- -----
Total net revenues................. $5,964,070 100.0% $4,879,769 100.0%
========== ===== ========== =====
</TABLE>
Online tuition revenues increased 34.7% to $2,490,923 for the six months
ended June 30, 2000, compared to $1,848,739 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 adds new
customers and its existing customer base matures.
Virtual campus software revenues decreased 40.9% to $69,159 for the six
months ended June 30, 2000, compared to $117,092 for the same period in 1999.
The Company continues to derive virtual campus license revenues primarily from
certain existing customers who renew their agreements.
Online development and other revenues decreased 44.2% to $321,345 for the
six months ended June 30, 2000, compared to $576,199 for the same period in
1999. The decrease was primarily due to the deferral of work into the third and
fourth quarters of 2000 by one of the Company's largest customers due to the
Company's move to a new hosting service provider.
Product sales revenues decreased 61.4% to $274,760 for the six months ended
June 30, 2000, compared to $711,145 for the same period in 1999. The decrease
was primarily due to the sale of Knowledgeworks in the second quarter of 1999,
and a decrease in Teletutor product sales as a portion of the customer base
migrates to online delivery.
Other service revenues decreased 46.7% to $80,121 for the six months ended
June 30, 2000, compared to $150,316 for the same period in 1999. The decrease
was primarily due to the decline of CYBIS-related revenues.
Instructor-led training revenues decreased 35.8% to $1,643,461 for the six
months ended June 30, 2000, compared to $2,560,579 for the same period in 1999.
The decrease was due primarily to the closing of two instructor-led training
facilities located in Boston and Atlanta at the end of the third and fourth
quarter of 1999, respectively, as a result of management reorganization plans.
8
<PAGE> 9
The following table sets forth selected financial data:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1999 2000
------------------- --------------------
<S> <C> <C> <C> <C>
Revenue................................... $ 5,964,070 100.0% $ 4,879,769 100.0%
Cost of revenues.......................... 2,949,923 49.5 1,792,905 36.7
Sales and marketing....................... 2,196,440 36.8 2,751,900 56.4
Product development....................... 1,011,631 17.0 1,557,177 31.9
General and administrative................ 1,322,043 22.1 1,425,125 29.2
Depreciation and amortization............. 1,538,816 25.8 1,437,719 29.5
Compensation expense in connection with
the acquisition of HTR............... -- -- 654,294 13.4
----------- ----- ----------- ------
Loss from operations.................... (3,054,783) (51.2) (4,739,351) (97.1)
Gain on sale of subsidiary.............. 1,446 0.0 -- 0.0
Interest expense........................ (292,318) (4.9) 89,427 1.8
----------- ----- ----------- ------
Net loss................................ (3,345,655) (56.1) (4,649,924) (95.3)
Accrued dividends to preferred
stockholders............................ (147,637) (2.5) (613,241) (12.6)
----------- ----- ----------- ------
Net loss to common stockholders......... $(3,493,292) (58.6)% $(5,263,165) (107.9)%
=========== ===== =========== ======
</TABLE>
Cost of Revenues
Cost of revenues decreased 39.2% to $1,792,905 for the six months ended
June 30, 2000 as compared to $2,949,923 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 second 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
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 25.3% to
$2,751,900 for the six months ended June 30, 2000 as compared to $2,196,440 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 53.9% to
$1,557,177 for the six months ended June 30, 2000 compared to $1,011,631 for the
same period in 1999. The increase was due primarily to costs aimed at improving
capacity and performance and up-front costs related to the Company's application
hosting agreement with US West.
General and Administrative. General and administrative expenses increased
7.8% to $1,425,125 for the six months ended June 30, 2000 as compared to
$1,322,043 for the same period in 1999. The increase was due primarily to the
payment of incentive compensation amounts to employees for achieving performance
milestones in the first quarter of 2000.
Depreciation and Amortization. Depreciation and amortization expense
decreased 6.6% to $1,437,719 for the six months ended June 30, 2000 as compared
to $1,538,816 for the same period in 1999. The decrease was due primarily to the
sale of Knowledgeworks in the second quarter of 1999, partially offset by
depreciation of hardware purchased in the second quarter of 2000.
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.
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.
9
<PAGE> 10
Interest Income (Expense). Interest income in the six months ended June
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 six months ended June 30, 1999 was primarily attributable to the
Company's borrowings.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $3,064,946 in cash and cash
equivalents. Cash utilized in operating activities was $5,189,363 for the six
months ended June 30, 2000, funded by the $4,000,000 private placement of common
stock to iGate Capital, $2,641,000 raised through the H&QGF equity line
agreement, $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 $1,895,671. The increase in cash utilized in operating activities is
primarily due to amounts paid to former HTR executives in the first quarter of
2000 pursuant to their employment agreements and the payment of incentive
compensation amounts to employees for achieving performance milestones in the
first quarter of 2000.
Net cash utilized in investing activities was $689,293 for the six months
ended June 30, 2000 and $50,947 for the six months ended June 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 $8,739,147 for the six months
ended June 30, 2000 and $1,915,295 for the six months ended June 30, 1999.
During the six months ended June 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, a 20% premium over the
average closing price for a 15-day trailing period, 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 $2,641,000 during the six months ended June 30,
2000, and issued to H&QGF 376,514 shares of Series E Preferred Stock at an
average price of $7.01 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. As of June 30, 2000 there was no principal
balance remaining under the convertible debenture agreement. In April 2000, the
Company raised $2,500,000 through a private placement of its common stock. The
Company issued 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 March 2000, H&QGF agreed to increase the borrowing capacity under its
equity line to VCampus from $3 million to $5 million and to extend the term
through July 31, 2000 in exchange for warrants to purchase 43,632 shares of
Series E Preferred Stock at $8.50 per share. VCampus has drawn down the full
balance of $5 million under the H&QGF equity line and is negotiating with H&QGF
for additional capacity and an extension of the term.
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 may need to raise additional funding to meet its working
capital requirements and fund anticipated ongoing operating losses.
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.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) No modifications.
(b) No limitations or qualifications.
(c) From April 1, 2000 to June 30, 2000, the Company has issued the
following unregistered securities:
1. 357,142 shares of Common Stock at $7.00 per share and five-year
warrants to purchase 714,285 shares of Common Stock at an exercise price of
$7.00 per share to one accredited investor.
2. 19,552 shares of Common Stock were issued as a dividend to the
Company's Series D Preferred Stockholders.
3. Five-year warrants to purchase 35,714 shares of Common Stock at
$7.00 per share to a provider of investment banking services.
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
The Annual Meeting of Stockholders of the Company was held on June 22,
2000. The following is a brief description of each matter voted upon at the
meeting and the number of affirmative votes and the number of negative votes
cast with respect to each matter.
(a) The stockholders elected the following persons as directors of the
Company: Narasimhan P. Kannan, Edson D. deCastro, Barry K. Fingerhut, Kamyar
Kaviani, William E. Kimberly, John D. Sears, and Ashok Trivedi. The votes for
and against (withheld) each nominee were as follows:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
NOMINEE FOR WITHHELD ABSTAINED
------- --------- -------- ---------
<S> <C> <C> <C>
Narasimhan P. Kannan...................................... 5,728,672 16,529 0
Edson D. deCastro......................................... 5,728,672 16,529 0
Barry K. Fingerhut........................................ 5,728,672 16,529 0
Kaymar Kaviani............................................ 5,728,672 16,569 0
William E. Kimberly....................................... 5,728,672 16,529 0
John D. Sears............................................. 5,728,672 16,829 0
Ashok Trivedi............................................. 5,728,672 16,529 0
</TABLE>
(b) The stockholders approved the reservation of an additional 500,000
shares for issuance under the Company's 1996 Stock Plan with 2,213,330 shares
voting for, 3,341,591 shares subject to broker non-votes, 174,580 shares voting
against and 15,700 shares abstained.
(c) The stockholders ratified the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2000.
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<PAGE> 12
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) Current Reports in Form 8-K
The Company filed a current report on Form 8-K on May 1, 2000 to report the
$2.5 million investment from US West Internet Ventures, Inc.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by each of the
undersigned thereunto duly authorized.
VCAMPUS CORPORATION
By: /s/ NARASIMHAN P. KANNAN
------------------------------------
Narasimhan P. Kannan
Chief Executive Officer
By: /s/ MICHAEL A. SCHWIEN
------------------------------------
Michael A. Schwien
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: August 14, 2000
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<S> <C>
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
</TABLE>
14
