WASHINGTON, DC--(Marketwired - May 30, 2013) - ePals Corporation (
First Quarter 2013 Highlights
- 3.5M registered users added year-over-year
- Increased interest from media and publishing companies
- Enhanced Global Community platform launched
- Engagement and time online increased
- Media subscriptions increasing year-over-year
- Multi-lingual media products launched (Mandarin and Spanish)
- International operations expanded
- First media products launched in China
- First China school pilot launched with thousands of students
- First European cooperation agreements signed
- Streamlining organization; Katya Andresen joins ePals as CEO
- Platform Sales model transitioned from direct to indirect
- CAD$6.5M convertible debenture financing (to date)
"In the first part of this year, we launched an enhanced version of the Global Community and have continued to expand our user-base and increase user-engagement and time online," said Miles Gilburne Chairman & CEO of ePals. "We announced several important initiatives to drive international growth, including the launch of a language learning pilot in China, initial local language launches in Europe, and our first content partnership with a major international publisher - McGraw-Hill Education. We are making steady progress on becoming a platform of choice for content companies of all types interested in collaborative learning and global distribution."
Q1 2013 Business Metrics (amounts in thousands)
| March 31, 2013 | March 31, 2012 | Increase (Decrease) | ||||
| Registered users | 11,484 | 8,035 | 43 | % | ||
| Revenue | $ | 4,617 | $ | 4,589 | 0.6 | % |
Year-over-year, total membership in the ePals Global Learning Network increased by 3.5 million registered users, or 43%, to 11.5 million, primarily through international expansion. Year-over-year circulation of media subscriptions was higher by 11% at the end of the first quarter and renewal deals were received from both New York City public schools and K12, Inc. (
Product Enhancements - During the quarter we released enhanced versions of many of our products, including:
- The ePals Global Community. These new features, which shipped in January 2013 have received positive response and are supporting increases in both users and engagement globally. Since launch, for example, the percentage of newly registered users becoming repeat users more than doubled.
- Learn365™. ePals' enhanced Policy Management Control Panel for the Learn365™ product is now highly integrated with the Gmail platform and enables district administrators to better policy-manage users at the district, school and individual user levels. The Company also implemented a new channel strategy for this new generation of platform products, including a focus on distribution deals with a variety of device OEMs and a change to its reseller compensation structure to energize relationships such as Dell, which is seeing an increase in activity as a result.
- Native Android apps (in Google Play or Kindle stores). These native apps cover six of ePals' popular brands. Two Spanish language digital editions were launched in the iTunes and Google Play stores, and in general ePals is making good progress in its efforts to providing its unique content across a wide variety of devices in the major languages and markets of the world.
Publisher Agreements
ePals delivered magazine and book content to Neusoft Publishing for localization and translation into Mandarin, with 8 translated publications complete and 17 more on the way. Digital and physical revenues from media sales and subscriptions in China are expected in 2013 and the plan is to release many of those Mandarin language products in the US and elsewhere over the next four quarters.
In April, ePals signed a multi-year agreement with McGraw-Hill Education under the terms of which ePals will develop, operate, and maintain on its platform and in its Global Community a McGraw-Hill learning community built around McGraw-Hill content. This learning community will allow teachers and students to safely connect with each other in the ePals Global Community for collaborative learning.
International Expansion - ePals continued executing on its aggressive international expansion in China and Europe.
ePals China (NeuPals)
In March 2013, ePals commenced operations of its platform and media businesses in China through NeuPals and in collaboration with Neusoft Publishing. NeuPals has launched an initial pilot of its localized, Mandarin-language version of ePals Global Community for use in Chinese classrooms and seamless connection to classrooms throughout the ePals Global Community. The pilot matches 'sister' classrooms in China with classrooms in the United States for students to focus on English language learning through ongoing exchanges and interactions around a wide variety of subjects and activities. Thousands of students are participating in the pilot program and NeuPals continues to recruit additional classrooms. Further pilots of similar size are under discussion. The Company is also working on the second phase of the country wide Mandarin-language version of ePals Global Community which will be made available by Neupals to a larger number of teachers in China through a variety of different channels.
ePals Europe
The Company executed initial launches of native language extensions of the ePals Global Community and focused on audience acquisition. ePals signed Cooperation Agreements in Europe with 5 organizations as part of a new learning center featuring content from museums worldwide. The Company is working on future cooperation agreements and anticipates launching native-language products and services in Europe throughout 2013.
Organization
ePals recently announced that Katya Andresen was joining the Company as President and COO and will formally take over the CEO post at the start of next year after fully transitioning into the Company. Ms. Andresen was previously COO at Network for Good. Full press release here: http://www.corp.epals.com/press-releases/katy...-epals.php . With over 20 years of experience in online community development, the software services business, social media marketing, management operations and journalism, Ms Andresen has a proven track record of driving significant revenue growth around online communities and builing scalable businesses.
Q1 2013 Financial Review
Refer to the attached financial statements for ePals' consolidated financial data for the quarters ended March 31, 2013 and 2012.
For the quarters ended March 31, 2013 and 2012, ePals had total revenue of $4.6 million. ePals media revenue increased $0.5 million, or 11% year-over-year, while platform revenue declined as the Company moved to a new generation of products and began focusing on a new set of channel partners. Market response has been positive to date, with new sales activity in North America expected in the second half of 2013 and 2014.
Operating expenses for the quarter ended March 31, 2013 were $9.8 million, an increase of $1.4 million or 16% from the prior-year quarter. The largest increase was in technology, development & operational support which increased by $1.2 million or 38%. This increase was due primarily to additional expenditures to support expansion of the Company's international operations, increased consulting and staffing expenses, and expenses for the new ePals Media digital and Spanish language departments. Comparing Q1 2013 to Q1 2012, sales & marketing expenses increased by approximately $400,000 due to higher agency commissions, a larger investment in online marketing acquisition efforts and higher consulting expenses for marketing based on new marketing initiatives for the media portion of the business.
The reduction in ePals' share price from December 31, 2012 to March 31, 2013 resulted in a $2.3 million gain from the change in the fair value of derivatives related to the conversion feature in the Company's debentures.
The net loss for the quarter ended March 31, 2013 was $3.4 million, or ($0.02) per share, compared to a net loss of $3.9 million, or ($0.03) per share for the quarter ended March 31, 2011.
As of May 15, 2013, ePals had a total of 162,693,550 common shares outstanding, of which 101,578,452 are voting common shares and 61,115,098 are restricted voting common shares.
Important factors, including those discussed in ePals' regulatory filings ( www.sedar.com ), could cause actual results to differ from ePals' expectations and those differences may be material. ePals' financial statements for the first quarter ended March 31, 2013, together with the related management's discussion & analysis, is filed at www.sedar.com on May 30, 2013.
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, Ed Fish, and CFO Aric Holsinger.
To participate in the call, please dial +1-719-325-2376 or 1-888-455-2296 approximately 10 minutes prior to the conference call, and enter passcode 5833106. A recording of the conference call will be available by dialing +1-719-457-0820 or 1-888-203-1112 and entering the passcode 5833106.
About ePals Corporation
ePals Corporation (
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.
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; 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 email 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.
| ePals Corporation | ||||||||||
| Condensed Consolidated Interim Statements of Financial Position | ||||||||||
| March 31, 2013 and December 31, 2012 | ||||||||||
| (Unaudited) March 31, 2013 | December 31, 2012 | |||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash & cash equivalents | $ | 2,265,155 | $ | 3,948,499 | ||||||
| Accounts receivable, net of allowance for doubtful accounts | 976,204 | 1,581,300 | ||||||||
| Inventory | 434,527 | 417,702 | ||||||||
| Other current assets | 902,108 | 875,618 | ||||||||
| Total current assets | 4,577,994 | 6,823,119 | ||||||||
| Property and equipment, net | 647,271 | 516,575 | ||||||||
| Investment in NeuPals | 1,136,254 | 1,164,523 | ||||||||
| Goodwill | 14,419,953 | 14,419,953 | ||||||||
| Other intangible assets, net | 8,054,005 | 8,016,615 | ||||||||
| Restricted cash | 75,663 | 75,663 | ||||||||
| Other assets | 87,631 | 84,519 | ||||||||
| Total assets | $ | 28,998,771 | $ | 31,100,967 | ||||||
| Liabilities and Stockholders' Equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued expenses | $ | 7,392,224 | $ | 6,951,523 | ||||||
| Acquisition consideration liabilities, current | 182,390 | 182,390 | ||||||||
| Deferred revenue, current | 4,621,460 | 6,185,628 | ||||||||
| Bank line-of-credit | 1,500,000 | 1,500,000 | ||||||||
| Notes payable to related parties | 800,000 | - | ||||||||
| Finance lease obligations, current | 85,957 | 72,789 | ||||||||
| Other current liabilities | 13,485 | 24,719 | ||||||||
| Total current liabilities | 14,595,516 | 14,917,049 | ||||||||
| Secured convertible debentures | 11,802,795 | 11,117,161 | ||||||||
| Deferred revenue, less current portion | 1,024,137 | 917,881 | ||||||||
| Finance lease obligations, less current portion | 160,820 | 32,554 | ||||||||
| Acquisition consideration liabilities, less current | 122,911 | 122,911 | ||||||||
| Other liabilities | 11,440 | 11,440 | ||||||||
| Total liabilities | 27,717,619 | 27,118,996 | ||||||||
| Commitments and contingencies | ||||||||||
| Stockholders' equity | ||||||||||
| Share capital | 96,780,242 | 96,365,773 | ||||||||
| Additional paid-in capital | 3,779,219 | 3,556,867 | ||||||||
| Accumulated deficit | (97,669,925 | ) | (94,295,643 | ) | ||||||
| Unvested voting common stock | (1,876 | ) | (3,752 | ) | ||||||
| Accumulated other comprehensive loss | (114,460 | ) | (149,226 | ) | ||||||
| Less: Treasury stock (719,998 shares) | (1,492,048 | ) | (1,492,048 | ) | ||||||
| Total stockholders' equity | 1,281,152 | 3,981,971 | ||||||||
| Total liabilities and stockholders' equity | $ | 28,998,771 | $ | 31,100,967 | ||||||
| ePals Corporation Condensed Consolidated Interim Statements of Comprehensive Loss Three Months Ended March 31, 2013 and 2012 (Unaudited) | ||||||||||
| Three Months Ended March 31, | ||||||||||
| 2013 | 2012 | |||||||||
| Revenue | $ | 4,617,058 | $ | 4,588,615 | ||||||
| Less: Operating expenses: | ||||||||||
| Technology, development & operational support | 4,237,965 | 3,074,974 | ||||||||
| General & administrative expenses | 1,936,703 | 1,760,482 | ||||||||
| Sales & marketing | 2,651,023 | 2,288,893 | ||||||||
| Stock-based compensation | 639,366 | 349,207 | ||||||||
| Depreciation & amortization | 315,895 | 381,284 | ||||||||
| Loss on investment in NeuPals | 28,269 | - | ||||||||
| Acquisition investigation expenses | 23,540 | 336,662 | ||||||||
| Transaction costs related to debentures | 18,235 | - | ||||||||
| Change in estimated fair value of acquisition share consideration | - | 301,429 | ||||||||
| Total operating expenses | 9,850,996 | 8,492,931 | ||||||||
| Loss from operations | (5,233,938 | ) | (3,904,316 | ) | ||||||
| Other income (expense): | ||||||||||
| Gain (loss) from change in fair value of derivatives | 2,279,000 | - | ||||||||
| Interest expense, net | (554,564 | ) | (24,190 | ) | ||||||
| Net foreign currency exchange gains (losses) | 135,220 | (486 | ) | |||||||
| Net loss | (3,374,282 | ) | (3,928,992 | ) | ||||||
| Other comprehensive income (loss): | ||||||||||
| Items that may be subsequently reclassified into net loss/income | ||||||||||
| Foreign currency translation | 34,766 | (1,586 | ) | |||||||
| Total comprehensive loss | $ | (3,339,516 | ) | $ | (3,930,578 | ) | ||||
| Net loss per common share: | ||||||||||
| Basic & diluted | $ | (0.02 | ) | $ | (0.03 | ) | ||||
| Weighted average number of common shares: | ||||||||||
| Basic & diluted | 161,065,817 | 116,490,803 | ||||||||
| ePals Corporation | |||||||||||
| Consolidated Statements of Cash Flows | |||||||||||
| Three Months Ended March 31, 2013 and 2012 (Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2013 | 2012 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (3,374,282 | ) | $ | (3,928,992 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| (Gain) loss from change in fair value of derivatives | (2,279,000 | ) | - | ||||||||
| Depreciation and amortization | 315,895 | 381,284 | |||||||||
| Stock-based compensation | 639,366 | 349,207 | |||||||||
| Bad debt expense | 60,956 | 115,341 | |||||||||
| Loss on investment in NeuPals | 28,269 | - | |||||||||
| Amortization of financing costs from debentures | 362,744 | - | |||||||||
| Net foreign currency exchange (gains) losses | (135,220 | ) | 486 | ||||||||
| Restricted share vesting | 1,876 | 3,217 | |||||||||
| Change in estimated fair value of acquisition share consideration | - | 301,429 | |||||||||
| Increase in restricted cash | - | 75 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 544,140 | (220,011 | ) | ||||||||
| Inventory | (16,825 | ) | (16,943 | ) | |||||||
| Other current assets | (26,490 | ) | (78,031 | ) | |||||||
| Accounts payable and accrued expenses | 409,204 | (572,187 | ) | ||||||||
| Deferred revenue | (1,457,912 | ) | (1,801,013 | ) | |||||||
| Other | 38,584 | 187,318 | |||||||||
| Total adjustments | (1,514,413 | ) | (1,349,828 | ) | |||||||
| Net cash used in operating activities | (4,888,695 | ) | (5,278,820 | ) | |||||||
| Cash flows from investing activities: | |||||||||||
| Cash paid for acquisition of Carus Publishing Company | - | (512,058 | ) | ||||||||
| Purchases of equipment | (239,848 | ) | (43,802 | ) | |||||||
| Increase in other intangible assets | (244,133 | ) | (132,950 | ) | |||||||
| Increase in other assets | (3,112 | ) | - | ||||||||
| Net cash used in investing activities | (487,094 | ) | (688,810 | ) | |||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from secured convertible debentures, net of expenses | 2,763,480 | - | |||||||||
| Proceeds from notes payable to related parties | 800,000 | - | |||||||||
| Payments on capital lease obligations | (20,779 | ) | (10,178 | ) | |||||||
| Proceeds from capital lease financing | 163,742 | 38,832 | |||||||||
| Proceeds from exercise of stock options | - | 13,059 | |||||||||
| Net cash provided by financing activities | 3,706,443 | 41,713 | |||||||||
| Decrease in cash & cash equivalents | (1,669,346 | ) | (5,925,917 | ) | |||||||
| Effect of exchange rates on cash | (13,998 | ) | (1,282 | ) | |||||||
| Cash & cash equivalents at the beginning of the period | 3,948,499 | 6,895,829 | |||||||||
| Cash & cash equivalents at the end of the period | $ | 2,265,155 | $ | 968,630 | |||||||
| Non-cash financing activities: | |||||||||||
| Issuance of common shares to consultants for payment of services | $ | - | $ | 23,500 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for interest | $ | 12,961 | $ | 19,716 | |||||||
| Cash paid for income taxes | 20,222 | 12,161 | |||||||||
FOR FURTHER INFORMATION PLEASE CONTACT: Chief Financial Officer Aric Holsinger ePals Corporation Phone: (703) 885-3400 aholsinger@corp.epals.com Investor Relations Cory Pala E.vestor Phone: (416) 657-2400 cpala@corp.epals.com SVP, Marketing & Corporate Communications Will Jarred ePals Corporation Phone: (703)885-3400 wjarred@corp.epals.com
