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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required). For the fiscal year ended JUNE 30, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required). For the transition period from
________________ to ________________
COLLEGELINK.COM INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0 5388 16-0961436
(Commission File Number) (I.R.S. Employer Identification Number)
55 Hammarlund Way, Middletown, RI 02842
(Address of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock,
$.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate approximate market value of the Registrant's common stock, par
value $.001 per share, held by non-affiliates of the Registrant, based upon the
closing Price of $.563 on September 22, 2000, as reported by the American Stock
Exchange, was approximately $5,857,292. For purposes of this disclosure, shares
of Common stock held by persons who hold more than 5% of the outstanding shares
of common stock and shares held by officers and directors of the Registrant have
been excluded because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive for other
purposes.
The number of shares of Registrant's common stock, par value $.001 per share,
outstanding at September 23, 2000 was 14,396,948.
Documents Incorporated By Reference
Form 8K, Current Report of Events, filed on March 3, 2000
Form 8K, Current Report of Events, filed on April 5, 2000
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COLLEGELINK.COM INCORPORATED
FORM 10-KSB
FISCAL YEAR ENDED JUNE 30, 2000
This Annual Report on Form 10-KSB contains forward-looking statements with
respect to CollegeLink.com Incorporated ("CollegeLink.com" or the "Company")
that involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements due to a
number of factors, including those described herein and the documents
incorporated herein by reference, and those factors described in Part II, Item 7
under "Factors that May Affect Future Results of Operations."
SPECIAL CONSIDERATIONS
We have experienced a sharp decline in our stock price and market value in 2000.
Cash available at September 25, 2000 is able to support our operations at
present levels only through November 2000. We are seeking a buyer for the
Company or may seek to sell one of the Company's business segments. In addition,
certain members of the Company's management have resigned and are now
consultants to the Company. In Part II, Item 7 under "Factors that May Affect
Future Results of Operations," we have described several matters which we
believe are significant and which you should consider very carefully before you
decide to invest in our common stock.
PART I
Item 1. Business
OUR COMPANY
CollegeLink was incorporated in November 1999 as the successor to Cytation.com
Incorporated ("Cytation"). The predecessor of Cytation was incorporated and
commenced business operations in 1996. Cytation merged into the Company in
November 1999 through a migratory merger under Delaware law.
Together with our predecessors, we made two significant acquisitions in fiscal
year 2000 that changed substantially the scope our business operations. In
August 1999, we acquired ECI, Inc. ("ECI") through a merger into a subsidiary
corporation. ECI, which conducted business as CollegeLink, was an e-commerce
company that supplied products and services to college-bound students, their
parents and colleges. In February 2000, we acquired Student Success, Inc.
("Student Success") through a merger into a subsidiary corporation. Student
Success was a leading provider of onsite high school and college preparatory
programs for students and their families under its Making College Count(R) and
Making High School Count(TM) trademarks.
We sold our online Web hosting business, our online enterprise-wide training
management operating system and business known as "RollCall" and an interest in
our developmental online conferencing technology known as "LearningEvent.net" in
fiscal year 2000.
As a result of these acquisitions and sales, we are now dedicated to serving as
a comprehensive high school and college resource. We provide a broad range of
offline and online services
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directed at high school students and their parents, high school guidance
counselors, college admissions officers and corporations which target the teen
marketplace.
We offer three success-based, in school presentation programs to high schools:
"Making College Count(R)", "Making High School Count(TM)", and "Making Your
College Search Count(TM)." In addition, we offer an orientation program to
college freshman. These programs are sponsored by corporations seeking to reach
this demographic group and are offered free to high schools and students.
We are expanding our programs. This forthcoming academic year (2000-2001), we
expect to be at nearly 5,000 high schools nationwide delivering our
presentations to at least 2,000,000 students during curriculum time. We are not
aware of any other organization that has this reach in this market. Our student
and guidance counselor audiences have indicated a very positive response to our
programs.
We provide college bound students and their families with a range of online
solutions to the challenges of the college admission process, from college
search and selection to submission of college, financial aid, and scholarship
applications. We have developed a website which provides a college application,
financial aid and scholarship service. Students are offered scholarship and
sweepstake incentive opportunities. We also continuously obtain demographic and
other information which can be used by students, their families, colleges and
service providers to assist in the college admissions process and enhance the
entire college experience.
More than 900 colleges and universities accept CollegeLink-processed
applications, and we are currently offering colleges and universities marketing
programs to assist them in recruiting students, both generally and specifically
with respect to targeted groups. We also intend to sell student data derived
from both our online and offline programs to this market.
We derive or expect to derive revenue from corporate sponsorships for our
"Making It Count" in-school presentation programs; marketing programs sold to
colleges and universities; data collected offline and online sold to colleges
and universities as well as corporations seeking to reach this market; and
electronically processed (EDI) applications for admission to colleges and
universities.
Our executive office is at 55 Hammarlund Way, Middletown, Rhode Island, 02842,
tel (401) 845-8800; fax 401-845-8821; www.collegelink.com,
www.makingitcount.com. The Company also maintains an office in Cincinnati, Ohio,
from which all Making It Count programs are operated and administered.
OUR MARKET
There are about 13.8 million high school students in the United States.
According to the National Center for Education Statistics, this number will
increase to more than 15.5 million over the next five years. Each year about 3.2
million applicants submit more than seven million applications for undergraduate
admission to nearly 3,400 U.S. colleges and universities. About 50% of these
students apply for some form of financial aid. According to the Department of
Education, it is expected that the total number of college bound students will
continue to increase each year for the foreseeable future. Based on industry
statistics, we believe colleges and universities spend about $3 billion annually
to recruit and enroll students.
We believe our marketing programs and the data we collect from students at our
"Making It Count" presentation programs and through our web sites are of
substantial commercial interest to colleges and
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universities. Industry statistics also indicate that teens spend in excess of
$150 billion annually on discretionary purchases. We also believe that this
spending power and the fact that buying habits are established during these
years make our presentation programs of substantial commercial interest to our
corporate sponsors.
OUR STRATEGY
Our strategy is to leverage our face-to-face exposure to teens and their parents
as well as our relationships with guidance counselors and college admissions
professionals established one-on-one over the years to become the leading
offline and online resource for student success. We intend to drive traffic from
the classroom to our websites where we offer a broad range of targeted
success-based content and services. We plan to build our brand and to reach an
increasing number of high school students. We plan to continue to add high
schools, colleges and universities through on-campus direct sales calls by sales
personnel, corporate sponsorships, direct mailings, targeted periodical
advertising, online and broadcast advertising, partnerships and various
promotional campaigns. We intend to build upon our established brands and
relationships to establish CollegeLink.com and MakingItCount.com as leading
Internet hubs focused on teen success, the college admissions cycle and
alternative career paths.
OUR RELATIONSHIPS
We have entered into agreements with high schools throughout the United States
to offer our in-school presentation programs. We have also developed
relationships with more than 900 colleges and universities to accept
applications in their respective formats through our proprietary CollegeLink(R)
"one-to-many" college application software. We have an agreement with PNC Bank,
N.A., one of the largest student loan providers in the United States, to provide
certain financial products and services to college bound students and their
families through our CollegeLink.com Internet hub. PNC Investment Corp., an
affiliate of PNC Bank, has made a $4,000,000 investment in our company. We have
an agreement with U.S. News & World Report pursuant to which we are its
exclusive provider of online application services. We are continually seeking
appropriate relationships to expand our service and product offerings.
MARKETING AND SALES
Marketing. Our marketing plan is to leverage our relationships with thousands of
high schools and nearly 1,000 colleges and universities to develop the premier
in-school resource and Internet hub for the success oriented teen market. We are
a company built on relationships requiring years to develop through one-on-one
presentations -- not a technology company in search of relationships. As such,
we believe we are positioned to capitalize on the benefits of the Internet in
very real ways.
To serve our academic and corporate customers, we plan to continue to develop
both our in-school and online business segments, finding synergies where they
exist and leveraging each for the benefit of the other. We view our online
initiatives -- principally the collection and sale of data -- as the most
scaleable component of our business. However, we expect that our in-school
programs will operate profitably on a standalone basis and, in contrast to many
online enterprises which must rely on paid marketing and advertising programs,
will drive traffic to our web sites to enhance our online programs.
Sales. The sale of corporate sponsorships for our "Making It Count" presentation
programs are direct utilizing experienced account executive employees.
Commitments from high schools for
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in-school presentation programs are arranged by telephone from our Cincinnati
office. Sales of marketing programs to colleges as well as adding colleges and
universities to our basic membership program are also direct, utilizing a
younger group of account executives to visit campuses in assigned regions. Data
sales will be through strategic partners, which specialize in academic and
corporate markets.
CUSTOMERS
Although we have numerous customers which include large corporations, colleges
and universities, in fiscal year 2000 Procter & Gamble accounted for
approximately 27% of the Company's total revenue and approximately 33% of the
revenue from the Making It Count programs (after the acquisition of Student
Success in February 2000).
COMPETITION
The market in which we operate is very competitive. We face direct competition
for our college application service from a number of sources, the most
significant of which are Apply!, Embark.com, CollegeNet, CollegeQuest and XAP.
Apply!, owned by The Princeton Review, provides a CD-based college application
product to students, primarily through a high school distribution scheme.
Embark.com, CollegeNet, CollegeQuest and XAP are companies which allow students
to complete and submit college applications electronically. Our CollegeLink(R)
service also faces competition from traditional print media companies such as
The Princeton Review, Petersons, a subsidiary of Thomson Corporation, and Kaplan
Educational Centers, which provide offline information and resources such as
self-help guides on college admission and selection, and from software companies
already providing packaged software to educational institutions and
professionals. Some of these companies have already moved to provide these
resources on the Internet. We also face competition from educational
not-for-profit and membership organizations such as ACT and The College Board(R)
which already provide significant online information and other resources to
students. The College Board(R) has announced plans to provide a broad range of
college admissions, test preparation and related services on the Internet and
has advised us that it does not intend to renew its business relationship with
us.
Our in school presentation programs face competition from a variety of sources
including other providers of self-help and educational programs such as Kaplan,
Barrons, Princeton Review, Houghton Mifflin and Learning Forum. While we have
relationships with more than 900 colleges and universities and will have
significant exposure to large numbers of high school students and their families
through our success-based in school presentation programs, we expect that these
factors will not prevent additional competitors from entering the markets in
which we operate with competing products and services. There are numerous
websites available which offer resources to the high school and college-bound
student market. Our current or future competitors may have greater resources,
including contacts in the educational industry, than we currently have at our
disposal. Our competitors may be more able to react more quickly to changes in
technology in our industry and/or to expend greater time and funds than we can
to develop and promote their products or services. Increased competition could
result in pricing pressures, reduced margins or the failure of our products and
services to achieve or maintain market acceptance.
EMPLOYEES.
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As of September 14, 2000, we employed 64 persons full-time. None of our
employees is represented by a union and we have never experienced a work
stoppage. We consider our relations with our employees to be good.
Item 2. Properties
Our headquarters is located in Middletown, Rhode Island, where we occupy 11,500
square feet pursuant to a lease that expires in November 2004. We also lease
3,200 square feet pursuant to a lease that expires in September 2001. No rent is
payable under this lease after September 2000. The Company also leases 3,100
square feet in Cincinnati, Ohio, from which it operates and administers all of
its Making It Count programs. The Company believes that these existing
facilities are adequate to meet its current foreseeable requirements or that
suitable additional or substitute space will be available on commercially
reasonable terms.
Item 3. Legal Proceedings
There are no pending claims against us regarding infringement of any patents or
other intellectual property rights of others. We are not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
our business.
Item 4. Submission of matters to a vote of security holders
None.
PART II
Item 5. Market for the registrant's common equity and related shareholder
matters
Our common stock was traded publicly on the Over The Counter Bulletin Board from
March 18, 1999 until January 24, 2000, when it began trading on the American
Stock Exchange. Our common stock traded under the symbol "CYTA" between March
18, 1999 and November 25, 1999, when its symbol changed to "CLNK." Upon listing
on the American Stock Exchange, the Company's trading symbol changed to "APS".
The following table sets forth, for the periods indicated, the high and low sale
prices for the common stock.
Fiscal 2000 HIGH LOW
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First Quarter ended September 30, 1999 $ 6.75 $4.38
Second Quarter ended December 31, 1999 $12.50 $5.00
Third Quarter ended March 31, 2000 $ 7.63 $4.63
Fourth Quarter ended June 30, 2000 $ 2.13 $ .75
At September 15, 2000, the Company had 1,405 holders of record of its common
stock. Some shares are held by various investment and other firms in street
name. The Company estimates the number of beneficial owners of the Company's
common stock at June 27, 2000 to be 1,726.
The market price of the Company's common stock has been volatile and has
declined substantially during the year. For a discussion of the factors
affecting the Company's stock price, see "Factors that may affect future results
of operations -- possible volatility of stock price."
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The Company has not paid cash dividends on its common shares or other
securities. The Company did not pay the dividend to the holders of its Series A
and Series C Convertible Preferred Stock for the quarter ending June 30,
2000. The Company currently anticipates that it will retain all of its future
earnings for use in the operation of its business and does not anticipate paying
any cash dividends on its common shares in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the historical
financial information and the notes thereto included in Items 6 and 8 of this
10-KSB.
This Management's Discussion and Analysis section and other parts of this Annual
Report on Form 10-KSB contain forward-looking statements within the meaning of
the Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
as amended that involve risks and uncertainties. Our actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below and in "Business." The forward-looking statements
contained herein are made as of the date hereof, and we assume no obligation to
update such forward-looking statements or to update reasons actual results could
differ materially from those anticipated in such forward-looking statements.
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RESULTS OF OPERATIONS
BALANCE SHEETS
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For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,236,430 $ 1,371,100
Accounts receivable, net of
allowance for doubtful accounts of 100,163
$ -0- and $10,000, respectively. 422,005 --
Notes receivable, stockholders,
current portion 60,000 --
Note receivable, other 89,170 --
Prepaid expenses and other 158,490 85,249
----------- -----------
CURRENT ASSETS 2,966,095 1,556,512
----------- -----------
PROPERTY AND EQUIPMENT, Net 759,829 250,484
----------- -----------
OTHER ASSETS
Notes receivable, stockholders,
less current portion 120,000 --
Goodwill, net 16,266,737 --
Other intangible, net 943,126 --
Website development costs 378,350 --
----------- -----------
Total Other Assets 17,708,213 --
----------- -----------
TOTAL ASSETS $21,434,137 $ 1,806,996
=========== ===========
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 698,005 $ 395,344
Prepaid program fee 145,000 --
Unearned revenue, current portion 60,883 35,000
----------- -----------
TOTAL LIABILITIES 903,888 430,344
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A convertible preferred stock,
$4.00 stated value, $0.01 par value;
2,500,000 shares authorized, 1,140,000
and 775,000 shares issued and
outstanding, respectively 4,584,980 3,100,000
Series B convertible preferred stock,
$7.625 stated value, $0.01 par value;
300,000 shares authorized, 279,771
shares issued and outstanding 4,175,000 --
Series C convertible preferred stock,
$4.00 stated value, $0.01 par value;
1,000,000 shares authorized, 1,000,000
shares issued and outstanding 4,000,000 --
Common stock, $0.001 par value;
100,000,000 shares authorized,
14,480,564 and 9,152,211 shares
issued and outstanding, respectively 14,481 9,152
Additional paid-in capital 20,077,354 2,459,718
Deferred compensation (246,484) --
Accumulated deficit (12,075,082) (4,192,218)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 20,530,249 1,376,652
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,434,137 $ 1,806,996
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</TABLE>
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STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2000 and 1999
2000 1999
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REVENUES
College and high school programs $1,365,790 $ --
Web site hosting and web services 273,028 398,406
Other revenues 24,909 163,515
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TOTAL REVENUES 1,663,727 561,921
COST OF REVENUES 734,882 --
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GROSS PROFIT 928,845 561,921
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OPERATING EXPENSES
Technology 464,120 337,997
Depreciation and amortization 906,840 131,545
Selling and marketing 4,036,602 350,151
General and administrative expenses 4,038,982 2,286,600
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TOTAL OPERATING EXPENSES 9,446,544 3,106,293
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OPERATING LOSS (8,517,699) (2,544,372)
---------- -----------
OTHER INCOME (EXPENSE)
Interest income (expense), net 121,119 (42,053)
Gain on sale of business units 513,716 --
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TOTAL OTHER INCOME (EXPENSE) 634,835 (42,053)
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LOSS BEFORE INCOME TAXES (7,882,864) (2,586,425)
INCOME TAXES -- --
---------- -----------
NET LOSS $(7,882,864) $(2,586,425)
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,392,911 6,531,153
=========== ===========
NET LOSS PER SHARE (BASIC AND DILUTED) ($0.73) ($0.40)
=========== ===========
FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999
REVENUE. Revenues were approximately 196% greater in the year ended June 30 than
for the previous year and shows the significance of the shift in business focus
of the Company over the past year as a result of the acquisitions of ECI in
August 1999 and Student Success in February 2000. We generated revenue of
approximately $217,000 from businesses that we discontinued in the fiscal year
ended June 30, 2000. We realized a gain of approximately $513,000 on the sales
of these businesses. We derived the balance of revenue in the amount of
approximately $1,366,000 from our high school and college programs, including
principally the "Making It Count" programs.
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COST OF REVENUES. Our cost of revenues was approximately $735,000 in the year
ended June 30, 2000, which we incurred entirely in the operation and
administration of the Making It Count programs. We accounted for all expenses
incurred in operating our businesses in the year ended June 30, 1999 as
Operating Expenses and not as Cost of Revenues.
OPERATING EXPENSES. Operating expenses for the year ended June 30, 2000 were
approximately $9,446,000 compared to approximately $3,106,000 for the year ended
June 30, 1999, an increase of approximately 200%. This increase is attributable
principally to our acquisition of ECI and Student Success, a corresponding
change in our overall business and a substantial increase in the scope of
operations. In particular, this increase reflects a 1,042 percent increase in
sales and marketing expenses (to approximately $4,036,000 from $350,000), which
reflects (i) the cost of extensive marketing programs and campaigns to expand
and commercialize the number of admission cycle services offered by CollegeLink,
and (ii) an increase the number of Making It Count programs to three and an
expansion of their reach by as much as 500%. In addition, we experience a nearly
600% increase in depreciation and amortization of goodwill incurred as a result
of the acquisitions of ECI and Student Success; and a 74% increase in general
and administrative expenses resulting principally from the acquisitions of ECI
and Student Success.
CERTAIN OPERATIONS. In the year ended June 30, 2000, we sold our Web hosting
business for $224,089 and our training management operating system and business
known as RollCall for $325,000, net of commission on the sale. During the year
ended June 30, 2000 we received a total of $217,000 of revenue from these two
businesses. We had only nominal expenses in the year ended June 30, 2000
associated with these former businesses.
LIQUIDITY AND CAPITAL RESOURCES
PREFERRED STOCK. We received $1,484,980 through the private placement of
additional shares of our Series A Convertible Preferred Stock.
COMMON STOCK. In January 2000, we closed a public offering of 2.2 million shares
of our common stock and realized gross proceeds of $8,800,000. In March 2000,
the underwriter exercised its overallotment option to purchase an additional
330,000 shares of our common stock, and we realized additional gross proceeds of
$1,320,000. After underwriting discounts and commissions and expenses directly
related to the offering, we realized approximately $7,604,000 of net proceeds
from the sale of a total of 2,530,000 shares of our common stock.
We paid $2,600,000 in cash to the three shareholders of Student Success, which
we acquired for this cash and shares of common stock on February 17, 2000.
SUFFICIENCY OF CASH FLOWS.
Cash available at September 25, 2000 is able to support our operations at
present levels only through November 2000. We therefore need to raise more
capital through public or private financing. We do not know if additional
financing will be available to us or, if it is available, whether it will be
available on attractive terms. If we do raise more capital in the future, it is
probably that it will result in substantial dilution to our stockholders. In
addition, we have announced that we are seeking a buyer for the Company but that
discussions are in preliminary stages and that it is too early to know whether
the Company will engage in a transaction and if so, under what terms.
Alternatively, we may seek to sell one of the Company's business
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segments. If we cannot raise more capital or find a buyer for the Company or one
of its business segments, we may need to curtail our business activities,
possibly quite substantially, or cease business operations entirely.
Net cash used in operating activities was $6,316,280 for the fiscal year ended
June 30, 2000 and $2,097,809 for the fiscal year ended June 30, 1999. Net cash
used in investing activities was $9,534 and $78,551 for the fiscal year ended
June 30, 1999 and June 30, 1998, respectively. Financing activities provided
$12,989,219 for the year ending June 30, 2000 compared to $3,434,416 for the
year ending June 30, 1998. As of June 30, 2000 the Company had working capital
of $2,236,430 compared to $1,371,100 as of June 30, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") which clarifies the SEC's views on revenue recognition. We are required to
adopt SAB 101 in the fourth quarter of the year ending June 30, 2001. We are
currently studying the impact of SAB 101, but do not expect it will have a
material impact on our financial statements.
In November 1999, SEC released Staff Accounting Bulletin No. 100, "Restructuring
and Impairment Charges". We are currently reviewing the impact of SAB 100 and
believe we have complied with SAB 100.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
This report on Form 10-KSB contains forward-looking statements within the
meaning of the Securities Act of 1933, as amended and the Securities Exchange
Act of 1934, as amended. Our future results of operations could vary
significantly from the results anticipated by such forward-looking statements as
a result of various factors, including those set forth as follows and elsewhere
in this annual report on Form 10-KSB.
NEED FOR ADDITIONAL CAPITAL. Cash available at September 25, 2000 is able to
support our operations at present levels only through November 2000. We
therefore need to raise more capital through public or private financing. We do
not know if additional financing will be available to us or, if it is available,
whether it will be available on attractive terms. If we do raise more capital in
the future, it is probably that it will result in substantial dilution to our
stockholders. If we cannot raise more capital or find a buyer for the Company or
one of its business segments, we may need to curtail our business activities,
possibly quite substantially, or cease business operations entirely.
ABILITY TO SELL THE COMPANY. We have announced that we are seeking a buyer for
the Company but that discussions are in preliminary stages and that it is too
early to know whether the Company will engage in a transaction and if so, under
what terms. Alternatively, we may seek to sell one of the Company's business
segments. If we cannot raise more capital or find a buyer for the Company or one
of its business segments, we may need to curtail our business activities,
possibly quite substantially, or cease business operations entirely.
DEPENDENCE ON KEY PERSONNEL. Our future success depends to a significant degree
on the skills, experience and efforts of our key executive officers and key
marketing and management personnel. Our chief executive officer and president
recently resigned but are currently providing services on a substantially
full-time basis to the Company. There is a limited
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number of personnel with the requisite skills to serve in these positions, and
it has become increasingly difficult for the Company to hire such personnel.
Competition for such personnel in the internet industry is intense, and there
can be no assurance that the Company will be successful in attracting or
retaining such personnel. While we have employment and consulting agreements
with several key individuals, such agreements do not guarantee their continued
employment or consultancy with us. While we also have noncompetition agreements
with these individuals, there is no assurance that the noncompetition agreements
will be enforceable. The loss of the services of any of our key employees or
consultants could have a material adverse effect on our business, operating
results and financial condition. We do not currently maintain a key person life
insurance policy covering any of our officers.
FLUCTUATIONS IN OPERATING RESULTS. We have experienced and expect to continue to
experience fluctuations in its quarterly and annual operating results.
RECENT OPERATING LOSSES. We incurred an operating loss of $8,456,590 in fiscal
2000. We also incurred an operating loss of $2,544,372 in fiscal 1999 and
630,332 in fiscal 1998. We expect to record a net loss in the first quarter of
fiscal 2001. We have never been profitable and may not be profitable in the
future.
INTENSE COMPETITION. In each of the markets we serve, we face competition from
established competitors and potential new entrants. We expect our competitors to
continue to improve the performance of their current products and services and
to introduce new products and services with improved price and performance
characteristics. Our current or future competitors may have greater resources
than we currently have at our disposal. Our competitors may be more able to
react to changes in technology in our industry and/or to expend greater time and
funds than we can to develop and promote their products or services. Increased
competition could result in pricing pressures, reduced margins or the failure of
our products and services to achieve or maintain market acceptance.
LIMITED OPERATING HISTORY AS AN INTERNET COMPANY. One of our predecessor
entities established the CollegeLink business in 1991. While we previously sold
CollegeLink(R) as a computer-based service, we have converted this business to
an Internet-based service. Accordingly, the CollegeLink business in its current
form has only a very limited operating history on which you can base your
evaluation of this business. As a result, you will find it difficult to predict
our future revenues or results. In addition, you must consider our prospects in
light of the risks and uncertainties encountered by companies in an early stage
of development in a new and rapidly evolving market such as the market for
Internet-based services.
RELUCTANCE TO USE OUR PRODUCTS AND SUBMIT COMPUTER-BASED APPLICATIONS. Our
business depends on substantial use of our products by college bound students,
because we expect that the bulk of our revenues will be derived from sales of
data gathered from students and sponsorships from corporations that wish to
market products to the students. If we cannot attract and maintain a large
audience of college bound students, our business and operating results could be
materially adversely affected.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of our common stock has
been, and may continue to be, volatile. We believe that factors such as
announcements of developments related to the our business, fluctuations in the
our operating results, failure to meet securities analysts' expectations,
general conditions in the marketplace, announcement of technological
innovations, new systems or product enhancements by the Company or its
11
<PAGE> 13
competitors, fluctuations in the level of development funding, acquisitions,
changes in governmental regulations, developments in patents or other
intellectual property rights and changes in the our relationships with customers
could cause the price of the our common stock to fluctuate substantially. In
addition, in recent years the stock market in general, and the market for small
capitalization and high technology stocks in particular, has experienced extreme
price fluctuations (and recently, severe declines) which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could adversely affect the market price of the our common stock.
MANAGEMENT OF CHANGING BUSINESS. If we are to be successful, we must expand our
operations. Such expansion will place a significant strain on our
administrative, operational and financial resources. Such expansion will result
in a continuing increase in the responsibility placed upon management personnel
and will require development or enhancement of operational, managerial and
financial systems and controls. If we are unable to manage the expansion of its
operations effectively, our business, financial condition and operating results
will be materially and adversely affected.
INTEGRATION OF THE BUSINESSES OF ECI AND STUDENT SUCCESS. On August 10, 1999, we
acquired ECI, Inc., which provides online college admission, scholarship and
college search and financial aid application services. On February 17, 2000 we
acquired Student Success, Inc. Student Success offers onsite high school and
college preparatory programs for students and their families under its Making
College Count(R), Making High School Count(TM) and Making Your College
Search(TM) trademarks. On March 20, 2000 we terminated negotiations regarding a
planned acquisition of Online Scouting Network, Inc. We cannot assure you that
we will be able to absorb and effectively manage the acquisitions of ECI and
Student Success. There can be no assurance that we will be able to develop,
market and sell our CollegeLink(R) products and services and the products and
services of Student Success successfully. The difficulty and management
distraction inherent in integrating each acquired business, the substantial
charges expected to be incurred in connection with each acquisition, including
costs of integrating each business and transaction expenses arising from each
acquisition, the risks of entering markets in which we have no or limited direct
prior experience, the potential loss of key employees (in addition to the recent
loss as employees of our chief executive officer and president, both of whom
were co-founders and senior managers of Student Success) of each acquired
company and the risk that the benefits sought in each acquisition will not be
fully achieved, could have a material adverse effect on our business, operating
results and financial condition.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT. Our ability to compete
successfully is dependent in part upon our ability to protect our proprietary
technology and information. Although we attempt to protect its proprietary
technology through copyrights, trade secrets and other measures, there can be no
assurance that these measures will be adequate or that competitors will not be
able to develop similar technology independently. Litigation may be necessary to
enforce or determine the validity and scope of our proprietary rights, and there
can be no assurance that the our intellectual property rights, if challenged,
will be upheld as valid. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our business,
financial condition and operating results, regardless of the outcome of the
litigation.
There are no pending claims against us regarding infringement of any
intellectual property rights of others. However, we may receive, in the future,
communications from third parties asserting intellectual property claims against
us. Such claims could include assertions that our products infringe, or may
infringe, the proprietary rights of third parties, requests for indemnification
12
<PAGE> 14
against such infringement or suggestions that we may be interested in acquiring
a license from such third parties. There can be no assurance that any such claim
made in the future will not result in litigation, which could involve
significant expense to us, and, if we are required or deem it appropriate to
obtain a license relating to one or more products or technologies, there can be
no assurance that we would be able to do so on commercially reasonable terms, or
at all.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We have considered the provisions of Financial Reporting Release No. 48
"Disclosures of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosures of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Commodity
Instruments." We have no holdings of derivative financial or commodity
instruments at June 30, 2000.
We are exposed to financial market risks, including changes in interest rates.
To reduce these risks to some extent, we invest excess cash in a managed
portfolio of corporate and government bond instruments with maturities of 18
months or less. We do not use any financial instruments for speculative or
trading purposes.
Item 7. Financial Statements and Supplementary Data
Our Financial Statements and related Report of Independent Auditors are
presented in the following pages. The Financial Statements filed in this Item 7
are as follows:
Report of Independent Auditors
Balance Sheets as of June 30, 1999 and 2000
Statements of Operations for the Years Ended June 30, 1999 and 2000
Statement of Changes in Stockholders' Equity for the Years Ended June 30,
1999 and 2000
Statements of Cash Flows for the Years Ended June 30, 1999 and 2000
Notes to Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
13
<PAGE> 15
COLLEGELINK.COM INCORPORATED
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 15
FINANCIAL STATEMENTS
Balance Sheets 16
Statements of Operations 17
Statement of Changes in Stockholders' Equity 18
Statements of Cash Flows 19-20
NOTES TO FINANCIAL STATEMENTS 21-28
14
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Collegelink.com Incorporated
We have audited the accompanying balance sheets of Collegelink.com Incorporated
as of June 30, 2000 and 1999 and the related statements of operations, changes
in stockholders' equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Collegelink.com Incorporated as
of June 30, 2000 and 1999, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred a net loss of $ 7,882,864 during the
year ended June 30, 2000, and the existing cash is insufficient to fund the
Company's cash flow needs for the next year. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
As more fully explained in Note 6, the accompanying balance sheet includes
goodwill and other intangible assets stated at $17,209,863. The ultimate
recovery of such amount is primarily dependent on continued operations of the
Company or the possible sale as described in Note 2. It's not possible to
estimate the impairment, if any, of such intangible assets at this time.
Accordingly, the financial statements do not include any adjustments relating to
the recoverability and impairment of the recorded assets.
/s/ Radin, Glass & Co, LLP
----------------------------
Certified Public Accountants
July 21, 2000
New York, New York
15
<PAGE> 17
COLLEGELINK.COM INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,236,430 $ 1,371,100
Accounts receivable, net of
allowance for doubtful accounts
of $ -0- and $10,000, respectively. 422,005 100,163
Notes receivable, stockholders, current
portion 60,000 --
Note receivable, other 89,170 --
Prepaid expenses and other 158,490 85,249
------------ -----------
TOTAL CURRENT ASSETS 2,966,095 1,556,512
------------ -----------
PROPERTY AND EQUIPMENT, Net 759,829 250,484
------------ -----------
OTHER ASSETS
Notes receivable, stockholders,
less current portion 120,000 --
Goodwill, net 16,266,737 --
Other intangible, net 943,126 --
Website development costs 378,350 --
------------ -----------
Total Other Assets 17,708,213 --
------------ -----------
TOTAL ASSETS $ 21,434,137 $ 1,806,996
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 698,005 $ 395,344
Prepaid program fee 145,000 --
Unearned revenue, current portion 60,883 35,000
------------ -----------
903,888 430,344
------------ -----------
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A convertible preferred stock,
$4.00 stated value, $0.01 par value;
2,500,000 shares authorized, 1,140,000
and 775,000 shares issued and
outstanding, respectively 4,584,980 3,100,000
Series B convertible preferred stock,
$7.625 stated value, $0.01 par value;
300,000 shares authorized, 279,771
shares issued and outstanding 4,175,000 --
Series C convertible preferred stock,
$4.00 stated value, $0.01 par value;
1,000,000 shares authorized,
1,000,000 shares issued and outstanding 4,000,000 --
Common stock, $0.001 par value;
100,000,000 shares authorized,
14,480,564 and 9,152,211 shares issued
and outstanding, respectively 14,481 9,152
Additional paid-in capital 20,077,354 2,459,718
Deferred compensation (246,484) --
Accumulated deficit (12,075,082) (4,192,218)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 20,530,249 1,376,652
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,434,137 $ 1,806,996
============ ===========
</TABLE>
See notes to financial statements.
16
<PAGE> 18
COLLEGELINK.COM INCORPORATED
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2000 and 1999
2000 1999
---- ----
REVENUES
College and high school programs $ 1,365,790 $ --
Web site hosting and web services 273,028 398,406
Other revenues 24,909 163,515
------------ ------------
TOTAL REVENUES 1,663,727 561,921
------------ ------------
COST OF REVENUES 734,882 --
------------ ------------
GROSS PROFIT 928,845 561,921
------------ ------------
OPERATING EXPENSES
Technology 464,120 337,997
Depreciation and amortization 906,840 131,545
Selling and marketing 4,036,602 350,151
General and administrative expenses 4,038,982 2,286,600
------------ ------------
TOTAL OPERATING EXPENSES 9,446,544 3,106,293
------------ ------------
OPERATING LOSS (8,517,699) (2,544,372)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income (expense), net 121,119 (42,053)
Gain on sale of business units 513,716 --
------------ ------------
TOTAL OTHER INCOME (EXPENSE) 634,835 (42,053)
------------ ------------
LOSS BEFORE INCOME TAXES (7,882,864) (2,586,425)
INCOME TAXES -- --
------------ ------------
NET LOSS $ (7,882,864) $ (2,586,425)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,392,911 6,531,153
============ ============
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.73) $ (0.40)
============ ============
See notes to financial statements.
17
<PAGE> 19
COLLEGELINK.COM INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ----------------- ADDITIONAL DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT TOTAL
------ ------ ------ ------ --------------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - July 1, 1998 543 $ 542,500 3,482,556 $ 3,483 $ 990,490 $ -- $ (1,605,793) $ (69,320)
Conversion of preferred stock (543) (542,500) 453,976 454 542,046 --
Issuance of shares for assets 1,345,350 1,345 145,954 147,299
Issuance of shares for
compensation 1,372,070 1,372 1,008 2,380
Issuance of shares for services 559,438 559 376,391 376,950
Sale of common shares, less
expenses 374,725 375 194,625 195,000
Effect of merger transaction 1,204,096 1,204 1,029 2,233
Issuance of shares with debt 360,000 360 250,660 251,020
Issuance of Series A
preferred stock 775,000 3,100,000 3,100,000
Dividends (42,485) (42,485)
Net loss (2,586,425) (2,586,425)
--------------------------------------------------------------------------------------------------
BALANCE - June 30, 1999 775,000 3,100,000 9,152,211 9,152 2,459,718 -- (4,192,218) 1,376,652
Issuance of Series A
preferred stock 365,000 1,484,980 1,484,980
Issuance of stock in connection
with ECI merger 279,771 4,175,000 659,005 659 2,882,488 7,058,147
Issuance of shares for services 170,624 171 386,521 (142,500)
Shares adjustment 74,224 74 (74) --
Issuance of Series C
preferred stock 1,000,000 4,000,000 4,000,000
Issuance of shares in
connection with public
offering, net of costs 2,530,000 2,530 7,666,586 7,669,116
Issuance of shares in connection
with SSI acquisition 1,625,000 1,625 5,787,438 5,789,063
Issuance of shares for assets - OSN 225,000 225 618,525 618,750
Issuance of options for compensation 441,074 (178,125) 262,949
Amortization of deferred
compensation 74,141 74,141
Preferred stock dividend 44,500 45 (164,922) (164,877)
Net loss (7,882,864) (7,882,864)
--------------------------------------------------------------------------------------------------
BALANCE - June 30, 2000 2,419,771 $12,759,980 14,480,564 $14,481 $20,077,354 $(246,484) $(12,075,082) $20,530,249
==================================================================================================
</TABLE>
See notes to financial statements.
18
<PAGE> 20
COLLEGELINK.COM INCORPORATED
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2000 and 1999
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(7,882,864) $(2,586,425)
------------ ------------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 906,840 131,545
Stock-based compensation 581,282 384,308
Write off of accounts receivables -- 89,800
Loss on equipment disposal -- 1,231
Increase (decrease) to cash
attributable to changes in
assets and liabilities:
Accounts receivable (321,842) (117,850)
Prepaid expenses and other asset (73,241) (72,372)
Accounts payable and accrued expenses 302,661 94,080
Prepaid program fees 145,000 --
Unearned revenues 25,884 (22,126)
------------ ------------
TOTAL ADJUSTMENTS 1,566,584 488,616
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (6,316,280) (2,097,809)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (662,242) (26,520)
Proceeds from equipment disposals -- 9,600
Proceeds from rent deposit -- 5,050
Issuance of notes receivable (269,170) --
Payments of acquisitions (4,497,847) --
Capitalization of website development costs (378,350) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (5,807,609) (11,870)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 5,484,980 3,100,000
Proceeds from issuance of debt -- 251,021
Proceeds from issuance of common shares 7,669,116 195,000
Repayment of dividends (164,877) (42,485)
Repayment of notes payable, stockholders -- (58,071)
Principal repayments of capital lease obligations -- (11,049)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,989,219 3,434,416
------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 865,330 1,324,737
CASH AND CASH EQUIVALENTS - Beginning 1,371,100 46,363
------------ ------------
CASH AND CASH EQUIVALENTS - Ending $ 2,236,430 $1,371,100
=========== ==========
See notes to financial statements.
19
<PAGE> 21
COLLEGELINK.COM INCORPORATED
STATEMENTS OF CASH FLOWS, Continued
For the Years Ended June 30, 2000 and 1999
SUPPLEMENTARAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash paid during the years for:
Income taxes $ 14,156 $ 996
Interest $ 7,351 $ 32,979
Noncash investing and financing activities:
Issuance of stock for debt -- $ 66,021
Issuance of common stock for assets $13,465,960 $147,299
Preferred stock conversion to common stock -- $542,500
Issuance of stock for preferred stock
dividend $ 55,680 --
Issuance of options for compensation $ 462,401 $ --
</TABLE>
See notes to financial statements.
20
<PAGE> 22
1. BUSINESS
On March 5, 1999, Cytation Corporation (formerly known as Web Services
International, Inc.) was acquired by Cytation.com Incorporated, a New York
corporation, (formerly known as Stylex Homes, Inc.) through a "reverse
merger" transaction, whereby each outstanding share of Cytation Corporation
was exchanged for 5.765 shares of Cytation.com Incorporated. This merger
has been accounted for as a "Recapitalization" as if Cytation.com
Incorporated issued additional shares for the net assets of Cytation
Corporation. CollegeLink.com Incorporated (the "Company"), a Delaware
Corporation, is the surviving corporation in a merger on November 16, 1999
between Cytation.com Incorporated and the Company. The number of common
share information has been adjusted to reflect the effects of the mergers.
The Company provides an extensive range of in-school and online services
directed at high school students and their parents, high school guidance
counselors, college admissions officers and corporations which target the
teen marketplace.
2. BASIS OF PRESENTATION
As shown in the accompanying financial statements, the Company incurred a
net loss of $7,882,864 during the year ended June 30, 2000. In addition,
cash available at June 30, 2000 is able to support the Company's operations
at present levels only to November 2000. The Company needs to raise more
capital through public or private financing. The Company does not know if
additional financing will be available or, if available, whether it will be
available on attractive terms. If the Company does raise more capital in
the future, it is probably that it will result in substantial dilution to
its shareholders. These factors create substantial doubt as to the
Company's ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon the success of the
capital offering or alternative financing arrangements. The Company is
currently under preliminary discussions with potential buyers to sell the
Company or one of its business segments. The financial statements do not
include any adjustments to the financial statements that might be necessary
should the Company be unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make significant estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
b. Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful
lives of the assets ranging from three to seven years for equipment,
auto and furniture. Leasehold improvements are amortized over the term
of the lease or the estimated life of the improvement, whichever is
shorter. Whenever assets are sold or retired, their cost and related
accumulated depreciation are removed from the appropriate accounts.
Any gains and losses on dispositions are recorded in current
operations.
c. Fair Value of Financial Instruments - The carrying amounts reported in
the balance sheet for cash, trade receivables, accounts payable and
accrued expenses approximate fair value based on the short-term
maturity of these instruments.
d. Income Taxes - The Company utilizes the liability method of accounting
for income taxes as set forth in SFAS 109, "Accounting for Income
Taxes." Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
e. Advertising Costs - Advertising costs are expensed as incurred. Total
advertising costs amounted to $1,937,095 and $49,428 for the years
ended June 30, 2000 and 1999, respectively.
21
<PAGE> 23
f. Revenue Recognition - Revenues are recognized when services are
performed. For the college and high school programs, the Company
recognizes revenue for financial statement purposes under the
percentage of completion method and, therefore, takes into account of
number of presentation completed and to be completed, costs and
contract price. Deferred revenue represents unearned revenue at the
balance sheet date based upon number of presentations not yet
completed and/or costs on other related performance to be incurred.
Prepaid program fees represent fees received in advances for future
presentations.
g. Employee Stock Options and Shares Issued for Services - The Company
accounts for employee stock transactions in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has adopted the proforma disclosure requirements of SFAS 123,
"Accounting for Stock-Based Compensation." Accordingly, any excess of
fair market value of stock issued to employees over exercise prices
has been recorded as compensation expense and additional paid in
capital.
h. Loss Per Share - The Company adopted the provision of SFAS No. 128,
"Earnings per Share". SFAS No. 128 eliminates the presentation of
primary and fully dilutive earnings per share ("EPS") and requires
presentation of basic and diluted EPS. Basic EPS is computed by
dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS is based on the weighted-average number of shares of
common stock and common stock equivalents outstanding for the period.
Common stock equivalents are excluded in the computation of diluted
EPS for the years ended June 30, 2000 and 1999 as such inclusion is
antidiluted. The computations of basic and diluted earnings per share
from continuing operations were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Loss $ 7,882,864 $2,586,425
Preferred Stock Dividend Earned 432,824 42,485
----------- ----------
Net Loss Attributable to Common Shares $ 8,315,688 $2,628,910
Weighted Average Common Shares Outstanding 11,392,911 6,531,153
----------- ----------
Net Loss per Share (Basic and Diluted) $ 0.73 $ 0.40
=========== ==========
</TABLE>
i. Accounting for Long-Lived Assets - The Company reviews long-lived
assets, certain identifiable assets and any goodwill related to those
assets for impairment whenever circumstances and situations change
such that there is an indication that the carrying amounts may not be
recoverable. At June 30, 2000 and 1999 respectively, the Company
believes that there has been no impairment of long-lived assets (see
Note 6 for further discussion).
j. Reporting of Segments - The Company adopted No. 131, "Disclosures
about Segments of an Enterprise and Related Information" during the
year ended June 30, 1999. SFAS No. 131 establishes the criteria for
determining an operating segment and establishes the disclosure
requirements for reporting information about operating segments. The
Company has determined that under SFAS No. 131, it operates in one
segment of service.
k. Website Development Costs - The Company follows EITF 00-2 as to its
website development costs. EITF 00-2 requires certain website
development costs to be expensed and others to be capitalized. The
Company capitalized website development costs of $378,350 and expensed
$38,672 during the year ended June 30, 2000 in accordance with EITF
00-2, respectively.
l. Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all short-term investments with an
original maturity of three months or less to be cash equivalents.
m. Reclassification - Certain reclassifications have been made to the
prior year's financial statements to conform to the current year
presentation. These reclassifications had no effect on previously
reported results of operations or retained earnings.
22
<PAGE> 24
4. NOTES RECEIVABLE, STOCKHOLDERS AND OTHER
Notes receivable at June 30, 2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Note receivable from stockholder,
due in monthly installment of
$2,500 plus interest at 5%
through May 1, 2001. $ 25,000 $ --
Note receivable from stockholder,
principal and interest at 5% due
on January 18, 2001. 35,000 --
Note receivable from stockholders,
non-interest bearing and due on
July 10, 2001. 120,000 --
Note receivable-other, due on
demand with interest at 6%.
Balance at June 30,2000 included
accrued interest of $2,175. 89,170 --
-------- ----
60,000 --
Less: Current Portion 149,170 --
-------- ----
Notes Receivable, less Current Portion $120,000 --
======== ====
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
2000 1999 USEFUL LIVES
---- ---- ------------
<S> <C> <C> <C>
Computer and office equipment $ 608,733 $340,798 3 years
Furniture and fixtures 332,992 68,542 7 years
Leasehold improvements 172,421 42,566 5 years
---------- --------
1,114,146 451,906
Less: accumulated depreciation 354,317 201,422
---------- --------
Property and Equipment, Net $ 759,829 $250,484
========== ========
</TABLE>
Depreciation expense for the years ended June 30, 2000 and 1999 was
$152,896 and $ 131,545 respectively.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets resulting from the acquisitions during
the year ended June 30, 2000 (see Notes 7b and 7k) consist of the
following:
<TABLE>
<CAPTION>
Estimated
Amount Useful Lives
------ ------------
<S> <C> <C>
Goodwill $16,934,942 15 Years
Technology 1,028,865 5 Years
-----------
17,963,807
Less: accumulated amortization 753,944
-----------
$17,209,863
===========
</TABLE>
Amortization expense for the years ended June 30, 2000 and 1999 was
$753,944 and $-0-, respectively. As indicated in Note 2, the Company is in
the preliminary discussions with potential buyers to sell the Company or
one of its business segments. These intangible assets may be sold to the
potential buyers for a value to be determined. As of June 30, 2000, It's
not possible to estimate the impairment, if any, of such intangible assets
at this time. Accordingly, the financial statements do not include any
adjustments relating to the recoverability and impairment of the recorded
assets.
23
<PAGE> 25
7. STOCKHOLDERS' EQUITY
a. Authorized Shares
The Company's authorized shares consists of 110,000,000 shares,
divided into 100,000,000 shares of common stock, par value $.001 per
share and 10,000,000 shares of preferred stock, par value $.01 per
share.
b. Acquisition of Assets
In July 1998, the Company issued 1,325,350 shares of its common stock
to acquire the assets of Cytation Corporation, a Delaware corporation.
The assets have been recorded at $2,299.
In June 1998, the Company issued 20,000 shares of its common stock for
the purchase of computer equipment valued at $145,000.
On March 20, 2000, the Company entered into a license agreement with
Online Scouting Network, Inc. ("OSN"). The license grants the Company
a non-exclusive right to use substantially all of OSN's intellectual
property assets, including OSN's databases of student athletes and
registered college coaches and OSN's proprietary software. As
consideration for the license, the Company paid OSN $260,000 in cash
and issued 225,000 shares of its common stock valued at $2.75 per
share.
c. Conversion of Preferred Stock
On September 1, 1998, the Company converted 543 shares of its
preferred stock to 453,976 shares of its common stock.
d. Shares Issued for Compensation
In December 1998, when management and board of directors believed the
fair market value of the shares was $0.002 per share, management
reduced the exercise price of previously outstanding stock options to
$0.002 and all employees exercised such shares for compensation. Such
compensation was recorded at $0.002 per share for 1,372,070 shares.
e. Shares Issued for Services
In December 1998, the Company agreed to issue 504,438 shares to
unrelated parties for financial services, which shares were recorded
at fair market value at the time of the agreement of $0.002 per share.
On May 7, 1999, the Company issued 40,000 and 15,000 shares to two
unrelated parties for financial services, which shares were recorded
at fair market values of $6.50 per share and $7.50 per share,
respectively.
During the year ended June 30, 2000, the Company issued 120,624 shares
of its common stock to unrelated parties for marketing and investing
services, which shares were recorded at fair market value at the time
of the agreements of $1.375 to $2.75 per share. In addition, the
Company issued 50,000 shares of its common stock pursuant to an
employment agreement.
f. Private Placement Offering
In January 1999, the Company received $195,000, net of expenses, from
the sales of 374,725 shares of its common stock in connection with the
private placement offering.
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<PAGE> 26
g. Reverse Merger
In connection with the reverse merger (see Note 1), the Company issued
1,204,096 shares of its common stock for the $2,233 of assets of
Stylex Homes, Inc.
h. Shares Issued with Debt
In connection with the issuance of the $300,000 and $370,000 of notes
payable during the year ended June 30, 1999, the Company issued
175,000 and 185,000 shares of its common stock, respectively for a
total fair value of $251,020.
i. Issuance of Series A Convertible Preferred Stock
In April 1999, the Company received $3,100,000 in exchange for 775,000
shares of 6% cumulative preferred stock designated as "Series A
Convertible Preferred Stock" ("Preferred A") from two investors.
"Preferred A" has a stated value of $4.00 per share, a par value of
$.01 per share and dividends payable quarterly. Any holder of
Preferred A may at any time convert stock into the common stock of the
Company at a ratio of one share of common stock for each share of
Preferred A. The Company may require conversion on or after the first
anniversary of the initial purchase if the closing bid price for its
common shares exceeds $6.00 for twenty consecutive trading days.
If a special event occurs, as defined, the holders of the issued and
outstanding Preferred A are entitled to receive $4.00 for each share
of Preferred A, before any distribution of the assets of the Company
shall be made to the holders of any other capital stock.
During the year ended June 30, 2000, the Company issued an additional
365,000 shares of its Preferred A for $1,484,980.
j. Series C Convertible Preferred Stock
In September 1999, the Company received $4,000,000 in exchange for
1,000,000 shares of 6% cumulative preferred stock designated as
"Series C Convertible Preferred Stock" ("Preferred C") from PNC Bank
Corp. Preferred C has a stated value of $4.00 per share, a par value
of $0.01 per share and dividends payable quarterly. The Preferred C
holder has the similar preference of Preferred A (see i above).
k. Business Acquisitions
On August 10, 1999, the Company acquired ECI, Inc. through a merger
transaction. As consideration for the merger, the Company issued
550,809 shares of its common stock, 234,771 shares of its Series B
Preferred Stock ("Preferred B") and paid $489 in cash. The Company
also assumed approximately $800,000 of ECI, Inc.'s liabilities in
connection with the merger. In addition, the Company settled a claim
against ECI, Inc. in exchange for 108,196 shares of the Company's
common stock and 45,000 shares of Preferred B. Subject to certain
terms and conditions, each share of Preferred B is convertible to such
number of common stock as is determined by dividing $15 by the
Conversion Price, as defined. In August 2000, 279,771 shares of
Preferred B were converted to 550,392 shares of its common stock.
On February 17, 2000, the Company acquired Student Success, Inc.
("SSI") through a merger transaction. As consideration for the merger,
the Company issued 1,625,000 shares of its common stock and $2,600,000
in cash to two stockholders/officers of SSI (the "Former
Stockholders"). The Company also assumed approximately $200,000 of
SSI's liabilities in connection with the merger. In addition, the
Company entered into employment agreements with the Former
Stockholders, whereby the Company granted each an option to purchase
up to 200,000 shares of the Company's common stock with an exercise
price of $4.00 per share.
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<PAGE> 27
Both acquisitions are being accounted for using the purchase method.
The operations of ECI and SSI have been included in the accompanying
statements of operations since August 11, 1999 and February 18, 2000,
respectively. The unaudited results of operations, as if ECI and SSI
had been acquired at the beginning of fiscal year 2000 and 1999, are
as follows:
PRO - FORMA INFORMATION
-----------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
Net revenues $2,601,817 $1,741,662
Net loss $8,265,425 $5,584,794
Net loss per share ($0.76) ($0.66)
l. Public Offering
During the year ended June 30, 2000, the Company completed its public
offering of its common stock, whereby the Company sold 2,530,000
shares at $4.00 per share, less underwriting and commission expense.
The Company incurred approximately $1,200,000 of direct expenses in
connection with this offering.
m. Stock Options
During the year ended June 30, 2000, the Company granted certain
consultants options to purchase 98,320 shares of its common stock at
exercise price ranging from $4.00 to $7.625 per share. Accordingly,
the Company recorded consulting costs of $262,949 based on the
Black-Scholes Option Price Model. In addition, the Company granted to
its employees five-year options to purchase 165,000 shares of its
common stock with an exercise price less than market value. As a
result, the Company recorded deferred compensation of $178,125 and
recognized $26,241 in compensation expenses for these options.
Furthermore, the Company granted 2,027,963 and 1,441,186 options to
its employee with exercise prices equal to or greater than the market
value of the stock at the grant dates during the years ended June 30,
2000 and 1999, respectively.
For disclosure purposes in accordance with SFAS No. 123, the fair
value of each stock option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for stock options granted during the
year ended June 30, 2000 and 1999, respectively: annual dividends of
$0.00, expected volatility of 84% at June 30, 2000 and 65% at June 30,
1999, risk-free interest rate of 6.1% and 5.7% and expected life of
five years for the years ended June 30, 2000 and 1999, respectively.
The weighted-average fair value of the stock options granted during
the years ended June 30, 2000 and 1999 was $ 1.69 and $1.48,
respectively.
If the Company recognized compensation cost for the employee stock
option plan in accordance with SFAS No. 123, the Company's pro forma
net loss and loss per share would have been approximately, $8,429,000
and $2,913,000, and $0.78 and $0.45, respectively, in years ended June
30, 2000 and 1999.
Exercise prices for options outstanding at June 30, 2000 and 1999
range from $1.25 to $7.625 and $2.00 to $7.00, respectively. The
number of options exercisable and weighted average exercise price for
options exercisable at June 30, 2000 and 1999 was 632,157 shares and
$3.62 and 69,430 shares and $2.83, respectively.
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<PAGE> 28
The following table summarizes the changes in options outstanding and
the related price ranges for shares of the Company's common stock:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ ----------------
Outstanding at June 30, 1998 1,444,133 $0.43
Granted 1,441,186 4.32
Exercised (1,444,133) 0.43
Expired or cancelled -- --
---------- -----
Outstanding at June 30, 1999 1,441,186 4.32
Granted 2,291,283 4.00
Exercised --
Expired or cancelled (434,917) 4.32
---------- -----
Outstanding at June 30, 2000 3,297,552 3.98
========== =====
8. COMMITMENTS AND CONTINGENCIES
a. The Company has two five-year lease agreements expiring September 30,
2001 and November 30, 2004, respectively. Rent expense was
approximately $140,000 and $42,000 for the years ended June 30, 2000
and 1999, respectively. The future minimum rental payments to be made
under noncancellable operating leases as of June 30, 2000 are as
follows:
For the Year Ending June 30, Amount
---------------------------- ------
2001 $167,531
2002 131,194
2003 129,606
2004 132,519
2005 66,988
b. Effective February 1999, the Company entered into three-year
employment agreements with two officers who are principal stockholders
of the Company. These agreements subsequently were extended for one
year. The Company also has two employment agreements with the Former
Stockholders in connection with the acquisition of SSI (see Note 7k).
Future minimum payments under these employment agreements amounted to
approximately $1,344,000 payable through February 2003.
c. The Company has an agreement with an agency for marketing and public
relations services commencing April 1, 1999 with no expiration date.
Either party may terminate agreement by notifying the other party
within sixty days prior to the date of termination. The Company has
agreed to pay the agency a monthly rate of $7,000 to compensate the
agency for services in the following areas: strategic counseling,
in-house research, advertising and public relations. This agreement
was terminated in April 2000 and the Company paid the consultant
approximately $139,000.
d. On March 20, 2000, the Company entered into a forty-two (42) month
agreement with a consultant to provide services for management
consulting, business advisory and public relations. The Company has
agreed to pay the consultant $133,000 a year plus stock option and
other benefits.
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<PAGE> 29
9. DISCONTINUED OPERATIONS
In July 1998 the Company ceased its business of Web site development.
Revenue from Web site development earned in year ended June 30, 1999 was
approximately $53,000 and was derived from contracts billed in the year
ended June 30, 1998.
During the year ended June 30, 2000, the Company sold its web hosting and
online training businesses resulting for a gain of $513,716. Revenue from
web hosting and online training businesses during the year ended June 30,
2000 was $110,066 and $162,962, respectively.
The above transactions do not satisfy the criteria of APB No. 30,
"Discontinue Operations". Accordingly, the results of these discontinued
segments are not presented separately as discontinued operations in the
accompanying statements of operations.
10. INCOME TAXES
The Company accounts for income taxes under SFAS 109, "Accounting for
Income Taxes" which requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. At June 30, 2000 and 1999, the Company had net operating
loss carryforwards of approximately $11,683,000 and $3,800,000, expiring
through 2019. SFAS 109 additionally requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred
tax assets. At June 30, 2000 and 1999, a valuation allowance was provided
against the deferred tax asset.
The components of the net deferred tax asset consist of the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 4,089,000 $ 1,330,000
Temporary differences -- 4,000
Valuation allowance (4,089,000) (1,334,000)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
The provision for income taxes differs from the amount computed applying
the statutory federal income tax rate to income before income taxes as
follows at June 30:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Income tax benefit computed at statutory
rate at 35% $(2,759,000) $(905,000)
Tax benefit not recognized 2,759,000 905,000
----------- ---------
Provision for income taxes $ -- $ --
=========== =========
</TABLE>
10. ACCOUNTING DEVELOPMENT
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") which clarifies the SEC's views on revenue
recognition. The Company is required to adopt SAB 101 in the fourth quarter
of the year ending June 30, 2001. The Company is currently studying the
impact of SAB 101, but does not expect it will have a material impact on
its financial statements.
In November 1999, SEC released Staff Accounting Bulletin No. 100,
"Restructuring and Impairment Charges". The Company is currently reviewing
the impact of SAB 100 and believes it has complied with SAB 100.
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<PAGE> 30
PART III
Item 9. Directors and Executive Officers of the Registrant; Compliance with
Section 16(a) of the Exchange Act
Our board of directors is divided into three classes, labeled Class I, Class II
and Class III, with the term of one of the three classes of directors expiring
each year at our annual meeting or special meeting held in lieu of our annual
meeting. The number of directors has been fixed at six, and there is currently
one vacancy on the board of directors for a Class I director and one vacancy for
a Class II director.
Our principal executive officers and directors are as follows:
NAME AGE POSITION
---- --- --------
Richard A. Fisher 54 Chairman of the Board and General Counsel
Patrick O'Brien* 37 Chief Executive Officer
Bradford J. Baker* 36 President
Nancy Gleason 45 Vice President - Corporate Sales
Richard M. Wessels II 30 Vice President, Marketing and Content
Douglas J. Bush III 32 Vice President, Business Development
Peter Barkman 32 Vice President and National Field Manager
Kevin J. High 35 Director
Mark Rogers 40 Director
Jeffrey Cunningham** 47 Director
Bert Hensley 39 Director
*Messrs. O'Brien and Baker were officers of the Company during the fiscal year
ended June 30, 2000. They resigned on September 1, 2000, and are now consultants
to the Company.
**Mr. Cunningham was a director of the Company during the fiscal year ended June
30, 2000. He resigned on September 14, 2000.
Richard A. Fisher, Chairman of the Board. Mr. Fisher has been chairman of our
board of directors and general counsel since February 1999. Mr. Fisher is a
Class III director and serves until our 2002 annual meeting or until his
successor is elected and qualified. Mr. Fisher was a co-founder of our
predecessor, where he served as chairman of the board and general counsel from
August 1996 to February 1999. From January 1996 to August 1996, Mr. Fisher
provided legal and other counseling services to a number of start-up and early
stage companies. From July 1987 through September 1994, Mr. Fisher was chairman,
chief executive officer and general counsel of, and from October 1994 to
December 1995, a consultant to, Quadrax Corporation, which he co-founded to
engage in the manufacture and sale of advanced composite materials. Mr. Fisher
was a tax and corporate partner in Boston, Massachusetts law firm of Foley, Hoag
and Eliot, LLP, which is our legal counsel, and Assistant to the Chief counsel
of the Internal Revenue Service in Washington, D.C. Mr. Fisher holds a BA in
Economics from Northwestern University (1968) and a Juris Doctor from the
University of Virginia Law School (1971).
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<PAGE> 31
Patrick O'Brien, Chief Executive Officer. Mr. O'Brien served as our vice
president of marketing from November 1999 to February 2000, before being named
chief executive officer in February 2000. He is co-founder of Student Success,
Inc. (which was acquired by the Company in February 2000) and has served as its
president since its inception in June 1996. From October 1993 through June 1996,
he served as a vice president, and general manager at Union Camp Corporation's
Branigar subsidiary, a developer of exclusive golf communities. From July 1990
to October 1993, Mr. O'Brien was the director of marketing for Branigar,
managing national marketing efforts for two communities, running an in-house
advertising agency and managing telemarketing and MIS operations. From 1985
through June 1990, Mr. O'Brien worked in brand management and marketing at The
Procter & Gamble Company, serving as a brand manager of Crest Toothpaste during
this period. He is the author of three teen "success" books and has been
featured in the New York Times, USA Today and CBS News. Mr. O'Brien graduated
magna cum laude from Miami University with BS degrees in Finance and Accounting
(1985). Mr. O'Brien resigned on September 1, 2000 and is now a full-time
consultant to the Company.
Bradford J. Baker, President. Mr. Baker served as our vice president of sales
from November 1999 to March 2000 and president of the Company thereafter. He is
a co-founder of Student Success, Inc. and has served as its chief operating
officer and vice president of sales since its inception in June 1996. From
October 1990 through June 1996, Mr. Baker served as vice president and general
manager of Graphic Management, a printing communications and graphic arts
company. From October 1988 to September 1990, he served as brand manager at
Kraft, launching several new products and building national distribution for the
Tombstone Pizza brand. From June 1986 to September 1988, he served as an
assistant brand manager at The Procter & Gamble Company, helping integrate
several acquired brands into that company. Mr. Baker graduated magna cum laude
with a BS degree in Economics from Harvard (1986). Mr. Baker resigned on
September 1, 2000 and is now a full-time consultant to the Company.
Nancy Gleason, Vice President, Corporate Sales. Ms. Gleason served as our vice
president, college relations since June 1999 and as our vice president,
corporate sales since March of 2000. Ms. Gleason served as vice president of
marketing of our predecessor from November 1997 to June 1999. Ms. Gleason has
had substantial experience in developing and managing sales organizations as
well as in the development of marketing strategy and marketing administration.
Ms. Gleason has held senior sales and marketing positions with Augat, Inc.,
Anaconda Industries and Nordson. Ms. Gleason holds a BS in Business Management
from Providence College (1977).
Richard M. Wessels II, Vice President, Marketing and Content. Mr. Wessels has
served as our vice president of marketing and content since February 2000. From
1998 through January 2000, he served as director of strategic alliances for
Internet Broadcasting Systems, Inc., a national network of locally focused
Internet news and community portal Web sites. At IBS, Mr. Wessels was
responsible for business development profit and loss analysis, strategic
analysis and negotiations. From 1994 through 1998, he served as chief executive
officer of Access Point Interactive, Inc., a virtual community Web site builder
and a TV news-to-Internet publishing software developer, which he founded.
During his tenure at API, Mr. Wessels created theAntenna.com, the television and
radio industry's most read source of Internet broadcasting
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<PAGE> 32
analysis. Mr. Wessels holds a BS in Communications from James Madison University
and a MS in Communications Management from the University of Tennessee.
Douglas J. Bush III, Vice President, Business Development. Mr. Bush has served
as our vice president of business development since September 1999. From January
1996, he has served as chief financial officer and corporate secretary for
Online Scouting Network, Inc., an Internet-based athletic recruiting service for
high school athletes. From May 1995 to December 1995, Mr. Bush served as senior
consultant for Deloitte & Touche Consulting Group, focusing on business process
reengineering for firms in the financial services sector. From August 1993
through May 1995, Mr. Bush attended the University of Pennsylvania's Wharton
School of Business where he earned his MBA in Finance and Strategic Management
(1995).
Peter Barkman, Vice President and National Field Manager. Mr. Barkman has served
as our vice president and national field manager since March 2000. From
September 1999 through February 2000, Mr. Barkman served as our vice president
of sales and national sales manager. From November 1995 through August 1999, he
has served as vice president of sales and marketing for Online Scouting Network,
Inc., an Internet-based athletic recruiting service for high school athletes.
From September 1993 to November1995, Mr. Barkman was vice president of sales and
national sales manager for Interior Acoustics Inc., which provides acoustical
solutions in the workplace. From September 1990 to September 1993, Mr. Barkman
was senior business manager for College Pro Painters Inc, the largest
residential painting company in North America. Mr. Barkman holds a BS in
Marketing from St. John's University (1990).
Jeffrey Cunningham. Mr. Cunningham was one of our directors from November 1999
to September 14, 2000. Since April 2000, he has been Chairman of the Board of
iLife.com, a leader in creating, producing, broadcasting and syndicating
personal finance information for online consumers through a broad portfolio of
Web sites. From December 1998 through March 2000, Mr. Cunningham has served as
president and chief executive officer of MyWay.com, a majority owned subsidiary
of CMGI, Inc. MyWay.com is a provider of custom Web portal solutions. From June
1980 through July 1998, Mr. Cunningham served as group publisher and publisher
of Forbes Magazine, publisher of American Heritage Media, and worldwide sales
director for Forbes Inc., the magazine and online publisher. From June 1976
through July 1980, Mr. Cunningham served as Eastern advertising and marketing
director for Business Week, a McGraw-Hill company. Mr. Cunningham holds a BA
with honors from Binghamton University (1974) and a degree in Finance and
Accounting management from the University of Pennsylvania's Wharton School of
Business (1992). Mr. Cunningham resigned from the board on September 14, 2000.
Bert Hensley. Mr. Hensley has been one of our directors since November 1999. Mr.
Hensley is our Class I director and serves until our next annual meeting or
until his successor is elected and qualified. Since August 1997, he has served
as the president and chief executive officer of Morgan Samuels Company, a
national executive search firm. From February 1993 to August 1997, Mr. Hensley
was at Korn/Ferry International, an executive search firm, where he served as
vice president and led the industrial practice for that firm's Los Angeles
office. From February 1991 to February 1993, he was a general partner of
Meridian Strategies, Inc., a strategic consulting and venture management firm.
While at Meridian, he served a broad range of clients on engagements involving
corporate strategy, mergers, acquisitions and divestitures, organization
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<PAGE> 33
analysis and design, and process and systems improvement. From February 1990 to
February 1991, Mr. Hensley was a building and project manager at LaSalle
Partners, a real estate management and advisory firm. From September 1988 to
February 1990, he was an associate brand manager for Kraft-General Foods. From
May 1983 to August 1988, Mr. Hensley served in the United States Army Aviation
Branch, where he held various leadership and staff positions, including pilot,
aviation detachment commander, battalion adjutant and brigade war plans officer.
Mr. Hensley holds a JD from Loyola Law School (1993), a MS in Business
Administration from Boston University (1987), and a BS in Engineering from West
Point (1983).
Mark Rogers. Mr. Rogers has been one of our directors since February 1999 and
served as a director of our predecessor from April 1998 to February 1999. Mr.
Rogers is a Class II director who serves until our 2001 annual meeting or until
his successor is elected and qualified. Since 1989, Mr. Rogers has been a
principal in NFT Ventures, including acting as interim chief executive officer
and chief financial officer as well as managing the venture capital fund. Mr.
Rogers serves as an advisor to several computer software companies in
California, Utah and Texas and is a director of several other high-tech
companies. Mr. Rogers holds a BBA from Pace University (1981).
Kevin J. High. Mr. High has been one of our directors since February 1999. Mr.
High served as our president from February 1999 until November 11, 1999. Mr.
High is a Class III director and serves until our 2002 annual meeting or until
his successor is elected and qualified. Mr. High was a co-founder of our
predecessor, where he served as vice president from April 1996 to December 1996
and from December 1996 to February 1999 as chief executive officer. From April
1991 to April 1996, Mr. High served as branch manager of the Middletown, Rhode
Island office of the Corporate Securities Group, Inc. Mr. High served as a vice
president of Shearson Lehman Brothers, a national brokerage firm, from August
1989 to April 1991.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file reports of ownership and
change in ownership with the Securities and Exchange Commission and The Nasdaq
Stock Market. Officers, directors and greater-than-ten percent stockholders are
required by Securities and Exchange Commission regulations to furnish us with
all Section 16(a) forms they file. Based solely on review of the copies of such
forms received by CollegeLink, we believe that during the fiscal year ended June
30, 2000, all officers, directors and greater-than-ten percent stockholders
complied with all Section 16(a) filing requirements, except that each of
Bradford J. Baker, Peter J. Barkman, Douglas J. Bush, III, Jeffrey Cunningham,
Bert Hensley, Timothy H. Jemison, and Patrick S. O'Brien omitted to file timely
Forms 3 to report their initial statement of beneficial ownership of the
Company's securities when they first became officers or directors of the Company
in September and November 1999, and each of Messrs. Baker and O'Brien omitted to
file a timely report on Form 4 to report the issuance of Common Stock in
connection with the merger with Student Success, Inc. in February 2000. Each of
the initial statements of beneficial ownership and each of the transactions have
now been reported on Form 3 or 4.
Item 10. Executive Compensation
Director Compensation
Outside directors who are not principals of stockholders which own more than 10%
of our common stock receive an annual option to purchase 10,000 shares of our
common stock. The price is determined as the closing bid price of the stock on
the date of our annual meeting. Further, each director entitled to a grant of
options receives compensation of $1,000 for each meeting attended. All directors
receive reimbursement for out-of-pocket expenses incurred in attending meetings
of the Board.
Executive Compensation Summary
The following table sets forth the total compensation paid or accrued for our
chief executive officer and our four other most highly compensated executive
officers who were employed by us at June 30, 2000, excluding officers paid less
than $100,000 annually (collectively, the "Named Executive Officers").
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<PAGE> 34
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
NAME AND OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION FISCAL YEAR ENDED SALARY COMPENSATION UNDERLYING OPTIONS COMPENSATION
------------------ ----------------- ------ ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C>
Richard A. Fisher June 30, 2000 $222,845 -- 100,000 --
Chairman June 30, 1999 $105,093 -- 414,412 --
June 30, 1998 $ 60,622 -- -- --
Patrick O'Brien June 30, 2000 $ 83,147 -- 200,000 --
CEO
Kevin J. High June 30, 2000 $193,825 -- 100,000 --
CEO, June 30, 1999 $126,040 -- 414,412 --
Investor Relations June 30, 1998 $ 90,865 -- -- --
Tom Burgess June 30, 2000 $160,882 -- 300,000 --
President
Edward Hayes June 30, 2000 $118,000 -- -- --
VP Finance
Lonergan Harrington June 30, 2000 $101,111 -- 500,000 --
CTO
</TABLE>
In addition to the above compensation, we paid personal life insurance premiums
for Mr. Fisher and Mr. High of $18,762 and $15,396 respectively.
Item 11. Option Grants in Last Fiscal Year
The following table sets forth grants of stock options to each of the Named
Executive Officers during the fiscal year ended June 30, 2000. No stock
appreciation rights were granted during the fiscal year ended June 30, 2000.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED ANNUAL
SECURITIES TOTAL OPTIONS EXERCISE RATES OF STOCK PRICE
UNDERLYING OR BASE APPRECIATION FOR
OPTIONS PRICE EXPIRATION OPTION TERM (2)
NAME GRANTED FISCAL YEAR (1) PER SHARE DATE 5% ($) 10% ($)
---- ---------- --------------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Fisher 100,000 4.53% $ 5.00 9/1/2009
Kevin High 100,000 4.53% $ 5.00 9/1/2009
Patrick O'Brien 200,000 9.06% $ 4.00 2/10/2010
Lonergan Harrington 500,000 22.66% $ 3.00 Expired
Tom Burgess 300,000 13.60% $6.125 2/4/2001
</TABLE>
(1) Based on an aggregate of 2,206,283 shares subject to options granted to
employees during fiscal year 2000.
(2) These amounts represent hypothetical gains that could be achieved for the
option if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the option was granted to its expiration date and are not
presented to forecast possible future appreciation, if any, in the price of
our common stock. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise of the option or the sale of the
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<PAGE> 35
underlying shares. The actual gains, if any, on the exercise of the option
will depend on the future performance of our common stock, the optionee's
continued employment through the vesting period applicable to the option
and the date on which the option is exercised.
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information regarding stock options
exercised by Named Executive Officers in the fiscal year ended June 30, 2000,
and exercisable and unexercisable stock options held as of June 30, 2000 by each
of the Named Executive Officers. The value of unexercised in-the-money options
has been calculated by determining the difference between the exercise price per
share payable upon exercise of such options and the closing market price on June
30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE ---------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Fisher -- -- 314,412 200,000 $0 $0
Kevin J. High -- -- 314,412 200,000 $0 $0
Patrick O'Brien --- --- 0 200,000 $0 $0
Lonergan Harrington --- --- 0 500,000 $0 $0
Tom Burgess --- --- 0 300,000 $0 $0
</TABLE>
Item 12. Certain Relationships and Related Transactions
In fiscal year ended June 30, 2000, the Company's outside directors unanimously
approved the transfer of certain developmental online conferencing technology
known as learningevent developed by the Company to a corporation in exchange for
one-third of its common stock and promissory notes in the aggregate amount of
$120,000. The Company had previously discontinued all development with respect
to this technology and had never engaged in any marketing or other efforts to
sell it. Kevin High and Richard Fisher, two of the Company's directors and
Lonergan Harrington, a former officer of the Company, own the remaining shares
of common stock of the transferee corporation.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the Report.
1. Financial Statements (see index to financial statements)1.
2. Financial Statement Schedule - None
(b) Reports on Form 8-K.
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<PAGE> 36
1. Form 8-K, Current Report of Events, filed on April 5, 2000
(c) Exhibits:
The following exhibits are filed as part of or incorporated by reference into
this Report:
EXHIBIT DESCRIPTION
------- -----------
2.1 Articles of Merger between the Company and Cytation Corporation,
dated February 11, 1999(1)
2.2 Plan of Merger of the Company and Cytation Corporation, dated
February 11, 1999(1)
2.3 Articles of Merger between CollegeLink.com Incorporated and
ECI, Inc., dated August 10, 1999(2)
2.4 Certificate of Merger of CollegeLink.com Incorporated and ECI, Inc.,
dated August 10, 1999(2)
2.5 Agreement and Plan of Merger of the Company and ECI, Inc., dated
August 10, 1999(2)
2.6 Certificate of Ownership and Merger between the Company and
CollegeLink.com Incorporated, dated November, 15, 1999(2)
2.7 Agreement and Plan of Merger between the Company and CollegeLink.com
Incorporated, dated November 15, 1999(2)
3.1 Amended and Restated Certificate of Incorporation of the Company(2)
3.2 By-Laws of the Company(2)
4.1 Please see Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and By-Laws of the Company
defining the rights of holders of the common stock of the Company
10.1 Series A Convertible Stock Purchase Agreement, dated April 2, 1999,
between the Company and Provident Life and Accident Insurance
Company (3)
10.2 Escrow Agreement by and among the Company, Gerald A. Paxton,
Thomas J. Burgess and Eastern Bank and Trust Company dated as of
August 10, 1999(2)
10.3 Registration Agreement by and among the Company, Gerald A. Paxton,
Thomas J. Burgess and ECI, Inc., dated as of August 10, 1999(2)
10.4 Consulting Agreement by and among the Company, Gerald A. Paxton and
CollegeLink.com Incorporated dated as of August 10, 1999(2)
10.5 Letter Agreement by and among the Company, ECI, Inc. and USA Group
Noel-Levitz, Inc. dated as of July 28, 1999(2)
10.6 Registration Rights Agreement by and among the Company and USA Group
Noel-Levitz, Inc. dated as of July 28, 1999(2)
10.7 Lease by and between Victoria S. Tarsagian and Web Services
International, Inc. dated as of July 29, 1996(2)
10.8 1996 Stock Plan(2)
10.9 1999 Stock Option Plan(2)
35
<PAGE> 37
10.10 Stock Purchase Agreement, dated September 30, 1999, between the
Company and PNC Investment Corp.(2)
10.11 Marketing Services and Administrative Agreement, dated September 30,
1999, between the Company and PNC Investment Corp.(2)
10.12 Employment Agreement, dated February 11, 1999, between the Company
and Richard Fisher(2)
10.13 Employment Agreement, dated February 11, 1999, between the Company
and Kevin High(2)
10.14 Agreement, dated June 30, 1999, between the Company and the College
Entrance Examination Board(2)
10.15 Form of Lock-Up Agreement(2)
10.16 Lease dated September 22, 1999 between the Company and Midview, LLC(2)
10.17 Agreement and Plan of Merger dated as of October 20, 1999 by and
among Cytation.com Incorporated, CollegeLink.com, Incorporated,
Student Success, Inc., Bradford J. Baker, Patrick S. O'Brien and the
Patrick S. O'Brien Stock Trust(2)
10.18 Support Agreement dated as of October 20, 1999 by and between the
Company and Bradford J. Baker(2)
10.19 Support Agreement dated as of October 20, 1999 by and between the
Company and Patrick S. O'Brien(2)
10.20 Support Agreement dated as of October 20, 1999 by and between the
Company and the Patrick S. O'Brien Stock Trust(2)
10.21 Noncompetition and Employment Agreement dated as of October 20, 1999
among CollegeLink.com Incorporated, Cytation.com Incorporated and
Bradford J. Baker(2)
10.22 Noncompetition and Employment Agreement dated as of October 20, 1999
among CollegeLink.com Incorporated, Cytation.com Incorporated and
Patrick S. O'Brien(2)
10.23 Series A Convertible Preferred Stock Purchase Agreement, dated as of
October 26, 1999, between the Company and Bost & Co.(2)
10.24 Partner Contract dated September 8, 1999 between Student Advantage,
Inc. and CollegeLink.com(2)
10.25 FastWeb CollegeLink Agreement dated November 22, 1999 between
FastWeb.com LLC and CollegeLink.com Incorporated(2)
10.26 Employment Agreement, dated as of July 1, 1999, between the Company
and Thomas Burgess(2)
10.27 Amendment dated as of November 11, 1999, to Employment Agreement
between Cytation.com Incorporated and Richard A. Fisher(2)
10.28 Amendment dated as of November 11, 1999, to Employment Agreement
between Cytation.com Incorporated and Kevin J. High(2)
10.29 Consulting Agreement dated October 13, 1999, between Cytation.com
Incorporated and Bruce Sundlun(2)
10.30 Series A Lock-Up Agreement(2)
21.1 List of Subsidiaries of the Company(2)
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<PAGE> 38
27.1 Financial Data Schedule
(1) Incorporated by reference from the Company's Form 8-K, Current Report,
filed March 18, 1999, and later amended on April 2, 1999.
(2) Filed as Exhibit to the Company's Registration Statement No. 333-85079 on
Form SB-2 and incorporated herein by reference.
(3) Incorporated by reference from the Company's Form 8-K, Current Report,
filed April 27, 1999.
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<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 27, 2000 COLLEGELINK.COM INCORPORATED
By: /s/ RICHARD A. FISHER
----------------------
Richard A. Fisher
Chairman
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
SIGNATURE DATE TITLE
--------- ---- -----
/s/ RICHARD A. FISHER September 27, 2000 Chairman of the Board
--------------------- (Principal Executive,
RICHARD A. FISHER Financial and Accounting
Officer)
/s/ KEVIN J. HIGH September 27, 2000 Director
---------------------
KEVIN J. HIGH
/s/ MARK ROGERS September 27, 2000 Director
----------------------
MARK ROGERS
38
