UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES AND EXCHANGE ACT OF 1934
For the quarter ended March 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-42530
eSylvan, Inc.
(Exact name of registrant as specified in its charter)
| Maryland |
52-2257470 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 506 South Central Avenue, Baltimore, Maryland |
21202 | |
| (Address of principal executive offices) |
(ZIP Code) |
(410) 843-2622
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 a chek mark whether the registrant is an accelerated filer (as defined In Exhange Act Rule 12b-2). Yes ¨ No x
As of May 12, 2003, the registrant had 14,000,000 outstanding shares of Common Stock and 2,517,984 outstanding shares of Class A Convertible Common Stock.
eSylvan, Inc.
| PAGE | ||||
| PART I. |
||||
| ITEM 1. |
Financial Statements (Unaudited): |
|||
| 2 | ||||
| Statements of Operations –Three Months Ended March 31, 2003 and 2002 |
4 | |||
| Statements of Cash Flows – Three Months Ended March 31, 2003 and 2002 |
5 | |||
| 6 | ||||
| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| ITEM 3. |
14 | |||
| ITEM 4. |
14 | |||
| PART II. |
||||
| ITEM 1. |
15 | |||
| ITEM 2. |
15 | |||
| ITEM 3. |
15 | |||
| ITEM 4. |
15 | |||
| ITEM 5. |
15 | |||
| ITEM 6. |
15 | |||
| 16 | ||||
| 17 | ||||
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
eSylvan, Inc.
(a Subsidiary of Sylvan Ventures, LLC)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) |
||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash |
$ |
38,841 |
|
$ |
94,497 |
| ||
| Accounts receivable, net of allowance of $49,284 and $49,844 at March 31, 2003 and December 31, 2002, respectively |
|
125,307 |
|
|
194,716 |
| ||
| Accounts receivable from related party |
|
73,203 |
|
|
54,717 |
| ||
| Prepaid expenses |
|
111,806 |
|
|
60,783 |
| ||
| Prepaid royalties to related party |
|
319,153 |
|
|
439,153 |
| ||
| Total current assets |
|
668,310 |
|
|
843,866 |
| ||
| Property and equipment: |
||||||||
| Furniture and equipment |
|
1,642,608 |
|
|
1,642,608 |
| ||
| Software |
|
2,554,848 |
|
|
2,554,848 |
| ||
| Educational content |
|
969,427 |
|
|
969,427 |
| ||
| Leasehold improvements |
|
5,897 |
|
|
5,897 |
| ||
|
|
5,172,780 |
|
|
5,172,780 |
| |||
| Accumulated depreciation and amortization |
|
(4,394,778 |
) |
|
(4,197,827 |
) | ||
|
|
778,002 |
|
|
974,953 |
| |||
| Intangible assets: |
||||||||
| Participation agreements, net of accumulated amortization of $715,308 and $625,894 at March 31, 2003 and December 31, 2002, respectively |
|
1,430,615 |
|
|
1,520,029 |
| ||
| Total assets |
$ |
2,876,927 |
|
$ |
3,338,848 |
| ||
2
eSylvan, Inc.
(a Subsidiary of Sylvan Ventures, LLC)
Balance Sheets (continued)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) |
||||||||
| Liabilities and stockholders’ equity (deficit) |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ |
810,609 |
|
$ |
822,128 |
| ||
| Accrued severance costs |
|
255,000 |
|
|
— |
| ||
| Fees payable to related party |
|
240,760 |
|
|
202,690 |
| ||
| Borrowings from related party |
|
696,160 |
|
|
5,485,329 |
| ||
| Deferred revenue |
|
325,952 |
|
|
337,339 |
| ||
| Total current liabilities |
|
2,328,481 |
|
|
6,847,486 |
| ||
| Commitments and contingent liabilities |
|
— |
|
|
— |
| ||
| Stockholders’ equity (deficit): |
||||||||
| Series A Convertible Preferred Stock, par value $.001 per share—20,000,000 shares authorized, 19,052,631 and 15,473,684 shares issued and outstanding as of March 31, 2003 and December 31, 2002, respectively |
|
19,053 |
|
|
15,474 |
| ||
| Class A Convertible Common Stock, par value $.001 per share—10,000,000 shares authorized, 2,517,984 shares issued and outstanding as of March 31, 2003 and December 31, 2002 |
|
2,518 |
|
|
2,518 |
| ||
| Common stock, par value $.001 per share—authorized 70,000,000 shares, 14,000,000 shares issued and outstanding as of March 31, 2003 and December 31, 2002 |
|
14,000 |
|
|
14,000 |
| ||
| Additional paid-in capital |
|
40,242,915 |
|
|
33,446,494 |
| ||
| Accumulated deficit |
|
(39,730,040 |
) |
|
(36,987,124 |
) | ||
| Total stockholders’ equity (deficit) |
|
548,446 |
|
|
(3,508,638 |
) | ||
| Total liabilities and stockholders’ equity (deficit) |
$ |
2,876,927 |
|
$ |
3,338,848 |
| ||
See accompanying notes.
3
(a Subsidiary of Sylvan Ventures, LLC)
Statements of Operations (Unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues |
$ |
486,169 |
|
$ |
516,184 |
| ||
| Costs and expenses |
||||||||
| Direct costs of services provided |
|
494,019 |
|
|
498,636 |
| ||
| Sales and marketing |
|
548,609 |
|
|
801,522 |
| ||
| General and administrative |
|
1,526,682 |
|
|
1,647,672 |
| ||
| Research and development |
|
322,437 |
|
|
436,384 |
| ||
| Management services and facilities usage charges from Sylvan |
|
337,338 |
|
|
382,980 |
| ||
| Total operating costs and expenses |
|
3,229,085 |
|
|
3,767,194 |
| ||
| Net loss |
$ |
(2,742,916 |
) |
$ |
(3,251,010 |
) | ||
| Basic and diluted loss per common share |
$ |
(0.17 |
) |
$ |
(0.20 |
) | ||
See accompanying notes.
4
(a Subsidiary of Sylvan Ventures, LLC)
Statements of Cash Flows (Unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Operating activities |
||||||||
| Net loss |
$ |
(2,742,916 |
) |
$ |
(3,251,010 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
|
286,365 |
|
|
609,270 |
| ||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
|
69,409 |
|
|
(28,302 |
) | ||
| Accounts receivable from related party |
|
(18,486 |
) |
|
(54,717 |
) | ||
| Prepaid expenses |
|
(51,023 |
) |
|
(129,663 |
) | ||
| Prepaid royalties to related party |
|
120,000 |
|
|
100,000 |
| ||
| Accounts payable and accrued expenses |
|
(11,519 |
) |
|
387,641 |
| ||
| Accrued severance costs |
|
255,000 |
|
|
— |
| ||
| Fees payable to related party |
|
38,070 |
|
|
(69,044 |
) | ||
| Deferred revenue |
|
(11,387 |
) |
|
(81,552 |
) | ||
| Net cash used in operating activities |
|
(2,066,487 |
) |
|
(2,517,377 |
) | ||
| Investing activities |
||||||||
| Purchase of property and equipment |
|
— |
|
|
(69,996 |
) | ||
| Proceeds from sale of property and equipment |
|
— |
|
|
41,498 |
| ||
| Net cash used in investing activities |
|
— |
|
|
(28,498 |
) | ||
| Financing activities |
||||||||
| Proceeds from borrowings from related party |
|
1,848,461 |
|
|
1,735,995 |
| ||
| Payments on line of credit with related party |
|
(6,637,630 |
) |
|
(6,205,668 |
) | ||
| Sale of Series A Convertible Preferred Stock to related party |
|
6,800,000 |
|
|
6,764,668 |
| ||
| Net cash provided by financing activities |
|
2,010,831 |
|
|
2,294,995 |
| ||
| Net change in cash |
|
(55,656 |
) |
|
(250,880 |
) | ||
| Cash at beginning of period |
|
|||||||