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
JUNE 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 August 1, 1996 was 4,349,869 shares.
---------
The number of the issuer's common stock purchase warrants outstanding as of
August 1, 1996 was 1,340,476 warrants.
---------
Transitional Small Business Disclosure Format: Yes ____ No __X__
Page __1__ of __21___ pages
BUREAU OF ELECTRONIC PUBLISHING, INC.
FORM 10-QSB
INDEX
Part I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheet as of June 30, 1996 3
Statements of Operations for the three and
six months ended June 30, 1996 and 1995. 4
Statement of Changes in Shareholders' Equity
for the six months ended June 30, 1996. 5
Statements of Cash Flows for the three and
six months ended June 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 4. Submission of Matters to a Vote of Security-
Holders 13
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>
ASSETS June 30, 1996
- ------ -------------
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 1,438,425
Accounts Receivable, net of allowance for doubtful accounts
of $200,000 267,573
Inventories 337,355
Prepaid Expenses and Other Current Assets 100,270
-----------
Total Current Assets $ 2,143,623
Property and Equipment, net of accumulated depreciation of $237,425 $ 507,461
Prepublication Costs, net of accumulated amortization of $367,281 1,164,478
Investment in Joint Venture 230,000
Other Assets 77,166
-----------
Total Assets $ 4,122,728
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRRENT LIABILITIES
Accounts Payable $ 609,061
Accrued Expenses 138,065
-----------
Total Current Liabilities $ 747,126
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 - 7,719,623
shares authorized, 3,937,869 shares issued and outstanding 3,938
Common Stock Purchase Warrants, 1,340,476 warrants issued
and outstanding 335,119
Additional Paid-In Capital 7,375,891
Accumulated Deficit (4,339,346)
-----------
Total Shareholders' Equity $ 3,375,602
-----------
Total Liabilities and Shareholders' Equity $ 4,122,728
-----------
</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>
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 273,244 $ 1,441,495 $ 87,276 $ 772,635
COST OF SALES 487,291 572,784 142,020 261,429
----------- ----------- ----------- -----------
Gross (Loss) Profit $ (214,047) $ 868,711 $ (54,744) $ 511,206
SELLING, GENERAL and
ADMINISTRATIVE EXPENSES $ 1,778,865 $ 1,145,169 $ 715,157 $ 571,444
----------- ----------- ----------- -----------
Loss from operations $(1,992,912) $ (276,458) $ (769,901) $ (60,238)
EQUITY in LOSS of INVESTMENT
in JOINT VENTURE 20,000 0 20,000 0
INTEREST EXPENSE 48 920,262 48 666,801
OTHER INCOME 40,581 767 11,440 767
----------- ----------- ----------- -----------
Loss before income taxes $(1,972,379) $(1,195,953) $ (778,509) $ (726,272)
PROVISION FOR INCOME TAXES 0 0 0 0
----------- ----------- ----------- -----------
Net Loss $(1,972,379) $(1,195,953) $ (778,509) $ (726,272)
=========== =========== =========== ===========
NET LOSS PER COMMON
SHARE OUTSTANDING $ (0.65) $ (0.69) $ (0.25) $ (0.42)
=========== =========== =========== ===========
COMMON SHARES OUTSTANDING 3,037,709 1,725,166 3,089,591 1,725,166
=========== =========== =========== ===========
</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 SIX MONTHS ENDED JUNE 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
Net loss for the six months
ended June 30, 1996 0 0 0 0
--------- ------ --------- --------
BALANCE - June 30, 1996 2,000,000 7,719,623 3,937,869 $3,938 1,340,476 $335,119
========= ========= ========= ====== ========= ========
<CAPTION>
Additional
Paid-in Accumulated
Capital (Deficit) Total
----------- ----------- -----
BALANCE - December 31, 1995 $6,130,568 $(2,366,967) $4,101,647
Issuance of common stock 121,747 0 121,785
5% stock dividend (82) 0 0
Issuance of common stock 17,044 0 17,049
Issuance of common stock 1,106,614 0 1,107,500
Net loss for the six months
ended June 30, 1996 0 (1,972,379) (1,972,379)
------------ ------------ ----------
BALANCE - June 30, 1996 $ 7,375,891 $ (4,339,346) $3,375,602
============ ============= ==========
</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>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,972,379) $(1,195,953) $ (778,509) $(726,272)
----------- ----------- ----------- ---------
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation of property and equipment 53,104 24,820 30,963 13,986
Provision for doubtful accounts 341,581 0 0 0
Amortization of prepublication costs 281,913 160,914 102,208 83,985
Amortization of financing costs 0 732,143 0 544,643
Equity in loss of investment in joint venture 20,000 0 20,000 0
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable (50,823) (99,453) 36,521 (427,311)
Decrease (increase) in inventories 29,839 5,055 (26,987) 63,624
Decrease (increases) in prepaid expenses and
other current assets 4,937 (102,914) (1,959) (104,376)
(Increase) decrease in other assets (19,166) 84,107 (11,669) 30,482
Increase (decrease) in accounts payable,
and accrued expenses 139,988 183,403 (13,343) 169,685
----------- ----------- ----------- ---------
Total adjustments 801,373 988,075 135,734 374,718
----------- ----------- ----------- ---------
Net cash used in operating activities (1,171,006) (207,878) (642,775) (351,554)
----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (360,213) (57,096) (212,352) (51,254)
Increase in prepublication costs (529,280) (315,470) (259,697) (152,796)
----------- ----------- ----------- ---------
Net cash used in investing activities (889,493) (372,566) (472,049) (204,050)
----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan 0 500,000 0 500,000
Issuance of common stock 1,246,334 28,220 1,124,549 0
----------- ----------- ----------- ---------
Net cash provided by financing activities 1,246,334 528,220 1,124,549 500,000
----------- ----------- ----------- ---------
Net (decrease) increase in cash (814,165) (52,224) 9,725 (55,604)
CASH and CASH EQUIVALENTS,
beginning of period 2,252,590 (52,224) 1,428,700 55,604
----------- ----------- ----------- ---------
CASH and CASH EQUIVALENTS, end of period $ 1,438,425 $ 0 $ 1,438,425 $ 0
=========== =========== =========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for interest $ 48 $ 44,228 $ 48 $ 26,557
Cash paid during the period for taxes 50 0 50 0
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND JUNE 30, 1995
1. Financial Statements
The balance sheet as of June 30, 1996 and the related statements of operations,
shareholders' equity and cash flows for the periods ended June 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 six month period ended June
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 June 30, 1996 the Company
maintained an inventory reserve balance of $206,000.
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 six
months ended June 30, 1996 and 1995, accelerated amortization of
prepublication costs were approximately $108,000 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 six months ended June 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.
4. Subsequent Events
On July 31, 1996, the Company completed a financing in the amount of
$1,835,000 with an investor group for the sale of up to 40 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.
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
Six Months ended June 30, 1996 and 1995
Net sales for the six months ended June 30, 1996 were $273,244 as compared to
$1,441,495 for the comparable period of 1995, or a decrease of $1,168,251 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 $487,291 or 178.3% of net sales for the first six months
of 1996 as compared to $572,784 or 39.7% of net sales for the first six months
of 1995. The increase as a percentage of net sales is primarily due to higher
software amortization expenses related to the effect of a shorter time period
over which these costs are amortized and higher inventory reserves for packaging
materials. Also included in cost of sales is royalties on titles paid to content
providers which decreased approximately $26,000 for the first six months of 1996
compared to the first six months of 1995 due to the decrease in 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 (78.3%) of net sales, or ($214,047) in the first six months of
1996 as compared to gross profits of 60.3% of net sales or $868,711 during the
same period in 1995.
Selling, general and administrative expenses, totaled $1,778,865 and $1,145,169
during the first six months of 1996 and 1995, respectively, an increase of
$633,696 or 55.3%. As a percentage of net sales, selling, general and
administrative expenses increased to 651% during the first six months of 1996
from 79.4% 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 expense, public relations and sales travel. Also, higher
personnel costs due to staffing increases and higher average salaries
contributed to the increase in selling, general and administrative expenses.
10
<PAGE>
Operating loss for the period ended June 30, 1996 was $1,992,912 or 729.4% of
net sales, as compared to $276,458 or 19.2% of net sales during the same period
in 1995.
Interest expenses for the period ended June 30, 1996 were $48 or .02% of net
sales. Interest expenses for the first six months of 1995 were $920,262 or 63.8%
of net sales due to the November 1994 and April 1995 tranches of the Company's
bridge financing ("Bridge Financing") and the amortization of $732,143 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 June 30, 1996 was $40,581 or 14.9% of net
sales, as compared to $767 or .05% 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
$776,426 to a loss of $1,972,379 or 721.8% of net sales during the six months
ended June 30, 1996, from a loss of $1,195,953 or 83% of net sales during the
comparable period of 1995.
Three Months ended June 30, 1996 and 1995
Net sales for the three months ended June 30, 1996 totaled $87,276, as compared
to $772,635 for the three months ended June 30, 1995, or a decrease of $685,359,
or 88.7%. 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 $142,020, or 162.7% of net sales for the second quarter of
1996 as compared to $261,429, or 33.8% of net sales for the same period of 1995.
The decrease of $119,409 is primarily the result of lower sales. Primarily as a
result of the lower sales levels, the Company realized a decrease in gross
profits for the three months ended June 30, 1996 as compared to the same period
in 1995. Gross losses totaled ($54,744) or (62.7%) of net sales in 1996 as
compared to a gross profit of $511,206 or 66.2% of net sales in 1995.
Selling, general and administrative expenses totaled $715,157 in the second
quarter of 1996, an increase of $143,713 or 25.1%, as compared to $571,444
incurred in the second quarter of 1995. This increase is primarily due to higher
salary costs associated with increased staffing levels and higher average
salaries, as well as costs associated with being a public company (e.g. legal
fees, insurance), and increases in rent and public relations expenses.
The Company's operating loss was $769,901 or 882% of net sales for the three
month period ended June 30, 1996 as compared to the loss of $60,238, or 7.8% of
net sales achieved in the same period of the prior year.
Interest expenses were $48 in the three months ended June 30, 1996 and were
$666,801 during the three months ended June 30, 1995, a decrease of $666,753.
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 $11,440 or 13.1% of net sales for the three month period ended
June 30, 1996 as compared to $767, or .10% 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 $778,509 or 892%
of net sales, as compared to a pre-tax loss of $726,272 or 94% of net sales,
achieved in the same period of 1995.
11
<PAGE>
Liquidity and Capital Resources
The Company had a working capital surplus of $1,396,497 at June 30, 1996, which
represented an increase of $15,493 from the working capital surplus of
$1,381,004 at March 31, 1996. The increase in the working capital surplus was
due mainly to the recent completion of a $1,835,000 financing with an investor
group. The Company's cash position increased to $1,438,425 at June 30, 1996 from
$1,428,700 at March 31, 1996.
The Company's operating activities used cash of $1,171,006 and $207,878 in the
first six months of 1996 and 1995, respectively. In the first six months of 1996
the net loss of $1,972,379 was partly offset, primarily by the provision for
doubtful accounts, the amortization of pre-publication costs, the increase in
inventory reserves for packaging materials, and an increase in accounts payable
and accrued expenses. In the first six months 1995, the net loss of $1,195,953
was partly offset, primarily by the amortization of costs associated with the
Bridge Financing, the amortization of pre-publication costs, a decrease in other
assets, and an increase in accounts payable and accrued expenses. In addition,
cash was used to finance an increase in accounts receivable and prepaid expenses
and other current assets. For the second quarter of 1996 and 1995, the Company's
operating activities used cash of $642,775 and $351,554, respectively. In the
second quarter of 1996 the net loss of $778,509 was partly offset primarily the
amortization of pre-publication costs. In the second quarter of 1995 cash was
primarily used by an increase in accounts receivable and an increase in prepaid
expenses and other current assets reflecting the capitalization of costs
incurred in connection with the Company's initial public offering consummated in
August 1995.
The Company's investing activities used cash of $889,493, $372,566, $472,049 and
$204,050 during the first six months of 1996 and 1995, and for the three months
ended June 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 $1,246,334, $528,220,
$1,124,549 and $500,000 during the first six months of 1996 and 1995 and for the
three months ended June 30, 1996 and 1995, respectively. For the six and three
months ended June 30, 1996, cash was provided primarily by the issuance of
common stock in connection with the $1,800,000 financing with an investor group.
For the six and three months ended June 30, 1995, cash was primarily provided by
the April 1995 tranche of the Bridge Financing.
During the first six months of 1996, the Company experienced a net decrease in
cash of approximately $815,000. If such rate of negative cash flow continues,
the Company believes its current cash resources will be sufficient to fund its
operations until the end of fiscal year 1996. 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 4. Submission of Matters to a Vote of Security-Holders
At the Company's Annual Meeting of Stockholders held on May 24, 1996,
the following members were elected to the Board of Directors:
Larry Shiller
Forest Barbieri
Richard Raysman
The vote for each director was 2,827,929 votes For, zero votes Against
and 33,775 votes Abstained.
At the Annual Meeting of Stockholders, Arthur Andersen, LLP was
ratified as the Company's auditors for the fiscal year ended December
31, 1996. The vote was 2,841,129 votes For, 12,425 votes Against and
8,150 votes Abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- ------------------- --------
4.11 Form of Series A Warrant 15
4.12 Form of Series B Warrant 18
11 Calculation of Net Loss per Common Share 21
(b) REPORTS ON FORM 8-K
On August 2, 1996, the Company filed a Form 8-K with the Securities and
Exchange Commission. Such Form 8-K disclosed a vote by the Board of
Directors of the Company in favor of a resolution increasing the number
of members of the Board of Directors from 3 to 4 members and a
resolution electing Bryan Finkel to fill the vacancy on the Board
created by such previous resolution.
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: August 14, 1996 By: /s/ Larry Shiller
----------------------------
Larry Shiller, President and
Chief Executive Officer
Date: August 14, 1996 By: /s/ Elliott S. Eisenberg
----------------------------
Elliott S. Eisenberg, Chief
Operating Officer
14
<PAGE>
4.11 Form of Series A Warrant
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 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 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
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 to in an
agreement of even date herewith between the initial Holder hereof and the
Company (the "Agreement") is not in effect with respect to the Common Stock
issuable on exercise of this Warrant.
15
<PAGE>
1. This Warrant and the Common Stock issuable on 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 Holder is entitled to certain registration rights under the
Agreement.
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.
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.
16
<PAGE>
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
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 performances well as other remedies.
IN WITNESS WHEROF, 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: _____________________________________
In the presence of:
17
<PAGE>
4.12 Form of Series B Warrant
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 and unreserved 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 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 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
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 to in an
agreement of even date herewith between the initial Holder hereof and the
Company (the "Agreement") is not in effect with respect to the Common Stock
issuable on exercise of this Warrant.
18
<PAGE>
1. This Warrant and the Common Stock issuable on 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 Holder is entitled to certain registration rights under the
Agreement.
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.
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.
19
<PAGE>
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
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 performances well as other remedies.
IN WITNESS WHEROF, 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: _____________________________________
In the presence of:
20
EXHIBIT NO. 11
BUREAU OF ELECTRONIC PUBLISHING, INC.
CALCULATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, 1996 Ended June 30, 1995
------------------- -------------------
<S> <C> <C>
Net loss $ (1,972,379) $(1,195,953)
============= ===========
Weighted average number of common shares outstanding 3,028,387 1,668,543
Stock options and warrants issued prior to initial public
offering at prices less than initial public offering price 9,322 56,623
============= ===========
Other stock options and warrants (a) 0 0
============= ===========
Total weighted average common shares and equivalent
common shares 3,037,309 1,725,166
============= ===========
Loss per share $ (0.65) $ (0.69)
============= ===========
</TABLE>
(a) Stock options and warrants issued subsequent to December 31, 1994 were
not dilutive and accordingly not considered in the calculation above.
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,438,425
<SECURITIES> 0
<RECEIVABLES> 267,573
<ALLOWANCES> 200,000
<INVENTORY> 337,355
<CURRENT-ASSETS> 2,143,623
<PP&E> 507,461
<DEPRECIATION> 237,425
<TOTAL-ASSETS> 4,122,728
<CURRENT-LIABILITIES> 747,126
<BONDS> 0
0
0
<COMMON> 3,938
<OTHER-SE> 3,371,664
<TOTAL-LIABILITY-AND-EQUITY> 4,122,728
<SALES> 273,244
<TOTAL-REVENUES> 273,244
<CGS> 487,291
<TOTAL-COSTS> 487,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 341,581
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> (1,972,379)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,972,379)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,972,379)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.65)
</TABLE>
