SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______________ to ________________
Commission file number 1-14827
EDUCATIONAL VIDEO CONFERENCING, INC.
(Exact name of small business as
specified in its charter)
Delaware 06-1488212
(State of other jurisdiction (IRS Employer Identification Number)
of incorporation of organization)
35 East Grassy Sprain Road, Yonkers, New York 10710
(Address of principal executive offices)
(914) 787-3500
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,492,961 shares of Common
Stock as of May 1, 2001.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 2001 (unaudited) and as of
December 31, 2000 (audited) ...................................................... 3
Consolidated Statement of Operations (unaudited) for the three month periods
ended March 31, 2001 and March 31, 2000 .......................................... 4
Consolidated Statement of Cash Flows (unaudited) for the three month periods
ended March 31, 2001 and March 31, 2000 .......................................... 5
Notes to Consolidated Financial Statements ....................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
First quarter developments ....................................................... 8
Comparison of three month periods ended
March 31, 2001 and March 31, 2000 ................................................ 9
Liquidity and capital resources .................................................. 10
Forward-looking statements and risk factors....................................... 10
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on form 8-K ......................................... 11
Signatures........................................................................ 12
2
EDUCATIONAL VIDEO CONFERENCING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 4,431,192 $ 6,332,934
Accounts receivable, net of allowance for doubtful accounts
of $250,000 ........................................................... 1,570,945 1,482,001
Accounts receivable other ............................................. -- 304,634
Prepaid expenses and other current assets 189,238 11,510
---------- ----------
Total current assets............................................................ 6,191,375 8,131,079
---------- ----------
Property and equipment, net .................................................... 5,069,800 5,013,003
---------- ----------
Deferred income tax asset, net of valuation allowance of $1,806,000............. -- --
License agreement .............................................................. 200,000 212,500
Intangible Assets .............................................................. 1,582,647 1,349,588
Other assets ................................................................... 142,904 45,081
---------- ----------
Total assets ................................................................... 13,186,726 14,751,251
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses...................................... 576,328 793,466
Accrued purchase price payable for Interboro............................... 162,000 673,376
Current maturities of capitalized lease obligations............................. 18,107 18,107
---------- ----------
Total current liabilities ...................................................... 756,435 1,484,949
Accrued purchase price payable for Interboro, net of current portion............ 789,994 --
Capitalized lease obligations, net of current maturities ....................... 24,815 27,937
---------- ----------
Total liabilities .............................................................. 1,571,244 1,512,886
---------- ----------
Series B 7% Convertible Preferred Stock-$100 stated value; 130,000
shares issued and outstanding .................................................. 12,402,060 12,342,266
Stockholders' equity (deficiency):
Preferred stock - $.0001 par value; authorized 1,000,000 shares,
including 200,000 shares of designated Series B.......................... -- --
Common stock - $.0001 par value; authorized 20,000,000 shares, issued
and outstanding 4,492,961 shares ........................................ 450 450
Additional paid-in capital ................................................ 22,370,380 22,370,380
Accumulated deficit ....................................................... (23,157,408) (21,474,731)
---------- ----------
Stockholders'equity (deficiency) ............................................... (786,578) 896,099
---------- ----------
Total liabilities and stockholders' equity (deficiency) ........................ $ 13,186,726 $ 14,751,251
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
EDUCATIONAL VIDEO CONFERENCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
Net revenue.................................................................... $2,515,521 $2,215,614
Other Income................................................................... 13,310 25,277
--------- ---------
Total revenue................................................................... 2,528,831 2,240,891
Cost of sales...................................................... 754,637 529,131
Selling, general and administrative ............................... 3,401,169 3,433,885
--------- ---------
Total operating expenses........................................................ 4,155,806 3,963,016
--------- ---------
Loss from operations............................................................ (1,626,975) (1,722,125)
Other income (expense):
Interest expense................................................................ (1,150) --
Interest income ............................................................... 68,242 84,247
--------- ----------
Loss before provision for income taxes ......................................... (1,559,883) (1,637,878)
Provision for income taxes ..................................................... 63,000 --
---------
Net loss........................................................................ (1,622,883) (1,637,878)
--------- ----------
Beneficial conversion feature of preferred stock-Series A...................... -- (176,471)
Accreted value of warrants-Series A............................................ -- (21,051)
Accreted value of warrants and transaction costs-Series B .................... (59,794) --
Dividends on preferred stock-Series A ......................................... -- (50,000)
----------
Undeclared dividends on preferred stock Series B .............................. $ (224,383)
Net loss available to common stockholders...................................... (1,907,058) (1,885,400)
========= ==========
Basic and diluted loss per common share........................................ $ (0.42) $(0.43)
========= ==========
Weighted average number of common shares outstanding .......................... 4,492,961 4,347,243
========= ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
EDUCATIONAL VIDEO CONFERENCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
Cash flows from operating activities:
Net loss ...................................................................... $(1,622,883) $(1,637,878)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of intangibles ............................................ 46,647 30,000
Amortization of licensing agreement .................................... 12,500 --
Depreciation ........................................................... 327,121 220,170
Allowance for doubtful accounts ........................................ 5,000
Loss from equity method investment ..................................... 25,250
Changes in operating assets and liabilities, net of effects in the acquisition
of Interboro Institute, Inc in 2000:
Increase in accounts receivable ........................................ 215,690 (737,676)
(Increase)/decrease in prepaid expense ................................. (177,728) 139,443
Decrease in inventory .................................................. 8,156
Decrease in other assets ............................................... (97,823)
Decrease in accounts payable and accrued expenses ...................... (217,138) (1,857,889)
-----------
Accrued purchase price on Interboro Institute .......................... 278,618
-----------
Net cash used in operating activities ......................................... (1,234,996) (3,805,424)
----------- -----------
Cash flows used in investing activities:
Purchase of Interboro Institute, Inc. net of cash required ............. (279,706) 39,535
Net payments for other investments ..................................... (50,000)
Purchase of equipment .................................................. (383,918) (1,110,397)
----------- -----------
Net cash used in investing activities ......................................... (663,624) (1,120,862)
----------- -----------
Cash flows from financing activities:
Principal payments under capital lease obligations ..................... (3,122) (4,427)
Net proceeds from issuance of preferred stock .......................... -- 3,730,000
----------- -----------
Net cash provided by financing activities ..................................... (3,122) 3,725,573
----------- -----------
Net decrease in cash and cash equivalent ...................................... (1,901,742) (1,200,713)
Cash and cash equivalents at beginning of period .............................. 6,332,934 6,925,823
----------- -----------
Cash and cash equivalents at end of period .................................... $ 4,431,192 $ 5,725,110
=========== ===========
Supplemental schedule of cash flow information Cash paid during the period for:
Interest ............................................................. $ 1,150
Taxes ................................................................ $ 63,158
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Educational Video Conferencing, Inc. ("EVCI") and its wholly owned subsidiaries,
Interboro Institute, Inc. ("Interboro") and Interboro Holding, Inc. References
to "we," "our," and "us" mean EVCI and its subsidiaries unless the context
requires otherwise. All significant intercompany balances and transactions have
been eliminated.
We have two business segments. Through EVCI, we aggregate educational and
training content provided by others and deliver it, to remote locations,
synchronously using interactive video conferencing technologies, and
asynchronously using narrow band connections to the Internet. These technologies
include our broadband network design and enabling technology that facilitates
high quality multi-point broadband video conferencing over the Internet or
private ATM networks. We also provide on campus education and training,
currently through Interboro, a two-year college located in New York City. Our
campus education segment provided approximately 87% of our revenues for 2000 and
94% of our revenues for the first quarter of 2001. In the first quarter of 2001,
we decided to place greater emphasis on growing this segment of our business
through internal expansion and acquisition.
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the requirements of item 310(b) of Regulation S-B. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management, are necessary for a fair presentation of the results for the
periods shown. There have been no significant changes of accounting policy since
December 31, 2000.
Our results from operations for the interim period are not indicative of the
results expected for the full fiscal year or any future period and should be
read in conjunction with our audited financial statements as of December 31,
2000 and for the year then ended, and the notes thereto, in our 10-KSB/A for the
year ended December 31, 2000.
NOTE 2 - EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No 128, Earnings per Share,
requires dual presentation of basic earnings per share ("EPS") and diluted EPS
on the face of all statements for all entities with complex capital structures.
Basic EPS is computed as net earnings available to common stockholders divided
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock based compensation including stock options, restricted
stock awards, warrants and other convertible securities. Potential common stock
has not been included in the computation of diluted EPS since the effect would
be antidilutive.
NOTE 3- REVENUE RECOGNITION
We recognize income ratably over the semester in which courses are given and as
services are performed. Unearned revenue from advance student billings is netted
against accounts receivable for financial statement reporting. For the most
recent semester beginning in January through March 2001, advance billings
amounted to $243,763, which is to be recognized as revenue during the 2nd
quarter of 2001.
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NOTE 4 - PREFERRED STOCK
On September 22, 2000, we designated 200,000 shares of our authorized preferred
stock as Series B 7% Convertible Preferred Stock. Between September 22 and
September 30, 2000, we received gross proceeds of $13,000,000 from the issuance
of 130,000 shares of our Series B preferred stock and three year warrants to
purchase 722,223 shares of our common stock at $20.25 per share. A value of
$400,000 was assigned to the warrants. The transaction costs of this private
placement were approximately $320,000. The $400,000 assigned value to the
warrants and the transaction costs of approximately $320,000 will be recognized
as a deemed dividend to the preferred stockholders over three years. A portion
of the net proceeds from the sale of the Series B preferred was used to redeem
our Series A preferred stock.
Our board of directors did not declare the December 31 dividend of $246,055, on
our series B preferred stock, and does not expect to declare any Series B
preferred dividends for the foreseeable future. Cumulative dividends are payable
upon conversion of Series B preferred, subject to applicable law.
The Series B preferred stock is initially convertible into shares of our common
stock at $13.50 per share, the average closing bid price of our common stock for
20 trading days prior to September 22, 2000. The Series B preferred stockholders
can require us to redeem their preferred shares upon the occurrence of certain
matters as defined in the agreement. For more information regarding our Series B
preferred stock and related warrants, reference is made to our 8-K filed October
6, 2000.
NOTE 5 - INCOME TAXES
No provision for federal income taxes has been made for all periods presented
since, we have net operating losses. These net operating losses have resulted in
a deferred tax asset of approximately $1,806,000 at March 31, 2001. Due to the
uncertainty regarding the ultimate amount of income tax benefits to be derived
from our net operating losses, we have recorded a full valuation allowance. The
provision for taxes consists of state and city taxes for Interboro.
NOTE 6 - SEGMENT REPORTING
We follow SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." We have two operating segments:
o aggregation of educational and training content and video conferencing
technology and content delivery services
o on campus education and training
7
Reportable segment data were as follows:
For the three month periods ended March 31, 2001 and 2000
2001 2000
---- ----
Net revenue:
Campus education .......................................................... $2,345,998 $1,915,092
Content and video conferencing ............................................ 169,523 300,522
--------- ---------
Total operating revenue ............................................... 2,515,521 2,215,614
========= =========
Operating net income (loss):
Campus education .......................................................... 477,125 522,492
Content and video conferencing ............................................ (2,037,168) (2,160,370)
--------- ---------
Total operating net loss .............................................. (1,559,883) (1,637,878)
========= =========
Assets:
Campus education .......................................................... 2,347,805 969,252
Content and video conferencing ............................................ 10,838,922 12,037,004
---------- ----------
Total assets .......................................................... 13,186,727 $13,006,256
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements and notes thereto for the year ended December 31, 2000
included in our 10-KSB/A for the year ended December 31, 2000 and in conjunction
with the financial statements and notes thereto for the three months ended March
31, 2001 and 2000 included in Item 1 of this report.
FIRST QUARTER DEVELOPMENTS
During the first quarter of 2001, our activities included the following:
o We implemented programs to substantially reduce our expenses.
o We began placing significantly greater emphasis on growing our campus
education business:
o Interboro prepared to open its first satellite campus, in Flushing,
New York, with a capacity for approximately 500 full-time students.
o Interboro filed applications for approval to offer degrees in
computer networking and programming. We worked to close agreements to
acquire control of IBS International Business Schools Inc. one of
Canada's largest operators and franchisors of post-secondary business
career schools. However, the agreements terminated prior to closing.
We are now working on a potential restructuring of this transaction.
o We refined and improved our technology's ability to enable the
transmission of high quality, multi-point broadband video conferencing
over the Internet. This significantly ameliorates the "last mile"
connection problems we have had because our corporate customers no
longer need to obtain ATM dedicated lines. Instead, they can use
standard T-1 connections to the Internet. T-1's are easier to
8
obtain and less expensive than dedicated ATM lines and there is
currently a significant amount of excess bandwidth on the Internet
backbone that service providers are eager to provide.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 (FIRST QUARTER OF 2001) TO THE
THREE MONTHS ENDED MARCH 31, 2000 (FIRST QUARTER OF 2000)
Net revenues for the first quarter 2001 increased 14% to $2,515,521 from
$2,215,614 for the first quarter 2000. Interboro student course registration's
increased to approximately 3,500 from 3000 in the first quarter of 2000,
resulting in additional revenue of approximately $431,000. Our distance learning
student course registrations decreased from approximately 900 in the first
quarter of 2000 to 342, a revenue decrease of $192,000. The decline in EVCI
student course registration resulted from less demand by our corporate
customers, staff reductions we implemented and our decision to curtail our
outreach program business because of insufficient margins. We intend to pursue
more corporate distance learning business by offering our Internet technology
and delivery capabilities.
Other income decreased to $13,310 for the first quarter of 2001 from $25,277 for
the first quarter of 2000. This decrease relates to the outsourcing of textbook
sales by Interboro.
Interest income decreased to $68,242 for first quarter of 2001 from $ 84,427 for
the first quarter of 2000 because more of the proceeds from our financings were
used to fund our operations.
Cost of sales increased by 43% to $754,637 for the first quarter of 2001 from
$529,131 for the first quarter of 2000 due primarily to an increase of
approximately $147,000 for additional personnel and wages increases of
Interboro's professors, adjunct professors, recruiters, and a full time
librarian, as well as a write-off of textbooks of approximately $61,000 due to
the outsourcing of textbook sales buy Interboro.
Salaries and benefits increased by 7% to $1,860,125 for the first quarter of
2001 from $1,744,886 for the first quarter of 2000. Payroll and benefit costs at
Interboro increased by approximately $163,000 and payroll and benefit costs at
EVCI decreased by approximately $46,000. Staff decreased for the first quarter
of 2001 to 106 from 133. The net decrease of 27 consists of 36 at EVCI (12
recruiting, 15 in sales, 7 in operations and 2 in general office) after giving
effect to an increase, since the end of the first quarter of 2000, of 9
administrative personnel at Interboro, including a new president. The full
benefit of first quarter EVCI staff reductions will be approximately 650,000 in
the second quarter of 2001.
Marketing, brochures and student registrations costs decreased to $174,376 for
the first quarter of 2001 from $370,611for the first quarter of 2000. The
decrease of approximately $196,000 resulted from reducing advertising and
marketing costs by approximately $165,000 and costs of outside agents and
brokers by approximately 67,000, all at EVCI. This decrease was offset by an
increase of approximately $36,000 in advertising Interboro programs.
Professional fees increased to $196,334 for the first quarter of 2001 from
$191,774 for the first quarter of 2000. These costs relate primarily to the
legal and accounting fees resulting mostly from compliance with SEC disclosure
requirements and for general corporate services.
Depreciation and amortization increased to $386,268 for the first quarter of
2001 from $250,171 for the first quarter of 2000. The increase relates to
purchases of videoconferencing and other equipment acquired during the last two
quarters of 2000 and the goodwill amortization related to the contingent
purchase price of Interboro.
9
Other expenses decreased to $783,907 for the first quarter of 2001 from $861,443
for the first quarter of 2000. The net decrease of approximately $114,000 was
primarily due to decreased computer, printing, postage, investor relations,
supplies and telephones which were offset by increase of increases in rent,
postage, insurance, travel and office expenses that were incurred to support
EVCI. Interboro had an increase of approximately $37,000, relating to rent,
telephone and other expenses required to support Interboro's growth.
LIQUIDITY AND CAPITAL RESOURCES
EQUIPMENT. Capital expenditures for the first quarter of 2001 were $383,918
compared to $1,110,397 for the first quarter of 2000. Most of the equipment
required for our hubs was purchased in 2000. The funds spent in the first
quarter of 2001 were necessary for deployment of our broadband network
technology.
CASH FLOW. We anticipate, based on current plans and assumptions relating
to our current operations, that cash flow from operations and the proceeds from
our recent Series B preferred stock offering will be sufficient to satisfy our
cash requirements at least until December 31, 2001. In addition to significant
reductions in staff and other cost reductions made in the first quarter of 2001,
we are working to reduce other expenses that do not adversely impact our
business prospects. If, we are underestimating the cash requirements of our
current level of operations we may require additional debt or equity financing
before year end. There can be no assurance that any required debt or equity
financing will be available on acceptable terms.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Form 10-QSB contains forward-looking statements that involve
assumptions, risks and uncertainties. The words "anticipates," "estimates,"
"believes," "expects," "will," "could," "may," "plans," and similar words are
intended to identify forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including:
o if we cannot generate significantly more revenues to offset our
continuing losses, we may not to be able to achieve profitability;
o our continued negative cash flow could materially impede our ability to
operate;
o our success may depend on our ability to obtain substantial additional
financing in order to operate and grow;
o exploitation of our broadband network technology may not result in any
significant revenues or profits;
o our broadband network technology may not provide a short or long term
competitive advantage;
o our greater emphasis on our campus education may not increase our
revenues substantially;
o our plans to grow our campus education segment by acquisition may not
succeed;
o our common stock will be adversely affected if it is delisted from The
Nasdaq SmallCap Market;
o we need to substantially increase enrollment by employees of large
corporate customers for our distance learning services to become
profitable;
o changes in training and education policies of our corporate customers
could quickly and materially decrease our existing and potential student
enrollment and, therefore, our revenue;
10
o demand for our content delivery services may not increase rapidly
because training and education via live interactive video conferencing
does not become widely accepted;
o we depend on our chairman, president and other key management to operate
and grow;
o we may need to replace obsolete equipment at substantial unanticipated
costs;
o regulatory changes may impose constraints, additional costs or other
burdens on us and our content providers;
o Interboro Institute is subject to extensive Federal and New York State
regulation because it depends on substantial federal and state funds in
order to operate;
o Interboro Institute's prior problems with regulators could reoccur and
adversely affect its operations;
o if we are able to acquire any other campus schools, similar to
Interboro, compliance with extensive regulations governing their
operations will be required; and
o the other specific risk factors included in our filings with the SEC,
including our most current Form 10-KSB/A
Should any of these or other risks and uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated by forward-looking statements. We undertake no obligation to
update forward-looking statements.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed by us during the quarter ended March
31, 2001.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 11, 2001
EDUCATIONAL VIDEO CONFERENCING, INC.
By: /s/ Richard Goldenberg
-----------------------------------
Richard Goldenberg
Chief Financial Officer (Principal)
12