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 June 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 [ ] No [X]
As of June 30, 2000, there were 754,647,500 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 June 30, 2000 and December 31, 1999............. 3
Statements of Operations for the three and six months ended
June 30, 2000 and 1999 and for the period from January 26,
1996 (inception) to June 30, 2000................................. 4
Statements of Stockholders' Deficit for the period from
January 26, 1996 (inception) to June 30, 2000..................... 5
Statements of Cash Flows for the three months ended June 30,
2000 and 1999 and for the period from January 26, 1996
(inception) to June 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.................................. 14
SIGNATURES.................................................................. 15
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
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1999 and June 30, 2000 (unaudited)
-------------------------------------------------------------------------------
ASSETS
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
Current assets
Cash $ 2,681,644 $ 74,103
Prepaid 25,187 -
Deposit 2,198 -
----------- ------------
Total current assets 2,709,029 74,103
Property and equipment, net 8,285 -
----------- ------------
Total assets $ 2,717,314 $ 74,103
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 831,334 $ 1,249,357
Accrued interest payable 84,760 35,000
Due to related party 52,902 112,902
Bridge notes payable 200,000 200,000
----------- ------------
Total current liabilities 1,168,996 1,597,259
----------- ------------
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $0.001 par value
1,500,000,000 shares authorized
754,647,500 (unaudited) and 647,822,500
shares issued and outstanding 754,648 647,823
Shares committed to be issued 771,750 671,750
Additional paid-in capital 9,148,951 921,957
Deficit accumulated during the
development stage (9,127,031) (3,764,686)
----------- ------------
Total stockholders' equity (deficit) 1,548,318 (1,523,156)
----------- ------------
Total liabilities and stockholders'
equity (deficit) $ 2,717,314 $ 74,103
=========== ============
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 Six Months Ended June 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to June 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Six Months Ended 1996
June 30, June 30, (Inception) to
------------------------------- ------------------------------- June 30,
2000 1999 2000 1999 2000
-------------- -------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Income
<S> <C> <C> <C> <C> <C>
Interest $ 43,382 $ - $ 46,963 $ - $ 53,781
-------------- -------------- -------------- -------------- --------------
Expenses
Software development
costs 1,637,426 272 1,786,868 681 4,708,682
General and
administrative 327,443 44,241 3,622,440 95,372 4,472,130
-------------- -------------- -------------- -------------- --------------
Total expenses 1,964,869 44,513 5,409,308 96,053 9,180,812
-------------- -------------- -------------- -------------- --------------
Net loss $ (1,921,487) $ (44,513) $ (5,362,345) $ (96,053) $ (9,127,031)
============== ============== ============== ============== ==============
Basic and diluted loss
per share $ 0.00 $ 0.00 $ (0.01) $ 0.00 $ (0.02)
============== ============== ============== ============== ==============
Weighted-average
shares used in
computation of
basic and diluted
loss per share 739,333,764 388,800,000 699,735,622 388,800,000 424,962,685
============== ============== ============== ============== ==============
</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 June 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 June 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
Common stock subscription received in cash
(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 -
Net loss (unaudited) (5,362,345) (5,362,345)
------------ -------- ---------- --------- ----------- ------------
Balance, June 30, 2000 (unaudited) 754,647,500 $ 754,648 $ 771,750 $9,148,951 $(9,127,031) $ 1,548,318
============ ========= ========== ========== =========== ===========
</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 Six Months Ended June 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to June 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Six Months Ended 1996
June 30, June 30, (Inception) to
------------------------------- ------------------------------- June 30,
2000 1999 2000 1999 2000
-------------- -------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss $ (1,921,487) $ (44,513) $ (5,362,345) $ (96,053) $ (9,127,031)
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 - - - - 130,000
Warrants issued
for services 12,569 - 3,095,069 - 3,095,069
(Increase) decrease in
Prepaid 5,468 - (25,187) - (25,187)
Deposit - - (2,198) - (2,198)
Increase (decrease) in
Accounts payable (325,001) (434) (418,023) (12,917) 831,334
Due to related party (40,000) 33,957 (60,000) 83,053 52,902
Accrued interest
payable 22,260 10,000 49,760 25,000 84,760
-------------- -------------- -------------- -------------- --------------
Net cash used in
operating activities (2,246,191) (990) (2,722,924) (917) (4,178,198)
-------------- -------------- -------------- -------------- --------------
</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 Six Months Ended June 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to June 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Six Months Ended 1996
June 30, June 30, (Inception) to
------------------------------- ------------------------------- June 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 - - (8,285) - (8,285)
-------------- -------------- -------------- -------------- --------------
Net cash used in
investing activities - - (8,285) - (8,285)
-------------- -------------- -------------- -------------- --------------
Cash flows from
financing activities
Common stock
subscription
received 200,000 - 200,000 - 200,000
Proceeds from
issuance of bridge
notes - - - - 375,000
Repayment of bridge
notes - - - - (50,000)
Proceeds from
issuance of
common stock 662,500 - 5,252,500 - 6,727,500
Cost of issuance
of common stock (113,750) - (113,750) - (384,371)
-------------- -------------- -------------- -------------- --------------
Net cash provided by
financing activities 748,750 - 5,338,750 - 6,868,129
-------------- -------------- -------------- -------------- --------------
</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 Six Months Ended June 30, 2000 and 1999 (unaudited) and
for the Period from January 25, 1996 (Inception) to June 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Period from
For the For the January 25,
Three Months Ended Six Months Ended 1996
June 30, June 30, (Inception) to
------------------------------- ------------------------------- June 30,
2000 1999 2000 1999 2000
-------------- -------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease)
in cash $ (1,497,441) $ (990) $ 2,607,541 $ (917) $ 2,681,646
Cash, beginning of
period 4,179,085 13 74,103 (60) -
-------------- -------------- -------------- -------------- --------------
Cash, end of period $ 2,681,644 $ (977) $ 2,681,644 $ (977) $ 2,681,646
============== =============== ============== ============== ==============
Supplemental
disclosures of cash
flow information
Interest paid $ - $ - $ - $ - $ 11,521
============== ============== ============== ============== ==============
Income taxes paid $ 800 $ - $ 800 $ - $ 2,400
============== ============== ============== ============== ==============
</TABLE>
Supplemental schedule of non-cash investing and financing activities
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 June 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 Company's uncertainty 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 six months ended June
30, 2000 are not necessarily indicative of results for the entire fiscal
year ending December 31, 2000.
The information with respect to the six months ended June 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 June 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 bases 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 June 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
financials 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 June 30, 2000, the uninsured portions of the balances held at the bank
aggregated to $2,629,824 (unaudited).
-12-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and June 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.
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, $41,189 (unaudited), and $15,320 (unaudited) for
the year ended December 31, 1999 and the six months ended June 30, 2000 and
1999, respectively.
Employment Agreement
--------------------
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 six months ended June 30,
2000, the three officers were compensated in the amounts of $7,400,
$75,000, and $45,000, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2000, the Company paid $60,000
(unaudited) to one of the principal stockholders as repayment of the loan
from the stockholder. The remaining balance at June 30, 2000 was $52,902
(unaudited).
-13-
<PAGE>
EDULINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and June 30, 2000 (unaudited)
-------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK AND COMMON STOCK WARRANTS
During the six months ended June 30, 2000, the Company issued 105,050,000
(unaudited) shares of common stock in connection with a private placement
for $5,138,750 (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 June 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 $12,000 for the three and six months ended June
30, 2000.
These employment agreements also provide for the issuance of 17,152,950
additional warrants to each of the officers on similar terms upon
completion of each of the Build-Out Elements, the Beta Test, and the
national launch of the proposed Schoolhouse System.
-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 $5,600,000, net of expenses, towards this goal as of July 21,
2000, primarily through the December 1999 private placement of our common stock.
EduLink expects that its 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
Six Months Ended June 30, 2000 as Compared with Six Months Ended June 30, 1999
FOR THE SIX MONTHS ENDED JUNE 30,
Income statement: 2000 1999
--------------- ----------------
Revenue $ - $ -
Interest income $ 46,963 $ -
Software development expenses $ 1,786,868 $ 681
Operating expenses $ 3,622,440 $ 95,372
Net loss $ 5,362,345 $ 96,053
-15-
<PAGE>
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 $ 1,786,868 for the six months ended
June 30, 2000, from $681 for the six months ended June 30, 1999. The increase in
software development costs in the first six months of 2000 arose from the
increase in EduLink's software development activities. During the first half 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 $3,622,440 for the six months
ended June 30, 2000, compared with $95,373 for the six months ended June 30,
1999. The increase was attributable to noncash 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 noncash
compensation charge associated with these warrants was recorded by the Company
as a general and administrative expense during the six months ended June 30,
2000.
The Company's payroll expense increased by $86,172 to $129,057 for the six
months ended June 30, 2000, from $42,885 for the six months ended June 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 $109,618 to $126,741
for the six months ended June 30, 2000, from $17,123 for the six months ended
June 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 June 30, 2000 as Compared with Three Months Ended June 30,
1999
FOR THE THREE MONTHS ENDED JUNE 30,
Income statement: 2000 1999
--------------- ----------------
Revenue $ - $ -
Interest income $ 43,382 $ -
Software development expenses $ 1,656,759 $ 272
Operating expenses $ 308,110 $ 44,241
Net loss $ 1,921,487 $ 44,513
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 $ 1,656,759 for the three months
ended June 30, 2000, from $272 for the three months ended June 30, 1999. The
increase in software development cost for the second quarter of 2000 arose from
the increase in EduLink's software development activities. During the second
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 early 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 $308,110 for the three months
ended June 30, 2000, compared to $44,241 for the three months ended June 30,
1999. The increase was attributable to noncash compensation charges for issuance
of warrants for services rendered by employees, increased fees paid to legal and
accounting professionals, and increased payroll and rent expenses.
The Company's payroll expense increased by $43,419 to $65,457 for the three
months ended June 30, 2000, from $22,038 for the three months ended June 30,
1999. This increase was the
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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 $101,741 for the three
months ended June 30, 2000, from $169 for the three months ended June 30, 1999.
This 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.
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 June 30, 2000, we had cash and cash equivalents of approximately
$2,681,644. Cash used in operations was $2,722,924 for the six months ended June
30, 2000, $2,246,191 for the three months ended June 30, 2000, and $4,178,198
from inception through June 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
June 30, 2000, we have raised $6,927,500 through private placements of our
common stock and seed capital from one of our executives and approximately
$375,000 through bridge loans.
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 Scoolhouse 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.
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: August 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 June 30, 2000
Exhibit Description
------- -----------
27 Financial Data Schedule.
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