U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-13890
BUREAU OF ELECTRONIC PUBLISHING, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2894444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
619 Alexander Road
Princeton, New Jersey 08540 08540
- --------------------------- ---------
(Address of principal executive offices) (Zip Code)
(609) 514-1600
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 last 90
days.
YES __X__ NO____
The number of shares outstanding of the issuer's common stock, par value
$.001 per share as of October 31, 1996 was 4,519,869 shares.
The number of the issuer's common stock purchase warrants outstanding as of
October 31, 1996 was 1,340,476 warrants.
Transitional Small Business Disclosure Format: Yes ____ No __X__
Page __1__ of __29___ pages
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
FORM 10-QSB
INDEX
Part I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements
Balance Sheet as of September 30, 1996 3
Statements of Operations for the three and
nine months ended September 30, 1996 and 1995. 4
Statement of Changes in Shareholders' Equity
for the nine months ended September 30, 1996. 5
Statements of Cash Flows for the three and
nine months ended September 30, 1996 and 1995. 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
BUREAU OF ELECTRONIC PUBLISHING, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1996
----
<S> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,095,824
Accounts Receivable, net of allowance for doubtful accounts
of $350,000 116,908
Inventories 201,574
Prepaid Expenses and Other Current Assets 99,378
-----------
Total Current Assets $ 1,513,684
Property and Equipment, net of accumulated depreciation of $276,455 $ 513,098
Prepublication Costs, net of accumulated amortization of $922,663 890,851
Investment in Joint Venture 230,000
Other Assets
64,250
-----------
Total Assets $ 3,211,883
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRRENT LIABILITIES
Accounts Payable $ 399,194
Accrued Expenses 171,437
-----------
Total Current Liabilities $ 570,631
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.001 per share - 2,000,000 shares
authorized, no shares outstanding $ 0
Common Stock, par value $.001 per share - 12,000,000
shares authorized, 4,519,869 shares issued and outstanding 4,520
Common Stock Purchase Warrants, 1,340,476 warrants issued
and outstanding 335,119
Additional Paid-In Capital 8,102,809
Accumulated Deficit (5,801,196)
-----------
Total Shareholders' Equity $ 2,641,252
-----------
Total Liabilities and Shareholders' Equity $ 3,211,883
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
3
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 454,439 $ 2,384,644 $ 181,195 $ 943,149
COST OF SALES 1,318,314 751,530 831,023 178,746
----------- ----------- ----------- -----------
Gross (Loss) Profit $ (863,875) $ 1,633,114 $ (649,828) $ 764,403
SELLING, GENERAL and
ADMINISTRATIVE EXPENSES $ 2,609,450 $ 1,710,481 $ 830,585 $ 565,312
----------- ----------- ----------- -----------
(Loss) income from operations $(3,473,325) $ (77,367) $(1,480,413) $ 199,091
EQUITY in LOSS of INVESTMENT
in JOINT VENTURE 20,000 0 0 0
INTEREST EXPENSE 2,305 1,171,445 2,257 251,183
OTHER INCOME 61,401 16,308 20,820 15,541
----------- ----------- ----------- -----------
Loss before income taxes $(3,434,229) $(1,232,504) $(1,461,850) $ (36,551)
PROVISION FOR INCOME TAXES 0 0 0 0
----------- ----------- ----------- -----------
Net Loss $(3,434,229) $(1,232,504) $(1,461,850) $ (36,551)
=========== =========== =========== ===========
NET LOSS PER COMMON
SHARE OUTSTANDING $ (0.97) $ (0.42) $ (0.33) $ (0.01)
=========== =========== =========== ===========
COMMON SHARES OUTSTANDING 3,523,969 2,915,643 4,466,369 2,915,643
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Issued and Issued and
Authorized Authorized Outstanding Outstanding
Preferred Common Common Common
Shares Shares Shares Amount Warrants Amount
------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1995 2,000,000 7,719,623 2,927,298 $2,927 1,340,476 $335,119
Issuance of common stock 37,588 38 0 0
5% stock dividend 81,721 82 0 0
Issuance of common stock 5,262 5 0 0
Issuance of common stock 886,000 886 0 0
Issuance of common stock 582,000 582 0 0
Additional authorized shares 4,280,377
Net loss for the nine months
ended September 30, 1996 0 0 0 0
--------- ---------- --------- ------- --------- ---------
BALANCE - September 30, 1996 2,000,000 12,000,000 4,519,869 $4,520 1,340,476 $335,119
========= ========== ========= ======= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital (Deficit) Total
------- -------- -----
<S> <C> <C>
$6,130,568 $(2,366,967) $ 4,101,647
121,747 0 121,785
(82) 0 0
17,044 0 17,049
1,106,614 0 1,107,500
726,918 0 727,500
0 (3,434,229) (3,434,229)
--------- ----------- ------------
$8,102,809 $(5,801,196) $ 2,641,252
========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,434,229) $(1,232,504) $(1,461,850) $ (36,551)
----------- ----------- ----------- -----------
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation of property and equipment 95,134 39,557 42,030 14,737
Provision for doubtful accounts 491,581 0 150,000 0
Amortization of prepublication costs 837,295 244,899 555,382 83,985
Amortization of financing costs 0 937,500 0 205,357
Equity in loss of investment in joint venture 20,000 0 0 0
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (50,158) (178,537) 665 (79,084)
Decrease (increase) in inventories 165,620 (326,903) 135,781 (331,958)
Decrease (increase) in prepaid expenses and
other current assets 5,829 (55,658) 892 47,256
(Increase) decrease in other assets (6,250) 119,125 12,916 35,018
(Decrease) increase in accounts payable,
and accrued expenses (36,507) (140,183) (176,495) (323,586)
----------- ----------- ----------- -----------
Total adjustments 1,522,544 639,800 721,171 (348,275)
----------- ----------- ----------- -----------
Net cash used in operating activities (1,911,685) (592,704) (740,679) (384,826)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (407,880) (84,529) (47,667) (27,433)
Increase in prepublication costs (811,035) (509,439) (281,755) (193,969)
----------- ----------- ----------- -----------
Net cash used in investing activities (1,218,915) (593,968) (329,422) (221,402)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bridge loan, net 0 (500,000) 0 (1,000,000)
Issuance of common stock 1,973,834 29,410 727,500 1,190
Issuance of common stock purchase warrants 0 297,619 0 297,619
Initial public offering 0 3,753,737 0 3,753,737
----------- ----------- ----------- -----------
Net cash provided by financing activities 1,973,834 3,580,766 727,500 3,052,546
----------- ----------- ----------- -----------
Net (decrease) increase in cash (1,156,766) 2,394,094 (342,601) 2,446,318
CASH and CASH EQUIVALENTS,
beginning of period 2,252,590 52,224 1,438,425 0
----------- ----------- ----------- -----------
CASH and CASH EQUIVALENTS, end of period $ 1,095,824 $ 2,446,318 $ 1,095,824 $ 2,446,318
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for interest $ 2,305 $ 57,162 $ 2,257 $ 12,934
Cash paid during the period for taxes 50 0 0 0
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
1. Financial Statements
The balance sheet as of September 30, 1996 and the related statements of
operations, shareholders' equity and cash flows for the periods ended September
30, 1996 and 1995 have been prepared by Bureau of Electronic Publishing, Inc.
(the "Company"), without audit, in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows of the Company for the interim periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the December 31, 1995 audited financial statements
and notes thereto. The results of operations for the nine month period ended
September 30, 1996 are not necessarily indicative of the operating results for
the full year.
2. Summary of Accounting Policies
Cash and Cash Equivalents-
The Company considers cash on hand, cash on deposit with banks and United
States Treasury Bill investments to be cash equivalents.
Inventories-
Inventories, principally finished goods available for distribution, are
stated at the lower of cost or market. Cost is determined on the first-in,
first-out method. It is the Company's policy to review the composition of
its inventory on an ongoing basis and reserve or dispose of obsolete,
slow-moving or nonsalable inventory. As of September 30, 1996 the Company
maintained an inventory reserve balance of $244,000.
Property And Equipment-
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets, which ranges from four to seven years.
Prepublication Costs-
Prepublication costs, including editing and design of new CD-ROM titles,
have been capitalized and are being amortized as a component of cost of
sales. Amortization expense is computed on a product-by-product basis using
the greater of (a) the ratio that current period gross revenue bears to the
total of current and anticipated future gross revenues or (b) straight-line
over the estimated economic life of the product (not exceeding two years).
Amortization commences in the period in which the products are available
for general release. Prepublication costs include salaries and other direct
production costs incurred once technological feasibility is established and
licensing rights, if any, are obtained for the titles. Research and
development costs incurred prior to this point are expensed as incurred.
Such costs were not significant for the periods presented.
7
<PAGE>
The Company evaluates the carrying value of prepublication costs for each
title on an ongoing basis in relation to anticipated future sales and,
where appropriate, provides additional write downs of unamortized balances
or accelerates the amortization rate so that the individual unamortized
title costs do not exceed their net realizable value. During the nine
months ended September 30, 1996 and 1995, accelerated amortization of
prepublication costs were approximately $566,000 and $0, respectively.
Investment in Joint Venture-
During August 1995, the Company and the American Management Association
("AMA") formed a joint venture to develop and publish AMA materials on
CD-ROM and the Internet. The new company, Amacom New Media, Inc., combines
resources of these two publishers and is 50% owned by each party. During
December 1995 the Company contributed $250,000 to the joint venture to
provide initial funding requirements. For the nine months ended September
30, 1996, the joint venture incurred expenses of approximately $40,000 of
which the Company's share is 50% or $20,000.
Revenue Recognition-
Sales revenue is recognized when products are shipped to customers, since
there are no remaining significant service or support obligations or
warranties associated with the product sale and collectibility of the sale
is probable. Technical support provided to consumers who purchase the
Company's products generally occurs at or shortly after the time of sale.
Such costs are not significant in relation to the product sale and are
expensed as incurred. The effect of this treatment for technical support
costs is not material to the results of operations for all periods
presented. The Company provides a reserve for possible returns from
customers, vendor price protection and discount allowances based upon
historical experience as well as current and anticipated trends. These
reserves are included in the allowance for doubtful accounts.
Guaranty and Warranty Policies-
The Company maintains a 30-day money back guaranty and a one-year
defective product warranty for products that are sold by the Company to
ultimate retail consumers. Product guaranty and warranty expense is not
significant in relation to the product sale and is expensed when incurred.
The effect of this accounting treatment is not material to the results of
operations for any period presented.
Advertising and Catalog Costs-
Advertising and catalog costs associated with distribution of the
Company's products are expensed as incurred.
Income Taxes-
The Company uses the liability method of computing deferred income
taxes. Deferred taxes are recognized for tax consequences of "temporary
differences" by applying enacted statutory tax rates, applicable to future
years, to differences between the financial reporting and the tax basis of
existing assets and liabilities. No benefit has been reflected for the
Company's net operating loss until such time as realization of this
benefit is more likely than not.
Net Loss Per Common Share
Net loss per common share has been computed by dividing net loss by the
weighted number of common shares outstanding after giving retroactive
effect to the 5% stock dividend declared in April 1996. As required by the
Securities and Exchange Commission rules, all warrants, options and shares
within one year of the public offering at less than the public offering
price are assumed to be outstanding for each year presented for purposes
of the per share calculation. All other warrants and options have not been
considered in the computation of net loss per common share as they would
be anti-dilutive.
8
<PAGE>
3. Shareholders' Equity
On August 11, 1995 the Company sold to the public 1,000,000 shares of the
Company's common stock at a price of $5.00 per share as well as redeemable
common stock purchase warrants (the "Warrants") at a price of $.25 per
Warrant. The Warrants initially permitted the holders thereof to purchase
1,000,000 shares of the Company's common stock in the future at an
exercise price of $7.50 per share. The exercise price of such Warrants was
subsequently reduced by the Company (see below). On October 2, 1995 the
Company received net proceeds of $685,125 from the sale of 150,000 shares
of the Company's common stock and 150,000 of the Company's Warrants. These
shares and Warrants were issued upon the exercise of an over-allotment
option granted to the underwriters of the Company's initial public
offering which occurred in August 1995. Net proceeds to the Company after
underwriting commissions, related underwriting expenses, and additional
expenses incurred in connection with the initial public offering were
approximately $4,400,000.
Pursuant to an agreement dated September 9, 1994, 113,337 warrants were
granted to a consultant of the Company at an exercise price of $3.24 per
share, which was based upon the price of the stock sold to a group of
unaffiliated investors in 1994. As of June 30, 1996, 42,850 of these
warrants were exercised. Of the warrants remaining outstanding, 50,487
expire in 1999 and 20,000 expire in the year 2000.
On April 4, 1996, the Board of Directors of the Company declared a 5%
stock dividend for all holders of record as of April 30, 1996 of the
Company's common stock. The stock dividend was paid by the Company on May
24, 1996. The two largest shareholders of the Company, Larry Shiller and
Richard and Georgia Raysman, as joint tenants, elected not to receive such
stock dividend. Mr. Shiller is a Director, President and Chief Executive
Officer of the Company and Mr. Raysman is a Director of the Company.
On April 4, 1996, the Company also announced that it had extended the
expiration date of, and reduced the exercise price of, its Warrants that
were issued as part of the Company's initial public offering which was
consummated in August 1995. Each Warrant previously expired on August 10,
1998 and entitled the holder to purchase one share of the Company's common
stock at a price of $7.50 per share. For holders of Warrants of record as
of April 15, 1996, each Warrant will now expire on August 10, 1999 and
will entitle the holder to purchase one share of the Company's common
stock at a price of $6.50 per share. All other terms and provisions of the
Warrants remain unchanged.
On July 31, 1996, the Company completed a financing in the amount of
$1,835,000 with an investor group for the sale of 36.7 units consisting of
its common stock and its common stock purchase warrants. Each unit was
priced at $50,000 and consisted of 40,000 shares of common stock and
warrants to purchase 40,000 shares of common stock at an exercise price of
$2.00 per share upon the terms and conditions more fully set forth in such
warrants.
4. Subsequent Events
On October 11, 1996 the Company announced the layoff of 16 of its 28
employees. The reduction in staff was due to disappointing sales results
and a decision was made to redirect the Company's efforts.
On November 7, 1996 the Company announced that it has signed a non-binding
letter of intent to acquire a 51% interest in a joint venture which
produces polyester raw material in Jinan, China. The production facility
owned by the joint venture is currently the second largest producer of
polyester raw material in China and the largest producer in Northern
China. The letter of intent contemplates that approximately 90.2 million
common stock equivalents will be issued by the Company to complete the
acquisition and the additional financing required in connection with the
closing of the transaction. The closing of the transaction is subject to
negotiation and the signing of a definitive purchase agreement, the
receipt of a fairness opinion and various other terms and conditions. If
this transaction is completed it will be accounted for financial
reporting purposes as a reverse merger, with the shareholders of the
company being aquired obtaining a controlling interest in the Company.
9
<PAGE>
Item 2.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company was incorporated in 1988 as a distributor of titles, drives and
accessories for the CD-ROM (Compact Disc-Read Only Memory) industry. It issued
its first internally developed title in 1990 and by 1993 the Company completed
phase out of third-party titles and marketed and sold solely its own titles.
Fiscal year 1994 was the first full year in which substantially all net sales of
the Company were generated by internally developed titles. During 1995 the
Company entered into a joint venture agreement with the American Management
Association ("AMA") to develop and publish AMA materials on CD-ROM and the
Internet. In addition, the Company entered into an exclusive distribution
arrangement with The Weather Channel Enterprises, Inc. (formerly known as BVE
Products, Inc.) for Everything Weather. The Company's strategy is to internally
develop high quality informational and educational interactive multimedia
software based on licenses of existing print and other media properties
primarily in fields that will achieve sustained consumer appeal and brand name
recognition. The Company's products are intended for use by adults and students
in homes, businesses, schools and libraries. The Company develops and publishes
its software on CD-ROMs for use on personal computers using Windows(TM),
Macintosh and MS-DOS based CD-ROM playback systems.
Results of Operations
Nine Months ended September 30, 1996 and 1995
Net sales for the nine months ended September 30, 1996 were $454,439 as compared
to $2,384,644 for the comparable period of 1995, or a decrease of $1,930,205 or
81%. The decrease is primarily the result of lower sales attributable to lack of
new title releases and sluggishness in the retail channel.
Cost of sales totaled $1,318,314 or 290% of net sales for the first nine months
of 1996 as compared to $751,530 or 31.5% of net sales for the first nine months
of 1995. The increase as a percentage of net sales is primarily due to the lower
volume of sales and higher software amortization expenses related to the effect
of a shorter time period over which these costs are amortized. In addition,
higher inventory reserves for packaging materials and the amortization of
expenses related to discontinued projects also contributed to the increase of
cost of sales as a percentage of net sales. As a result primarily of the
increase in the amortization of pre-publication costs and the higher inventory
reserves for packaging materials, the Company's gross profits as a percentage of
net sales were lower in 1996 as compared to 1995. Gross losses were (190%) of
net sales, or ($863,875) in the first nine months of 1996 as compared to gross
profits of 68.5% of net sales or $1,633,114 during the same period in 1995.
Selling, general and administrative expenses, totaled $2,609,450 and $1,710,481
during the first nine months of 1996 and 1995, respectively, an increase of
$898,969 or 52.6%. As a percentage of net sales, selling, general and
administrative expenses increased to 574.2% during the first nine months of 1996
from 71.7% during the same period in 1995. This increase is due to several
factors including, primarily, higher reserves for doubtful accounts, costs
associated with being a public company (e.g. legal fees, insurance), and
increases in rent and public relations expenses. Also, higher personnel costs
due to staffing increases and higher average salaries contributed to the
increase in selling, general and administrative expenses.
Operating loss for the period ended September 30, 1996 was $3,473,325 or 764.3%
of net sales, as compared to an operating loss of $77,367 or 3.2% of net sales
during the same period in 1995.
10
<PAGE>
Interest expenses for the period ended September 30, 1996 were $2,305 or .5% of
net sales. Interest expenses for the first nine months of 1995 were $1,171,445
or 49.1% of net sales due to the November 1994 and April 1995 tranches of the
Company's bridge financing ("Bridge Financing") and the amortization of $937,500
of the value of the common stock and the redeemable common stock purchase
warrants that were issued to the investors in the Bridge Financing upon the
consummation of the Company's initial public offering in August 1995.
Other income for the period ended September 30, 1996 was $61,401 or 13.5% of net
sales, as compared to $16,308 or .68% of net sales during the same period in
1995. Other income consists primarily of interest earned from temporary
investments in U.S. Treasury Bills.
Due to the combination of the preceding factors, pre-tax losses increased
$2,201,725 to a loss of $3,434,229 or 755.7% of net sales during the nine months
ended September 30, 1996, from a loss of $1,232,504 or 51.7% of net sales during
the comparable period of 1995.
Three Months ended September 30, 1996 and 1995
Net sales for the three months ended September 30, 1996 totaled $181,195,
as compared to $943,149 for the three months ended September 30, 1995, or a
decrease of $761,954, or 80.8%. This decrease is primarily due to delays in
product development and the overall sluggishness of the retail market for
CD-ROMs.
Cost of sales totaled $831,023 or 458.6% of net sales for the third quarter of
1996 as compared to $178,746, or 19% of net sales for the same period of 1995.
The increase of $652,277 is primarily the result of higher software amortization
expenses related to the effect of a shorter time period over which these costs
are amortized and the amortization of expenses related to discontinued projects.
Primarily as a result of the lower sales levels, the Company realized a decrease
in gross profits for the three months ended September 30, 1996 as compared to
the same period in 1995. Gross losses totaled ($649,828) or (358.6%) of net
sales in 1996 as compared to a gross profit of $764,403 or 81% of net sales in
1995.
Selling, general and administrative expenses totaled $830,585 in the third
quarter of 1996, an increase of $265,273 or 46.9%, as compared to $565,312
incurred in the third quarter of 1995. This increase is due to several factors
including, primarily, higher reserves for doubtful accounts, costs associated
with being a public company (e.g. legal fees, insurance), and increases in rent
and public relations expenses. Also, higher personnel costs due to staffing
increases and higher average salaries contributed to the increase in selling,
general and administrative expenses.
The Company's operating loss was $1,480,413 or 817 % of net sales for the three
month period ended September 30, 1996 as compared to the operating income of
$199,091, or 21.1% of net sales achieved in the same period of the prior year.
Interest expenses were $2,257 in the three months ended September 30, 1996 and
were $251,183 during the three months ended September 30, 1995, a decrease of
$248,926. This decrease is primarily the result of the interest cost of the
Bridge Financing and the amortization of the value of the shares of common stock
and warrants issued to investors in the Bridge Financing which was recognized in
1995 and not in 1996.
Other income was $20,820 or 11.5% of net sales for the three month period ended
September 30, 1996 as compared to $15,541, or 1.6% of net sales in the same
period of the prior year. Other income consists primarily of interest earned on
temporary investments in U.S. treasury bills.
The preceding factors all combined to cause a pre-tax loss of $1,461,850 or
806.8% of net sales, as compared to a pre-tax loss of $36,551 or 3.9% of net
sales, achieved in the same period of 1995.
11
<PAGE>
Liquidity and Capital Resources
The Company had a working capital surplus of $943,053 at September 30, 1996,
which represented a decrease of $453,444 from the working capital surplus of
$1,396,497 at June 30, 1996. The decrease in the working capital surplus was due
mainly to a lower level of accounts payable at the end of the third quarter of
1996 as compared to the second quarter of 1996. The Company's cash position
decreased to $1,095,824 at September 30, 1996 from $1,438,425 at June 30, 1996.
The Company's operating activities used cash of $1,911,685 and $592,704 in the
first nine months of 1996 and 1995, respectively. In the first nine months of
1996 the net loss of $3,434,229 was partly offset, primarily by the provision
for doubtful accounts, the amortization of pre-publication costs and the
increase in inventory reserves for packaging materials. In the first nine months
of 1995, the net loss of $1,232,504 was partly offset, primarily by the
amortization of costs associated with the Bridge Financing, the amortization of
pre-publication costs and a decrease in other assets. In addition, cash was used
to finance an increase in accounts receivable and inventories and a decrease in
accounts payable. For the third quarter of 1996 and 1995, the Company's
operating activities used cash of $740,679 and $384,826, respectively. In the
third quarter of 1996 the net loss of $1,461,850 was partly offset primarily the
amortization of pre-publication costs. In the third quarter of 1995 the net loss
of $36,551 was partly offset, primarily by the amortization of costs associated
with the Bridge Financing and the amortization of prepublication costs. In
addition, cash was primarily used by an increase in accounts receivable and
inventories.
The Company's investing activities used cash of $1,218,915, $593,968, $329,422
and $221,402 during the first nine months of 1996 and 1995, and for the three
months ended September 30, 1996 and 1995, respectively. The principal use of
this cash was the capitalization of prepublication costs involved in the
development of new titles, and the purchase of property and equipment in
connection with the Company's recent relocation to Princeton, New Jersey.
The Company's financing activities provided cash of $1,973,834, $3,580,766,
$727,500 and $3,052,546 during the first nine months of 1996 and 1995 and for
the three months ended September 30, 1996 and 1995, respectively. For the nine
and three months ended September 30, 1996, cash was provided primarily by the
issuance of common stock in connection with the financing with an investor group
discussed above. For the nine and three months ended September 30, 1995, cash
was primarily provided by the proceeds of the Company's initial public offering
consummated in August 1995. Cash was also used for the repayment of debt related
to the Bridge Financing.
During the first nine months of 1996, the Company experienced a net decrease in
cash of approximately $1,157,000. If such rate of negative cash flow continues,
the Company believes its current cash resources will be sufficient to fund its
operations until the first quarter of 1997. Therefore, the long-term future of
the Company is dependent upon the Company's ability to increase its sales,
reduce its expenses an/or raise additional funds through bank borrowings, lines
of credit, new issuances of its debt and/or equity securities or from other
sources. There can be no assurance that the Company will be able to increase its
sales, reduce its expenses or raise such additional funds.
"Safe Harbor" Statement
Forward looking statements made herein are based on current expectations of the
Company that involve a number of risks and uncertainties and such forward
looking statements should not be considered guarantees of future performance.
These statements are made under the "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995. The factors that could cause actual
results to differ materially from the forward looking statements include the
impact of competitive products and pricing, product demand and market acceptance
risks, the presence of competitors with greater financial resources than the
Company and an inability to arrange additional debt or equity financing.
12
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- ------------------- --------
10.29 Consulting Agreement dated July 1, 1996
between the Company and Bryan Finkel,
with Form of Warrants attached 15
11 Calculation of Net Loss per Common Share 29
(b) REPORTS ON FORM 8-K
On October 22, 1996, the Company filed a Form 8-K with the Securities
and Exchange Commission. Such Form 8-K disclosed that the Company
announced the layoff of 16 of its 28 employees. The reduction was due
to disappointing sales results and a decision was made to redirect the
Company's efforts. The Company plans to enhance shareholder value by
focusing its efforts upon the building of profitable lines of business
via internal development and acquisition.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BUREAU OF ELECTRONIC PUBLISHING, INC.
Date: November 14, 1996 By: /s/ Elliott S. Eisenberg
-------------------------------
Elliott S. Eisenberg, Chief
Operating Officer
Date: November 14, 1996 By: /s/ Brent J. Subkowsky
-------------------------------
Brent J. Subkowsky, Controller and
Secretary (Principal Financial and
Accounting Officer)
14
EXHIBIT 10.29
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into effective July
1, 1996, by and between BUREAU OF ELECTRONIC PUBLISHING, INC., a Delaware
corporation ("Bureau of Electronic Publishing"), and BRYAN IRA FINKEL, INC.
("Consultant"), based on the following:
Premises
A. Bureau of Electronic Publishing owns or has rights to a group of
technologies related to the development and design of interactive media.
B. Consultant is engaged in the business of providing business consulting
and has experience and expertise in developing marketable products from
technology, bringing new products to market, identifying and penetrating
potential markets, and developing operational plans and implementation
strategies.
C. Bureau of Electronic Publishing wishes to engage Consultant as a
business consultant to assist it in its goals and Consultant wishes to accept
such engagement, all on the terms and conditions contained herein.
Agreement
NOW, THEREFORE, based on the foregoing premises, which are incorporated
into this Agreement by this reference, and in consideration of the mutual
covenants and agreements hereinafter set forth and the benefit to the parties to
be derived therefrom, it is hereby agreed as follows:
1. Engagement. During the term of this Agreement, Bureau of Electronic
Publishing will engage the Consultant to provide to Bureau of Electronic
Publishing advisory and consulting services on a non-exclusive basis. Consultant
shall use best efforts to (a) undertake a study and analysis of the business,
operations, and financial condition of Bureau of Electronic Publishing; (b)
develop a strategy and operational plan for developing and acquiring new
products; (c) identify markets for products produced and licensed by Bureau of
Electronic Publishing; (d) identify and qualify market contacts; (e) provide
such other advisory and consulting services as may be reasonably requested by
Bureau of Electronic Publishing for the development and marketing of the
company's products. Such services shall be rendered to the extent reasonably
practicable, at times and places mutually agreeable to Bureau of Electronic
Publishing and Consultant. Consultant agrees that he will use his best efforts
to deal effectively with all matters submitted to him and to further, through
his advice and services, the business goals of Bureau of Electronic Publishing.
Consultant shall have the right to perform services for other business and
companies, subject to the
<PAGE>
provisions of this Agreement. Bureau of Electronic Publishing acknowledges that
the cooperation of Bureau of Electronic Publishing and its employees and agents
with Consultant is a necessary condition to Consultant rendering his services
thereunder. Therefore, Bureau of Electronic Publishing shall cooperate with,
work in good faith with, and provide all reasonable assistance to, Consultant
(and shall cause its employees and agents to do the same) in connection with
Consultant rendering his services hereunder.
2. Term. The term of this Agreement shall commence on the date set forth
above and shall end on the date one year from the date set forth above, unless
terminated earlier in accordance with the provisions of this Agreement.
3. Compensation. In consideration of the performance of the services set
forth above, Bureau of Electronic Publishing shall pay Consultant a monthly fee
of $4,000, commencing on the date of this Agreement, for total cash compensation
for services rendered hereunder of $48,000. In addition, Bureau of Electronic
Publishing shall issue to Consultant, as soon as practicable after the date of
execution of this agreement, warrants to purchase 200,000 shares of the common
stock of Bureau of Electronic Publishing, par value $0.001 per share (the
"Common Stock") in substantially the form attached hereto as Exhibit A and
warrants to purchase 200,000 shares of the Common Stock in substantially the
form attached hereto as Exhibit B.
4. Expenses. Bureau of Electronic Publishing will reimburse Consultant for
actual and reasonable third-party expenses incurred by Consultant in connection
with the services rendered by the Consultant pursuant to this agreement
including expenses for entertainment, telephone, and travel incurred for the
direct benefit of Bureau of Electronic Publishing, on Consultant's periodic
presentation of an itemized account of such expenses, together with supporting
documentation. Notwithstanding the provisions of the preceding sentence,
Consultant may not incur any particular item of third-party expense in excess of
$1,000 without the prior approval of the President or CEO of the Bureau of
Electronic Publishing.
5. Independent Contractor Status. This Agreement is intended to secure the
consulting services of Consultant as an independent contractor and nothing
herein shall be construed as creating an employer/employee relationship, a
partnership, joint venture or other joint interest between Bureau of Electronic
Publishing and the Consultant. Except as expressly provided herein, the
Consultant has no right or authority to act for or on behalf of Bureau of
Electronic Publishing or to assume or to create any obligation or
responsibility, express or implied, in behalf of or in the name of Bureau of
Electronic Publishing, or to bind Bureau of Electronic Publishing in any manner
whatsoever without the express written approval of Bureau of Electronic
Publishing. Consultant shall be solely liable for the payment of any federal or
state self-employment, income or other taxes imposed or arising out of the
payment of fees and other compensation to the Consultant by Bureau of Electronic
Publishing as set forth in this Agreement and there shall be no responsibility
for withholding of taxes
-2-
<PAGE>
or other participation by Bureau of Electronic Publishing. Consultant
understands that he will not be treated as an employee with respect to its
consulting services under this Agreement for any purpose whatsoever.
6. Confidential Information; Non-competition.
(a) Access to Information. In connection with the Consultant's
engagement, Consultant will have access to certain non-public information
concerning Bureau of Electronic Publishing. Consultant agrees to hold such
information in confidence in accordance with the provisions of the following
subsection. In addition, Consultant agrees that neither he, nor his employees or
representatives, will purchase or sell shares of Bureau of Electronic Publishing
stock while in possession of non-public information that might be material to a
decision to buy or sell securities and that neither he, nor his employees or
representatives, will make such non-public information available to any other
person or entity, whether individually or as a group, which may purchase or sell
stock while in possession of such non-public information.
(b) Covenants Respecting Confidential Information. For purposes of
this Agreement, the term "Confidential Information" shall mean (i) all
information regarding Bureau of Electronic Publishing disclosed to or known to
the Consultant as a direct or indirect consequence of the engagement of
Consultant by Bureau of Electronic Publishing pursuant to this Agreement and not
generally known to the public, and (ii) all reports, plans, strategies, and
similar material developed by Consultant for Bureau of Electronic Publishing
under the terms of this Agreement. Consultant agrees that he will treat in
confidence all documents, materials and other Confidential Information which he
shall have obtained in the course of performance of his duties under this
Agreement. In consideration of the appointment of the Consultant as a business
consultant and in consideration of the compensation to be paid to the Consultant
during the term of this Agreement, the Consultant hereby agrees that he will
not, during the term of this Agreement or at any time after termination hereof,
irrespective of the time, manner, or cause of termination, use, disclose, copy,
or assist any other person or firm in the use, disclosure, or copying of any
Confidential Information. All files, records, documents, drawing, equipment, and
similar items relating to the business of Bureau of Electronic Publishing,
whether prepared by the Consultant or otherwise coming into his possession,
shall remain the exclusive property of Bureau of Electronic Publishing.
(c) Non-Confidential Information. The obligation of Consultant to
treat the Confidential Information in confidence shall not apply to any
information which (i) is or becomes available to Consultant from a source with
the right to disclose such information, other than Bureau of Electronic
Publishing or its insiders and affiliates, (ii) becomes public knowledge, other
than as a result of disclosure by Consultant in breach of this Agreement, or
(iii) is required to be disclosed under applicable law or judicial process, but
only to the extent it must be disclosed.
-3-
<PAGE>
(d) Non-competition. During the term of this Agreement, Consultant
agrees that he and his employees and representatives will not engage, directly
or indirectly, in any business or activity, whether as an employee, director,
equity owner, or partner, of any corporation or association that competes
directly in any market with Bureau of Electronic Publishing or its affiliates.
Consultant further agrees that he will not undertake any consulting engagement
from any corporation or association that competes directly in any market with
Bureau of Electronic Publishing or its affiliates.
(e) Enforcement. The following provisions shall apply to the covenants
of Consultant contained in this section:
(i) Without limiting the right of Bureau of Electronic Publishing
to pursue all other legal and equitable remedies available for a violation by
Consultant of the covenants contained in this section, it is expressly agreed
that remedies other than injunctive relief cannot fully compensate Bureau of
Electronic Publishing for a violation of the covenants contained in this section
and the Bureau of Electronic Publishing shall be entitled to injunctive relief
to prevent any such violation or continuing violation thereof.
(ii) It is the intent and understanding of each party hereto that
if, in any action before any court or agency legally empowered to enforce the
covenants contained in this section, any term, restriction, covenant, or promise
contained therein is found to be unreasonable and for that reason unenforceable,
then such term, restriction, covenant, or promise shall be deemed modified to
the extent necessary to make it enforceable by such court or agency.
7. Termination of Engagement. Either party may terminate this Agreement on
30 days written notice to the other party. Bureau of Electronic Publishing may
terminate this Agreement at any time without notice if (a) Consultant willfully
fails to perform or habitually neglects the duties validly assigned to him
hereunder and fails to cure such failure or neglect within 10 days after notice
from Bureau of Electronic Publishing to Consultant of such failure or neglect,
or (b) Consultant engages in conduct involving criminal conduct or fraud as to
the Company. The obligations of Consultant to provide services and the
obligation of Bureau of Electronic Publishing to provide the cash compensation
to consultant required by the first sentence of Section 3 hereof shall not
extend beyond such termination. Except as otherwise set forth in this agreement,
the provisions of Sections 3, 6, and 12 shall survive any termination of this
Agreement for any reason and shall remain binding on the parties.
8. Assignment. Consultant shall not sell, assign, transfer, convey,
delegate or encumber his duties and obligations hereunder or any rights or
interest herein.
-4-
<PAGE>
9. Governing Law. This Agreement shall be governed by interpreted and
enforced in accordance with the law of the state of New York, and the parties
agree that any dispute under this Agreement shall only be brought in the state
or federal district courts of the state of New York having jurisdiction.
10. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, term or condition of this Agreement or to
exercise any right or remedy consequent upon a breach hereof shall serve as a
waiver of any such strict performance or the right to exercise any such right or
remedy.
11. Notices. All notices or demands to parties shall be in writing and
shall be delivered personally, by facsimile transmission, telegraphically,
overnight delivery, or by express or certified mail to the following addresses
or facsimile numbers:
If to Bureau of Electronic Publishing, to:
Bureau of Electronic Publishing
Attention: CEO
619 Alexander Road
Princeton, New Jersey 08540
Facsimile Transmission: (609) 514-1818
Telephone: (609) 514-1600
If to Consultant, to:
Bryan Finkel
16 East 98th Street - Apt. 6E
New York, New York 10029
Facsimile Transmission: (212) 987-9206
Telephone: (800) 218-9522
12. Indemnification. The parties shall each indemnify the other for any
claims, damages, costs, or expenses incurred by the non-indemnifying party
arising out of or based upon the breach of the covenants, warranties,
obligations, or agreements of the indemnifying party under the terms of this
Agreement, including reasonable attorneys' fees.
13. Validity of Provisions and Severability. If any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect the validity and enforceability of any
other provisions hereof. Further, should any provisions within this Agreement
ever be reformed or rewritten by a judicial body, those provisions as rewritten
shall be binding upon Bureau of Electronic Publishing and the Consultant.
-5-
<PAGE>
14. Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the subject matter of this
Agreement. This Agreement supersedes all prior agreements, if any, and any prior
or contemporaneous understandings, negotiations, and discussions, whether oral
or written. No supplement, modification, or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
15. Multiple Counterparts. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement.
AGREED AND ENTERED INTO as of the date first above written.
BUREAU OF ELECTRONIC PUBLISHING
By: /s/ Larry Shiller
---------------------------
Larry Shiller
CEO and President
Consultant:
/s/ Bryan Finkel
---------------------------
Bryan Finkel
President
Bryan Ira Finkel, Inc.
-6-
<PAGE>
EXHIBIT A
Neither this Warrant nor the shares of Common Stock issuable on exercise of
this Warrant have been registered under the Securities Act of 1933, as amended
(the "Act") or the securities laws of any state. None of such securities may be
sold, transferred, pledged or hypothecated unless they have been so registered
or the Company shall have received an opinion of counsel satisfactory to the
Company to the effect that registration thereof for purposes of transfer is not
required under the Act or the securities laws of any state.
BUREAU OF ELECTRONIC PUBLISHING, INC.
WARRANT
Dated:
Number of Shares:
Holder:
Address:
- ------------------------
THIS CERTIFIES THAT the holder of this Warrant ("Holder") is entitled to
purchase from BUREAU OF ELECTRONIC PUBLISHING, INC., a Delaware corporation
(hereinafter called the "Company"), on the terms and conditions set forth herein
and at a price of $2.00 per share, the number of shares of the Company's common
stock set forth above ("Common Stock").
The Holder acknowledges that, as of the date of this Warrant, the Company
does not have a sufficient number of unreserved authorized and unissued shares
of Common Stock to issue to the Holder the shares of Common Stock it is required
to issue upon any exercise of this Warrant. The Holder further acknowledges that
any increase in the number of authorized shares of the Company will require the
approval of the Company's stockholders. The Company covenants to take, as soon
as possible after the date hereof, all steps necessary to increase the number of
its authorized shares of Common Stock to 12,000,000, which increase permits the
Company to issue to Holder all shares of Common Stock which may be purchased
pursuant to this Warrant. The Company further covenants to use its best efforts
to obtain shareholder approval of such increase. By separate instrument,
stockholders owning in the aggregate 1,350,917 shares of Common Stock have
agreed to vote in favor of such
<PAGE>
increase. Notwithstanding anything in this Warrant to the contrary, this Warrant
may not be exercised until after such approval has been obtained.
This Warrant shall expire on the third anniversary of the date of issuance
or, if earlier, on the first date on which both (a) and (b) shall be true,
namely (a) the registration statement referred to below shall be in effect and
shall have been effective for not less than the ninety (90) consecutive days
immediately preceding such date and (b) the closing price per share of the
Company's common stock on NASDAQ (or such other securities exchange where the
common stock may then be listed) shall have been not less than $5.00 per share
during the twenty (20) consecutive trading days immediately preceding such date.
The expiration dates (including, without limitation, the expiration date which
is based on anniversaries of the date of issuance) and the number of consecutive
trading dates set forth in this paragraph shall be extended by one day for each
day after December 31, 1996 on which the registration statement referred below
is not in effect with respect to the Common Stock issuable upon exercise of this
Warrant.
1. This Warrant and the Common Stock issuable upon exercise of this Warrant
(the "Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Act or if the Company has received
from counsel to the Company a written opinion to the effect that registration of
this Warrant or the Underlying Shares is not necessary in connection with such
transfer, sale, assignment or hypothecation. The Warrant and the Underlying
Shares shall be appropriately legended to reflect this restriction and stop
transfer instructions shall apply. The Holder shall, through its counsel,
provide such information as is reasonably necessary in connection with such
opinion.
2. The Company will on or before the 90th day after the date of this
Warrant, file a registration statement on Form S-3 or Form SB-2 (the
"Registration Statement") for the public sale by the Holders of the Underlying
Shares. The Company shall use its best efforts to cause the Registration
Statement to become effective not later than ninety (90) days after the date of
filing, and to remain effective for three (3) years. The registration shall be
accompanied by blue sky clearances in such states as the Holders may reasonably
request. The Company shall pay all expenses of such registration, other than the
Holders' underwriting discounts. These registration rights may be assigned to
assignees of the Underlying Shares.
3. (a) Any permitted assignment of this Warrant shall be effected by the
Holder by (i) executing the form of assignment at the end hereof; (ii)
surrendering the Warrant for cancellation at the office of the Company,
accompanied by the opinion of counsel to the Company referred to above; and
(iii) unless in connection with an effective registration statement which covers
the sale of this Warrant and/or the Underlying Shares, delivery to the Company
of a statement by the transferee (in a form acceptable to the Company and its
counsel) that such Warrant is being acquired by the Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder), new
Warrants representing in the aggregate rights to purchase the same number of
Underlying Shares as are purchasable under the Warrant surrendered. Such
Warrants shall be exercisable immediately upon any such assignment of the number
of Warrants assigned. The transferor will pay all relevant transfer taxes.
Replacement warrants shall bear the same restrictive legend as is borne by this
Warrant.
-2-
<PAGE>
4. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
5. The Company covenants and agrees that all Underlying Shares will, upon
issuance, be duly and validly issued, fully paid and non-assessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, if the increase in the number of authorized shares of
Common Stock is approved by the stockholders of the Company as described above,
then throughout the period within which this Warrant may be exercised, the
Company will, at all times, have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of this Warrant and all other
Warrants.
6. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
7. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation, then appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the position of the Holder
upon exercise will be the same as it would have been had it owned the Underlying
Shares immediately prior to the occurrence of such events. Such adjustment shall
be made successively whenever any event listed above shall occur and the Company
will notify the Holder of the Warrant of each such adjustment. Any fraction of
an Underlying Share resulting from any adjustment shall be eliminated and the
price per share of the remaining Underlying Shares shall be adjusted
accordingly.
8. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company); (ii) payment to the Company of the
exercise price for the number of Underlying Shares specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) unless in connection with an effective registration statement
which covers the sale of the Underlying Shares, the delivery to the Company of a
statement by the Holder (in a form acceptable to the Company and its counsel)
that such Underlying Shares are being acquired by the Holder for investment and
not with a view to their distribution or resale.
The certificates for the Common Stock so purchased shall be delivered to
the Holder within a reasonable time, not exceeding ten (10) business days after
all requisite documentation has been provided, after the rights represented by
this Warrant shall have been so exercised, and shall bear a restrictive legend
with respect to any applicable securities laws.
9. This Warrant shall be governed by and construed in accordance with the
laws of the State of New York. The New York courts shall have exclusive
jurisdiction over this instrument and the enforcement thereof. Service of
process shall be effective if by
-3-
<PAGE>
certified mail, return receipt requested. All notices shall be in writing and
shall be deemed given upon receipt by the party to whom addressed. This
instrument shall be enforceable by decrees of specific performance, as well as
other remedies.
IN WITNESS WHEREOF, BUREAU OF ELECTRONIC PUBLISHING, INC. has caused this
Warrant to be signed by its duly authorized officers under its corporate seal,
and to be dated as of the date set forth above.
BUREAU OF ELECTRONIC PUBLISHING, INC.
By: __________________________________________
Title: _______________________________________
-4-
<PAGE>
EXHIBIT B
Neither this Warrant nor the shares of Common Stock issuable on exercise of
this Warrant have been registered under the Securities Act of 1933, as amended
(the "Act") or the securities laws of any state. None of such securities may be
sold, transferred, pledged or hypothecated unless they have been so registered
or the Company shall have received an opinion of counsel satisfactory to the
Company to the effect that registration thereof for purposes of transfer is not
required under the Act or the securities laws of any state.
BUREAU OF ELECTRONIC PUBLISHING, INC.
WARRANT
Dated:
Number of Shares:
Holder:
Address:
- ------------------------
THIS CERTIFIES THAT the holder of this Warrant ("Holder") is entitled to
purchase from BUREAU OF ELECTRONIC PUBLISHING, INC., a Delaware corporation
(hereinafter called the "Company"), on the terms and conditions set forth herein
and at a price of $2.00 per share, the number of shares of the Company's common
stock set forth above ("Common Stock").
The Holder acknowledges that, as of the date of this Warrant, the Company
does not have a sufficient number of unreserved authorized and unissued shares
of Common Stock to issue to the Holder the shares of Common Stock it is required
to issue upon any exercise of this Warrant. The Holder further acknowledges that
any increase in the number of authorized shares of the Company will require the
approval of the Company's stockholders. The Company covenants to take, as soon
as possible after the date hereof, all steps necessary to increase the number of
its authorized shares of Common Stock to 12,000,000, which increase permits the
Company to issue to Holder all shares of Common Stock which may be purchased
pursuant to this Warrant. The Company further covenants to use its best efforts
to obtain shareholder approval of such increase. By separate instrument,
stockholders owning in the aggregate 1,350,917 shares of Common Stock have
agreed to vote in favor of such
<PAGE>
increase. Notwithstanding anything in this Warrant to the contrary, this Warrant
may not be exercised until after such approval has been obtained.
This Warrant shall expire on the third anniversary of the date of issuance
or, if earlier, on the first date on which both (a) and (b) shall be true,
namely (a) the registration statement referred to below shall be in effect and
shall have been effective for not less than the ninety (90) consecutive days
immediately preceding such date and (b) the closing price per share of the
Company's common stock on NASDAQ (or such other securities exchange where the
common stock may then be listed) shall have been not less than $10.00 per share
during the twenty (20) consecutive trading days immediately preceding such date.
The expiration dates (including, without limitation, the expiration date which
is based on anniversaries of the date of issuance) and the number of consecutive
trading dates set forth in this paragraph shall be extended by one day for each
day after December 31, 1996 on which the registration statement referred below
is not in effect with respect to the Common Stock issuable upon exercise of this
Warrant.
1. This Warrant and the Common Stock issuable upon exercise of this Warrant
(the "Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Act or if the Company has received
from counsel to the Company a written opinion to the effect that registration of
this Warrant or the Underlying Shares is not necessary in connection with such
transfer, sale, assignment or hypothecation. The Warrant and the Underlying
Shares shall be appropriately legended to reflect this restriction and stop
transfer instructions shall apply. The Holder shall, through its counsel,
provide such information as is reasonably necessary in connection with such
opinion.
2. The Company will on or before the 90th day after the date of this
Warrant, file a registration statement on Form S-3 or Form SB-2 (the
"Registration Statement") for the public sale by the Holders of the Underlying
Shares. The Company shall use its best efforts to cause the Registration
Statement to become effective not later than ninety (90) days after the date of
filing, and to remain effective for three (3) years. The registration shall be
accompanied by blue sky clearances in such states as the Holders may reasonably
request. The Company shall pay all expenses of such registration, other than the
Holders' underwriting discounts. These registration rights may be assigned to
assignees of the Underlying Shares.
3. (a) Any permitted assignment of this Warrant shall be effected by the
Holder by (i) executing the form of assignment at the end hereof; (ii)
surrendering the Warrant for cancellation at the office of the Company,
accompanied by the opinion of counsel to the Company referred to above; and
(iii) unless in connection with an effective registration statement which covers
the sale of this Warrant and/or the Underlying Shares, delivery to the Company
of a statement by the transferee (in a form acceptable to the Company and its
counsel) that such Warrant is being acquired by the Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder), new
Warrants representing in the aggregate rights to purchase the same number of
Underlying Shares as are purchasable under the Warrant surrendered. Such
Warrants shall be exercisable immediately upon any such assignment of the number
of Warrants assigned. The transferor will pay all relevant transfer taxes.
Replacement warrants shall bear the same restrictive legend as is borne by this
Warrant.
-2-
<PAGE>
4. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
5. The Company covenants and agrees that all Underlying Shares will, upon
issuance, be duly and validly issued, fully paid and non-assessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, if the increase in the number of authorized shares of
Common Stock is approved by the stockholders of the Company as described above,
then throughout the period within which this Warrant may be exercised, the
Company will, at all times, have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of this Warrant and all other
Warrants.
6. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
7. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation, then appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the position of the Holder
upon exercise will be the same as it would have been had it owned the Underlying
Shares immediately prior to the occurrence of such events. Such adjustment shall
be made successively whenever any event listed above shall occur and the Company
will notify the Holder of the Warrant of each such adjustment. Any fraction of
an Underlying Share resulting from any adjustment shall be eliminated and the
price per share of the remaining Underlying Shares shall be adjusted
accordingly.
8. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company); (ii) payment to the Company of the
exercise price for the number of Underlying Shares specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) unless in connection with an effective registration statement
which covers the sale of the Underlying Shares, the delivery to the Company of a
statement by the Holder (in a form acceptable to the Company and its counsel)
that such Underlying Shares are being acquired by the Holder for investment and
not with a view to their distribution or resale.
The certificates for the Common Stock so purchased shall be delivered to
the Holder within a reasonable time, not exceeding ten (10) business days after
all requisite documentation has been provided, after the rights represented by
this Warrant shall have been so exercised, and shall bear a restrictive legend
with respect to any applicable securities laws.
9. This Warrant shall be governed by and construed in accordance with the
laws of the State of New York. The New York courts shall have exclusive
jurisdiction over this instrument and the enforcement thereof. Service of
process shall be effective if by
-3-
<PAGE>
certified mail, return receipt requested. All notices shall be in writing and
shall be deemed given upon receipt by the party to whom addressed. This
instrument shall be enforceable by decrees of specific performance, as well as
other remedies.
IN WITNESS WHEREOF, BUREAU OF ELECTRONIC PUBLISHING, INC. has caused this
Warrant to be signed by its duly authorized officers under its corporate seal,
and to be dated as of the date set forth above.
BUREAU OF ELECTRONIC PUBLISHING, INC.
By: __________________________________________
Title: _______________________________________
-4-
EXHIBIT 11
EXHIBIT NO. 11
BUREAU OF ELECTRONIC PUBLISHING, INC.
CALCULATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended September 30, 1996 Ended September 30, 1995
------------------------ ------------------------
<S> <C> <C>
Net loss $ (3,434,229) $ (1,232,504)
============== ==============
Weighted average number of common shares outstanding 3,523,969 2,859,018
Stock options and warrants issued prior to initial public
offering at prices less than initial public offering price 0 56,625
========= =========
Other stock options and warrants (a) 0 0
========= =========
Total weighted average common shares and equivalent common
shares 3,523,969 2,915,643
========= =========
Loss per share $ (0.97) $ (0.42)
========= =========
</TABLE>
- ------------------
(a) Stock options and warrants issued subsequent to December 31, 1994 were not
dilutive and accordingly not considered in the calculation above.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,095,824
<SECURITIES> 0
<RECEIVABLES> 116,908
<ALLOWANCES> 350,000
<INVENTORY> 201,574
<CURRENT-ASSETS> 1,513,684
<PP&E> 513,098
<DEPRECIATION> 276,455
<TOTAL-ASSETS> 3,211,883
<CURRENT-LIABILITIES> 570,631
<BONDS> 0
0
0
<COMMON> 4,520
<OTHER-SE> 2,636,732
<TOTAL-LIABILITY-AND-EQUITY> 3,211,883
<SALES> 454,439
<TOTAL-REVENUES> 454,439
<CGS> 1,318,314
<TOTAL-COSTS> 1,318,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 491,581
<INTEREST-EXPENSE> 2,305
<INCOME-PRETAX> (3,434,229)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,434,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,434,229)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.97)
</TABLE>
