epals Announces Third Quarter 2012 Results

Transcription

1 FOR IMMEDIATE RELEASE epals Announces Third Quarter 2012 Results Key Corporate Metrics Increase Substantially on Year- over- Year Basis Achieved Business License in China Sequential Growth in Media Revenues and Circulation November 29, 2012, WASHINGTON, DC epals Corporation (TSX- V: SLN) ( epals or the Company ), a leading education media and safe social learning company, today released its operating results for the third quarter and nine months ended Results were prepared by management in accordance with International Financial Reporting Standards. All figures are in U.S. dollars unless otherwise stated. Highlights Q3 revenue of approximately $3 million, up approximately 400% year- over- year; Registered users at September 30 of 9.6 million, up approximately 50% year- over- year; Subscriptions at September 30 of approximately 550,000, up approximately 125% year- over- year. Our third quarter results reflect the trends we have been sharing the last few quarters. Continued success on our international and media strategies and steady progress on other initiatives position us well to capitalize on the growth of social learning, said Miles Gilburne, epals Chairman & CEO. The issuance of the business license for our joint venture in China, commencement of operations in Europe, restoration of year- over- year growth in our media business, including imminent introduction of Chinese and Spanish language versions of our publications, continued growth in the reach and substantive activities in our global community, and ongoing enhancement of our licensed platform products in response to market demands, give us confidence in our market leading position and path forward.

2 Business Highlights Key Business Metrics Increase (amounts in thousands, except per user data) Registered users 9,635 6,474 49% Subscriptions % Revenue (1,2) $3,041 $ % Average revenue per user (ARPU) $ 0.33 $ % (1) Represents revenue for the three months ended 2012 and (2) 2011 results exclude the acquisition of Carus Publishing Company which was completed in December Highlights in the quarter and subsequent to the quarter include: In October 2012, the Chinese government issued a 20- year business license to NeuPals, the joint venture between epals and NueEdu Tianjin, enabling it to officially launch operations in China in the first quarter of 2013, a market that most other US and international companies have struggled to enter. epals expanded its relationship in China, completing a deal with Neusoft Publishing to translate, localize and publish for distribution Mandarin versions of epals publications and content throughout China. Work has already begun in earnest. As part of the arrangement, epals secured the right to publish those Mandarin versions outside of China in K- 12 markets in North America and around the world. This arrangement coupled with epals recent completion of a small acquisition of a Spanish- language publication to focus on the Hispanic media market in the US and elsewhere substantially increases the Company s focus on the fast- growing demand for native language children s media around the world. epals has reversed historical year- over- year double digit subscription declines in its publishing business and is now seeing growth in key metrics such as modest sequential revenue growth, driven by post- acquisition operational and marketing enhancements, combined with an aggressive digital strategy focused on launching digital editions of its award winning publications that can be accessed through any internet browser- enabled device, including tablets and smart phones. epals has grown to 9.6 million registered users as of and over 10.7 million currently - driven by an increased number of students being added by their teachers, the adoption of the new enhanced version of the epals Global Community launched in June 2012, and increased customer acquisition marketing efforts. epals launched two new Learning Centers that provide rigorous, project- based learning tools and content that are expected to drive engagement. These activities map onto emerging learning standards around the world focused on critical thinking, communication and global competency. epals Common Core Implementation Center is a place for teachers to find and share ready- to- use projects, resources and best practices on the Common Core State Standards. epals News and Journalism Center is a place for students to find high quality, professional and

3 student generated reporting and respond via comments or by writing their own pieces. These Learning Centers demonstrate the power of the epals platform to build safe and secure collaborative media products for itself and leading education and other media companies that can form the basis of additional licensing relationships and premium services to be introduced by epals in In response to market dynamics, epals formalized its free- to- premium platform strategy by introducing a set of advanced policy management and student information system (SIS) integration services that separate these services from specific collaborative tools, offer schools best of breed choices, and appeal to Value Added Resellers and OEMs around the world. Third Quarter Financial Review The following tables summarize epals unaudited consolidated financial data for the three and nine months ended 2012 and 2011: Three months ended (unaudited) Q Financial Highlights Increase (Decrease) % (dollars in thousands, except share and per share data) Revenue $ 3,041 $ 612 $ 2, % Operating expenses: Technology, development & operational support 3,062 1,621 1,441 89% General & administrative 2,166 1, % Sales & marketing 3, , % Stock- based compensation (282) (54%) Depreciation & amortization % Merger transaction costs - 4,584 (4,584) (100%) Change in estimated FV of acquisition share consideration (2,114) - (2,114) (100%) Acquisition investigation expenses % Total operating expenses (7,616) (9,201) (1,585) (17)% Loss from operations (4,575) (8,589) (4,014) (47%) Other income (expense) (26) (107) (81) (76%) Net loss $ (4,601) $ (8,696) $ (4,095) (47%) Basic and diluted net loss per share $ (0.03) $ (0.11) Weighted average shares outstanding Basic and diluted 142,139,062 82,721,996

4 Nine months ended (unaudited) YTD Q Financial Highlights Increase (Decrease) % (dollars in thousands, except share and per share data) Revenue $ 10,593 $ 1,592 $ 9, % Operating expenses: Technology, development & operational support 8,766 4,039 4, % General & administrative 6,132 2,934 3, % Sales & marketing 7,453 1,756 5, % Stock- based compensation 1, % Depreciation & amortization 1, , % Merger transaction costs - 4,584 (4,584) (100%) Change in estimated FV of acquisition share consideration (2,626) - (2,626) (100%) Acquisition investigation expenses 1, , % Total operating expenses (23,226) (14,343) 8,883 62% Loss from operations (12,633) (12,751) (118) (1%) Other income (expense) (74) (221) (147) (67%) Net loss $ (12,707) $ (12,972) $ (265) (2%) Basic and diluted net loss per share $ (0.10) $ (0.44) Weighted average shares outstanding Basic and diluted 131,258,058 29,649,523 The $9 million increase in revenues during the first nine months of 2012 compared to the prior- year period was due to the addition of media subscription sales and other consumer- based revenues. Total operating expenses for the first nine months of 2012 were approximately $23.2 million, an increase of $8.9 million compared to the first nine months of 2011 which was prior to the Company s public listing on the TSX- V, and before business acquisitions made in between the comparable periods. Approximately $10.6 million of the year- over- year increase in operating expenses is attributable to the establishment of the Company s home- based business to consumers. Sales and marketing expenses for the nine months ended 2012 increased by $5.7 million compared to same period of 2011, as a result of additional staffing in marketing, business development and education media, and higher consulting expenses for marketing and education media based on new marketing initiatives for the media portion of the business. Approximately $3.9 million of the increase was attributable to the establishment of the home- based business to consumers. Technology, development & operational expenses increased by approximately $4.7 million during the nine months ended 2012 compared to the prior- year period, with approximately $4.2 million generated by the establishment of the home- based business to consumers and the remainder due to the development and support of epals expanding products, including the enhanced feature set of the Global Community platform. The establishment of our home- based business to consumers accounted for approximately $1.8 million of the $3.2 million increase in general and administrative expenses for the nine months ended

5 2012 compared to the same prior- year period. The remaining increase was due to human resources and accounting consultants for the integration of the businesses acquired in 2011, new senior management hires, and increased fees for legal, audit, tax and corporate insurance associated with epals public corporate structure and international initiatives. During the third quarter of 2012, the Company recognized a $2.1 million gain related to the change in the fair value of the acquisition consideration liabilities due to former shareholders of Carus. During the prior year period, the Company incurred $4.6 million in transaction costs related to the July 2011 merger. Acquisition investigation expenses in 2012 were primarily legal costs associated with finalizing corporate documents and licenses on the China joint venture. As of November 15, 2012, epals had a total of 142,709,255 common shares outstanding, of which 92,426,248 are voting common shares and 50,283,007 are restricted voting common shares. Important factors, including those discussed in epals regulatory filings ( could cause actual results to differ from epals expectations and those differences may be material. epals unaudited financial statements and accompanying notes for the three and nine months ended 2012, together with the related management s discussion & analysis, will be filed at on November 29, epals unaudited financial statements that are attached to this press release should be read in conjunction with the notes to the financial statements. Conference Call Today (10:00 a.m. EDT) A conference call to discuss the results is scheduled to take place today at 10:00 a.m. Eastern Daylight Time. Speaking on the call will be Chairman & CEO Miles Gilburne, President Ed Fish, and CFO Aric Holsinger. To participate in the call, please dial or approximately 10 minutes prior to the conference call, and enter passcode A recording of the conference call will be available by dialing or and entering the passcode The call will also be available on epals website at for replay. About epals Corporation epals Corporation (TSXV: SLN) is a leading education media and safe social learning company connecting K- 12 schools, students, teachers and parents around the world for shared, 21st century learning. epals operates the K- 12 market s premier social learning network, connecting millions of users in over 330,000 schools for collaboration around high quality content and educational projects. epals also publishes industry- leading children s literature in physical and digital formats. These magazines, books and mobile apps are subscribed to by hundreds of thousands of families and approximately one- third of all US middle schools. epals' award- winning products and brandsinclude: the epals Global Community ; SchoolMail 365; LearningSpace ; In2Books, Cricket and Cobblestone. epals customers and partners include major media and technology companies, as well as leading school districts and educational organizations across the United States and globally. epals reaches approximately 850,000 classrooms and millions of teachers, students and parents in approximately 200 countries and territories. For the epals Global Community, visit Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

6 FOR FURTHER INFORMATION PLEASE CONTACT: Chief Financial Officer Aric Holsinger epals Corporation Phone: (703) Investor Relations Cory Pala E.vestor Phone: (416) SVP, Marketing & Corporate Communications Will Jarred epals Corporation Phone: (703) Cautionary Statement Regarding Forward- Looking Information Certain statements contained in this press release constitute forward- looking information within the meaning of applicable securities laws, including statements with respect to customers, ventures such as epals China and Europe ( epals Ventures ); partnerships; contributions and/or prospects of one or more of the Company s business lines, epals' strategy, prospects and success in pursuing domestic or international markets for the platform or media businesses, and the composition of its leadership teams to be established in connection therewith; and epals' anticipated plans to increase its subscription base, ARPU, and media and platform businesses. These statements relate to future events or future performance. Often, but not always, forward- looking information can be identified by the use of words such as plans, expects, is expected, budget, scheduled, estimates, forecasts, intends, anticipates, or believes or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating that certain actions, events or results may, could, would, might or will (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward- looking information is necessarily based upon a number of assumptions and factors that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward- looking information. Those assumptions and factors are based on information currently available to epals. Such material factors and assumptions include, but are not limited to: epals' ability to execute on its business plan, including the successful launch of epals Ventures; the acceptance of epals' products and services by customers globally; that epals affiliated entities will be able to secure distribution partners for sale of epals' products and services; epals' subjective assessment of the likelihood of success of a sales lead or opportunity; that sales will be completed at or above epals' estimated margins; that the demand for webhosting and secure communication, as well as education media related products domestically, in Europe and in China will continue to grow; that the demand for epals' products and services globally will develop and grow; the receipt of all requisite regulatory approvals throughout venture territories for the sale of epals' products and services; the availability of additional financing, if and when required and market conditions generally. Although epals has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward- looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. The forward- looking information contained in this press release is made as of the date hereof and epals is not obligated to update or revise any forward- looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward- looking information. The foregoing statements expressly qualify any forward- looking information contained herein.

7 epals Corporation (formerly New University Holdings Corp.) Condensed Consolidated Interim Statements of Financial Position 2012 and December 31, 2011 (Unaudited) 2012 December 31, 2011 Assets Current assets Cash & cash equivalents Accounts receivable, net of allowance for doubtful accounts $ 614, ,962 $ 6,895,829 1,119,694 Inventory Other current assets 639,750 1,081, , ,557 Total current assets 3,172,278 9,080,516 Property and equipment, net 496, ,325 Goodwill 19,142,054 19,142,054 Other intangible assets, net 10,203,337 10,685,685 Restricted cash 75,448 75,259 Other assets 84, ,748 Total assets $ 33,174,289 $ 39,713,587 Liabilities and Stockholders Equity Current liabilities Accounts payable and accrued expenses $ 7,631,800 $ 6,340,603 Acquisition consideration liabilities 6,696,243 10,822,313 Deferred revenue, current 4,421,969 6,664,697 Bank line-of-credit 1,500,000 1,500,000 Notes payable to related parties 970,000 - Capital lease obligations, current 75,916 55,147 Other current liabilities 29,531 50,444 Total current liabilities 21,325,459 25,433,204 Deferred revenue, less current portion 999,875 1,230,266 Capital lease obligations, less current portion Other liabilities 48,626 8,609 55,804 24,948 Total liabilities 22,382,569 26,744,222 Commitments and contingencies Stockholders equity Share capital 88,366,415 78,098,272 Additional paid-in capital 4,214,859 3,951,679 Accumulated deficit (80,181,875) (67,474,961) Unvested voting common stock (3,752) (6,969) Accumulated other comprehensive loss (111,879) (106,608) Less: Treasury stock (719,998 shares) (1,492,048) (1,492,048) Total stockholders equity 10,791,720 12,969,365 Total liabilities and stockholders equity $ 33,174,289 $ 39,713,587 Refer to the notes of epals Condensed Consolidated Interim Financial Report for the three and nine months ended 2012 and 2011 as these notes are an integral part of these financial statements.

8 epals Corporation (formerly New University Holdings Corp.) Condensed Consolidated Interim Statements of Comprehensive Loss Three and Nine Months Ended 2012 and 2011 (Unaudited) Three Months Ended Nine Months Ended Revenue $ 3,041,453 $ 612,192 $ 10,593,266 $ 1,591,632 Operating expenses: Technology, development & operational support (3,061,569) (1,621,402) (8,766,316) (4,039,290) General & administrative (2,165,804) (1,424,219) (6,131,945) (2,934,327) Sales & marketing (3,103,249) (845,151) (7,453,362) (1,755,425) Stock-based compensation (244,568) (526,786) (1,167,868) (754,567) Depreciation & amortization (398,200) (77,041) (1,168,914) (152,148) Merger transaction costs - (4,583,458) - (4,583,458) Change in estimated fair value of acquisition share consideration 2,113,830-2,626,070 - Acquisition investigation expenses (756,336) (123,306) (1,163,755) (123,306) Total operating expenses (7,615,896) (9,201,363) (23,226,090) (14,342,521) Loss from operations (4,574,443) (8,589,171) (12,632,824) (12,750,889) Other income (expense): Interest expense, net (25,743) (18,041) (64,950) (131,424) Net foreign currency exchange losses (332) (89,272) (9,140) (89,272) Net loss (4,600,518) (8,696,484) (12,706,914) (12,971,585) Other comprehensive income (loss): Foreign currency translation (1,699) (835) (5,271) (3,511) Total comprehensive loss $ (4,602,217) $ (8,697,319) $ (12,712,185) $ (12,975,096) Net loss per common share: Basic & diluted $ (0.03) $ (0.11) $ (0.10) $ (0.44) Weighted average number of common shares: Basic & diluted 142,139,062 82,721, ,258,058 29,649,523 Refer to the notes of epals Condensed Consolidated Interim Financial Report for the three and nine months ended 2012 and 2011 as these notes are an integral part of these financial statements.

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10 epals Corporation (formerly New University Holdings Corp.) Condensed Consolidated Interim Statements of Cash Flows Nine Months Ended 2012 and 2011 (Unaudited) Nine Months Ended Cash flows from operating activities: Net loss $ (12,706,914) $ (12,971,585) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,168, ,148 Stock-based compensation 1,167, ,567 Non-cash Merger transaction costs - 3,265,671 Change in estimated fair value of acquisition consideration liabilities (2,626,070) - Bad debt expense 330,865 8,664 Increase in restricted cash Changes in operating assets and liabilities: Accounts receivable 172,021 (319,164) Inventory (273,314) - Other current assets (382,653) (156,206) Accounts payable and accrued expenses 1,245, ,356 Deferred revenue (2,473,119) (949,485) Other (25,530) 301,750 Total adjustments (1,694,989) 4,011,862 Net cash used in operating activities (14,401,903) (8,959,723) Cash flows from investing activities: Cash paid for acquisition of Carus Publishing Company (1,500,000) - Purchase of equipment (192,500) (301,731) Increase in other intangible assets (405,241) (103,575) Cash received from merger of New University Holdings Corp. and epals, Inc ,173 Cash received from business acquisition - 8,594 Net cash used in investing activities (2,097,741) (271,539) Cash flows from financing activities: Proceeds from April 2012 Private Placement, net of expenses 9,228,798 - Proceeds from notes payable from related parties 970,000 - Proceeds from exercise of stock options 53,213 67,553 Payments on capital lease obligations (87,490) (39,777) Proceeds from capital lease financing 63,510 99,709 Proceeds from July 2011 private placement, net of expenses - 21,221,637 Proceeds from convertible notes payable, net of expenses - 3,255,985 Payment of principal on bank line-of-credit - (2,999,074) Proceeds from issuance of Series C preferred stock, net - 1,435,972 Payments to unaccredited investors to retire shares - (238,538) Proceeds from issuance of common stock - 316,299 Proceeds from exercise of warrants - 1,597 Payment of note payable to related party - (90,170) Net cash provided by financing activities 10,228,031 23,031,193 (Decrease) increase in cash & cash equivalents (6,271,613) 13,799,931 Effect of exchange rates on cash (9,860) (87,073) Cash & cash equivalents at the beginning of the period 6,895, ,149 Cash & cash equivalents at the end of the period $ 614,356 $ 14,022,007 Refer to the notes of epals Condensed Consolidated Interim Financial Report for the three and nine months ended 2012 and 2011 as these notes are an integral part of these financial statements.