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Press release from Marketwire

ePals Announces Second Quarter 2012 Results

Key Corporate Metrics Substantially Increase on Year-Over-Year Basis

Wednesday, August 29, 2012

ePals Announces Second Quarter 2012 Results06:00 EDT Wednesday, August 29, 2012WASHINGTON, DC--(Marketwire - August 29, 2012) - ePals Corporation (TSX VENTURE: SLN) ("ePals" or the "Company"), a leading education media and safe social learning company, today released its operating results for the second quarter ended June 30, 2012. Results were prepared by management in accordance with International Financial Reporting Standards. All figures are in U.S. dollars unless otherwise stated. A conference call will be held today at 11:00 a.m. Eastern Daylight Time to discuss the results.Second Quarter 2012 Business Highlights June 30 Key Business Metrics 2012 2011 Increase ------------- ------------- ------------(amounts in thousands, except per user data)Registered users 8,943 6,172 45%Subscriptions 534 222 141%Revenue(1) $ 2,963 $ 485 511%Average revenue per user (ARPU) $ 0.35 $ 0.08 338% ------------- ------------- ------------(1) Represents revenue for the three months ended June 30, 2012 and 2011."Our metrics reflect the increased adoption of collaborative learning solutions on a national and global basis, as well as the value of our safe and secure platform and high quality media products, that delivers compelling, project-based learning throughout our Global Community," said Miles Gilburne, ePals Chairman & CEO. "Based on the launch this quarter of our new Global Community, the accelerating introduction of digital editions of our media products, and historical trends that favor adoption of certain of our products in the last two quarters of the calendar year, we're encouraged by the prospects for continued growth of our global business in 2012 and into 2013, when the launch of native language products in China and Europe should provide significant additional lift to our operating metrics."Highlights in the quarter and subsequent to the quarter included:- Launch of Enhanced Global Community Platform. In June 2012, ePals launched the newest version of its social learning network at the International Society of Technology in Education trade show in San Diego. Based on substantial feedback from users around the globe, the release significantly enhances online collaborative capabilities to provide a one-stop learning solution, combining access to local, national and international classroom matching, standards-aligned projects, and private customizable group workspaces. At the core are intelligent matching and project creation capabilities, built to capture a classroom's profile and learning objectives, contextualize the information, and use it to anticipate compatibility across an international network of project-based learning communities. (More at http://www.corp.epals.com/news/press/press_jun25_12.php)"This newest version of our service provides deep support for teachers, students and parents as they explore how to make project-based learning and social media an integral part of day-to-day learning, promote cross-cultural exchange and implement principles of the Common Core Standards," said ePals President, Ed Fish. "Based on 'word of mouth' referral and increased marketing activities, we're already beginning to see a strong uptake in the enhanced global community."- Launch of Digital Applications and Publishing Platform. In July 2012, starting with Cricket(R) and Babybug(R), ePals began launching digital versions of its award winning print media properties with enhanced interactive functionality, a freemium-premium subscription model, and broad support for tablets and devices, including Apple's iOS and Android, Google Nexus 7, Kindle, Nook and Nabi. (Demos are available at http://youtu.be/zZIXN0XjVK0 (Cricket(R)) and http://youtu.be/fsE2gw4g_8o (Babybug(R))). Based on substantial work over the past nine months, ePals' enhanced digital publishing platform integrates interactive, community-integrated features, storybooks, and games with quality content and marks another important step for the company in creating a robust platform for the creation of collaborative learning applications by ePals and its partners. All of ePals' media products will be featured in the ePals Global Community and available digitally and in hybrid versions from ePals and its leading education partners.- Marketing and Sales Initiatives To Drive Growth in Key Metrics - ePals launched several initiatives during the quarter aimed at driving user registration and new subscriptions during the second half of the year and beyond. These include an affiliate marketing program for company products into which over 100 companies have already been accepted; additional distribution relationships for our platform and media products; and digital marketing efforts to accelerate broader uptake of offerings and better retain customers with enhanced lifetime value.- Total registered users of ePals' products increased year-over-year by approximately 45% to approximately 9 million at June 30, 2012. Growth in registered users continues to originate primarily from increasing product awareness and interest in collaboration around the world. International registrations are increasingly driving user growth.- Total paid subscriptions of the Company's products increased year-over-year by approximately 0.3 million, or 141%.- Progress on ePals China and Europe: ePals continues to progress toward launching products and services in China through its previously announced joint venture with NeuEdu Tianjin ("NeuEdu"), targeting approximately 205 million Chinese students aged 6-15. A definitive agreement with NeuEdu was executed in April 2012. NeuEdu has hired key executives including the future CEO and CTO and positive progress continues toward anticipated governmental approvals and licenses. Several initiatives by the Chinese government point to growing unmet demand for policy managed communication and collaboration services for Chinese educators and primary and secondary-aged students. ePals Europe has focused on enhanced recruiting of classrooms to the global community from throughout Europe (now approaching nearly 500,000), operational matters such as opening offices in Berlin and recruiting of key personnel, and support for enhanced native language interaction as well as programs such as EU-wide "Comenius" projects (http://ec.europa.eu/education/lifelong-learning-programme/comenius_en.htm)."One of our objectives for the remainder of 2012 and into 2013 is focus on the international markets that present significant growth opportunities and reach more than a billion students worldwide. With plans in place for China and Europe, we'll increasingly focus on introducing our products to additional international markets through both new and existing global channel partners," states ePals President, Ed Fish.Second Quarter 2012 Financial ReviewThe following tables summarize ePals' unaudited consolidated financial data for the three and six months ended June 30, 2012 and 2011: Three months ended(unaudited) June 30, --------------------------Q2 2012 Financial Increase Highlights 2012 2011 (Decrease) % ------------ ------------ ------------ -----------(dollars in thousands, except share and per share data)Revenue 2,963 485 2,478 511%Operating expenses (7,117) (2,746) 4,371 159% ------------ ------------ ------------Loss from operations (4,154) (2,261) 1,893 84%Other income (expense) (23) (61) (38) (62%) ------------ ------------ ------------Net loss $ (4,177) $ (2,322) $ 1,855 80%Basic and dilutednet loss per share $ (0.03) $ (0.82)Weighted average shares outstanding- -Basic 135,025,910 2,829,677 ------------ ------------ ------------ ----------- Six months ended(unaudited) June 30, --------------------------YTD Q2 2012 Financial Increase Highlights 2012 2011 (Decrease) % ------------ ------------ ------------ -----------(dollars in thousands, except share and per share data)Revenue 7,552 979 6,573 671%Operating expenses (15,610) (5,141) 10,469 204% ------------ ------------ ------------Loss from operations (8,058) (4,162) 3,896 94%Other income (expense) (48) (113) (65) (58%) ------------ ------------ ------------Net loss $ (8,106) $ (4,275) $ 3,831 90%Basic and diluted net loss per share $ (0.06) $ (1.60)Weighted average shares outstanding- -Basic 125,757,770 2,679,846 ------------ ------------ ------------ -----------For the six months ended June 30, 2012, ePals had total revenue of approximately $7.6 million, an increase of $6.6 million or 671%, compared to revenue of approximately $1.0 million for the same time period in 2011. The increase in revenue was primarily due to the addition of media subscription sales and other consumer-based revenues at the end of 2011.Total operating expenses for the first half of 2012 were approximately $15.6 million, an increase of $10.5 million compared to the first half 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 $6.5 million of the year-over-year increase in operating expenses is attributable to the establishment of the Company's home-based business.Sales and marketing expenses during the six months ended June 30, 2012 compared to the prior-year period increased by approximately $3.4 million, with approximately $1.9 million generated by the establishment of the home-based business to consumers. Also contributing to the increase was additional staffing in marketing, business development and education media, higher consulting expenses for marketing and education media based on new marketing initiatives for the media portion of the business, and additional marketing and travel expenses due to a greater presence at tradeshows during the first half of 2012.Technology, development & operational expenses increased by approximately $3.3 million during the six months ended June 30, 2012 compared to the prior-year period, with approximately $2.9 million generated by the establishment of the home-based business to consumers. Also contributing to the increase in technology, development & operational expenses is additional staffing in 2012 to develop and support ePals' expanding products, including the enhanced Global Community platform.The establishment of our home-based business to consumers accounted for $1.3 million of the $2.5 million increase in general and administrative expenses for the six months ended June 30, 2012 compared to the 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, additional travel expenses in anticipation of expanding business opportunities in Europe and China, and increased fees for legal, audit, tax and corporate insurance associated with ePals' new public corporate structure.The fluctuations in revenue and operating expenses for the three months ended June 30, 2012 compared to the comparable prior-year period were due to substantially the same reasons described above.For the first half of 2012, ePals reported a net loss of $8.1 million, or ($0.06) per share, compared to a net loss of $4.3 million, or ($1.60) per share, for the first half of 2011.As of August 28, 2012, ePals had a total of 142,309,510 common shares outstanding, of which 92,171,375 are voting common shares and 50,138,135 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' unaudited financial statements for the three and six months ended June 30, 2012, together with the related management's discussion & analysis, will be filed at www.sedar.com on August 29, 2012.Conference Call Today (11:00 a.m. EDT)A conference call to discuss the results is scheduled tol take place today at 11:00 am eastern 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 +1-913-312-1507 or 1-888-713-3596 approximately 10 minutes prior to the conference call, and enter passcode 9437368. A recording of the conference call will be available by dialing +1-719-457-0820 or 1-888-203-1112 and entering the passcode 9437368. The call will also be available on ePals' website at www.corp.ePals.com for replay.About ePals CorporationePals Corporation (TSX VENTURE: SLN) is an education media 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 brands include: the ePals Global Community(TM); SchoolMail(R)365; LearningSpace(R); In2Books(R), Cricket(R) and Cobblestone(R). ePals customers and partners include the International Baccalaureate, Microsoft Corporation, Dell Inc., IBM Corp. and leading school districts across the United States and globally. ePals reaches approximately 800,000 classrooms and millions of teachers, students and parents in approximately 200 countries and territories. For the ePals Global Community(TM), visit www.epals.com.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 InformationCertain 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 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.FOR FURTHER INFORMATION PLEASE CONTACT: Aric HolsingerChief Financial OfficerePals CorporationPhone: (703) 885-3400aholsinger@corp.epals.comORCory PalaInvestor RelationsE.vestorPhone: (416) 657-2400cpala@corp.epals.comORWill JarredSVP, Marketing & Corporate CommunicationsePals CorporationPhone: (703) 885-3400wjarred@corp.epals.com