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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 000-29953
EDULINK, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-4562316
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 Roxbury Drive
Suite 602
Beverly Hills, CA 90210
-----------------------
(Address of principal executive offices including zip code)
(310) 247-7800
-----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 15, 2002, there were 821,695,100 outstanding shares of the
Registrant's Common Stock, $0.001 par value.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND
JUNE 30, 2002 (UNAUDITED) AND
FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED)
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
Page
FINANCIAL STATEMENTS
Balance Sheets 1 - 2
Statements of Operations 3
Statements of Stockholders' Deficit 4 - 6
Statements of Cash Flows 7 - 10
Notes to Financial Statements 11 - 14
EDULINK, INC.,
DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
June 30, December 31,
2002 2001
--------- ------------
(unaudited)
CURRENT ASSETS
Cash $ - $ 103,151
Prepaid assets and other current assets 27,545 27,545
--------- ---------
Total current assets 27,545 130,696
PROPERTY AND EQUIPMENT, net 26,334 23,971
DEPOSITS 2,198 2,198
--------- ---------
TOTAL ASSETS $ 56,077 $ 156,865
--------- ---------
--------- ---------
EDULINK, INC.,
DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
June 30, December 31,
2002 2001
------------ ------------
(unaudited)
CURRENT LIABILITIES
Book overdraft $ 1,572 $ -
Bridge notes payable 350,000 164,150
Accounts payable 717,213 632,593
Accrued interest 54,800 41,345
Due to related party 21,000 -
----------- -----------
Total current liabilities 1,144,585 838,088
----------- -----------
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value
1,500,000,000 shares authorized
821,695,100 (unaudited) and 821,695,100 shares
issued and outstanding 821,696 821,696
Shares committed to be issued 100,000 100,000
Additional paid-in capital 12,649,543 12,432,519
Deficit accumulated during the development stage (14,659,748) (14,035,438)
----------- -----------
Total shareholders' deficit (1,088,509) (681,223)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIT $ 56,076 $ 156,865
----------- -----------
----------- -----------
EDULINK, INC.,
DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
For the
Period from
For the For the January 25,
Three Months Ended Six Months Ended 1996
June 30, June 30, (Inception) to
-------------------------- ------------------------ June 30,
2002 2001 2002 2001 2002
--------- -------- -------- ------- --------
INCOME
Interest $ 17 $ 9,037 $ 130 $ 20,801 $ 144,238
----------- ----------- ----------- ----------- -----------
EXPENSES
Software
development
costs - 207,050 12,884 923,277 7,220,268
General and
administrative 203,674 358,932 611,556 793,260 7,583,719
----------- ----------- ----------- ----------- -----------
Total expenses 203,674 565,982 624,440 1,716,537 14,803,987
----------- ----------- ----------- ----------- -----------
NET LOSS $ (203,657) $ (556,945) $ (624,310) $(1,695,736) $(14,659,749)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BASIC AND DILUTED
LOSS PER
SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.03)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
WEIGHTED-AVERAGE
SHARES USED IN
COMPUTATION OF
BASIC AND DILUTED
LOSS PER SHAR 809,318,480 737,055,116 737,055,116 434,927,295 521,497,871
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
EDULINK, INC.,
DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
Deficit
Shares Accumulated
Common Stock Committed Additional During the
----------------------- to be Paid-in Development
Shares Amount Issued Capital Stage Total
----------- ---------- --------- ----------- ---------- ----------
BALANCE, JANUARY 25, 1996 (INCEPTION) - $ - $ - $ - $ - $ -
SALE OF COMMON STOCK 28,302,353 28,302 594,575 622,877
SHARES ISSUED TO FOUNDERS 233,280,000 233,280 (233,280) -
SHARES ISSUED FOR PROFESSIONAL
SERVICES 43,454,118 43,454 (3,454) 40,000
SHARES ISSUED FOR INVESTMENT BANKING
SERVICES 58,320,000 58,320 (33,320) 25,000
NET LOSS (479,267) (479,267)
----------- -------- --------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1996 363,356,471 363,356 - 324,521 (479,267) 208,610
SALE OF COMMON STOCK 17,152,942 17,153 410,968 428,121
CONVERSION OF BRIDGE NOTES 6,003,529 6,004 172,375 178,379
SHARES ISSUED FOR PROFESSIONAL SERVICES 2,287,058 2,287 2,713 5,000
NET LOSS (2,091,226) (2,091,226)
----------- -------- --------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1997 388,800,000 388,800 - 910,577 (2,570,493) (1,271,116)
NET LOSS (1,040,237) (1,040,237)
----------- -------- --------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1998 388,800,000 $ 388,800 $ - $ 910,577 $ (3,610,730) $(2,311,353)
ACQUISITION OF URREA ENTERPRISES, INC. 259,022,500 259,023 (259,023) -
LOAN FROM STOCKHOLDER CONTRIBUTED TO
CAPITAL 140,403 140,403
COMMON STOCK SUBSCRIPTION RECEIVED 100,000 100,000
COMMON STOCK TO BE ISSUED FOR
SETTLEMENT OF DISPUTE 571,750 571,750
COMPENSATION WAIVED BY OFFICERS 130,000 130,000
NET LOSS (153,956) (153,956)
----------- -------- --------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1999 647,822,500 647,823 671,750 921,957 (3,764,686) (1,523,156)
COMMON STOCK ISSUED 2,000,000 2,000 (100,000) 98,000 -
SALE OF COMMON STOCK 148,300,000 148,300 7,140,450 7,288,750
WARRANTS ISSUED TO OFFICERS 3,082,500 3,082,500
OPTIONS ISSUED TO OFFICERS 87,983 87,983
CONVERSION OF BRIDGE NOTES 2,480,000 2,480 121,520 124,000
COMMON STOCK CANCELED (225,000) (225) 225 -
COMMON STOCK CANCELED (500,000) (500) (24,500) (25,000)
COMMON STOCK SUBSCRIPTION RECEIVED 100,000 100,000
COMMON STOCK ISSUED FOR SERVICE 100,000 100 (5,000) 4,900 -
CHANGE IN SETTLEMENT OF DISPUTE (566,750) (566,750)
NET LOSS (7,426,105) (7,426,105)
----------- -------- --------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2000 799,977,500 $ 799,978 $ 100,000 $11,433,035 $(11,190,791) $1,142,222
COMMON STOCK ISSUED 2,000,000 2,000 (100,000) 98,000 -
COMMON STOCK ISSUED FOR CASH 14,000,000 14,000 686,000 700,000
COMMON STOCK SUBSCRIPTION RECEIVED - - 100,000 - 100,000
COMMON STOCK ISSUED ON EXERCISE OF
WARRANTS 5,717,600 5,718 6,861 12,579
OPTIONS ISSUED TO OFFICERS 150,823 150,823
OPTIONS ISSUED TO CONSULTANTS 10,000 10,000
UNAMORTIZED DEBT DISCOUNT 47,800 47,800
NET LOSS (2,844,647) (2,844,647)
----------- -------- --------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2001 821,695,100 821,696 100,000 12,432,519 (14,035,438) (681,223)
WARRANTS ISSUED AS INTEREST EXPENSE FOR -
NOTES PAYABLE (unaudited) 81,818 81,818
OPTIONS ISSUED TO OFFICERS (UNAUDITED) 37,706 37,706
WAIVED SALARIES 97,500
NET LOSS (unaudited) (624,310) (624,310)
----------- -------- --------- ----------- ---------- ----------
BALANCE, JUNE 30,
2002 (unaudited) 821,695,100 $821,696 $100,000 $12,649,543 $(14,659,748) $(1,186,009)
----------- -------- --------- ----------- ---------- ----------
----------- -------- --------- ----------- ---------- ----------
EDULINK, INC.,
DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
AND FOR THE PERIOD FROM JANUARY 25, 1996 (INCEPTION)
TO JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
For the
Period from
For the For the January 25,
Three Months Ended Six Months Ended 1996
June 30, June 30, (Inception) to
-------------------- --------------------- June 30, Inception to
2002 2001 2002 2001 2002 12/31/2002
------ ------- ------- ------- ------- ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(203,657) $(556,945) $(624,310) $(1,695,736) $(14,659,749) $(14,456,092)
Adjustments to
reconcile net
loss to net cash
used in operating
activities
Common stock to
be issued for
software
development
costs - - - - 571,750 571,750
Common stock
issued for
professional
services - - - - 70,000 70,000
Common stock
issued for
related party
payable - - - - 140,403 140,403
Compensation
waived by
officers 97,500 - 97,500 - 227,500 130,000
Options issued
to officers as
Compensation - - - - 150,823 150,823
Options issued
for services - - - - 10,000 10,000
Warrants issued
for services - - - - 3,170,483 3,170,483
Amortization of
debt discount $ - $ - $ 119,524 $ - $ 131,474 $ 11,950
Cancellation of
shares
committed - - - - (566,750) (566,750)
Depreciation
expense - 8,956 - 8,956 13,658 13,658
(Increase)
decrease in
Prepaid expenses
and other
current
assets - 7,979 - (17,229) (27,545) (27,545)
Deposit - - - - (2,198) (2,198)
Increase
(decrease) in
Accounts
payable 35,115 36,463 83,901 (25,746) 717,215 633,314
Compensation
payable - (20,000) - (50,000) - -
Due to related -
party 21,000 - 21,000 10,000 21,000 -
Accrued
expenses 13,455 (18,550) 14,175 - 78,800 64,625
-------- -------- -------- ---------- ---------- -----------
Net cash used in
operating activities (36,587) (542,097) (288,210) (1,769,755) (9,953,136) (10,085,579)
-------- -------- -------- ---------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of
property and
equipment $ - $ (2,300) $ (2,363) $ (10,052) (39,992) $ (37,629)
-------- -------- -------- ---------- ---------- -----------
Net cash used in
investing activities - (2,300) (2,363) (10,052) (39,992) (37,629)
-------- -------- -------- ---------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Common stock
subscription
received - 275,000 - 275,000 -
Proceeds from
issuance of
bridge notes - - 185,850 - 660,850 475,000
Repayments of
bridge notes - - - - (50,000) (50,000)
Proceeds from
issuance of
common stock - 175,000 - 175,000 9,777,579 9,777,579
Cost of issuance -
of common stock - - - - (396,873) (396,873)
Book overdraft 1,572 - 1,572 - 1,572 -
-------- -------- -------- ---------- ---------- -----------
Net cash provided by
financing activities 1,572 450,000 187,422 450,000 9,993,128 9,805,706
-------- -------- -------- ---------- ---------- -----------
Net increase
(decrease) in cash $ (35,015) $ (94,397) $(103,151)$(1,329,807) $ - $ (317,502)
CASH, BEGINNING
OF PERIOD 35,015 786,737 103,151 2,022,147 -
-------- -------- -------- ---------- ---------- -----------
CASH, END OF
PERIOD $ - $ 692,340 $ - $ 692,340 $ - $ (317,502)
-------- -------- -------- ---------- ---------- -----------
-------- -------- -------- ---------- ---------- -----------
SUPPLEMENTAL
DISCLOSURES OF
CASH FLOW
INFORMATION
INTEREST PAID $ - $ - $ - $ - $ -
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
INCOME TAXES PAID $ 820 $ 820 $ 820 $ 820 $ 4,800
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
EduLink, Inc., dba The Learning Priority (the "Company"), a California
corporation, is engaged in the design, development, and production of an
integrated Internet educational service called the "EduLink Smart
Schoolhouse (sm)," which is intended to be marketed to and utilized by
students, parents, teachers, and school administrators.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, during the six months ended June 30, 2002 and
2001, the Company incurred losses of $512,635 (unaudited) and $1,695,736
(unaudited), respectively. In addition, the bridge notes amounting to
$350,000 are due for payment on August 31, 2002. As of June 30, 2002, the
Company is in the development stage and is primarily engaged in research
and development activities. Accordingly, the accompanying statements of
operations should not be regarded as typical for normal periods of
operation. The Company's development stage status, recurring net losses,
and capital deficit raise substantial doubt about its ability to continue
as a going concern. Additional financing will be required in order for the
Company to complete its development stage activities and debt service
obligations. Management believes that it will be able to obtain such
financing from new investors.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Development Stage Enterprise
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting
by Development Stage Enterprises." The Company is devoting substantially
all of its present efforts to establish a new business, and its planned
principal operations have not yet commenced. All losses accumulated since
inception has been considered as part of the Company's development stage
activities.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income, which
are excluded from net income, include foreign currency translation
adjustments and unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in the Company's
financial statements since the Company did not have any of the items of
comprehensive income in any period presented.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided on a straight-line basis over an estimated useful life of
five years.
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than
the carrying amount of the asset, the Company would recognize an
impairment loss based on the estimated fair value of the asset.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as
of the date of grant and is recognized over the periods in which the
related services are rendered. The statement also permits companies to
elect to continue using the current implicit value accounting method
specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation issued to employees. The Company has elected to use the
intrinsic value based method and has disclosed the pro forma effect of
using the fair value based method to account for its stock-based
compensation.
Software Development Costs
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility in the
form of a working model has been established. To date, the Company has not
completed its software development to the point of technological
feasibility, and accordingly, no costs have been capitalized.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. The asset and liability method accounts for deferred income taxes
by applying enacted statutory rates in effect for periods in which the
difference between the book value and the tax bases of assets and
liabilities are scheduled to reverse. The resulting deferred tax asset or
liability is adjusted to reflect changes in tax laws or rates. Because the
Company has incurred losses from operations, no benefit is realized for
the tax effect of the net operating loss carryforward and software
development costs capitalized for tax purposes due to the uncertainty of
its realization.
Loss per Share
Basic loss per share is computed by dividing loss available to common
shareholders by the weighted-average number of common shares outstanding.
Diluted loss per share is computed similar to basic loss per share except
that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common
shares had been issued and if the additional common shares were dilutive.
Because the Company has incurred net losses, basic and diluted loss per
share are the same.
Estimates
The preparation of financial statements 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.
Recently Issued Accounting Pronouncement
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when
the liability is incurred. Under EITF Issue 94-3, a liability for an exit
cost, as defined, was recognized at the date of an entity's commitment to
an exit plan. The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31, 2002 with
earlier application encouraged. The Company does not expect adoption of
SFAS No. 146 to have a material impact, if any, on its financial position
or results of operations.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - BRIDGE NOTES PAYABLE
Bridge notes payable at June 30, 2002 represented notes payable at 10%
(annual percentage rate 10.47%) per annum. The due date of the notes has
been extended to August 31, 2002.
Bridge notes represent two notes payable at 10% (annual percentage rate
10.47%) per annum as follows:
Bridge note #1 $ 100,000
Bridge note #2 (a) 250,000
----------
TOTAL $ 350,000
==========
(a) During December 2001, the Company obtained a loan for $250,000 to be
received in two installments. The first installment of $100,000 was
received in December 2001. The second installment of $150,000 was
received in January 2002. The note matures on March 31, 2002 and may
be converted at the lender's request into common stock. The number
of shares will be determined by dividing $0.05 into that portion of
the money owed by the Company.
The lender was also assigned an aggregate of 6,000,000 existing
warrants to purchase shares of the Company's common stock at an
exercise price of $0.0022 per share. Of these warrants, 2,400,000
were assigned upon the debtor's receipt of the first $100,000 loan
installment, and 3,600,000 are to be assigned upon the debtor's
receipt of the last $150,000 loan installment.
The proceeds of the $250,000 loan have been allocated between the
note payable and the warrants based on their relative fair value.
The resulting interest expense associated with these warrants
assigned was $129,168 was recorded during the three months ended
March 31, 2002.
NOTE 4 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2002, the Company received a loan
from its Chief Executive Officer for $21,000 (unaudited) in order to
continue business operations. The loan is non-interest-bearing and payable
on demand.
During the three months ended June 30, 2002, two principal shareholders
and one officer waived a total of $97,500 (unaudited) of their salaries
owed to them, which has been expensed and accounted for as additional
paid-in capital.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is provided to afford the reader an understanding of
the material matters of EduLink's financial condition, results of operation,
capital resources and liquidity. It should be read in conjunction with the
financial statements and notes thereto and other information appearing elsewhere
in this report.
OVERVIEW
EduLink, Inc. is a development stage company engaged in the design and
development of a seamless integrated Internet educational service, called the
Smart Schoolhouse system, for schools and homes, that is intended to be marketed
to and utilized by students, parents, teachers and school administrators. The
planned service will be delivered over the Internet to personal computer users.
The Company originally estimated that it needed a total of approximately $8.5
million to produce, alpha test, beta test and launch the System for grades 7th
and 8th only. The Company now intends to include all grades from 3rd through
12th as well as the home-school market. The Company estimates that it needs an
additional $5.5 million to complete the modifications required for the System's
application to the home-school market and for grades 3rd through 6th and 9th
through 12th, to license third party curriculum content for grades 3rd through
6th, 9th through 12th, to beta test, launch and market the system for grades 3rd
through 12th, to complete the production of additional enabling tools, to
provide the infrastructure to market and exploit the Company's technologies, and
to commence the creation of proprietary curriculum content for two additional
grades, 9th and 10th. It has raised a total of approximately $9.3 million, net
of expenses, towards the goal of a total $14 million as of June 30, 2002,
primarily through the December 1999 private placement of common stock.
The Company expects that expenses (including software development costs and
general and administrative costs) will be approximately $5 million per year from
2002 to 2004, to create curriculum content for two additional grade levels each
year, to alpha test and beta test the content so created, to produce additional
software tools, to upgrade technologies to continue operations, to increase
marketing activities for the Smart Schoolhouse system and to continue marketing
the Company's technologies for application in markets outside of the 3rd through
12th U.S. education market.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2002 as compared to Six Months Ended
June 30, 2001
FOR SIX MONTHS ENDED JUNE 30,
Income statement: 2002 2001
----------- -----------
Revenue $ $ -
Interest income $ 130 $ 20,801
Software development costs $ 12,884 $ 923,277
General and administrative expenses $ 611,556 $ 793,260
Total Expenses $ 624,440 $ 1,716,537
Net loss $ (624,310) $(1,695,736)
- --------------------------------------------------------------------------------
REVENUE
EduLink is a development stage enterprise and has spent most of its efforts
during the past five years in developing its Smart Schoolhouse system web based
software initially for the 7th and 8th grades, and now also for 3rd through 6th
and 9th through 12th grades as well as the home-school market, which is intended
to be launched upon the start of the next customary school year in September,
2002 following the completion of the beta test and resultant modifications to
the system, if any. Accordingly, EduLink has not generated any revenues to date.
EduLink's cumulative losses from inception through June 30, 2002 are
$14,659,749.
INTEREST INCOME
Interest income in 2002 arose from investment of capital raised through the
December 1999 private placement of common stock.
SOFTWARE DEVELOPMENT COSTS
Software development costs decreased by $910,393 to $12,884 for the six-month
period ended June 30, 2002, from $923,277 for the six-month period ended June
30, 2001. The decrease in software development costs resulted from the
completion of a part of EduLink's software development activities after the
third quarter 2001.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by $181,704 to $611,556 for the
six-month period ended June 30, 2002, compared with $793,260 for the six-month
period ended June 30, 2001. The main reasons for the variance are decrease of G
& A payroll, wages and bonus expenses, legal fees, rent and equipment rental
expenses in the six-month period ending June 30, 2002, as compared to the
six-month period ending June 30, 2001.
The Company's payroll and payroll related expenses decreased by $272,540 to
188,450 in the six-month period ending June 30, 2002 from $460,990 in the
six-month period ending June 30, 2001. In the six-month period ending June 30,
2001, the Company paid a bonus of $140,000 to Company's executive officers, in
return for the termination of warrants; moreover, the Company's Westlake office
was closed during the first quarter ending March 31, 2002, resulting in the
termination of one employee who had received compensation during the six-month
period ending June 30, 2001.
The Company's rent and equipment rental expenses decreased by $14,467 to $15,217
in the six-month period ending June 30, 2002 from $29,684 in the six-month
period ending June 30, 2001, as a result of the closing of Company's Westlake
office. Legal and accounting fees decreased by $52,338 to $72,217 during the
six-month period ending June 30, 2002 from $124,555 during the six-month period
ending June 30, 2001 because Company's requirement for legal services during the
six-month period ending June 30, 2002 decreased.
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Three Months Ended June 30, 2002 as Compared to Three Months Ended June 30, 2001
For the Three Months
Ended June 30,
2002 2001
--------- ---------
Revenue $ $ -
Interest income $ 17 $ 9,037
Software development costs $ - $ 207,050
General and administrative expenses $ 203,674 $ 358,933
Total Expenses $ 203,674 $ 565,983
Net loss $(203,657) $(556,949)
REVENUE
EduLink is a development stage enterprise and has spent most of its efforts
during the past five years in developing the proposed Smart Schoolhouse system
web-based software initially for the 7th and 8th grades, and now also for 3rd
through 6th and 9th through 12th grades as well as the home-school market, which
is intended to be beta tasted in late Summer of 2001 and launched in January
2002 following the completion of the beta test and resultant modifications to
the system. Accordingly, EduLink has not generated any revenues to date.
EduLink's cumulative losses from inception through June 20, 2002 were
$14,659,749.
INTEREST INCOME
Interest income in the three months ended June 30, 2002 and 2001 arose from
investment of capital raised through the private placements of common stock.
SOFTWARE DEVELOPMENT COSTS
Software development costs decreased by $207,050 to 0 for the three months ended
June 30, 2002, from $207,050 for the three months ended June 30, 2001. The
decrease in software development costs in second quarter of 2002 arose from the
completion of a part of EduLink's software development activities and there were
insufficient funds to further the development and promotion of its web site for
the Smart Schoolhouse system.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by $155,258 to $203,674 for the
three months ended June 30, 2001, compared with $358,932 for the three months
ended June 30, 2001. The main reason for the variance was decreased payroll,
legal and consulting expenses.
The company's payroll and payroll related expenses decreased 24,310 to 97,500 in
the three months ended June 30, 2002 from $121,810 in the three months ended
June 30, 2001. This because of the closure of the Westlake village office and
termination of another employee.
The Company's legal and accounting expenses decreased by $21,095 to $44,114 for
the three months ended June 30, 2002, from $65,210 for the three months ended
June 30, 2001. This was due to reduced level of activity during the three months
ended June 30, 2002.
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The Company's interest expenses increased by $4,175 to $14,175 for the three
months ended June 30, 2002, from $10,000 for the three months ended June 30,
2002. The increase was because the loans were outstanding for the entire three
months ended June 30, 2002.
The Company rent expenses decreased by $9,775 to $6,117 for the three months
ended June 30, 2002, from $15,892 for the three months ended June 30, 2001. This
was due to the closure of the Westlake village office.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, EduLink has financed its working capital needs through capital
contributions by stockholders, private placement of common equity and bridge
loans. As of June 30, 2002, the Company had cash of approximately $0. Cash used
in operations was $203,657 for the quarter ended June 30, 2002, and $ 14,659,749
from inception through June 30, 2002. Cash used in operations during each of
these periods was primarily for expenses related to software development,
marketing, general and administrative expenses. Since 1996 through June 30,
2002, the Company has raised $9,777,579 through private placements of common
stock and seed capital from one of the Company's executives and approximately
$625,000 through bridge loans. In August 2000, the Company amended its
employment contracts with its President, Chief Executive Officer, and Senior
Vice President. The amendments terminated the issuance of an aggregate of
17,152,950 warrants to these officers upon completion of each of the build-out
elements, the beta test, and the national launch of the Smart Schoolhouse
system. In consideration for the warrant termination, the Company agreed to give
$50,000 each to its President and its Chief Executive Officer and $30,000 to its
Senior Vice President as compensation. In addition, the President and Chief
Executive Officer each received an additional $160,000 during 2001, payable to
each officer at the rate of $50,000 in January 2001 and $10,000 per month for
eleven consecutive months commencing February 1, 2001. No compensation was paid
to these offices during the second quarter ending June 30, 2002. As indicated
above under the caption "Overview," the estimated cost of EduLink's development
program and its projected expenses over the next twelve months will exceed its
current cash resources. EduLink anticipates that it will need to raise an
additional $5 million of capital in order to meet its anticipated cash
requirements up to the planned launch of the Smart Schoolhouse system for the
3rd through 12th grades. Changes in the Company's development program or other
changes affecting operating expenses could alter the timing and amount of
expenditures and therefore the amount and timing of when the Company will
require additional funding. Our independent auditor, Singer, Lewak, Greenbaum &
Goldstein, LLP, has expressed substantial doubt as to EduLink's ability to
continue as a going concern for the year ended December 31, 2001 based on
significant operating losses that Edulink has incurred since inception and the
fact that Edulink is currently in default of its bridge note payables. EduLink
currently plans to raise sufficient additional capital through private placement
of its common stock and/or private placement of debt or preferred stock
convertible into its common stock to meet its ongoing cash needs, until such
time as its business generates cash flow sufficient to fund its operations.
However, the additional funding the Company requires may not be available on
acceptable terms or at all. If the Company cannot obtain adequate funding, it
could be required to significantly curtail or even shutdown operations.
During the three months ended June 30, 2002 principle shareholder and one
employee waived a total of $97,500 of their salaries owed to them in which has
been expensed and accounted for as additional paid in capital to the Company.
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PART II OTHER INFORMATION
Item 1 - Legal Proceeding
None
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a vote of Security Holders.
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
99.1 Written Statement of Chief Executive Offficer
pursuant to 18 U.S.C. SS 1350
99.2 Written Statement of Chief Financial Offficer
pursuant to 18 U.S.C. SS 1350
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned on its behalf by the undersigned thereunto duly authorized.
EDULINK, INC.
Date: August 16, 2002 By: /s/ Michael Rosenfeld
--------------------------------
Michael Rosenfeld
Chief Financial Officer
(On behalf of the registrant and
as principal financial officer)