UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] 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: 000-29953
EDULINK, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-4562316
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 Roxbury Drive
Suite 602
Beverly Hills, CA 90210
-----------------------
(Address of principal executive offices including zip code)
(310) 247-7800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 [ ]
As of September 30, 2000, there were 771,147,500 outstanding shares of
the Registrant's Common Stock, $0.001 par value.
<PAGE>
EDULINK, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Balance Sheets at September 30, 2000 and December 31, 1999......... 3
Statements of Operations for the three and nine months ended
September 30, 2000 and 1999 and for the period from
January 26, 1996 (inception) to September 30, 2000............. 4
Statements of Stockholders' Deficit for the period from
January 26, 1996 (inception) to September 30, 2000............. 5
Statements of Cash Flows for the three months ended
September 30, 2000 and 1999 and for the period from
January 26, 1996 (inception) to September 30, 2000............. 7
Notes to Financial Statements...................................... 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 20
SIGNATURES.................................................................. 21
Unless otherwise indicated, all references to "EduLink," "we," "us" and
"our" refer to EduLink, Inc. and its predecessor.
CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that we believe are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical fact in this report,
including statements regarding our competitive strengths, business strategy,
expected benefits of any acquisition, future financial position, budgets,
projected costs and plans and objectives of management are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"should," "intend," "estimate," "anticipate," "believe," "plan," "continue" or
similar terminology. We undertake no obligation to publicly update or revise any
forward-looking statements contained in this report. These forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, that
could cause actual results to differ materially from those we express or imply
in those forward-looking statements.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1999 and September 30, 2000 (unaudited)
------------------------------------------------------------------------------------------------
ASSETS
<CAPTION>
September 30, December 31,
2000 1999
--------------- -------------
(unaudited)
<S> <C> <C>
Current assets
Cash $ 2,659,148 $ 74,103
Prepaid 11,720 --
Deposit 2,198 --
------------ ------------
Total current assets 2,673,066 74,103
Property and equipment, net 9,166 --
------------ ------------
Total assets $ 2,682,232 $ 74,103
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 831,334 $ 1,249,357
Accrued interest payable 80,010 35,000
Officers' compensation payable 130,000 --
Due to related party 32,902 112,902
Bridge notes payable 100,000 200,000
------------ ------------
Total current liabilities 1,174,246 1,597,259
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $0.001 par value
1,500,000,000 shares authorized
771,147,500 (unaudited) and 647,822,500 shares
issued and outstanding 771,148 647,823
Shares committed to be issued 1,220,750 671,750
Additional paid-in capital 9,982,658 921,957
Deficit accumulated during the development stage (10,466,570) (3,764,686)
------------ ------------
Total stockholders' equity (deficit) 1,507,986 (1,523,156)
------------ ------------
Total liabilities and stockholders' equity
(deficit) $ 2,682,232 $ 74,103
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to September 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Nine Months Ended 1996
September 30, September 30 (Inception) to
------------------------------ ------------------------------ September 30,
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income
Interest $ 31,585 $ -- $ 78,548 $ -- $ 85,366
------------- ------------- ------------- ------------- -------------
Expenses
Software development
costs 1,003,323 -- 2,790,191 681 5,712,005
General and
administrative 367,801 51,924 3,990,241 147,296 4,839,931
------------- ------------- ------------- ------------- -------------
Total expenses 1,371,124 51,924 6,780,432 147,977 10,551,936
------------- ------------- ------------- ------------- -------------
Net loss $ (1,339,539) $ (51,924) $ (6,701,884) $ (147,977) $ (10,466,570)
============= ============= ============= ============= =============
Basic and diluted loss
per share $ -- $ -- $ (0.01) $ -- $ (0.02)
============= ============= ============= ============= =============
Weighted-average
shares used in
computation of
basic and diluted
loss per share 762,375,761 388,800,000 720,845,119 388,800,000 443,115,903
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from January 25, 1996 (Inception) to September 30, 2000 (unaudited)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Deficit
Shares Accumulated
Committed Additional During the
Common Stock to be Paid-In Development
Shares Amount Issued Capital Stage Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 25, 1996 (Inception) - $ - $ - $ - $ - $ -
Sale of common stock 28,302,353 28,302 594,575 622,877
Shares issued to founders 233,280,000 233,280 (233,280) -
Shares issued to professionals 43,454,118 43,454 (3,454) 40,000
Shares issued for investment banking services 58,320,000 58,320 (33,320) 25,000
Net loss (479,267) (479,267)
----------- ---------- --------- ---------- ---------- ---------
Balance, December 31, 1996 363,356,471 363,356 - 324,521 (479,267) 208,610
Sale of common stock 17,152,942 17,153 414,347 431,500
Conversion of bridge notes 6,003,529 6,004 168,996 175,000
Shares issued to professionals 2,287,058 2,287 2,713 5,000
Net loss (2,091,226) (2,091,226)
----------- ---------- --------- ---------- ---------- ---------
Balance, December 31, 1997 388,800,000 388,800 - 910,577 (2,570,493) (1,271,116)
Net loss (1,040,237) (1,040,237)
----------- ---------- --------- ---------- ---------- ---------
Balance, December 31, 1998 388,800,000 388,800 - 910,577 (3,610,730) (2,311,353)
Changes due to recapitalization 259,022,500 259,023 (259,023) -
Loan from stockholder contributed to capital 140,403 140,403
Cash received for common stock subscribed 100,000 100,000
Common stock to be issued 571,750 571,750
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from January 25, 1996 (Inception) to September 30, 2000 (unaudited)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Deficit
Shares Accumulated
Committed Additional During the
Common Stock to be Paid-In Development
Shares Amount Issued Capital Stage Total
<S> <C> <C> <C> <C> <C> <C>
Compensation waived by officers $ $ $ 130,000 $ $ 130,000
Net loss (153,956) (153,956)
----------- ---------- --------- ---------- ---------- ---------
Balance, December 31, 1999 647,822,500 647,823 671,750 921,957 (3,764,686) (1,523,156)
Issuance of common stock (unaudited) 21,750,000 21,750 1,065,750 1,087,500
Issuance of common stock (unaudited) 2,000,000 2,000 (100,000) 98,000 -
Warrants issued for services (unaudited) 3,082,500 3,082,500
Cash received for common stock subscribed
(unaudited) 3,502,500 3,502,500
Issuance of common stock (unaudited) 69,050,000 69,050 (3,452,500) 3,383,450 -
Common stock subscription cancelled
(unaudited) (50,000) (50,000)
Cash received for common stock subscribed
(unaudited) 200,000 200,000
Issuance of common stock (unaudited) 14,250,000 14,250 584,500 598,750
Warrants issued for services (unaudited) 12,569 12,569
Common stock cancelled (unaudited) (225,000) (225) 225 -
Issuance of common stock (unaudited) 4,000,000 4,000 (200,000) 196,000 -
Issuance of common stock (unaudited) 12,500,000 12,500 600,000 612,500
Warrants issued for services (unaudited) 37,707 37,707
Cash received for common stock subscribed
(unaudited) 525,000 525,000
Conversion of bridge notes (unaudited) 124,000 124,000
Net loss (unaudited) (6,701,884) (6,701,884)
----------- ---------- --------- ---------- ---------- ---------
Balance, September 30, 2000 (unaudited) 771,147,500 $ 771,148 $1,220,750 $9,982,658 $(10,466,570) $1,507,986
=========== ========== ========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to September 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Nine Months Ended 1996
September 30, September 30, (Inception) to
--------------------------------- --------------------------------- September 30,
2000 1999 2000 1999 2000
--------------- --------------- ---------------- --------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss $ (1,339,539) $ (51,924) $ (6,701,884) $ (147,977) $(10,466,570)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Common stock to
be issued for
software
development
costs - - - - 571,750
Common stock
issued for
professional
services - - - - 70,000
Common stock
issued for related
party payable - - - - 140,403
Compensation
waived by officers - 32,500 - 32,500 130,000
Warrants issued
for services 37,707 - 3,132,776 - 3,132,776
(Increase) decrease in
Prepaid 13,467 - (11,720) - (11,720)
Deposit - - (2,198) - (2,198)
Increase (decrease) in
Accounts payable - - (418,023) (12,916) 831,334
Due to related party (20,000) 15,216 (80,000) 98,268 32,902
Compensation payable 130,000 - 130,000 - 130,000
Accrued interest
payable 19,250 5,000 69,010 30,000 104,008
------------ ------------- ------------- ------------ -------------
Net cash provided by
(used in) operating
activities (1,159,115) 792 (3,882,039) (125) (5,337,315)
------------ ------------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to September 30, 2000 (unaudited)
----------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Nine Months Ended 1996
September 30, September 30, (Inception) to
--------------------------------- --------------------------------- September 30,
2000 1999 2000 1999 2000
--------------- --------------- ---------------- --------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
investing activities
Purchase of property
and equipment $ (881) $ - $ (9,166) $ - $ (9,166)
-------------- ------------ -------------- ------------- -------------
Net cash used in
investing activities (881) - (9,166) - (9,166)
-------------- ------------ -------------- ------------- -------------
Cash flows from
financing activities
Common stock
subscription
received 525,000 - 525,000 - 525,000
Proceeds from
issuance of bridge
notes - - - - 375,000
Repayment of bridge
notes - - - - (50,000)
Proceeds from
issuance of
common stock 625,000 - 6,077,500 - 7,552,500
Cost of issuance
of common stock (12,500) - (126,250) - (396,871)
-------------- ------------ -------------- ------------- -------------
Net cash provided by
financing activities 1,137,500 - 6,476,250 - 8,005,629
-------------- ------------ -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
<TABLE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to September 30, 2000 (unaudited)
----------------------------------------------------------------------------------------------------------------
For the
Period from
For the For the January 25,
Three Months Ended Nine Months Ended 1996
September 30, September 30, (Inception) to
--------------------------------- --------------------------------- September 30,
2000 1999 2000 1999 2000
--------------- --------------- ---------------- --------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease)
in cash $ (22,496) $ 792 $ 2,585,045 $ (125) $ 2,659,148
Cash (book overdraft),
beginning of period 2,681,644 (977) 74,103 (60) -
-------------- ------------ -------------- ------------- -------------
Cash (book overdraft),
end of period $ 2,659,148 $ (185) $ 2,659,148 $ (185) $ 2,659,148
============== ============= ============= ============= =============
Supplemental
disclosures of cash
flow information
Interest paid $ - $ - $ - $ - $ 11,521
============== ============ ============== ============= =============
Income taxes paid $ - $ - $ 800 $ - $ 2,400
============== ============ ============== ============= =============
</TABLE>
Supplemental schedule of non-cash investing and financing activities
In August 2000, the Company converted $100,000 of bridge notes and $24,000 of
accrued interest into 2,480,000 shares of common stock, which will be issued in
the fourth quarter 2000.
During the year ended December 31, 1999, a stockholder contributed $140,403 due
this stockholder as additional paid-in capital.
During the year ended December 31, 1999, the Company recorded $571,750 of
software development costs as additional paid-in capital, which represents the
Company's commitment to issue 11,435,000 shares of common stock to a vendor (see
Note 3).
During the year ended December 31, 1999, the Company's officers contributed
$130,000 in compensation due to them as additional paid-in capital.
During the year ended December 31, 1997, the Company converted $175,000 of
bridge notes into 2,625,000 shares of common stock.
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
URREA Enterprises, Inc. ("URREA"), a Nevada corporation, acquired
EduLink, Inc. ("OLD EduLink"), a California corporation engaged in the
development of educational software, on October 28, 1999. After the
acquisition, URREA changed its name to EduLink, Inc. (the "Company").
URREA issued 388,800,000 shares of common stock to acquire 100% of the
common stock of OLD EduLink. The acquisition was accounted for as an
issuance of stock by OLD EduLink for the net assets of URREA as the
stockholders of OLD EduLink owned 60% of the common stock of URREA
after the acquisition, resulting in a recapitalization of OLD EduLink.
NOTE 2 - GOING CONCERN ISSUES
The Company has received a report from its independent auditors that
includes an explanatory paragraph describing the independent auditor's
uncertainty that the Company will be able to continue as a going
concern. These financial statements contemplate the ability to continue
as such and do not include any adjustments that might result from this
uncertainty.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in
the opinion of management, are necessary to fairly state the Company's
financial position, the results of operations, and cash flows for the
periods presented. The results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of results for the
entire fiscal year ending December 31, 2000.
The information with respect to the nine months ended September 30,
2000 and 1999 is unaudited.
Development Stage Enterprise
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to establish a new business,
and its planned principal operations have not yet commenced. All losses
accumulated since inception have been considered as part of the
Company's development stage activities.
-10-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Software Development Costs
Development costs incurred in the research and development of new
software products are expensed as incurred until technological
feasibility in the form of a working model has been established. To
date, the Company has not completed its software development to the
point of technological feasibility, and accordingly, no costs have been
capitalized.
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. The asset and liability method accounts for deferred
income taxes by applying enacted statutory rates in effect for periods
in which the difference between the book value and the tax basis of
assets and liabilities are scheduled to reverse. The resulting deferred
tax asset or liability is adjusted to reflect changes in tax laws or
rates. Because the Company has incurred losses from operations, no
benefit is realized for the tax effect of the net operating loss
carryforward and software development costs capitalized for tax
purposes due to the uncertainty of its realization.
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of
the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, the Company
would recognize an impairment loss based on the estimated fair value of
the asset.
-11-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes
and encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined
as of the date of grant and is recognized over the periods in which the
related services are rendered. The statement also permits companies to
elect to continue using the current implicit value accounting method
specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation issued to employees. The Company has elected to use the
intrinsic value based method and has disclosed the pro forma effect of
using the fair value based method to account for its stock-based
compensation.
Loss per Share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive. Because the Company has incurred net
losses, basic and diluted loss per share are the same.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company did
not have any of the items of comprehensive income in any period
presented.
NOTE 4 - CASH
The Company maintains its cash in a bank located in California. The
balance is insured by the Federal Deposit Insurance Corporation up to
$100,000. As of September 30, 2000, the uninsured portions of the
balances held at the bank aggregated to $2,597,313 (unaudited).
-12-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
NOTE 5 - BRIDGE NOTES PAYABLE
Bridge notes represent notes payable at 10% (annual percentage rate
10.47%) per annum and are currently due for payment.
In August 2000, the Company converted $100,000 (unaudited) of bridge
notes and $24,000 (unaudited) of accrued interest into 2,480,000 shares
(unaudited) of common stock at $0.05 (unaudited) per share, which
represents the price at which the Company was then raising equity
through its private placement offering.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Lease
The Company co-leases its facility under an operating lease agreement
with an unrelated third party. Future minimum lease payments at
December 31, 1999 were as follows:
Year Ending Gross Company's
December 31, Commitment Portion
------------ ---------- -------------
2000 $ 103,254 $ 36,139
2001 106,673 37,335
2002 106,673 37,335
----------- ----------
Total $ 316,600 $ 110,809
=========== ==========
Rent expense was $31,711, $53,731 (unaudited), and $23,021 (unaudited)
for the year ended December 31, 1999 and the nine months ended
September 30, 2000 and 1999, respectively.
Employment Agreements
In September 1999, the Company entered into five-year employment
contracts with its President, Chief Executive Officer, and Senior Vice
President that provide for a minimum annual salary, incentives, and
bonuses, which are based on the Company's attainment of specified
levels of sales and earnings. The annual salaries for the three
officers are $150,000, $150,000, and $90,000, respectively. During the
nine months ended September 30, 2000, the three officers were
compensated in the amounts of $11,300 (unaudited), $112,500
(unaudited), and $67,500 (unaudited), respectively.
In August 2000, the Company amended its employment contracts with its
President, Chief Executive Officer, and Senior Vice President. The
amendments terminated the issuance of 17,152,950 warrants to each of
the officers upon completion of each of the Build-Out Elements, the
Beta Test, and the national launch of the proposed Schoolhouse System.
In consideration for the warrant termination, the Company agreed to
give $50,000 each to its President and Chief Executive Officer and
$30,000 to its Senior Vice President as compensation. In addition, the
President and Chief Executive Officer will each receive an additional
$120,000 during 2001, payable to each officer at the rate of $50,000 in
January 2001 and $10,000 per month for seven consecutive months
commencing April 1, 2001.
-13-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
NOTE 7 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2000, the Company paid
$80,000 (unaudited) to one of the principal stockholders as repayment
of the loan from the stockholder. The remaining balance at September
30, 2000 was $32,902 (unaudited).
NOTE 8 - COMMON STOCK AND COMMON STOCK WARRANTS
During the nine months ended September 30, 2000, the Company issued
123,550,000 (unaudited) shares of common stock in connection with a
private placement for $6,526,250 (unaudited), which is net of issuance
costs.
The Company issued 34,305,000 warrants for services valued at
$3,082,500 to its Senior Vice President. In addition, pursuant to
employment agreements, the Company issued 17,152,950 warrants to three
of its officers upon completion of the design phase on September 7,
2000 of the Schoolhouse System. The warrants are exercisable at $0.0022
per share and vest over a period of seven years from the date of
issuance. The Company recorded compensation expense of approximately
$37,703 and $50,276 (unaudited) for the three and nine months ended
September 30, 2000, respectively.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
EduLink, Inc. is a development stage company engaged in the design and
development of a seamless integrated Internet educational service, called the
Schoolhouse System, for schools and homes, that is intended to be marketed to
and utilized by students, parents, teachers and school administrators. The
planned service will be delivered over the Internet to personal computer users.
We estimate that we need a total of approximately $8,500,000 for our ongoing
software content development, content oversight, data base engineering, graphic
design services, graphic user interface, curriculum development tool,
information technology center, inquiry based software and for research and
educational marketing, among other things, and have raised a total of
approximately $7,488,750, net of expenses, towards this goal as of November 3,
2000, primarily through the December 1999 private placement of our common stock.
We expect that our expenses (including software development costs and general
and administrative costs) in the next few years will be approximately $3.5
million per year, commencing in September 2001, following the planned launch of
our Schoolhouse System for the 7th and 8th grades. Of this amount, approximately
$1.4 million will be required annually to cover the expenses associated with the
hiring of additional administrative and technical personnel needed to run our
business, and approximately $1.5 million will be needed annually for the planned
addition of two new grade levels to the Schoolhouse System each school year. The
$3.5 million does not include funds which may be required for any expansion
outside the United States or development for the home schooling market.
Results of Operations
Nine Months Ended September 30, 2000 as Compared with Nine Months Ended
September 30, 1999
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
Income statement: 2000 1999
--------------- ----------------
Revenue $ - $ -
Interest income $ 78,548 $ -
Software development expenses $ 2,790,191 $ 681
Operating expenses $ 3,990,241 $ 147,296
Net loss $ 6,701,884 $ 147,977
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Revenue
EduLink is a development stage enterprise and has spent most of its efforts
during the past three years in developing its Schoolhouse System for the 7th &
8th grades, which is intended to be beta tested beginning January 2001 and
launched in September 2001. Accordingly, we have not generated any revenue to
date.
Software Development Costs
Software development expenses increased to $ 2,790,191 for the nine months ended
September 30, 2000, from $681 for the nine months ended September 30, 1999. The
increase in software development costs in the first nine months of 2000 arose
from the increase in EduLink's software development activities. During the first
nine months of 1999, EduLink was conceptualizing its business plan and focusing
on how to utilize the development work completed during 1998. In addition,
EduLink lacked the necessary funds for software development in early 1999. In
October 1999, the Company signed a contract agreement with an outside software
development vendor to continue the development of the Schoolhouse System
software. In December 1999, the Company started to raise funds for its software
development through a private placement of its equity securities.
Software development costs included amounts paid to the software development
vendor and outside consultants.
General and Administrative Expenses
General and administrative expenses increased to $3,990,241 for the nine months
ended September 30, 2000, compared with $147,296 for the nine months ended
September 30, 1999. The increase was attributable to non-cash compensation
charges incurred in connection with the issuance of warrants for services
rendered by employees, increased fees paid to legal and accounting
professionals, and increased payroll and rent expenses.
In February 2000, EduLink issued warrants to an officer to purchase 34,305,000
shares of common stock at an exercise price of $0.0022. The $3,082,500 non-cash
compensation charge associated with these warrants was recorded by the Company
as a general and administrative expense during the nine months ended September
30, 2000.
In August 2000, the Company amended its employment contracts with its President,
Chief Executive Officer, and Senior Vice President. The amendments terminated
the issuance of 17,152,950 warrants to each of the officers upon completion of
each of the Build-Out Elements, the Beta Test, and the national launch of the
proposed Schoolhouse System. In consideration for the warrant termination, the
Company recognized $130,000 of compensation expense, which represents $50,000
each to its President and Chief Executive Officer and $30,000 to its Senior Vice
President.
The Company's payroll expense increased by $120,406 to $198,120 for the nine
months ended September 30, 2000, from $77,714 for the nine months ended
September 30, 1999. This increase was the result of expenses associated with
five-year employment contracts the Company entered into with three officers in
September 1999.
The Company's legal and accounting expenses increased by $135,097 to $152,220
for the nine months ended September 30, 2000, from $17,123 for the nine months
ended September 30, 1999. The increase was the result of expenses incurred for
services rendered in connection with the July 2000 registration of EduLink's
common stock under the Securities Exchange Act of 1934.
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Three Months Ended September 30, 2000 as Compared with Three Months Ended
September 30, 1999
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
Income statement: 2000 1999
--------------- ----------------
Revenue $ - $ -
Interest income $ 31,585 $ -
Software development expenses $ 1,003,323 $ -
Operating expenses $ 367,801 $ 51,924
Net loss $ 1,339,539 $ 51,924
Revenue
EduLink is a development stage enterprise and has spent most of its efforts
during the past three years in developing its Schoolhouse System for the 7th &
8th grades, which is intended to be beta tested beginning in January 2001 and
launched in September 2001. Accordingly, we have not generated any revenue to
date.
Software Development Costs
Software development expenses increased to $1,003,323 for the three months ended
September 30, 2000, from $0 for the three months ended September 30, 1999. The
increase in software development cost for the third quarter of 2000 arose from
the increase in EduLink's software development activities. During the third
quarter of 1999, the Company was conceptualizing its business plan and focusing
on how to utilize the development work completed during 1998. In addition,
EduLink lacked the necessary funds for software development in the third quarter
of 1999. In October 1999, the Company signed a contract agreement with an
outside software development vendor to continue the development its Schoolhouse
System software. In December 1999, the Company started to raise funds for its
software development through a private placement of its equity securities.
Software development costs included amounts paid to the software development
vendor and outside consultants.
General and Administrative Expenses
General and administrative expenses increased to $367,801 for the three months
ended September 30, 2000, compared to $51,924 for the three months ended
September 30, 1999. The increase was attributable to non-cash compensation
charges for issuance of warrants for services rendered by employees, increase in
compensation expense, increased fees paid to legal and accounting professionals,
and increased payroll and rent expenses.
The Company's payroll expense increased by $34,234 to $69,063 for the three
months ended September 30, 2000, from $34,829 for the three months ended
September 30, 1999. This increase was the result of expenses associated with
five-year employment contracts the Company entered into with three officers in
September 1999.
The Company's legal and accounting expenses increased to $25,479 for the three
months ended September 30, 2000, from $0 for the three months ended September
30, 1999. This increase was
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the result of expenses incurred for services rendered in connection with the
July 2000 registration of EduLink's common stock under the Securities Exchange
Act of 1934.
Liquidity and Capital Resources
Since 1996, EduLink has financed its working capital needs through capital
contributions by stockholders, private placement of common equity and bridge
loans. As of September 30, 2000, we had cash and cash equivalents of
approximately $2,659,148. Cash used in operations was $3,882,039 for the nine
months ended September 30, 2000, $1,159,115 for the three months ended September
30, 2000, and $5,337,315 from inception through September 30, 2000. Cash used in
operations during each of these periods was primarily for expenses related to
the design and development of computer software and general and administrative
expenses. Since 1996 through September 30, 2000, we have raised $7,680,629
through private placements of our common stock and seed capital from one of our
executives and approximately $375,000 through bridge loans.
In August 2000, the Company amended its employment contracts with its President,
Chief Executive Officer, and Senior Vice President. The amendments terminated
the issuance of 17,152,950 warrants to each of the officers upon completion of
each of the Build-Out Elements, the Beta Test, and the national launch of the
proposed Schoolhouse System. In consideration for the warrant termination, the
Company agreed to give $50,000 each to its President and Chief Executive Officer
and $30,000 to its Senior Vice President as compensation. In addition, the
President and Chief Executive Officer will each receive an additional $120,000
during 2001, payable to each officer at the rate of $50,000 in January 2001 and
$10,000 per month for seven consecutive months commencing April 1, 2001.
As indicated above under the caption "Overview," the estimated cost of EduLink's
development program and its projected expenses over the next twelve months will
exceed its current cash resources. EduLink anticipates that it will need to
raise an additional $2.9 million of capital in order to meet its anticipated
cash requirements up to the planned launch of the Schoolhouse System for the 7th
and 8th grades. Of course changes in our development program or other changes
affecting our operating expenses could alter the timing and amount of our
expenditures and therefore the amount and timing of when we will require
additional funding. EduLink currently plans to raise sufficient additional
capital through private placement of its common stock and/or private placement
of debt or preferred stock convertible into its common stock to meet its ongoing
cash needs, until such time as its business generates cash flow sufficient to
fund its operations. However, the additional funding we require may not be
available to us on acceptable terms or at all. If we cannot obtain adequate
funding, we could be required to significantly curtail or even shut-down our
operations.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Description
27 Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned on its behalf by the undersigned thereunto duly authorized.
EDULINK
Date: November 14, 2000 By: /s/ Michael Rosenfeld
--------------------------------
Michael Rosenfeld
Chief Executive Officer
(On behalf of the registrant and
as principal financial officer)
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EDULINK, INC.
Exhibit Index to Quarterly Report
On Form 10-Q for the Quarterly Period
Ended September 30, 2000
Exhibit Description
27 Financial Data Schedule.
