<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
Date of Report November 20, 2000
GLOBAL E TUTOR, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE
State or other jurisdiction of incorporation or organization
000-30743
Commission File No.
88-0444539
I.R.S. Employer I.D. No.
3340 PEACHTREE ROAD, SUITE 1800, ATLANTA, GA
(Address of Principal Executive Offices)
30326
(Zip Code)
Registrant's telephone number, including area code: (404) 978-1640
<PAGE>
GLOBALETUTOR, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
Subsidiary
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Current assets
--------------
Cash $ - $ 774,911
Other current assets - 20,000
---------- -----------
Total current assets - 794,911
---------- -----------
Property and equipment, at cost
-------------------------------
Furniture and equipment 40,033 -
Computer equipment 27,842 5,369
Software 2,208 -
Leasehold improvements 15,386 -
Web site development costs 539,301 -
---------- -----------
624,770 5,369
Allowance for depreciation (337,456) (79)
---------- -----------
Net property and equipment 287,314 5,290
---------- -----------
Other assets
------------
Employee advances 500 -
Intangibles, net of accumulated amortization 19,070 132
Other assets 18,078 75,000
---------- -----------
Total other assets 37,648 75,132
---------- -----------
$ 324,962 $ 875,333
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities
-------------------
Cash overdraft $ 51,263 $ -
Accounts payable 464,212 98,500
Accrued Expenses 80,226 11,606
Due to related parties 595,540 923,890
---------- -----------
Total current liabilities 1,191,241 1,033,996
---------- -----------
Stockholders' equity (deficit)
------------------------------
Common stock 27,584 9,640
Additional paid in capital 2,545,955 15,360
Deferred compensation, net of accumulated amortization (429,981) -
Accumulated deficit (3,009,837) (183,663)
---------- -----------
Total stockholders' equity (deficit) (866,279) (158,663)
---------- -----------
$ 324,962 $ 875,333
========== ===========
</TABLE>
Note: The balance sheet at December 31, 1999 was taken from the audited
financial statements at that date and condensed
See notes to unaudited condensed consolidated financial statements
<PAGE>
GLOBALETUTOR, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
For the Nine For the Three From inception
Months Ended Months Ended on December 10,
September 30, September 30, 1999 Through
2000 2000 September 30, 2000
------------- ------------- ------------------
<S> <C> <C> <C>
Revenue $ - $ - $ -
------- ----------- ----------- -----------
Costs of goods sold - - -
------------------- ----------- ----------- -----------
Gross profit - - -
------------ ----------- ----------- -----------
Expenses
--------
General and administrative 1,697,758 616,468 1,832,646
Depreciation/amortization 655,541 435,496 655,541
Research and development 60,022 16,950 60,022
Sales and marketing 417,954 62,437 458,246
----------- ----------- -----------
Total expenses 2,831,275 1,131,351 3,006,455
----------- ----------- -----------
Loss from operations (2,831,275) (1,131,351) (3,006,455)
-------------------- ----------- ----------- -----------
Other income (expense)
---------------------
Interest income 17,758 155 17,758
Misc. income 1,200 - 1,200
Interest expense (13,857) (6,735) (22,340)
----------- ----------- -----------
Total other income (expense) 5,101 (6,580) (3,382)
----------- ----------- -----------
Loss before income taxes (2,826,174) (1,137,931) (3,009,837)
------------------------
Income tax expense - - -
------------------ ----------- ----------- -----------
Net loss $(2,826,174) $(1,137,931) $(3,009,837)
-------- =========== =========== ===========
Loss per common share $ (0.11) $ (0.04) $ (0.12)
--------------------- =========== =========== ===========
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBALETUTOR, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION ON DECEMBER 10, 1999 THROUGH SEPTEMBER 30, 2000
(UNAUDITED)
Common Stock Additional Total
------------------------ Paid In Deferred Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Equity (Deficit)
----------- ---------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 10, 1999 9,640,000 $ 9,640 $ 15,360 $ - $ - $ 25,000
Compensation for options and
warrants issued at below
market value - - - - - -
Net loss for the period ended
December 31, 1999 - - - (183,663) (183,663)
---------- ------- ---------- ---------- ----------- -----------
Balance, December 31, 1999 9,640,000 9,640 15,360 - (183,663) (158,663)
Shares issued for cash at $.25
per share 5,000,000 5,000 1,245,000 - - 1,250,000
Effect of recapitalization of the
subsidiary January 21, 2000 12,827,747 12,828 537,173 - 550,001
Share issued to purchase
Kilimanjaro Group.com, Inc.
at $.50 per share 50,000 50 24,950 - 25,000
Shares issued for services
at $2.68 per share 49,520 50 132,560 132,610
Compensation for options and
warrants issued at below
market value - - 528,942 (474,422) - 54,520
Shares issued for services
at $.81 per share 10,000 10 8,116 8,126
Shares issued for services
at $.99 per share 6,612 6 6,604 6,610
Warrants issued for services
at $.63 per share 47,250 47,250
Amortization of deferred
compensation 44,441 44,441
Net loss for the period ended
September 30, 2000 (2,826,174) (2,826,174)
--------------------------------------------------------------------------------------------------
Balance, September 30, 2000 27,583,879 $27,584 $2,545,955 $(429,981) $(3,009,837) $ (866,279)
==================================================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
GLOBALETUTOR, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
For the Nine From Inception
Months Ended on December 10,
September 30, 1999 Through
2000 September 30, 2000
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities
------------------------------------
Net loss $(2,826,174) $(3,009,837)
----------- -----------
Adjustments to reconcile net loss to
net cash (used) by operating activities
Depreciation and amortization 423,971 424,057
Deferred compensation 98,961 98,961
Non-cash expense 194,597 194,597
Changes in assets and liabilities - -
Other assets (18,078) (18,078)
Pre-paid expenses 20,000 -
Cash overdraft/Accounts payable/accrued expenses 484,395 519,501
----------- -----------
Total adjustments 1,203,846 1,219,038
----------- -----------
Net cash (used) by operating activities (1,622,328) (1,790,799)
----------- -----------
Cash flows from investing activities
------------------------------------
(Acquisition) of fixed assets (619,401) (624,770)
(Acquisition) of subsidiary (75,000) (75,000)
(Acquisition) of intangible assets (4,332) (4,471)
----------- -----------
Net cash (used) by investing activities (698,733) (704,241)
----------- -----------
Cash flows from financing activities
------------------------------------
Proceeds from related parties 421,150 1,345,040
Proceeds from sale of common stock 1,125,000 1,150,000
----------- -----------
Net cash provided by financing activities 1,546,150 2,495,040
----------- -----------
Net increase (decrease) in cash (774,911) -
Cash, beginning of period 774,911 -
----------- -----------
Cash, end of period $ - $ -
=========== ===========
</TABLE>
NON-CASH TRANSACTIONS
---------------------
The Company paid $75,000 in cash, assumed $1,200 in liabilities and issued
50,000 shares of common stock to purchase all the outstanding common shares of
Kilimanjaro Group.Com, Inc., resulting in Company recording goodwill of $101,200
The Company issued 66,132 restricted common shares, 36,782 non-qualified
options, and 291,208 warrants during the nine months ended September 30, 2000,
in exchange for services, totaling $147,347, $26,391 and $549,802 respectively.
In accordance with the merger and plan of reorganization, on January 21, 2000,
9,640,000 common shares of GlobalETutor, Inc. (formerly Digital Launch, Inc.)
were exchanged for all of the outstanding common shares, 4,820,000, of
GlobaleTutor.com, Inc.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
June 30,
2000
--------
Cash paid during the periods for
Interest $ -
Income Taxes $ -
See notes to unaudited condensed consolidated financial statements
<PAGE>
GLOBAL E TUTOR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING SEPTEMBER 30, 2000
Note A - BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of Global
e Tutor, Inc. and subsidiary (the "Company") for the nine months ended September
30, 2000, have been prepared in accordance with Generally Accepted Accounting
Principles for interim financial information and instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information in notes required by Generally Accepted Accounting Principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the unaudited financial statements for this interim period have been included.
The results of the interim periods are not necessarily indicative of the results
to be obtained for the year ended December 31, 2000. These interim financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and footnotes thereto included in the Company's Form 8-K
12G3 for the fiscal year ended December 31, 1999, filed with the Securities and
Exchange Commission on June 1, 2000.
The Company is developing a website for global education via web based,
interactive, video-on-demand tutoring services for grades K-12. The Company is
considered a development stage company as defined in SFAS No.7. In a development
stage company, management devotes most of its activities to investigating
business opportunities. Planned principal activities have not yet begun. The
ability of the Company to emerge from the development stage with respect to any
planned principal business activity is dependent upon its successful efforts to
raise additional equity financing. There is no guarantee that the Company will
be able to raise any equity financing. There is substantial doubt regarding the
Company's ability to continue as a going concern. See Note F.
INCOME TAXES:
-------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the temporary
difference between the financial statement and tax basis of assets and
liabilities using presently enacted tax rates in effect. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation for the Company is provided using the straight-line method over the
estimated useful lives of the assets which are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Furniture and equipment 5-7 years
Computer equipment 5 years
Software 5 years
Leasehold improvements 5 years
Web site development costs 3 years
</TABLE>
<PAGE>
INTERNAL USE SOFTWARE:
----------------------
The Company accounts for the costs of software and development cost in
accordance with Statement of Position 98-1, "ACCOUNTING FOR COMPUTER SOFTWARE
DEVELOPED FOR OR OBTAINED FOR INTERNAL USE". The SOP requires the capitalization
of certain costs incurred in connection with developing or obtaining software
for internal use.
ORGANIZATION COSTS:
-------------------
In accordance with SOP 98-5, "Reporting on the Costs of Start-up Activities",
the Company expenses all organizational costs as incurred.
LOSS PER SHARE:
---------------
The Company computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". SFAS 128 requires the Company to report both basic earnings per share,
which is based on the weighted average number of common shares outstanding, and
diluted earnings per share, which is based on the weighted average number of
common shares outstanding and all dilutive potential common shares outstanding.
Since the Company incurred losses for all periods presented, the inclusion of
options and warrants in the calculation of weighted average common shares is
anti-dilutive; and, therefore, there is no difference between basic and diluted
earnings per share.
INTANGIBLE ASSETS:
------------------
Intangible assets for the Company, consist of domain name registrations, the
Company's web site and goodwill. Domain name registrations are amortized on a
straight-line basis over two years. Goodwill is amortized on a straight-line
basis over five years. The Company revised its estimate of the value of Goodwill
recorded as a result of the Kilimanjaro merger, and amortized $83,333 for the
quarter ended September 30, 2000. The remaining balance of goodwill at September
30, 2000 is $15,760. Amortization expense for the nine and three months ended
September 30, 2000 totaled $86,594 and $83,871 respectively.
USE OF 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 and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION:
--------------------
The Company has earned no revenue to date.
<PAGE>
NON-EMPLOYEE EQUITY COMPENSATION:
---------------------------------
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterparty's performance is complete or the date on which it is
probable that performance will occur.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------
The book values of cash and cash equivalents, trade accounts receivable, trade
accounts payable, investments, and other financial instruments approximate their
fair values principally because of the short-term maturities of these
instruments. The fair value of the Company's related-party debt is estimated
based on current rates offered to the Company for debt with similar terms and
maturities. Under this method, the Company's fair value of financial instruments
was not materially different from the stated value at September 30, 2000.
IMPAIRMENT OF LONG-LIVED ASSETS:
--------------------------------
The Company evaluates the recoverability of its long-lived assets in accordance
with Statement of Financial Accounting Standards "SFAS" No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets.
ADVERTISING:
------------
Advertising is expensed as incurred. Advertising expense for the nine and three
months ended September 30, 2000 totaled approximately $161,647 and $14,543,
respectively.
STOCK BASED COMPENSATION:
-------------------------
The Company accounts for its stock-based compensation plan under Accounting
Principles Board ("APB") Opinion No. 25,"Accounting for Stock Issued to
Employees." The Company has adopted the disclosure option of SFAS 123,
"Accounting for Stock-Based Compensation." SFAS 123 requires that companies
which do not choose to account for stock-based compensation as prescribed by the
statement shall disclose the pro forma effects on earnings and earnings per
share as if SFAS 123 had been adopted.
RECENTLY ENACTED ACCOUNTING STANDARDS:
--------------------------------------
Statement of Financial Accounting Standards SFAS No. 135, "Rescission of FASB
Statement No. 75 and Technical Corrections", SFAS No. 136, "Transfer of Assets
to a Not-for-Profit Organization or Charitable Trust that Raise or Hold
Contributions for Others", SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date and Amendment of SFAS
No. 133", were recently issued. SFAS No. 135, 136, and 137 have no current
applicability to the Company or their effect on the financial statements would
not have been significant.
<PAGE>
COMPREHENSIVE LOSS:
-------------------
Comprehensive loss for the nine and three months ended September 30, 2000 and
from inception on December 10, 1999 through September 30, 2000 is the same as
net loss presented in the accompanying statement of operations for the periods
then ended.
NOTE B - RELATED PARTY TRANSACTIONS
The due to related party balance on the accompanying balance sheet as of
September 30, 2000 consists of the following:
Due from Officer $173,399
Due to Affiliates (768,939)
---------
(595,540)
---------
As of September 30, 2000, due to affiliates consist of unsecured, interest
bearing, due on demand notes payable to two affiliates in the amount of
$768,939. Interest on the notes to the affiliates is 10% per annum. Accrued
interest on the affiliate notes totaled $22,340 as of September 30, 2000 and is
included in accrued expenses.
NOTE C - STOCKHOLDERS' EQUITY
Common Stock - The Company is authorized to issue 50,000,000 shares of $.001 par
value common stock. As of September 30, 2000 27,583,879 shares were issued and
outstanding. During the nine months ended September 30, 2000 the Company issued
66,132 shares of common stock for professional services.
Preferred Stock - The Company is authorized to issue 500,000 shares of $.001 par
value preferred stock with such rights and preferences and in such series as
determined by the Board of Directors at the time of issuance. No shares are
issued or outstanding as of September 30, 2000.
Warrants - At September 30, 2000 the Company had 216,208 warrants to purchase
common stock outstanding at prices from $.25 to $1.00 per share, and expiring
from 2002 to 2005. The warrants were issued prior to the recapitalization in
connection with Global e Tutor, Inc. (the "Parent") obtaining short-term notes
payable and equity investments and for professional services rendered.
At September 30, 2000 we had outstanding options to purchase 5,686,063 shares.
Of these options, 27,500 were granted prior to the year ended December 31, 1999
outside of any option plan and 416,000 were granted first quarter 2000 outside
of any option plan.
At September 30, 2000, we had outstanding warrants to purchase 291,208 shares.
In addition, pursuant to an agreement with Habif, Arogeti & Wynne, LLP, we have
agreed to issue 76,127 shares and warrants to purchase 156,208 shares for work
performed during February through September 2000. The warrants will be
exercisable at prices ranging from $0.25 to $0.50 per share. The agreement
provides that 20% of fees earned by this firm for its services will be
compensated in equity, up to $100,000 annually.
Options - See Note D
NOTE D - STOCK OPTION PLANS
In December 1999, the Parent adopted the 1999 Stock Option Plan (the "1999
Plan"), and on January 21, 2000 the shareholders approved an employee stock
option plan, pursuant to which the Company is authorized to grant options to key
employees, officers, directors, and consultants. Awards under the plan will
consist of both non-qualified options and options intended to qualify as
"Incentive Stock Options" under Section 422 of the Internal Revenue code of
1986, as amended. In addition, the Company had previously adopted the 1996
Omnibus Plan (the "1996 Plan"). The 1999 Plan and 1996 Plan provide for grants
of options to purchase up to 5,000,000 and 900,000 shares of Common Stock,
respectively, at a purchase price equal to the fair market value on the date of
grant. Generally, options from both plans vest over three years from the date of
grant. Compensation expense for options granted to non-employees, included in
general and administrative, aggregated $955 and $0 during the periods ended
September 30, 2000 and December 31, 1999, respectively. A summary of the status
of the options granted under the Company's stock option plans and other
agreements at September 30, 2000 and changes during the three month period then
ended are presented below:
2000 STOCK OPTION PLAN
On July 24, 2000 we adopted the 2000 Stock Option Plan pursuant to which we are
authorized to issue 2,000,000 shares to our key employees, officers, directors,
and consultants. Awards under the plan will consist of both non-qualified
options and options intended to qualify as "Incentive Stock Options" under
Section 422 of the Internal Revenue Code of 1986, as amended.
<PAGE>
<TABLE>
<CAPTION>
Three months ended
September 30, 2000
--------------------------------
Weighted Average
Shares Exercise Price
------------- ----------------
<S> <C> <C>
Outstanding at
June 30, 2000 4,177,789 $.25
Granted 2,011,607 .50
Exercised -- --
Forfeited (503,333) .25
Expired -- --
--------- -----
Outstanding at end
Of period September 30, 2000 5,686,063 $ .34
--------- -----
Weighted average fair
value of options granted
during the nine months ended
September 30, 2000 2,464,389 $ .56
--------- -----
</TABLE>
The fair value of each option granted is estimated on the date granted using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the three months ended September 30, 2000:
risk free interest rate of 6%, expected dividend yield of zero, expected life of
3.0 years, and expected volatility of 141%.
Note E - LOSS PER SHARE
The following data shows the amounts used in computing loss per share for the
periods presented:
<TABLE>
<CAPTION>
For the Nine For the Three From Inception
Months Ended Months Ended on December 10
September 30, September 30, 1999 through
2000 2000 September 30, 2000
------------- ------------- ------------------
<S> <C> <C> <C>
Loss from operations
available to common
shareholders
(numerator) (2,826,175) (1,137,931) (3,009,837)
---------- ---------- ----------
Weighted average
number of common shares
outstanding used in
loss per share for the
period (denominator) 26,188,252 27,572,807 25,046,993
========== ========== ==========
</TABLE>
<PAGE>
The Company had outstanding at September 30, 2000, options to purchase 5,686,063
common shares at prices ranging from $.001 to $3.50 and warrants to purchase
291,208 common shares that were not included in the computation of loss per
share because their effect is anti-dilutive.
Note F - Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has incurred losses since its
inception, and has not yet been successful in establishing profitable
operations. Further, the Company has current liabilities in excess of current
assets. These factors raise substantial doubt about the ability of the Company
to continue as a going concern. In this regards management is proposing to raise
any necessary additional funds not provided by operations through loans and/or
through additional sales of its common stock. There is no assurance that the
Company will be successful in raising this additional capital or in achieving
profitable operations. These financial statements do not include any adjustments
that might result from the outcome on these uncertainties.
Note G - Subsequent Events
Subsequent to September 30, 2000 the Company is negotiating terms for additional
equity. No final agreement has been reached but the Company received $100,000 as
an interim advance.
Note H - Committments and Agreements
On July 27, 2000 GLOBAL E TUTOR, INC. entered into an Affiliate Agreement with
Phoenix Multimedia, Inc. The Agreement is for a term of twelve months and is
renewable on an annual basis thereafter. It may be terminated by written notice
after the initial twelve months. GLOBAL E TUTOR, INC. will participate in
Phoenix Multimedia, Inc.'s E-learning program "e-Mapp" in order to link to the
Phoenix world wide web. Phoenix will pay a 20% commission on the retail sale of
courses or course modules, based on sales of Products and Services through
GLOBAL's web link to Phoenix's web site.
On August 31, 2000, we entered into an agreement with Phoenix Multimedia, Inc.
to complete Phase I of the GlobaleTutor.com web site. Phoenix Multimedia, Inc
is a Huntsville, AL based development and software design company that
specializes in the development of training and performance improvement
applications and web-based infotainment and multimedia software products.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
--------
The following discussion and analysis should be read in conjunction with the
Balance Sheets as of September 30, 2000 and the Statements of Operations for the
nine months and the three months ended September 30, 2000 and for the period
from inception through September 30, 2000 included with this Form 10-QSB.
Forward Looking Statements
This report contains statements that plan for or anticipate the future. Forward-
looking statements include statements about the future of operations involving
the on-line tutoring industry, statements about our future business plans and
strategies, and most other statements that are not historical in nature. In this
report forward-looking statements are generally identified by the words
"anticipate," "plan," "believe," "expect," "estimate," and the like. Although we
believe that any forward-looking statements we make in this report are
reasonable, because forward-looking statements involve future risks and
uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward-looking statements
include the following:
- We may not be able to raise money to continue operating.
- Subscription to our ISP internet service provider "ISP" may not accelerate as
quickly as we have predicted. The plethora of existing ISP's with similar
value propositions could slow growth if the differentiated features are not
communicated clearly to the target market.
- Our personal sanctuary databases may not be as secure or meet the minimum
requirements of COPA, which could subject our information to Internet
hackers.
- The value of click-through rates may decline faster than projected.
- Our system may receive more volume than it can handle.
- We may experience delays in web site or database design.
- Our youth foundation may be unable to secure funding for its ongoing
operations.
In light of the significant uncertainties inherent in the forward looking
statements made in this report, particularly in view of our early stage of
operations, the inclusion of this information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
History and Organization
-------------------------
Our Company was incorporated under the laws of the State of Delaware on May 9,
1995, under the name Essex Enterprises, Inc. On December 12, 1996, the Company
changed its name to Veronique, Inc. and on April 13, 1999, it changed its name
to Digital Launch, Inc. Finally, on February 3, 2000, the name was changed to
Global e Tutor, Inc.
We were originally organized to engage in the television marketing of hair
products, but abandoned this business in approximately 1996. In December 1996
<PAGE>
we acquired Veronique, Inc. as a wholly owned subsidiary and control of our
Company was transferred to the shareholders of Veronique. Also, in connection
with such transaction, we forward split the outstanding stock at the rate of two
shares for each one share outstanding. Prior to this forward split we had
outstanding 800,000 common shares; following the forward split we had
approximately 1,600,000 shares outstanding. We issued 3,012,500 shares to the
shareholders of Veronique. Veronique was incorporated on September 28, 1995, and
was engaged in the business of developing, packaging, marketing and distributing
skincare and beauty products. After its acquisition, it was renamed VI Sub, Inc.
On September 29, 1997, we merged VI Sub, Inc., a wholly owned subsidiary, into
our parent corporation because there was no benefit to maintaining both a
holding company and the operating subsidiary.
In 1999 we determined it was no longer feasible to finance our skincare business
under the prevailing corporate structure. We reached an agreement in principle
to transfer the assets of the skincare business, subject to the assumption of
the related liabilities, and started the search for a new business venture. In
contemplation of a proposed transaction with GLOBALETUTOR.COM, INC., in December
1999 we transferred all of our assets to Veronique Europe Ltd, our wholly owned
subsidiary which was not conducting any business operations, in exchange for the
assumption of all of our outstanding liabilities. The subsidiary has agreed to
indemnify us from these liabilities. Subsequent to this transaction we
transferred all of the outstanding stock of Veronique Europe Ltd., which has
been renamed to Veronique, Inc., to Alford S.A. for nominal consideration.
Alford S.A. is an entity whose beneficiaries are relatives of Terrence
O.McGrath, our former chairman and CEO.
In December 1999 we entered into an agreement with GLOBALETUTOR.COM, INC., a
Nevada corporation, incorporated on December 10, 1999 to exchange all of the
issued and outstanding shares of this entity for 9,640,000 shares of our common
stock. The reorganization agreement was closed by the parties on January 21,
2000. GLOBALETUTOR.COM, INC. was incorporated in the State of Nevada on December
10, 1999, to provide educational services over the Internet. The Company has not
yet commenced its principle operations.
In connection with the reorganization transaction we assumed all of the
outstanding options of GLOBALETUTOR.COM, INC. to acquire 3,964,174 shares of our
common stock at prices ranging from $0.25 to $0.275 per share. We also granted
to Thomas E. McMurrain, an officer, director and principal shareholder, options
to purchase 6,584,000 shares. These options were subsequently canceled. At this
time we also granted 416,000 options to Robert V. Willison, an executive
officer, outside of our stock option plan. We also issued warrants to Finn
Partners, an entity controlled by Thomas E. McMurrain, to purchase 3,000,000
shares. These warrants were subsequently canceled. We also converted an
outstanding promissory note payable to Lancer Offshore, Inc., an entity for
which Michael Lauer, one of our principal shareholders, acts as investment
manager, in the principal amount of $750,000 into 3,000,000 shares of common
stock. These funds had been loaned to us in December 1999 by Lancer Offshore,
Inc. and were in turn loaned to GLOBALETUTOR.COM, INC. pending closing. We also
privately placed 500,000 shares at $0.20 per share and 5,000,000 shares at $0.25
per share.
An Agreement and Plan of Merger with Kilimanjaro Group.com, Inc.
("Kilimanjaro"), a Nevada corporation became effective on May 25, 2000. The
agreement provided that Kilimanjaro would merge into GLOBAL E TUTOR, INC. It
also provided that GLOBAL E TUTOR, INC. would issue 50,000 common shares pro
rata to the three shareholders of Kilimanjaro and pay $75,000 pro rata to these
shareholders in exchange for all of the outstanding shares of Kilimanjaro. As a
result, Kilimanjaro was merged into GLOBAL E TUTOR, Inc. GLOBAL E TUTOR, Inc.
was the surviving entity and assumed Kilimanjaro's reporting obligations as its
successor pursuant to Section 12(g)(3) of the Securities Exchange Act. Prior to
the merger, GLOBAL E TUTOR, Inc. had an aggregate of 27,467,747 shares of common
stock issued and outstanding. As a result of the merger, the Company had
<PAGE>
a total of 27,517,747 shares outstanding. The officers, directors, bylaws, and
the certificate of incorporation of GLOBAL E TUTOR, Inc. remain unchanged as a
result of the merger, and the control of the successor entity rests with GLOBAL
E TUTOR, Inc.
We presently have one wholly owned subsidiary, GLOBALETUTOR.COM, INC., through
which we propose to conduct our principal business.
Proposed Business
-----------------
Our Company is in the development stage and our efforts have been focused
primarily on the start-up of our proposed business. We are in the process of
creating an Internet destination for global education and entertainment through
Internet-based, interactive, video-on-demand tutoring services for kindergarten
through 12th grade students with the goal of making learning fun, convenient,
and affordable. Strategic developments and additional market research has
prompted the expansion of our educational offering to include the corporate
market. The Company will offer training courses that we will promote to
corporations to support their ongoing training needs. We believe that several of
these advanced courses will also appeal to the upper secondary level of
children's education as well. The online product planned for Phase I of the web
site includes on-line interactive tutorials. This Phase launched during
September and October 2000. Our web site, upon its completion, is expected to
have five distinct areas for children: a virtual community for children; on-line
tutorials; a global educational broadcast network; a global entertainment
network; and a nonprofit foundation.
As stated above, most of these services are not currently being offered on-line
by us, but we are in the process of developing each of these areas. Phase I was
offered at the time of our launch and October 2000. Phase I includes the
educational interactive tutorials and some of the elements of the entertainment
network. Our goals include providing our services to children worldwide by
offering them in several different languages.
It is our intention to work with corporate sponsors that will provide financial
support to the programs we offer children. In return, we will provide them with
marketing opportunities on the web site. At present, we do not have any
corporate sponsors.
It is also our intention to work with government funded programs. While we feel
confident of our chances of success with these opportunities, there is no
guarantee that our Company will receive this funding.
Rather than focusing on developing educational content, we intend to concentrate
on marketing and distribution. This means that we are interested in creating and
growing an audience for ourselves and for our five major areas of
<PAGE>
focus described above. As a marketing company we will use traditional and non-
traditional marketing, advertising and public relations strategies to attract
students worldwide to our web site. By increasing the audience for our
foundation, we anticipate increasing the marketing value for our associates,
both corporate sponsors and educational content providers.
On July 27, 2000 GLOBAL E TUTOR, INC. entered into an Affiliate Agreement with
Phoenix Multimedia, Inc. The Agreement is for a term of twelve months and is
renewable on an annual basis thereafter. It may be terminated by written notice
after the initial twelve months. GLOBAL E TUTOR, INC. will participate in
Phoenix Multimedia, Inc.'s E-learning program "e-Mapp" in order to link to the
Phoenix world wide web. Phoenix will pay a 20% commission on the retail sale of
courses or course modules, based on sales of Products and Services through
GLOBAL's web link to Phoenix's web site.
On August 31, 2000, we entered into an agreement with Phoenix Multimedia, Inc.
to complete Phase I of the GlobaleTutor.com web site. Phoenix Multimedia, Inc
is a Huntsville, AL based development and software design company that
specializes in the development of training and performance improvement
applications and web-based infotainment and multimedia software products.
Our strategy also allows for the introduction of outside developers to lend to
the overall development of web-based products we will offer. We are currently
in negotiations with such developers.
Market Overview
---------------
The World Wide Web is the fastest growing technology in history, achieving 25%
penetration in less than seven years. Over 700,000 students are now taking some
form of distributed learning courses, including online classes. Since 1994,
education and training companies have raised more than $3.4 billion in equity
capital through more than 38 initial public offerings and 30 follow-up
offerings. The power of technology provides greater access of tutorial services
at a lower cost, largely enabled by growing access to personal computers and the
Internet, as well as expanding bandwidth. In the United States alone, there are
55 million children in kindergarten through 12th grade schools, 14 million
students in post-secondary institutions and 136 million working adults.
Globally, over 20 percent of the world's six billion people are currently
enrolled in a kindergarten through 12th grade or post-secondary education
system. As the result of technological innovations like the Internet, video-
conferencing and satellite systems, a new economy has emerged driven by
knowledge and information. Management believes that creating an education-
focused gateway to the Internet is a huge opportunity. (Statistical information
provided by the Wit Capital, "E Knowledge Industry Report," August 11, 1999 and
the Merrill Lynch "Book of Knowledge," April 9, 1999.)
<PAGE>
Research and Development
------------------------
We have spent approximately $599,323, which was raised in our private funding in
December 1999, on the research and development of our technology from the date
of the inception of our current business on December 10, 1999 through September
30, 2000. The money has been spent on our web based educational content
distribution.
During the months of July through September, we spent $132,000 for the
development of Phase I of the website, www.globaletutor.com, which was funded to
the Company through a related party as a loan.
Competition
-----------
The market for children's educational products and services is highly
competitive. Competition is generally based on the quality and range of
educational materials made available, price, promotion, and customer service.
Marketing
---------
Management believes that a strong marketing effort is crucial to our success.
Our mission is to attract students to our web site to use our services and
retain their loyalty throughout their education process. Our marketing plan
focuses on distribution of educational content and the entertainment aspect our
on-line community, and concentrates on succeeding in the following categories:
- traffic - the number of users;
- branding - global recognition of products and services for us and our
partners;
- stickiness - how long a user stays at the destination once there; and
- bonding - loyalty of the user over the long term.
During the first years following the launch of our services, our marketing
efforts will be dedicated to the four following areas:
- Traditional print and broadcast - We intend to implement an advertising
campaign to create brand awareness through traditional advertising mediums.
- Co-branding sponsorship model - As an inherent part of the relationship with
future strategic partners. We anticipate cooperative marketing, branding,
advertising and public relations efforts.
- Grass roots - We intend to engage in web-site and community-based awareness
programs designed to interact with students, parents, and educators directly
to achieve our goals, as well as those of our affiliates and corporate
sponsors. We have been in negotiations with MRESA, formally known as the
Metropolitan Regional Education Strategic Alliance. This relationship will
allow us to market
<PAGE>
products offered via the Globaletutor.com website in the public schools with
which they are affiliated. Terms of the agreement have not yet been
completed.
- Public Relations - As a part of an intensive public relations campaign, both
traditional and non-traditional methods will be utilized. We have considered
selecting a celebrity spokesperson that will appeal to children of all ages.
This is an idea that we anticipate to put in effect by mid- 2001.
Government Regulation
---------------------
Among the regulatory measures directly applicable to our business model are
those concerning the collection, use, and dissemination of personal information.
As a routine part of our operations it will be necessary for us to collect
individually-identifying information about consumers of our services and to use
that information both in the delivery of services and for certain marketing and
other purposes. We intend to implement appropriate privacy policies informing
our users about the information we collect and how we use it; how and to what
extent we may disclose it to third parties; what choices our users have in these
matters; and how we protect this information from unauthorized use and
disclosure.
Specific laws will apply to our information practices with respect to certain
consumers those twelve years of age and younger and those located in the
countries composing the European Union. The Child Online Privacy Protection Act
of 1998, 15 U.S.C. Sections 6501-6506, also known as COPPA, applies to the
online collection of personal information from persons twelve and under. In
general, COPPA requires obtaining verifiable parental consent to the collection,
maintenance and disclosure of information about children; gives parents the
right at any time to stop further use or collection of information from their
children, and also gives parents the right to access stored information about
their children. The law also imposes specific requirements for the content and
placement of a web site's privacy policy, and requires web sites to use
reasonable procedures to protect the confidentiality, security, and integrity of
personal information collected from children.
"The European Union Privacy Directive (Counsel Directive 95/46, 1995
O.J.(L281) 31) similarly imposes restrictions on the collection, use and
disclosure of information about residents of EU member states. In addition to
operating within the borders of those nations, the EU Privacy Directive
prohibits the export of personal data concerning Europeans to countries
considered not to have "adequate" privacy protection. At this time the United
States has not been recognized as providing adequate protection, but
enforcement of the embargo on exportation of data to the U.S. has been
postponed pending completion of negotiations between the United States and the
European Union concerning "Safe Harbor" principles that would enable U.S.
persons to collect this information if they agree to comply with the Safe
Harbor principles. We anticipate that in connection with our business in
Europe, we will ultimately be required to comply with the substance of the EU
Privacy Directive, either by virtue of acceding to the Safe Harbor principles
or by virtue of direct application of the EU Privacy Directive and
implementing national legislation to our operations in Europe.
We do not anticipate that compliance with the EU Privacy Directive or with COPPA
will have a materially adverse effect upon our operations; however, it should be
noted that there is a great deal of ongoing legislative, regulatory, and
lobbying activity in the area of privacy and information practices, with new
measures being introduced frequently, and there can be no assurance that our
business will not be materially adversely impacted by future regulations in this
field.
<PAGE>
Intellectual Property Rights
----------------------------
To protect the rights to our intellectual property, we will rely on a
combination of trademark and copyright law, patent, trade secret protection,
confidentiality agreements, and other contractual arrangements with our
employees, affiliates, clients, strategic partners, and others. The protective
steps we have taken may be inadequate to deter misappropriation of our
proprietary information. We may be unable to detect the unauthorized use of, or
take appropriate steps to enforce, our intellectual property rights.
Employees
---------
At November 1, 2000, we employed 8 persons on a full-time basis, including our
executive officers, reduced from 14 as of August, 2000. Approximately 60% of the
compensation of two of our employees, Lara Stegman and Shawn Cartmill, is paid
by Emergency One Cash Card,Inc., a company controlled by Thomas E. McMurrain.
Ms. Stegman devotes essentially all of her time to our Company and Mr. Cartmill
devotes approximately 60% of his time to our Company. We hire independent
contractors on an as-needed basis only. We have no collective bargaining
agreements with our employees. We believe that our employee relationships are
satisfactory. In the long term, we will attempt to hire additional employees as
needed based upon our growth rate and availability of funds.
Description of Property
-----------------------
On July 1, 2000 we moved our offices to 3565 Piedmont Road, Suites 715 and 707,
Atlanta, GA 30305. The total square footage for both suites is 5,165. Our
mailing address is still 3340 Peachtree Road, Suite 1800, Atlanta, GA 30326. The
space is sublet until November 2000 at a monthly rent of $6,025.83. We intend
to continue the lease for the month of December for $8,000. From January 2001
forward, we have an open ended agreement for new space at $2,600 per month.
Plan of Operation
-----------------
In September and October 2000, our launch commenced with the opening of our
website including "edutainment" offerings and a catalog offering education
related products. Also at this time, we began a roll out of interactive tutoring
modules that include collaborative learning and tutoring sessions for grades 4-
8. During the initial launch phase (developing throughout the final quarter of
2000), the Company incorporated virtual ISP elements into the site, some
examples of which are email, chatrooms, and a calendar. Management anticipates
that initial revenues will be generated through subscription sales of online
course curriculums, corporate sponsorships, and government funding.
Revenues
We anticipate that our revenues will come from several sources:
- Corporate site sponsorships;
- Advertising revenue;
- Virtual ISP (V-ISP or "Community") subscription fees;
- Tutorial sales;
- Exchange membership fees and transactions fees; and
- Government funding.
<PAGE>
Expenses
We expect marketing, product development and our information technology
infrastructure will make up the largest portion of our operational expenses.
Capital Requirements
--------------------
We have been out of cash from the original investment for approximately five
months and are being funded by a related party entity and $100,000 in equity
funding. We do not have cash to continue development beyond standing operations.
Directors, Executive Officers, Promoters and Control Persons
------------------------------------------------------------
The following table sets forth as of November 15, 2000, the name, age, and
position of each of our executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position(s)
<S> <C> <C>
---------------------------------------------------------------------------------------
Thomas E. McMurrain 32 Founder, Vice Chairman
Jerry Barton 62 CEO, President, Director, Acting CFO
Shawn Cartmill 37 Treasurer
Lara Stegman 29 Secretary, Director of Operations
James Lewis 45 Board Member
Cole Smith 38 Board Member and CTO
John Miller 33 Executive Vice President of Operations
Glenn Carver 33 Executive Vice President of Marketing
</TABLE>
Directors are elected for terms of one year or until their successors are
elected and qualified. Annual meetings of the stockholders, for the selection of
directors to succeed those whose terms expire, are to be held at such time each
year as designated by the Board of Directors. The Board of Directors has not
selected a date for the next annual meeting of shareholders. Officers are chosen
by the Board of Directors. Each officer holds his office for one year or until
his successor is chosen and qualified. Set forth below is certain biographical
information regarding our executive officers and directors:
THOMAS E. MCMURRAIN is currently the Founder and Vice-Chairman of GLOBAL E
TUTOR, INC. He was the president, CEO, and co-chairman of GLOBALETUTOR.COM, INC.
from December 1999 to July 7, 2000. Since February 1999 he has been the
president, chief executive officer, and sole owner of Emergency One Holding
Corporation, Inc., a commercial holding company providing funding to private
subsidiaries. Since September 1997 Mr. McMurrain has been the president, chief
executive officer, and sole owner of Emergency One Cash Card, Inc., a financial
lending company. From March 1993 until July 1997 he worked as an independent
contractor to World Marketing Alliance, a broker of insurance and securities.
Mr. McMurrain's Company, Emergency Cash Card One, Inc., is currently funding the
day-to-day operations of GLOBAL E TUTOR, INC.
<PAGE>
JERRY BARTON is the new CEO and President of GLOBAL E TUTOR, INC. He was voted
in on July 7, 2000. Mr. Barton was self-employed from May 1995, prior to
becoming President in July 2000. He became a board member of GLOBAL E TUTOR on
June 2, 2000. From January 1994 to May 1995, Barton served as President of Parts
Central, Inc., an automotive parts and retail distribution company in Macon,
Georgia. Barton is a member of the Board of Directors of Parts Central, Macon,
Georgia.
LARA STEGMAN has been the director of operations, assistant to the president,
and corporate secretary for GLOBALETUTOR.COM, INC. since January 2000.
Executive Compensation
----------------------
Compensation
The following table sets forth the aggregate executive compensation awarded to,
earned by, or paid to the named executive officer by any person for all services
rendered in all capacities to Global e Tutor, Inc. and its subsidiaries for the
nine months ended September 30, 2000 and the fiscal years ended December 31,
1999, 1998, and 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Terrence O. McGrath, CEO(1) 1999 $120,000
1998 $120,000 1,000,000 options (2)
1997 $105,000
Jerry Barton, CEO(3) 1999 $ -0-
2000 $ 6,667
Thomas E. McMurrain, CEO 1999 $ 3,123 62,174 options
2000 $ 45,000
</TABLE>
(1) Mr. McGrath resigned as an officer and a director effective January 21,
2000.
(2) These options were canceled in January 2000 in connection with the
reorganization with GLOBALETUTOR.COM, INC.
(3) Mr. Barton was named CEO on July 7, 2000.
Stock Option and Incentive Plans
1996 INCENTIVE PLAN
On December 12, 1996, we adopted an incentive plan, pursuant to which we are
authorized to issue up to 900,000 shares of common stock, either as options to
purchase such shares or as restricted stock awards, to certain employees,
officers, directors, and consultants. Awards of stock options under the plan
consist of both non-qualified options and options intended to qualify as
"Incentive Stock Options" under Section 422 of the Internal Revenue Code of
1986, as amended.
1999 STOCK OPTION PLAN
On December 27, 1999, we adopted, and on January 21, 2000, the shareholders
approved, an employee stock option plan, pursuant to which we are authorized to
grant up to 5,000,000 options to our key employees, officers, directors, and
consultants. Awards under the plan will consist of both non-qualified options
and options intended to qualify as "Incentive Stock Options" under Section 422
of the Internal Revenue Code of 1986, as amended.
2000 STOCK OPTION PLAN
On July 24, 2000 we adopted the 2000 Stock Option Plan pursuant to which we are
authorized to issue 2,000,000 shares to our key employees, officers, directors,
and consultants. Awards under the plan will consist of both non-qualified
options and options intended to qualify as "Incentive Stock Options" under
Section 422 of the Internal Revenue Code of 1986, as amended.
<PAGE>
Stock Option Grants
-------------------
The following table sets forth information concerning individual grants of stock
options made through the date of this table to each of the named executive
officers and significant employees, each of which option grant was made under
our 1999 stock option plan, unless otherwise noted, and vests one-third on
January 21, 2000, one-third on January 21, 2001, and one- third on January 21,
2002, unless otherwise noted:
<TABLE>
<CAPTION>
Number of Securities Percent of Total
Name Underlying Options Outstanding Options Exercise Price Expiration Date
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas E. McMurrain 62,174 0.010934 0.275 1/31/10
Claus Nobel 482,000 0.084769 0.25 1/31/10
Shawn Cartmill 185,000 0.032536 0.25 1/31/10
Robert Willison 816,000 0.143509 0.25 1/31/10
Lara Stegman 185,000 0.032536 0.25 1/31/10
Glenn Carver 185,000 0.032536 0.25 1/31/10
John Miller 185,000 0.032536 0.25 1/31/10
Phyllis Grant 100,000 0.017587 0.5 9/12/10
Scott Fellows 100,000 0.017587 0.5 7/24/10
Jerry Barton 750,000 0.131900 0.5 7/24/10
</TABLE>
<PAGE>
(2) Of these options, 100,000 were granted under the 2000 stock incentive plan
and vested immediately upon the date they were granted on September 12,
2000.
The following table sets forth the base salary for each of the executive
officers:
<TABLE>
<CAPTION>
Name Annual Base Salary
--------------------------------------------------------------------------------
<S> <C> <C>
Thomas E. McMurrain $ 60,000 (not taken)
Shawn Cartmill $ 24,000
Jerry Barton $175,000 (receives $80,000)
John Miller $ 40,000
Glenn Carver $ 40,000
Scott Fellows $ 60,000
Phyllis Grant $ 60,000
Lara Stegman $ 24,000
</TABLE>
As additional compensation, each of the employees is entitled to participate in
all bonus programs generally available to all executive officers. He or she is
also entitled to receive stock options as determined by the Board of Directors
under our stock option plans. Each employee is entitled to vacation and sick
leave in accordance with the Company's policy. Each of the employment contracts
contains similar provisions for reimbursing the employee for business related
expenses in accordance with the policies of the Company. Each employee is
entitled to benefits as generally may be made available to all other employees
of the Company from time to time.
The employment contracts are automatically renewable for additional one-year
terms unless terminated by either party ninety days before the end of the
relevant term of employment. The agreements may be terminated at any time with
or without cause by either party. If terminated without cause, the employee is
entitled to two weeks of base salary, provided the employee shall continue to
work during such period. In the case of termination for cause or the death of
the employee, base salary payments shall terminate immediately. If the
employment agreement is terminated for disability of the employee, we shall
continue to pay base salary to the extent the employee has any unpaid sick
leave.
The contracts also contain provisions preventing the employees from disclosing
any proprietary information. Each of the contracts also includes provisions
which restrict the employee from certain actions during and after termination of
the agreement. During the term of the contract and for a period of two years
following termination, the employee may not attempt to divert or solicit any
person employed by the Company. During the term of the contract and for a period
of one year following termination, the employee may not divert or solicit to a
competing business any individual or entity who is a customer, or prospective
customer, of ours during the two years prior to termination. Also during the
contract and for a period of one year following termination, the employee may
not engage in a competing business in any territory in which we were engaged in
a similar business.
Certain Relationships and Related Transactions
----------------------------------------------
In December 1999 our wholly owned subsidiary, GLOBALETUTOR.COM, INC., entered
into an agreement with Bristol Capital Limited, a company controlled by Robert
V. Willison, a former employee of ours, to assist us in locating investment
capital financing. If Bristol is successful in locating financiers or investors
which provide financing to us, we are obligated to pay a fee to Bristol equal
<PAGE>
to 10% of the amount received by us, plus warrants for 10% of the stock in our
Company. We have also agreed to grant a first right of refusal to Bristol for
any subsequent financing. The agreement expires on December 21, 2000, but we can
terminate the contract upon 30 days' written notice beginning June 22, 2000. In
connection with the acquisition of GLOBALETUTOR.COM, INC. by us in January 2000,
we paid Mr. Willison's company $200,000 pursuant to the terms of this agreement
for locating the company and the financing for the transaction.
The due to related party balance on the accompanying balance sheet as of
September 30, 2000 consists of the following:
Due from Officer $ 173,399
Due to Affiliates (768,939)
----------
(595,540)
----------
As of September 30, 2000, due to affiliates amounts consist of unsecured,
interest bearing, due on demand notes payable to two affiliates totaling
$768,939. Interest on the notes to the affiliates is 10% per annum. Accrued
interest on the affiliate notes totaled $22,340 as of September 30, 2000 and is
included in accrued expenses.
Description of Securities
-------------------------
Common Stock
We are authorized to issue 50,000,000 shares of common stock, par value $.001
per share. As of September 30, 2000, we had outstanding 27,583,879 shares of
common stock. All common shares are equal to each other with respect to voting
rights.
They are also equal to each other with respect to dividend rights and with
respect to liquidation rights, subject to any preferential rights of any then-
outstanding preferred stock. Special meetings of the shareholders may be called
by the Board of Directors, the president, or the holders of not less than one-
fifth of all the shares entitled to vote at the meeting. Holders of shares of
common stock are entitled to one vote at any meeting of the shareholders for
each share of common stock they own as of the record date fixed by the Board of
Directors. At any meeting of shareholders, one-third of the outstanding shares
of common stock entitled to vote, represented in person or by proxy, constitutes
a quorum. A vote of the majority of the shares of common stock represented at a
meeting will govern, even if this is substantially less than a majority of the
shares of common stock outstanding. Holders of shares are entitled to receive
such dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro rata in
a distribution of assets available for such a distribution to shareholders,
subject to any preferential rights of any then-outstanding preferred stock.
There are no conversion, pre-emptive, or other subscription rights or privileges
granted by us with respect to any shares. Reference is made to our certificate
of incorporation and bylaws, as well as to the applicable statutes of the State
of Delaware for a more complete description of the rights and liabilities of
holders of shares. The common shares do not have cumulative voting rights, which
means that the holders of more than fifty percent of the shares of common stock
voting for election of directors may elect all the directors if they choose to
do so.
Preferred Stock
Our certificate of incorporation authorizes 500,000 shares of preferred stock,
par value $.001 per share. Such shares may be issued in such series and have
such rights, preferences, an designation as determined by the Board of
Directors. No preferred shares are outstanding.
<PAGE>
Change of Control
The creation and issuance of a series of preferred stock or the issuance of
shares of common stock by the Board of Directors could be used to delay, defer,
or prevent a change of control of the Company in certain takeover attempts.
Using such shares, the Board of Directors could create impediments to, or delay
persons seeking to effect, a takeover or transfer of control by causing such
additional authorized shares to be issued to a holder or holders who might side
with the Board in opposing a takeover bid that the Board of Directors determines
is not in the best interests of our Company and its shareholders. Such an
issuance could diminish the voting power of existing shareholders who favor a
change in control, and the ability to issue the shares could discourage an
attempt to acquire control of our Company.
Market Price of and Dividends on the Registrant's Common Equity and Other
-------------------------------------------------------------------------
Shareholder Matters
-------------------
Market for Stock
Our common stock was quoted on the OTC Electronic Bulletin Board (OTC BB:
"GETT") through September 2000. The table below sets forth for the periods
indicated the high and low bid quotations as reported by Nasdaq Trading & Market
Services. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31, 1998 First $3.00 $1.5625
Second $3.125 $2.00
Third $3.25 $1.50
Fourth $3.25 $2.25
FISCAL YEAR ENDED
DECEMBER 31, 1999 First $3.00 $2.00
Second $2.50 $0.3125
Third $0.875 $0.2813
Fourth $7.00 $0.25
FISCAL YEAR ENDING
DECEMBER 31, 2000 First $7.9375 $1.875
Second $2.5469 $1.0625
Third $1.875 $0.2812
</TABLE>
Outstanding Options, Warrants, and Convertible Instruments
At September 30, 2000 we had outstanding options to purchase 5,686,063 shares.
Of these options, 27,500 were granted prior to the year ended December 31, 1999
outside of any option plan and 416,000 were granted first quarter 2000 outside
of any option plan.
At September 30, 2000, we had outstanding warrants to purchase 291,208 shares.
In addition, pursuant to an agreement with Habif, Arogeti & Wynne, LLP, we have
agreed to issue 76,127 shares and warrants to purchase 156,208 shares for work
performed during February through September 2000. The warrants will be
exercisable at prices ranging from $0.25 to $0.50 per share. The agreement
provides that 20% of fees earned by this firm for its services will be
compensated in equity, up to $100,000 annually.
<PAGE>
We have also entered into a six-month agreement dated May 9, 2000, with Trinity
Investment Services Corporation to provide marketing and consulting services.
This agreement that we will issue 100,000 shares to them, issuable 20,000 as of
May 9, 2000, and 20,000 each 30 days thereafter. It also provides that we will
grant options to them to purchase up to 300,000 shares at prices ranging from
$4.00 to $8.00 per share, to be issued beginning in June 2000 through November
2000.
Shares Eligible for Future Sale under Rule 144
We had 27,583,879 shares of our common stock outstanding at September 30, 2000.
Of these shares, 19,408,307 are believed to be restricted securities pursuant to
Rule 144 promulgated by the Securities and Exchange Commission Record Holders of
Stock; Transfer Agent
At September 30, 2000, we had approximately 118 shareholders of record as
reported by our transfer agent. The transfer agent is Interwest Transfer
Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117.
Dividends
Since our inception, we have not paid any cash dividends on the Company's common
stock and we do not anticipate that we will pay dividends in the foreseeable
future. The Board of Directors has not adopted a policy regarding dividends.
Risks
-----
As with any new venture, there are risks associated with Global e Tutor's plans.
Recognition of these risks, evaluation of their severity and proper contingency
planning of outcomes must be considered. The following are a list of potential
risks, although not all inclusive:
Slower than predicted subscription rates; the Global e Tutor Personal Sanctuary
Databases are not viewed as secure or meeting the minimum requirements of COPA;
eroding value of click-through rates; scalability of IT structure; potential
competitors impart an interest in the market prior to Global e Tutor reaching
its critical mass; delays in website or database development; our youth
foundation may be unable to secure funding for its ongoing operations.
Results of Operations
---------------------
For the nine and three months ended September 30, 2000 we did not generate any
operating revenues and incurred a cumulative net loss of $2,826,175 and
$1,137,931 respectively. Our operating expense consisted of general and
<PAGE>
administrative costs, depreciation, sales and marketing expenses and research
and development.
General and administrative costs consist primarily of payroll totaling $407,039
and $127,767 respectively, professional fees totaling $945,238 and $291,151
respectively, travel and entertainment totaling $137,407 and $20,106
respectively and other general and administrative expense totaling $208,075 and
$177,445 respectively.
Depreciation and amortization expense for the nine and three months ended
September 30, 2000 totaled $655,541 and $435,497, respectively.
Research and development costs totaled $60,022 and $16,450 respectively. These
costs are discussed above.
Sales and marketing expenses consist primarily of advertising totaling $161,647
and $14,543, public relations totaling $133,930 and $13,930 and other selling
expenses totaling $122,378 and $33,963.
The results of operations for the nine and three months ended September 30, 2000
are not necessarily indicative of the results for any future interim periods or
for the year ending December 31, 2000. We expect to expand our personnel,
continue research and development and continue to develop content, which will
result in increasing expenses.
Liquidity and Capital Resources
Our operating and capital requirements have exceeded our cash flow from
operations as we have been building our business. Operating activities during
the nine months ended September 30, 2000 created a net cash use of $1,622,328
which has primarily been funded by cash on hand, a related party loan, and sales
of common stock. At September 30, 2000 we had no cash nor cash equivalents. We
expect the fulfillment of equity financing of $500,000 by the beginning of
December to meet our cash requirements for the remainder of the year. We are
seeking equity financing of $3,000,000 to $5,000,000 to meet our cash
requirements through 2001 and to accomplish the objectives of our business plan.
Subsequent Event
----------------
On October 23, 2000 we launched Phase I of the Globaletutor.com website. This
can be viewed at www.globaletutor.com. It consists of information related to an
--------------------
education portal entitled "GET Smart", an entertainment portal entitled "GET
Fun", an online educational mall, and the GEBN portal, which is currently
unpopulated. The GET Smart portal offers over 80 tutorials targeting grades 4-8
and the mall offers over 300 online courses for sale and included courses for 4-
12 grades plus adult tutorials.
On October 27, 2000, Mr. Claes Nobel resigned from the chairmanship of Global e
Tutor, Inc of his own accord. No successor chairman has been named at this
time.
On November 13, 2000, we received an additional investment of $100,000 for
equity. Details have not been finalized as of the date this filing.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk - Not
Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 22, 2000, counsel for a company called E-Tutor sent a letter to us
demanding that we cease and desist all use of our "GlobaleTutor" name. The
demand letter claimed that our use of that name violated E-Tutor's service mark
rights in the federally registered trademark "E-TUTOR." We denied that E-Tutor
has service mark rights in E-TUTOR and denied that our use of the GlobaleTutor
name is confusingly similar to or otherwise infringes the E-TUTOR mark.
We have responded to E-Tutor's demand through correspondence by our counsel
dated March 7, 2000. In addition to denying infringement on the grounds stated
above, our counsel noted that the term "E-TUTOR is likely a generic term that,
although federally registered, may be subject to cancellation. Although we
suggested the possibility of cancellation, we did not indicate an intent to
initiate such cancellation proceedings. No formal proceedings have been filed by
either party to date.
We intend to vigorously defend any claims asserted by E-Tutor, if necessary. It
is possible that E-Tutor will not pursue any claims against us or will seek to
compromise our claims. While there is some possibility of an adverse outcome for
us, at this stage of the matter, our counsel cannot fairly determine either the
likelihood of an adverse outcome or the extent of any possible loss.
During the months of July-September, we entered negotiations regarding ending
the Company's relationship with our first web site developer, OneWeb Systems,
Inc. Legal counsel for both companies met to come to a satisfactory settlement
agreement. The issue was resolved via a settlement agreement on September 5,
2000 in which Globaletutor.com, Inc. agreed to pay OneWeb Systems, Inc. $100,000
over 12 months.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit Title
------ -------------
4.1 Consent Action of the Board of Directors of Global e Tutor, Inc.,
effective August 16, 2000
4.2 Consent Action of the Board of Directors of Global e Tutor, Inc.,
Effective September 12, 2000
10.1 Purchase Order to Phoenix Multimedia, Inc. for Phase I of the
Globaletutor.com web site, dated as of August 31, 2000 and the
Proposal for Global e Tutor from Phoenix Multimedia, Inc. dated August
23, 2000
10.2 Premium Assignment Corporation financing agreement, dated August 29,
2000
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
GLOBAL E TUTOR, INC.
Date: November 20, 2000 /s/ Jerry Barton President and CEO
Date: November 20, 2000 /s/ Jerry Barton Chief Financial Officer
