UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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.
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(Exact name of registrant as specified in its charter)
Nevada 95-4562316
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Wilshire Boulevard
Second Floor
Santa Monica, California 90401
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(Address of principal executive offices including zip code)
(310) 310-393-4901
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 2003, there were 893,195,100 outstanding shares of
the Registrant's Common Stock, $0.001 par value.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Balance Sheets at September 30, 2003(unaudited) and December 31, 2002 (audited)
Statements of Operations for the three months ended September 30, 2003
and 2002 (unaudited) and for the period from January 25, 1996
(inception) to September 30, 2003 (unaudited)
Statements of Cash Flows for the three months ended March 31, 2003 and
2002 (unaudited) and for the period from January 25, 1996
(inception) to March 31, 2003 (unaudited)
Notes to Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits
SIGNATURES
CERTIFICATIONS
Unless otherwise indicated, all references to "EduLink," "we," "us" and "our"
refer to EduLink, Inc. and its predecessor.
CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that we believe are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "should," "intend,"
"estimate," "anticipate," "believe," "plan," "continue" or similar terminology.
We undertake no obligation to publicly update or revise any forward-looking
statements contained in this report. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors, some of which are beyond our control, that could cause actual
results to differ materially from those we express or imply in those
forward-looking statements. These risks, uncertainties and other factors
include, but are not limited to, the raising of additional capital, the
acceptance of our products in the market, competition, the status of our
intellectual property and our dependence on educational customers for sales of
our specialized educational products, statements regarding our competitive
strengths, business strategy, expected benefits of any acquisition, future
financial position, budgets, projected costs and plans and objectives of
management. Other uncertainties related to our business and securities, which
are traded on the OTC Bulletin Board, are outlined in our Annual Report on Form
10-K for the fiscal year ended December 31, 2002.
EDULINK, INC. DBA THE LEARNING PRIORITY
(A DEVELOPMENT STATE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 2003 (UNAUDITED) AND DECEMBER 31, 2002 (AUDITED)
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ASSETS
September 30, December 31,
2003 2002
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(unaudited)
CURRENT ASSETS
Cash $ 863 $ 917
Prepaid expenses and other current assets 25,000 25,000
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Total current assets 25,863 $ 25,917
PROPERTY AND EQUIPMENT, net 13,342 18,572
DEPOSIT 2,198 2,198
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TOTAL ASSETS $ 41,403 $ 46,687
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bridge notes payable and other notes payable,
net of unamortized discount $ 379,650 $ 350,000
Accounts payable and accrued expenses 641,533 645,872
Compensation Payable 307,454 229,954
Due to related party 90,500 90,500
Accrued interest 127,355 94,958
Other current liabilities 18,000 18,000
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Total current liabilities 1,564,492 1,429,284
STOCKHOLDER' DEFICIT
Common stock, $0.001 par value
1,500,000,000 shares authorized
905,745,100 (unaudited) and 821,695,100 shares
issued and outstanding 905,746 821,696
Shares committed to be issued 100,000 100,000
Stock issued for future consulting services net of expensed portion
for services rendered (733,500) --
Additional paid-in capital 13,570,865 12,649,543
Deficit accumulated during the development stage (15,366,200) (14,953,836)
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Total stockholders' deficit (1,523,089) (1,382,597)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 41,403 $ 46,687
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The accompanying notes are an integral part of these financial statements.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
AND FOR THE PERIOD FROM JANUARY 25, 1996 (INCEPTION) TO
SEPTEMBER 30, 2003 (UNAUDITED)
For the
Period from
For the For the January 25,
Three Months Ended Nine Months Ended 1996
September 30, September 30, (Inception) to
------------------------------ ------------------------------ September 30,
2003 2002 2003 2002 2003
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(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
REVENUE AND INCOME
License Fees $ 25,000 $ -- $ 50,000 $ -- $ 50,000
Interest -- 1 -- 131 144,239
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Total Revenue & Income 25,000 1 50,000 131 194,239
EXPENSES
Software development costs 42,000 -- 42,000 12,884 7,262,268
Selling, general and administrative 125,763 169,306 420,364 780,862 8,298,171
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Total Expenses 167,763 169,306 462,364 793,746 15,560,439
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NET LOSS $ (142,763) $ (169,305) $ (412,364) $ (793,615) $ (15,366,200)
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BASIC AND DILUTED LOSS
PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.02)
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WEIGTED-AVERAGE SHARES USED IN
COMPUTATION OF BASIC AND
DILUTED LOSS PER SHARE 904,236,482 809,318,480 869,178,636 737,055,116 723,654,920
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The accompanying notes are an integral part of these financial statements.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) AND
FOR THE PERIOD FROM JANUARY 25, 1996 (INCEPTION) TO SEPTEMBER 30, 2003
(UNAUDITED)
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For the
Period from
For the For the January 25,
Three Months Ended Nine Months Ended 1996
September 30, September 30, (Inception) to
September 30,
2003 2002 2003 2002 2003
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(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (142,763) $ (169,305) $ (412,364 $ (793,615) $(15,366,200)
Adjustments to reconcile net loss to net cash used in
operating activities
Loan from shareholder contributed to capital -- -- -- -- 140,403
Common stock to be issued for software development costs -- -- -- -- 571,750
Common stock issued for professional services -- -- -- -- 70,000
Compensation waived by officers 175,000 97,500 175,000 195,000 305,000
Options issued to officers vesting as compensation 20,661 -- 79,022 -- 267,551
Options issued for services -- -- -- -- 10,000
Warrants issued for services -- -- -- -- 3,252,301
Amortization of debt discount -- -- -- 119,524 11,950
Cancellation of shares committed -- -- -- -- (566,750)
Depreciation expense 1,940 -- 5,230 25,078
(Increase) / decrease in current assets
Prepaid expenses -- -- -- -- (25,000)
Deposits -- -- -- -- (2,198)
Increase / (decrease) in current liabilities
Accounts payable (12,156) 7,576 (4,339) 91,850 655,708
Compensation payable (107,500) -- 77,500 -- 307,454
Related party liability -- 67,000 -- 88,000 90,500
Accrued expenses and other current liabilities (1,572) 32,397 12,603 99,602
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Net cash provided by (used in) operating activities (55,444) 1,199 (47,554) (286,638) (10,152,851)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ -- $ -- $ -- $ (2,363) $ (39,992)
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Net cash used in investing activities 0 0 0 (2,363) (39,992)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of bridge notes and other
short-term notes payable $ -- $ -- $ 47,500 $ 185,850 $ 863,000
Payments on bridge notes (17,865.00) -- (17,865) -- (67,865)
Proceeds from issuance of common stock 17,865.00 -- 17,865 -- 9,795,444
Cost of issuance of common stock -- -- -- -- (396,873)
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Net cash provided by financing activities 0 0 47,500 185,850 10,193,706
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Net increase (decrease) in cash (55,444) 1,199 (54) (103,151) 863
CASH, BEGINNING OF PERIOD 56,307 0 917 103,151 --
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CASH, END OF PERIOD $ 863 $ 1,199 $ 863 $ -- $ 863
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
INCOME TAXES PAID $ 250 $ 820 $ 1,050 $ 820 $ 5,850
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The accompanying notes are an integral part of these financial statements.
EDULINK, INC., DBA THE LEARNING PRIORITY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND September 30, 2003 (UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS
URREA Enterprises, Inc. ("URREA"), a Nevada corporation, acquired
EduLink, Inc. ("OLD EduLink"), a California corporation engaged in the
development of educational software, on October 28, 1999. After the
acquisition, URREA changed its name to EduLink, Inc. (the "Company").
URREA issued 388,800,000 shares of common stock to acquire 100% of the
common stock of OLD EduLink. The acquisition was accounted for as an
issuance of stock by OLD EduLink for the net assets of URREA as the
shareholders of OLD EduLink owned 60% of the common stock of URREA
after the acquisition, resulting in a recapitalization of OLD EduLink.
URREA had no significant assets or liabilities at the date of
acquisition and did not have significant operations prior to the
acquisition. Therefore, no pro forma information is presented.
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 years ended December 31, 2002,
2001, and 2000, the Company incurred losses of $918,398, $2,844,647,
and $7,426,105, respectively. As of September 30, 2003, 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 funds will be required in
order for the Company to complete its development stage activities and
continue its operations. Management intends to attempt to obtain such
funds from new investors and from the generation of revenue.
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 have been considered as part of the
Company's development stage activities.
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 Split
In October 1999, the Company's Board of Directors declared a 50-for-1
stock split. All applicable share and per share data have been
retroactively restated for the stock split.
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.
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.
NOTE 3 - ACCOUNTS PAYABLE
On January 5, 2000, the Company entered into an agreement with its
major vendor and the vendor's affiliates to settle a disputed amount of
a contractual obligation arising from a software development contract.
The agreement calls for a settlement of the entire outstanding balance
for $1,000,000 within the period specified by the agreement. The
Company has agreed to pay the vendor at specified dates 15% of the net
financing proceeds it receives pursuant to its financing activities.
During the year ended December 31, 2000, the Company paid $600,000 to
this vendor and its affiliates in accordance with the settlement
agreement. The remaining balance of $400,000 is included in the
accounts payable balance at March 31, 2003.
In addition, the agreement states that the Company will assign to the
vendor intellectual property rights of the software developed if the
$1,000,000 obligation is not paid by December 31, 2002. As of December
31, 2002, the vendor agreed to extend this agreement until further
notice.
Further, the Company had agreed to issue approximately 11,435,000
shares of common stock as part of the settlement agreement within 60
days of the date of this agreement in lieu of shares and warrants that
were agreed upon previously. During the year ended December 31, 2000,
the number of shares agreed to be issued as part of the settlement
agreement was reduced to 100,000, which was issued to the vendor in
December 2000. As a result, $566,750 of the commitment to issue common
stock was reversed. Accordingly, the software development costs were
also reduced by $566,750.
NOTE 4 - BRIDGE NOTES PAYABLE
Bridge notes represent notes payable at 10% (annual percentage rate
10.47%) per annum and are currently due for payment. The Company issued
20,869,412 and 11,435,294 warrants to purchase shares of common stock
to the 1998 and 1996 lenders, respectively, at an average exercise
price of $0.034 per share. These warrants expire four years from the
date of grant or four years from the date of an initial public
offering.
During the year ended December 31, 2000, two of the 1998 bridge note
lenders converted $100,000 of the loan balance and $24,000 of accrued
interest into 2,480,000 shares of common stock.
During the year ended December 31, 2000, 8,004,706 warrants issued to
1996 bridge loan lenders expired.
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 on December 5, 2001. The second installment of $150,000 was
received on January 5, 2002. The note bears interest at 10% (annual
percentage rate 10.47%) and matured on March 31, 2002, but the maturity
date was orally extended by the lender to August 31, 2002. The Company
as of September 30, 2003 is in loan default. The loan 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.
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 is being amortized over the term of the loan. At
September 30, 2003, the loan is shown net of amortized interest of
$50,025.
During June, 2003, the Company obtained a loan of $50,000, with net
proceeds of $47,500. The note bears interest at 5% and matures on
September 16, 2003. The loan was secured by the personal guarantee of
Michael Rosenfeld, the Company's current Executive Vice President and
prior Chief Executive Officer. As of September 30, 2003, Company repaid
the lender $17, 850 of the sums due under the note, as the same was
extended through an oral agreement between Company and the lender
through November 30, 2003
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
In September 1999, the Company entered into five-year employment
contracts with its President, Chief Executive Officer, and Senior Vice
President that provide for a minimum annual salary, incentives, and
bonuses, which are based on the Company's attainment of specified
levels of sales and earnings. The annual salaries for the three
officers are $150,000, $150,000, and $90,000, respectively. As of June
1, 2003, the annual salary of one of the prior Chief Executive Officer
and now Executive Vice President has been reduced to $30,000.
In 2000, following the issuance of warrants for completion of the
design phase of the Company's educational software product but prior to
the issuance of any of the remaining warrants, the agreements were
amended to eliminate the right to receive the remaining warrants in
exchange for $50,000 additional salary in 2000 for each officer and a
base salary of $300,000 in 2001 for each of the President and Chief
Executive Officer, and $30,000 additional salary in 2000 for the Senior
Vice President, who also received in February 2000 additional warrants
to purchase 34,305,000 shares of common stock at an exercise price of
$.0022 per share.
As of June 1, 2003, the Chief Executive Officer, Michael Rosenfeld,
resigned his position as contemplated in his original employment
agreement and agreed to serve as Executive Vice President of Business
Development for the balance of the five year term at a reduced annual
salary of $30,000 (from $150,000). In addition, Mr. Rosenfeld waived
his claims to all compensation he deferred through May 31, 2003; and he
agreed to defer his compensation at the new rate until such time as the
Company received funds equal to $350,000.
As of June 1, 2003, the Company entered into an employment agreement
with Mr. Charles Guy, appointing him as Chief Executive Officer for a
term of three years and seven months, providing for annual minimum
salary, bonuses and incentives. The minimum salary is at the annual
rate of $120,000 during the first 19 months, increasing to $150,000 for
year 2005 and $240,000 during the year 2006, provided that a portion of
the salary during the balance of 2003 is deferred until the Company
obtains funds in the form of revenue and/or capital contributions of
fund in excess of $100,000; and provided that if the per share price of
Company's common stock closes at $.03 or higher during 2003 for a
consecutive period of five days, the salary is reduced during the
balance of 2003 from $10,000 per month to $5,000 per month. Mr. Guy
also received 20 million shares of Company's common stock and is
entitled to receive options to purchase 10 million shares, 5 million of
which are to bear an exercise price of $.004 per share and the balance
of which are to bear an exercise price of $.01 per share. Lastly, the
Company has the right to terminate the employment agreement as of
January 1, 2005 and/or January 1, 2006.
Consulting Agreements
In June, 2003, the Company entered into consulting agreements with
Boris Berenfeld, Sanford Lang, Paula Despot, Cathy Lockwood, Justin
Quiz Quiz, Paul Cruz Takash, E Alodavar, Alain Michael, Evan Berger,
Barry Alter and Jerome Crumpler. Each consultant is to provide various
consulting and professional services for a period of 12 months, each
having received in June, 2003 shares of company's common stock or
options to purchase shares of company's common stock, all in lieu of
cash consideration.
In the third quarter ending September 31, 2003, the Company entered
into consulting agreements with JES & Company, Strategic Initiatives,
Inc. and Mrs. Joyce Scharbo. The Company paid JES & Co. $10,000, paid
Strategic Initiatives, Inc. $12,000 and issued shares of Company's
common stock to Mrs. Scharbo as well as additional shares to
consultants who entered into agreements during the second quarter
ending June 30,2003, meaning Boris Berenfeld and Jerome Crumpler, as
well as Evan Berger upon his exercise of options at $.007 per share
Form S8 Registration
In June, 2003, Company filed with the SEC to register an aggregate of
200 million shares of Company's common stock under Form S-8 for the
purpose of issuing, from time to time, shares of Company's common stock
or options to purchase shares of Company's common stock to key
employees and consultants and directors so as to induce such employees,
consultants and directors to provide services to Company at favorable
rates without requiring significant cash payments. As of September 30,
2003 Company has issued 83.5 Million of these shares and options to one
employee and 12 consultants, inclusive of 2,550,000 shares issued upon
exercise of options at $.007 per share.
Agreement with Genesis Technology Group
In June, 2003, Company entered into an agreement with Genesis
Technology Group wherein Company and Genesis agreed to negotiate in
good faith to formulate a joint venture for the purpose of implementing
and exploiting Company's education technology system in the country of
China. Pursuant to that agreement, Company committed to refrain from
entering into any agreements with third parties in connection with
exploiting its technologies in China for a period of 90 days and
Genesis agreed to pay Company a non-refundable advance against any
license fees otherwise payable to Company as a result of any its
activities in China through the contemplated joint venture. The advance
payable equaled $50,000, 50% of which was paid in June, 2003.and the
balance in July, 2003.
NOTE 6 - RELATED PARTY TRANSACTIONS
Through December 31, 2002 and the quarter ended March 31, 2003, Michael
Rosenfeld, a member of the Board of Directors and officer, loaned the
Company $97,500 for operating costs. This amount is reflected as Due to
Related Party on the balance sheet was waived during the third quarter,
2003.
NOTE 7 - SUBSEQUENT EVENTS
In July, 2003, Company entered into an agreement with the shareholders
of Jaqkar, Inc. to acquire 100% of the issued and outstanding shares of
Jaqkar in return for 10 million shares of Company's common stock. The
acquisition was scheduled to close on August 1, 2003, but was delayed
by Company in order to complete certain due diligence and establish
agreed upon operational procedures. The agreement was scheduled to
close on September 1, 2003.and is now scheduled to close on November
17, 2003.
In October, 2003, Company's debt to two bridge lenders was reduced to
zero from an aggregate of $350,000 in principle and approximately
$95,000 in accrued and unpaid interest, by issuing to the lenders
pursuant to their conversion rights, as amended, shares of Company's
common stock at a price equal to 60% of the average closing bid price
of Company's common stock during the five business day period preceding
the date on which the lenders converted the sums due into shares of
Company's common stock.. The total shares issued were 119,000,000.
On October 30, 2003, the sum of $20,000 was paid to reduce the sums due
under the bridge loan received in the second quarter, 2003, so that as
of November 3, 2003, out of the $50,000 debt, $37.850 has been repaid,
leaving a balance of $12,150 plus approximately $750 in accrued and
unpaid interest. The payment of $20,000 was made by an independent
third party who shall receive shares of Company's common stock at a
price equal to75% of the closing bid price of such shares as of the
date such payment was made, not to exceed 3,000,000 shares. Such shares
had not been issued as of November 11, 2003.
In the third quarter ending September 30, 2003, Michael Rosenfeld
waived $97,500 of sums advanced by him to or for the benefit of the
Company and in addition waived deferred compensation of $12,500 per
month for 14 months, and during the second quarter ending June, 30,
2003, Mr. Rosenfeld voluntarily reduced his compensation from $12,500
per month to $2,500 per month. On October 30, 2003, the Company granted
options to Mr. Rosenfeld to purchase 15 million shares of Company's
registered common stock at an exercise price of $.004 per share.
ITEM 2 - 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 the 7th and 8th grades only. The Company subsequently
(in August 2001) determined that to successfully launch the system, it
was necessary to include curricula for all grades from 3rd through 12th
as well as the homeschool market, and the Company therefore also needed
to license and make third party content available through its system.
The Company estimated that it needed an additional $5 million through
June 2002 to complete the modifications required for the system's
application for the entire 3rd through 12th grades and to the
homeschool market, to license and integrate third party content, to
complete production of additional enabling tools, to create proprietary
curriculum for two additional grade levels, launch the system and
conduct marketing activities up to the end of the customary school year
(i.e., June 2002), and to provide the infrastructure to market and
exploit the Company's technologies outside of the grade 3-12 education
market. Therefore, taking into account the revised capital
requirements, the Company estimated it needed to raise a total of $13.5
million, of which it had raised a total of $8,062,578, net of expenses,
as of September 30, 2001, primarily through the private placement of
its Common Stock. As of December 31, 2001, the Company had raised only
$200,000 of the additional $5.5 million in capital it needed, and had
not completed the modifications required for the production of
additional enabling tools, the license of additional third party
curriculum content, or the completion of the infrastructure to exploit
its technologies outside of the grade 3-12 education market. And as of
December 31, 2002, the Company had raised only an additional $150,000.
And as of March 31, 2003, the Company had not raised any additional
investment funds.
During the second quarter of 2003, the Company determined that while
focusing on the use its core system for the global K-12 education
market, it would also focus on models to generate revenue from other
sources, including using the same core technology for implementation by
libraries and as a resource repository to distribute digital education
oriented resources within and outside of the formal education market.
The Company now expects that expenses (including software development
costs and general and administrative costs) will be approximately $3
million for the period July 1, 2003 to September 30, 2004, to upgrade
its technology, integrate certain software without itself producing
added enabling tools, license and integrate third party content for the
K-12 market and for its planned digital repository, conduct marketing
activities and launch its system for the education markets in January,
2004, as well as launch its intended repository at the same time, and
provide necessary support and maintenance services to licensees. In
June, 2003, the Company received $25,000 in revenue and $50,000 in a
bridge loan. In the third quarter ending September 30, 2003, the
Company received $25,000 in revenue and repaid $17, 850 of the $50,000
due under the bridge loan received in June, 2003.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2003 as compared to Three Months Ended
September 30, 2002
FOR THREE MONTHS ENDED SEPTEMBER 30
Income statement: 2003 2002
--------------- ---------------
Revenue $ 25,000 $ --
Interest Income $ -- $ --1
Software Development Costs $ 42,000 $ --
General and Administrative Expenses $ 105,383 $ 169,306
Total Expenses $ 147,383 $ 169,306
Net Loss $ (122,383) $ (169,305)
Revenue
EduLink is a development stage enterprise and has spent most of its
efforts during the past six years in developing its core technology
content management system, initially contemplated to constitute a Smart
Schoolhouse web-based software system. The Company had not generated no
revenue from inception through March 31, 2003; and has generated only
$50,000 in revenues as of September 30, 2003. EduLink's cumulative
losses from inception through September 30, 2003 are $ (15,366,200).
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 increased by $42,000 to $42,000 for the
quarters ending September 30, 2003 as compared to zero dollars for the
quarter ending September 30,, 2002. The increase resulted from
Company's obtaining a nominal amount of revenue and a bridge loan
during the second and third quarters of 2003. However, the failure to
expend significant sums on software development costs resulted, in
part, from the completion of a part of EduLink's software development
activities after the third quarter 2001, but in substantial part due to
Company's limited amount of available funds. Moreover, the Company paid
various consulting firms and individual contractors for the development
and promotion of the Smart Schoolhouse system in the first quarter,
2001.
General and Administrative Expenses
General and administrative expenses decreased by $43, 543 to $125,763
for the quarter ended September 30, 2003 compared with $169,306 for the
quarter ended September 30, 2002. The main reasons for the variance are
decrease of wages, consulting and professional fees, rent and interest
expense in the quarter ending September 30, 2003, as compared to the
quarter ending September 30, 2002.
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 December 31, 2002, the Company had cash
of approximately $917. As of March 31, 2003, the Company had no cash.
As of June 30, 2003 the Company had $56,307 in cash. As of September30,
2003, the Company had cash of approximately $1536. Cash used in
operations was $442,734 for the year ended December 31, 2002, and
$10,126,717 from inception through December 31, 2002. Cash used in
operations during each of these periods was primarily for expenses
related to the design and development of computer software and general
and administrative expenses. Since 1996 and through December 31, 2002,
the Company has raised $8,162,578 through sales of common stock and
approximately $350,000 through bridge loans.
The Company's current cash resources will not be sufficient to meet its
immediate requirements. The Company is not currently generating
sufficient revenues to fund its ongoing operations and without
additional capital the Company will not be able to operate.
As indicated above under the caption "Overview," the estimated cost of
EduLink's development program and its projected expenses during the
period July 1, 2003 through September 30, 2004 will require $3 million
in funds to provide the anticipated cash requirements. 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, 2002,
based on significant operating losses that EduLink has incurred since
inception and the fact that EduLink is currently in default of its
bridge notes payable. EduLink currently plans to raise funds through
either revenue generated from licensing its software or the private
placement of its equity or debt securities, or a combination of both,
in order to meet its ongoing cash needs. 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 will be
required to shutdown operations.
Part II Other Information
Item 1 Legal Proceedings
None
Item 2 Changes In Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters To Vote of Securities Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
99.1 Written Statement of Chief Executive Officer Pursuant to 18
U.S.C. SS 1350
99.1 Written Statement of Chief Financial Officer Pursusant 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: November 14, 2003 By: /s/ Charles H. Guy III
Chief Executive Officer
(On behalf of the registrant)
----------------------------------
Date: November 14, 2003 By: /s/ Michael Rosenfeld
Principal Financial Officer
(On behalf of the registrant)
CERTIFICATION
I, CHARLES H. GUY III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EduLink, Inc.
(the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date:
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design and operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
November 14, 2003
Date /s/ CHARLES H. GUY III
----------------------------
Chief Executive Officer
CERTIFICATION
I, MICHAEL ROSENFELD, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EduLink, Inc.
(the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date:
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design and operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
November 14, 2003 /s/ MICHAEL ROSENFELD
----------------- ------------------------
Date Primary Financial Officer