SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-QSB
[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
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _________ to _________
Commission File Number 000-27239
EDUVERSE.COM
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 88-0277072
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1135 Terminal Way
Suite 209
Reno, Nevada 89502-2168
(Address of Principal Executive Offices)
(775) 332-3325
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,193,382 shares of common stock
outstanding as of June 30, 2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION ...........................................................1
Item 1. Financial Statements (Unaudited) ............................................1
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 .............2
Consolidated Statements of Operations for the three months and six
months ended June 30, 2000 and 1999. ...........................................3
Consolidated Statements of Cash Flow for the six months ended June 30,
2000 and 1999. .................................................................4
Notes to Consolidated Financial Statements - June 30, 2000 .....................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................8
PART II. OTHER INFORMATION .............................................................12
Item 1. Legal Proceedings ..........................................................12
Item 2. New Agreements .............................................................12
Item 3. Recent Sales of Unregistered Securities ....................................13
Item 4. Exhibits and Reports on Form 8-K ...........................................14
Signatures...............................................................................15
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Financial Statements
The following historical consolidated financial data provided as of and for the
three and six month periods ended June 30, 2000 have been derived from the
Company's unaudited internal consolidated interim financial statements and have
been prepared in accordance with United States generally accepted accounting
principles. In the opinion of the Company's management, contained within the
financial statements are all adjustments, which are necessary for a fair
representation of the information pertaining to the Company's financial position
as of June 30, 2000.
1
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<TABLE>
eduverse.com
CONSOLIDATED BALANCE SHEETS
=============================================================================================================
As of June 30, 2000 (expressed in U.S. dollars)
30-Jun 31-Dec
2000 1999
$ $
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash 87,805 43,584
Accounts receivable less allowance of $4,098 and $6,292
at June 30, 2000 and December 31 1999, respectively 10,572 8,826
Finished goods inventory 13,377 17,296
Other receivable 0 10,123
Prepaid expenses and other 84,793 15,360
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Total current assets 196,547 95,189
Capital assets, net 46,057 53,096
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Total assets 242,604 148,285
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current
Accounts payable 94,475 106,824
Accrued expenses 18,435 19,585
Loans payable 0 10,000
Current portion of royalty payable [note 5] 104,400 104,400
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Total current liabilities 217,310 240,809
Royalty payable 48,900 48,900
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266,210 289,709
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Commitment
Shareholders deficit
Share capital [note 4]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 14,193,382 shares at June 30,2000
and 13,185,089 shares at December 31, 1999 14,193 13,185
Preferred stock - $0.001 par value
Authorized shares: 5,000,000
Issued and outstanding: nil 0 0
Shares to be issued 0 3,078
Additional paid in capital 2,095,021 1,384,683
Accumulated deficit (2,134,493) (1,544,043)
Accumulated other eomprehensive income 1,673 1,673
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Total shareholders' deficit (23,606) (141,424)
--------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' deficit 242,604 148,285
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</TABLE>
See accompanying notes
2
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eduverse.com
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================================================================================================
(Expressed in U.S. dollars)
Three Months Ended (unaudited) Six Months Ended (unaudited)
30-Jun 30-Jun 30-Jun 30-Jun
2000 1999 2000 1999
$ $ $ $
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<S> <C> <C> <C> <C>
REVENUE
Software sales 9,320 4,519 11,807 95,497
Distribution royalties 0 20,000 0 40,644
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Total revenues 9,320 24,519 11,807 136,141
Cost of goods sold (5,028) (1,365) (730) (35,923)
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Gross profit 4,292 23,154 11,077 100,218
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EXPENSES
Amortization of deferred charge 0 31,900 0 31,900
Foreign currency transaction loss (2,708) 0 (18,464) 0
Deprecitation 5,278 4,369 10,187 7,336
General and administrative [note 6] 132,906 104,173 278,081 216,185
Marketing 97,400 88,694 162,514 127,797
Research and development 85,139 70,967 176,784 135,966
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318,015 300,103 609,102 519,184
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Operating loss (313,723) (276,949) (598,025) (418,966)
Other income 1,071 (55,546) 1,075 (96,945)
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Net loss for the period (312,652) (221,403) (596,950) (322,021)
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Comprehensive loss
Net loss for the period (310,979) (221,403) (595,277) (322,021)
Foreign currency translation 0 0 0 0
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Comprehensive loss for the period (310,979) (221,403) (595,277) (322,021)
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Net loss per common share:
Basic and diluted (0.02) (0.02) (0.04) (0.03)
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Weighted average number of common shares:
Basic and diluted 13,873,904 12,694,621 13,685,225 12,366,171
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</TABLE>
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eduverse.com
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
June 2000 June 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period (590,450) (322,021)
Adjustment to reconcile net loss to net cash used in
operating activities:
Common shares to be issued for services rendered
Common shares issued for services rendered 90,853 9,594
Common shares issued in lieu of interest expense 7,014 29,999
Write down and amortization of deferred charge 31,900
Depreciation 10,187 7,336
Effect of foreign currency
Stock based compensation
Beneficial conversiton feature of inventory loan
Loss on theft of capital assets
Provision for doubtfull accounts (2,194)
Changes in non-cash working capital items:
Accounts receivable 448 (102,225)
Finished goods inventory 3,919 28,957
Other receivables 10,123
Prepaid expenses (69,433) 5,651
Accounts payable (12,349) (49,146)
Accrued expenses (1,150)
Unearned revenue (20,138)
-----------------------------------------------------------------------------------------------
Net cash used in operating activities (553,032) (380,093)
FINANCING ACTIVITIES
Cash proceeds of loans payable
Payments of loans payable (10,000) (51,295)
Payments under capital lease obligations (7,041)
Repayments of royalty payable 0
Issuance of common stock 610,401 758,699
Cash received on common stock to be issued
-----------------------------------------------------------------------------------------------
Net cash provided by financing activities 600,401 700,363
INVESTING ACTIVITIES
Purchase of capital assets (3,148) (26,294)
Proceeds from insurance company for theft of capital assets 0 0
Net cash used in investing activities (3,148) (26,294)
-----------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash 0 0
Net increase in cash 44,221 293,976
-----------------------------------------------------------------------------------------------
Cash, beginning of period 43,584 37,757
-----------------------------------------------------------------------------------------------
Cash, end of period 87,805 331,733
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</TABLE>
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eduverse.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
eduverse.com (the "Company") was incorporated on October 22, 1991, under the
laws of the State of Nevada, as Ward's Futura Automotive, Ltd. The Company's
name was subsequently changed to Perfect Future, Ltd. On June 11, 1998 its name
was changed to Eduverse Accelerated Learning Systems, Inc. and on May 19, 1999
to eduverse.com.
Pursuant to a series of transactions on May 28, 1998 and May 29, 1998, the
Company acquired all of the issued and outstanding share capital of ESL Pro
Systems Inc. ("ESL") and M&M Information and Marketing Services Inc. ("M&M"),
both Nevada companies incorporated on May 5, 1998 and under common control. The
Company exchanged 2,000,000 common shares and 7,000,000 common shares for all of
the outstanding share capital of ESL and M&M, respectively. As a result of these
acquisitions, the previous shareholders of ESL and M&M, as a group, owned more
than 50% of the issued and outstanding voting shares of the Company.
Consequently, this business combination has been accounted for as a reverse
acquisition whereby ESL and M&M are deemed to have been combined in a manner
similar to a pooling of interests, and to have acquired the Company.
Accordingly, these transactions represent the recapitalization of the businesses
of ESL and M&M on a combined basis.
These consolidated financial statements are issued under the name of the
Company, but are a continuation of the combined financial statements of ESL and
M&M and reflect the accounts of ESL and M&M since their inception at their
historic net book values. As at May 29, 1998, the Company had net monetary
assets of $1. For purposes of the acquisition, the fair value of the net
monetary assets of $1 has been ascribed to the 2,250,000 previously outstanding
common shares of the Company deemed to be issued in the acquisition.
Description of business
The Company is a technology-based company focused on developing and marketing
interactive multimedia educational software products. At June 30, 2000, the
Company's principal markets include Canada and U.S.A. The Company generates
revenues from the retail sale of its English language tutorial software products
ENGLISH PRO. In late 1998, the Company started pioneering a new e-commerce
educational delivery model that provides users with free access to online
education. The Company expects to generate the majority of its future revenues
from advertising revenues by including an advertiser's message as part of the
ENGLISH PRO tutorial. In 2000, 1999 and 1998, the Company recognized no
advertising revenues.
Going concern
The Company's financial statements for the year ended June 30, 2000 have been
prepared on a going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business for the foreseeable future. The company incurred a loss of $310,089 and
$590,450 for the three-and six-months periods respectively ended June 30, 2000,
and as of June 30, 2000 had a working capital deficiency of $23,606. Management
recognizes that the Company must obtain additional financial resources by
raising capital from shareholders or other sources or consider a reduction in
operating costs to enable it to continue operations with available resources.
However, no assurances can be given that the Company will be successful in
raising additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional funds, that the Company will achieve
positive cash flow. If the Company is unable to obtain adequate additional
financing, management will be required to sharply curtail the Company's
operating expenses. Accordingly, the Company's continuation as a going concern
is in substantial doubt.
These financial statements do not include any adjustments to the carrying values
and classification of assets and liabilities, which may be necessary, if the
company is unable to continue its operations.
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2. MAJOR CUSTOMERS
For the six-month period ended June 30, 2000, 88% of software sales were derived
from two customers. At June 30, 2000, the aggregate accounts receivable balance
relating to these customers was $9,255.
For the same period in 1999 72% of software sales were derived from one
customer. At June 30, 1999, the aggregate accounts receivable balance relating
to this customer was $50,077.
3. CAPITAL ASSETS
<TABLE>
Accumulated Net Book
Cost Depreciation Value
$ $ $
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<S> <C> <C> <C>
June 30, 2000
Computer equipment 61,662 24,222 37,440
Furniture and office equipment 13,060 4,443 8,617
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74,722 28,665 46,057
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June 30, 1999
Computer equipment 49,398 9,815 39,583
Furniture and office equipment 12,968 1,819 11,149
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62,366 11,634 50,732
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</TABLE>
4. SHARE CAPITAL
[a] Authorized
The authorized capital of the Company consists of 50,000,000 voting common
shares with $0.001 par value and 5,000,000 non-voting preferred shares with
$.001 par value.
[b] Stock offering
In March 2000, the Company announced a financing via private placement offering
under Regulation D, Rule 506 of the Securities and Exchange Commission. Under
this financing the Company sold 276,000 units at $1 per unit, with each unit
consisting of one share of restricted common stock and two warrants. Each
warrant entitles the holder to purchase one additional share of restricted
common stock at $2.50 per share and $5.00 per share, respectively. The Company
has closed this offering.
[c] Stock options
During the three- month period ended June 30, 2000 the Company cancelled 115,000
employee stock options and issued 192,500 in new employee stock options. In
addition, 215,000 employee stock options were re-priced to $0.68 per share.
The following table summarizes information about stock options under the plans
outstanding at June 30, 2000:
Number
Range of Outstanding at
Exercise June 30,
Prices 2000
--------------------------------
$0.38 150,000
$0.67 - $0.75 1,490,000
--------------------------------
Total 1,640,000
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5. INCOME TAXES
At December 31, 1999 the Company has a net operating loss for United States
income tax purposes of approximately $190,000 which will begin to expire in 2018
if not utilized.
In addition, the Company has non-capital losses for Canadian income tax purposes
of approximately $900,000 at December 31, 1999, which will begin to expire in
2005 if not utilized.
Deferred income taxes reflect the net effects of temporary differences between
the carrying value of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The Company has recognized a
valuation allowance of $500,000 equal to the deferred tax assets due to the
uncertainty of realizing the benefits of the assets.
6. RECENT PRONOUNCEMENTS FOR SAB 101 AND FIN NO. 44
In December 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements of all public registrants. The provisions of SAB 101 are
effective for transactions beginning in the Company's year ended December 31,
2000. The Company has not completed its assessment of the impact of SAB 101 and
has not determined its effect, if any, on its future reported results of
operations.
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"). This statement is effective for certain transactions
from December 15, 1998 and is to be applied commencing July 1, 2000. The Company
has not completed its assessment of the impart of FIN 44 and has not determined
its effect, if any, on its future reported results of operations.
7. SUBSEQUENT EVENTS
(a) The Company will be moving its premises in Canada effective September 1,
2000 to 2-70 East 2nd Avenue, Vancouver, British Columbia. Rent will
increase to approximately $2,400 per month.
(b) The Company borrowed $50,000 from one of its officers and directors in
July, 2000.
7
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed in these forward-looking statements as a result of various
factors, including those set forth in "risk factors" and elsewhere in this Form
10-QSB. The following discussion should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Form 10-QSB.
See "Forward-looking Statements" and "Risk Factors."
Forward-looking Statements
Except for statements of historical fact, certain information contained
herein constitutes "forward-looking statements," including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, as well as all projections of future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the Company
to be materially different from any future results or achievements of the
Company expressed or implied by such forward-looking statements. Such factors
include, but are not limited to the following: the Company's limited operating
history, competition, management of growth and integration, risks of
technological change, the Company's dependence on key personnel, marketing
relationships and the other risks and uncertainties described under "Description
of Business - Risk Factors" in this Form 10-QSB. Certain of the forward looking
statements contained in this registration statement are identified with
cross-references to this section and/or to specific risks identified under "Risk
Factors."
RESULTS OF OPERATIONS
Three-and Six-Month Periods Ended June 30, 2000 Compared to Three-and Six-Month
Periods Ended June 30, 1999
Revenues. The Company derives its revenues from the retail sales of its
software products and royalties received from distributors of its software
products. For the six-month period ended June 30, 2000, 88% of the Company's
software sales were derived from two customers. Revenues for the three- and
six-months ended June 30, 2000 were $9,320 and $11,807 respectively. Compared
with $24,519 and $136,141 for the same periods in 1999. This decrease is
primarily due to the Company's decision to discontinue retail sales of its
ENGLISH PRO 6.2. The Company anticipates minimal revenues from retail sales of
its software products during 2000. In addition, it is anticipated that
additional revenues from the sale of advertising embedded in the Company's
Internet-enabled software product will be generated beginning the third quarter
of 2000.
Cost of Goods Sold. Cost of Goods Sold consists of expenses associated with
the physical production of the "boxed" software packages that are sold in the
retail market. During the three-month period ended June 30, 2000, cost of goods
sold increased to $5,028 from $1,365 for the same period in 1999. The difference
is attributed to software packages being returned for the quarter ended June 30,
1999. During the six-month period ended June 30, 2000, cost of goods decreased
to $730 from $35,923 for the same periods in 1999. This overall decrease is due
to the Company's decision to discontinue retail sales of its ENGLISH PRO 6.2.
8
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Amortization and Write down of deferred charge The amortized deferred
charge represents a license fee for the use of ENGLISH PRO 6.2 and was being
amortized on a straight-line basis over the three-year minimum term of the
license agreement. As the Company does not expect to obtain any future value
from this licensing agreement, the entire deferred charge balance of $159,800
was written off to expense in 1999. The license fee for use of software is
amortized on a straight-line basis over the three-year minimum term of the
license agreement with Boswell.
Depreciation Depreciation expenses consists of depreciation on computer
equipment, office equipment and furniture. Capital assets such as computer
equipment and furniture and office equipment are depreciated on a straight-line
basis over their estimated useful lives, computer equipment over three years and
furniture and office equipment over five years. During the three and six-month
periods ended June 30, 2000, depreciation expenses increased to $5,278 and
$10,187 respectively from $4,369 and $7,336 for the same periods in 1999. This
is due to increased depreciation costs associated with the increase in purchases
of computer equipment by the Company.
General and Administrative Expenses. General and administrative expenses
primarily consist of management, financial and administrative personnel expenses
and related costs and professional service fees. General and administrative
expenses were $132,906 and $278,081 for the three- and six-month periods ended
June 30, 2000, which represents an increase of 28% and 29% over the same periods
in 1999. These increases are due primarily to increases in expenses related to
hiring of personnel, and travel expenses. In addition, legal and accounting fees
associated with the filing on the Company's Form 10-QSB and other matters
relating to being a fully reporting company. The Company anticipates that
general and administrative expenses will increase significantly in the next year
due to the implementation of its Internet/Intranet enabled software initiatives
in South East Asia and South America.
Marketing Expenses. Marketing expenses consist primarily of marketing and
promotional costs relating to the development of the Company's brands as well as
personnel, travel and other costs. Marketing expenses were $97,400 and $162,514
for the three-and six-month periods respectively ended June 30, 2000, which were
10% and 27% higher than those incurred for the same periods in 1999. These
increases were primarily attributable to increased travel expenses incurred to
promote the Company's Internet-enabled software products in South East Asia,
South America and the reallocation of administrative personnel to marketing. The
Company anticipates marketing expenses will increase over the next 12 months as
a result of its current initiatives in Thailand, China, Malaysia and the
Company's anticipated growth throughout Asia and Latin America. This will
require extensive travel and promotional activities for its marketing staff. The
Company intends to higher additional marketing staff during the next two
quarters.
Research and Development Expenses. Research and development expenses
primarily include personnel costs relating to developing the Company's software
and maintaining and enhancing the features, content and functionality of the
Company's Internet Web site and related systems. Research and development
expenses were $85,139 and $176,784 for the three- and six-month periods
respectively ended June 30, 2000 which represents increases of 20% and 30% over
the same periods in 1999. These increases were primarily due to increased
staffing in the research and development team. The Company anticipates that its
research and development staff will continue to grow in 2000 as the Company
focuses on improving and expanding the features and availability of its
Internet/Intranet network-enabled software products. Research and development
costs are expensed as incurred. However, computer software
9
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development costs incurred after technological feasibility of a product is
established are capitalized. Technological feasibility is generally not
established until substantially all related product development is complete and
the product is released.
Income Taxes. No provision for federal income taxes has been recorded in
2000 or 1999 as a result of losses. As of June 30, 2000 the Company had a net
operating loss for United States income tax purposes of approximately $190,000
which will begin to expire in 2018 if not utilized. In addition, the Company has
non-capital losses for Canadian income tax purposes of approximately $900,000 at
June 30, 2000, which will begin to expire in 2005 if not utilized. The Company
has recognized a valuation allowance of $500,000 equal to the deferred tax
assets due to the uncertainty of realizing the benefits of the asset.
Other Income. Other income during the three-and six- month periods ended
June 30, 2000 decreased to $1,071 and $1,075 respectively compared to $55,546
and $96,945 for the same periods in 1999. Other Income consisted of interest
earned by the Company on its bank balances. The Other Income in 1999 was the
result of the sale of two web domains by the Company. It is not anticipated the
Company will be selling web domains in the future.
Liquidity and Capital Resources
Since inception, the Company has financed operations and met its capital
expenditure requirements primarily through private sales of equity securities,
which have resulted in net proceeds of $1,498,707 through June 30, 2000. At June
30, 2000, the Company had $87,805 in cash and cash equivalents and a working
capital deficit of $23,606. On March 2000, the Company announced a financing via
private placement offering under Regulation D, Rule 506 of the Securities and
Exchange Commission. The offering was for up to 1,000,000 units at $1 per unit,
with each unit consisting of one share of restricted common stock and two
warrants. The two warrants entitle the holder to purchase one additional share
of restricted common stock at $2.50 per share and $5.00 per share, respectively.
As of June 30, 2000 the Company had received $276,000 of this offering. The
Company will no longer accept any funds under this offering.
The Company has not yet generated positive cashflows from operating
activities. Cash used in operating activities was $553,032 and $380,093 for the
six-month period ended June 30, 2000 and for the same period in 1999,
respectively. The Company does not expect to generate positive cash from
operations for the year ending December 31, 2000.
The Company's investing activities have consisted of capital expenditures
totaling and $3,148 for the six-month period ended June 30, 2000 and $26,294 for
the same period in 1999 respectively. The capital expenditures related primarily
to the acquisition of computer hardware used to support the Company's growing
employee base.
Net cash provided by financing activities was $600,401 and $700,363 for the
six-month period ended June 30, 2000 and for the same period in 1999,
respectively. Net cash provided by financing activities resulted primarily from
issuance of capital stock, which was partially offset by principal payments on
capital leases and notes payable. The Company does foresee an increase in
operating expenses in order to implement its Internet/Intranet enabled
applications in Thailand, China and Malaysia or to continue the upgrade of its
software application. Further, the Company expects to sign additional Ministries
of Education and begin implementations by the fourth quarter of 2000. The
Company expects to fund these initiatives with further issuance of common stock
of the Company and from advertising revenues that are expected to begin in the
third quarter of 2000.
10
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The Company believes that anticipated private placements of equity capital
and anticipated operating revenues will be adequate to fund the Company's
operations over the next six months. Thereafter, the Company expects it will
need to raise additional capital to meet its long-term operating requirements.
The Company may encounter business initiatives that require significant cash
commitments or unanticipated problems or expenses that could result in a
requirement for additional cash before that time. If the Company raises
additional funds through the issuance of equity or convertible debt securities,
other than to current shareholders, the percentage ownership of its current
shareholders would be reduced, and such securities might have rights,
preferences or privileges senior to its common stock. Additional financing may
not be available upon acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company's ability to
fund its expansion, take advantage of business opportunities, develop or enhance
its products or otherwise respond to competitive pressures would be
significantly limited, which could significantly restrict the Company's
operations.
Foreign Currency Translation and Hedging
Foreign exchange gains (losses) have not been significant to date and the
Company does not, at this time, engage in forward exchange contracts for the
purpose of hedging against fluctuations in the exchange rate between United
States and Canadian dollars.
During the third and fourth quarters of 2000, the Company intends to engage
in activities in foreign countries, namely Thailand, China, Malaysia, Columbia,
Hong Kong and Taiwan. These activities will likely result in development
expenses related to the installation, support and maintenance of ENGLISH PRO
Network Edition on educational networks and sales and marketing expenses related
to generating advertising revenues in these regions. The Company has no
immediate plans for hedging against fluctuations in these currencies.
RISK FACTORS
The business of the Company involves a number of risks and uncertainties
that could cause actual results to differ materially from results projected in
any forward-looking statement in this report. These risks and uncertainties
include the risks set forth below. The Company's securities are speculative and
investment in the Company's securities involves a high degree of risk and the
possibility the investor will suffer the loss of the entire amount invested.
Limited Operating History; History of Losses; Increased Expenses
The Company incurred a net loss of $310,089 and $590,450 for three and
six-month periods respectively ended June 30, 2000. Compared to $218,673 and
$322,021 for the same periods in 1999. The Company has had minimal revenue since
inception , it has never been profitable and there can be no assurance that, in
the future, the Company will be profitable on a quarterly or annual basis. In
addition, the Company plans to increase its operating expenses to expand its
sales and marketing operations, fund greater levels of research and development,
broaden its customer support capabilities and increase its administration
resources. In view of the rapidly evolving nature of the Company's business,
markets and limited operating history, the Company believes that
period-to-period comparisons of financial results are not necessarily meaningful
and should not be relied upon as an indication of future performance.
11
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Need for Additional Financing
The Company has accumulated losses of $2,134,493 since it began operations
in May 1998 and will require additional working capital to complete its business
development activities and generate revenue adequate to cover operating and
further development expenses. The Company incurred a loss of $310,089 and
$590,450 for the three- and six-month periods ended June 30, 2000. As of June
30, 2000 had a working capital deficiency of $23,606. Management recognizes that
the Company must obtain additional financial resources by raising capital from
shareholders or other sources or consider a reduction in operating costs to
enable it to continue operations with available resources. However, no
assurances can be given that the Company will be successful in raising
additional capital. Further, there can be no assurance, assuming the Company
successfully raises additional funds that the Company will achieve positive cash
flow. If the Company is unable to obtain adequate financing, management will be
required to sharply curtail the Company's operating expenses.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, and none of the Company's property is
subject to, any material pending or threatened legal proceeding.
ITEM 2. AGREEMENTS
During the period ended June 30, 2000 the Company entered into the
following agreements:
World Wide Wireless Web (W4)
China Central Educational Technology Center (CCETC) 1to80.com (Acer
Group) SINA.com China Education Network Inc.
The CCETC agreement is a continuation of the Company's strategy to partner
with Ministry of Education to deliver its educational software to that country's
students.
The SINA.com, 1to80.com, W4 and China Education Network agreements are a
continuation of the Company's marketing activities as a content provider whereby
it provides its English language programs and co-brands its product and
educational games with web portals, ISP's and PC manufacturers. This program
will generate revenues on an equal basis. With revenues projected in the third
quarter of 2000.
The China Central Educational Technology Center operates directly under
the Ministry of Education of China and is solely responsible for deploying new
technology to advance China's educational systems.
SINA.com is a leading Internet destination network for Chinese communities
worldwide. As of April 2000 SINA.com had over 24 million average daily page
views and 5 million registered users.
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1to80.com is Asia's first knowledge portal. The Company is part of Acer,
the world's third largest PC manufacturing. The Acer Group employs more than
32,000 in 120 enterprises spanning 37 countries worldwide.
World WideWireless Web (W4) is building a worldwide wireless network of
affiliates (ISPs, corporate networks, cable companies etc.) supported by direct
access to the North American Internet and telecommunications backbone.
China Education Network Inc. is a private Internet content provider which
holds, with its Chinese partner, the exclusive rights to develop a web site for
the dissemination of information derived from a state level research project on
the future of the education system in China.
ITEM 3 RECENT SALES OF UNREGISTERED SECURITIES
On April 19, 2000 the Company issued 166,666 shares of common stock to Dan
Brimm at a price per share of $0.75 for an aggregate purchase price of $125,000.
The shares were issued to a holder outside the United States pursuant to an
exclusion from registration under Regulation S under the Securities Act.
On April 19, 2000, the Company issued 922 shares of common stock to Vaughn
Barbon at a price per share of $1.125 for services rendered of $1,037.25. The
shares were issued to a holder outside the United States pursuant to an
exclusion from registration under Regulation S under the Securities Act.
On June 5, 2000 the Company issued 94,764 shares of common stock to Marc
Crimeni at a price per share of $1.00 for an aggregate purchase price of
$94,764. Attached to each share are two warrants which entitles the holder to
purchase one additional share of restricted common stock at $2.50 per share for
six months from date of issue and $5.00 per share for one year from date of
issue, respectively. The shares were issued to a holder outside the United
States pursuant to an exclusion from registration under Regulation S under the
Securities Act.
On June 5, 2000 the Company issued 181,236 shares of common stock to Mark
Bruk at a price per share of $1.00 for an aggregate purchase price of $181,236.
Attached to each share are two warrants which entitles the holder to purchase
one additional share of restricted common stock at $2.50 per share for six
months from date of issue and $5.00 per share for one year from date of issue,
respectively. The shares were issued to a holder outside the United States
pursuant to an exclusion from registration under Regulation S under the
Securities Act.
On June 22, 2000, the Company issued 100,000 shares of common stock to
Lexington Mercantile Corporation Ltd. at a price per share of $0.68 for services
rendered of $68,000. The shares were issued to a holder outside the United
States pursuant to an exclusion from registration under Regulation S under the
Securities Act.
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ITEM 4 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
(b) Form 8-K
The registrant did not file any reports on Form 8-K during the three months
ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 14th day of August,
2000.
EDUVERSE.COM
By: /s/ Mark E. Bruk
--------------------------------------
Mark E. Bruk, President, Chief
Executive Officer and Treasurer
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
