Item 1. Business.
Explanatory Note
For the period covered by this report the following was our business at the time the filing was initially due, but is not presently the business of the company. Pursuant to the Merger discussed below in the "Subsequent Event" section, as of August 11, 2006, we now operate our business through our wholly-owned subsidiary Mega Media Group, Inc. For a description of our current business as operated through Mega Media Group, Inc., please refer to the "Description of Business" Item in our Form 8-K/A filed on August 18, 2006, which is incorporated herein by reference.
Overview
EduLink was originally incorporated in January 1994 as a Nevada corporation under the name URREA Enterprises, Inc. as a development stage company that attempted to engage in the business of extracting minerals. However, URREA's developmental operations did not generate revenues. URREA's common stock was traded on the OTC Bulletin Board.
In October 1999, URREA and EduLink agreed to merge, with URREA surviving the merger and the stockholders of EduLink receiving an aggregate of 7,776,000 shares of URREA common stock. At the time, URREA had no assets or liabilities and a net asset value of $0. EduLink entered into the merger in order to achieve the value of being a company whose common equity is traded on the OTC Bulletin Board, including obtaining liquidity for its shareholders.
Prior to the merger with EduLink, URREA effected a forward stock split of its issued and outstanding shares on a 50:1 basis, which increased its outstanding shares of common stock from 5,180,450 to 259,022,500, as well as the number of shares of common stock to be issued and delivered to the stockholders of EduLink from 7,776,000 to 388,800,000. At the closing on October 27, 1999, EduLink merged with and into URREA in exchange for 388,800,000 shares of URREA common stock and immediately after the merger URREA changed its name to EduLink, Inc. EduLink is not in any manner conducting the mineral extraction business that URREA attempted to engage in prior to the merger.
Our Services
We are currently engaged in the design, development and production of a web-based integrated learning content management and delivery system, with its first application consisting of an integrated educational service, called the EduLink "Smart Schoolhouse," which is intended to be marketed to and utilized by students, parents, teachers and school administrators. In connection with the design and development of this system, we have also developed and produced certain proprietary software, which is discussed more fully below. The Smart Schoolhouse system will include:
o a comprehensive school information and content management and communications system; and
o standards based and nationally recognized 3rd through 12th grade curriculum with appropriate instructional strategies and student assessment. It is intended that this service will be utilized by four separate categories of end users: students, parents, teachers, and school administrators. The total service will be provided to schools, for a nominal subscription fee, over the Internet. The total service will include a premium service that provides access to certain designated software tools, special pay-per-view events and specifically designated content. The service provided to schools will also be provided to homes without charge, except that we plan to charge schools and homes nominal fees for the premium service.
From July 1996 through approximately April 1998, we developed an initial business plan for the Smart Schoolhouse system, built a prototype website, produced a limited number of educational content lesson plans and developed an initial template to construct educational content. After April 1998, we revised the business plan for the Smart Schoolhouse system, redeveloped the structure and methodology for building interdisciplinary and interactive lessons.
In the third quarter of 2001, we completed the design, development and production of the material elements of the learning content management and delivery system. The system combines instructional content and school information with an integrated communications system that together deliver the content and information across the Internet to the web-based users. Our website is the key to our delivery system. The website serves as a user portal or gateway to the Smart Schoolhouse system. The system relates to each element as a Separate object stored on our dedicated servers. The software architecture has three tiers. They are:
o Presentation Layer - software responsible for delivering the Graphic User Interface to the end user. EduLink's presentation layer has two embedded software components.
o Web Browser - a user-supported web browser to allow users to seamlessly and easily access system components.
o Web Servers - software elements that manage the connections between the user and the EduLink servers. These software elements are revolutionary because they are capable of performing over a thousand transactions per second to create content and assemble it into a presentable format.
The Company's hardware architecture has two components. They are:
o Application Layer - user computer systems that serve to host the user-friendly web browser. This layer implements all the EduLink specific application logic for the publish-and-subscribe access schemes, implements all the EduLink tools, and facilitates the interpretation, formulation and delivery of user requests and queries and data inputs.
o Server Layer - EduLink servers that host the Company's web server, application software and database. The server layer provides for the storing and retrieval of information.
The Company's architecture also incorporates a number of elements. These are:
o XML based system for curriculum content.
o A graphical icon-based interface as part of the Content Editor, allowing teachers, students and parents to rapidly reconfigure content.
The current status of the development of our proposed products and services is set forth below in the section entitled "Current Status of our Proposed Products and Services."
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, to 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, having taken into account the revised capital requirements, the Company estimated that 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 production of additional enabling tools, had not licensed additional third party curriculum content, had not upgraded the technology and had not the completed the infrastructure to exploit its technologies outside of the grade 3-12 education market. And as of December 31, 2003, the Company had raised only an additional $150,000. The Company now estimates that it needs to raise a total of $5 million in capital to upgrade its technology, license and integrate third party content for the 3rd through 12th grades, produce additional enabling tools, conduct marketing activities and launch the system in September 2003 for the education market. The Company intends to raise the additional $5 million in capital it needs to complete those modifications and enabling tools, to integrate third party content and to beta test the system while working with various school districts, school district alliances and/or State Departments of Education. Concurrently, the Company intends to obtain additional content from educational publishers, universities and other content providers and to launch the system upon the start of the next customary school year (i.e., August-September 2005), as well as to create the infrastructure to market and exploit its technology in other markets.
The Company raised $10,407,121, net of expenses, as of December 31, 2004, toward the goal of a total of $13.5 million, primarily through the private placement of its common stock.
The Company now expects that expenses (including software development costs and general and administrative costs) will be approximately $5 million per year from April 1, 2004 to March 31, 2005, to license additional third party curriculum content, to produce additional software tools, to alpha test and beta test the content so licensed and the tools so produced, to upgrade technologies, to continue operations, to provide necessary support and maintenance services to licensees, to increase marketing activities for the Smart Schoolhouse system and to continue and increase development, marketing and support activities relating to the Company's technologies for application in markets outside of the 3rd through 12th grade U.S. education market.
Smart Schoolhouse System
We now anticipate that the proposed Smart Schoolhouse system will provide:
o Educational Curriculum Content Licensed for Distribution toEduLink: 3rd-12th grade materials organized as units of instruction, books, lessons, activities, problems, assessment, images; news feeds and audio. This content will be aligned whenever possible to National or State content Standards. National Content Standards refers to the guidelines and educational standards and curriculum frameworks recommended by several organizations focused on education, including: the National Council of Teachers of English, the California Language Arts Content Standards, the National Center for History in the Schools, the National Center for History Standards, the National Geography Alliance, the American Association for the Advancement of Science, the Center for Research on Evaluation, Standards and Student Testing, the National Council of Teachers of Math, and the Council for Basic Education.
o The integration of quality multi-media educational content in a web-based environment. "Multimedia content" means content which incorporates text, photos, audio, video and/or animation. Multimedia content can include public domain material, or proprietary material which requires the securing of a license such as archived audio, video, still pictures and data from nationally recognized content organizations like National Geographic, CNN and Reuters. EduLink has had discussions regarding licensing arrangements with National Geographic, CNN and Reuters, but no long-term licensing agreements have been reached. EduLink does not intend to develop or create its own multimedia content, nor does it intend to compile an index of websites containing multimedia content. However, all multimedia content proposed to be utilized will be hosted by EduLink inside the proposed Smart Schoolhouse system.
o A means to enhance student collaboration through the Internet either at home, via a computer with Internet access, or at school, via a computer with Internet access. Collaboration, in this context, means that students from different physical locations can assist each other in working out assigned problems by utilizing their access to the proposed Smart Schoolhouse system via the Internet, and the "Chat" areas within the proposed Smart Schoolhouse system, inclusive of the Virtual Labs and the Cognitive Mapping Tool, meaning areas which allow for communications by typing messages in designated spaces.
o A comprehensive information management and communication service with programs uniquely tailored to school, teacher, student and parent needs, such as an electronic filtered 24-hour daily news feed; Chat rooms (on-line chat areas), free ` Mail (on-line E-Mail) with encryption functions limited for use by subscribers to the System, a calendar of events, schedules and announcements. Our content and database engineers have written the specifications and have completed the initial web-based engineering which will allow for the integration of these services whether the software itself is created by Edulink or by third party vendors. The targeted users for this service are students, parents, teachers and school administrators.
o Online Virtual Labs with emphasis on inquiry. A web-based format has been produced to standardize electronic icons, schoolhouse structure and unit lesson and activities. Two Virtual Labs have been created and tested. The targeted users for this service are teachers and students.
o An electronic essay grader and a student essay tutorial program. The electronic essay grader refers to a software tool which grades student essays based upon the input of relative values allocated to various possible answers to the question posed. The student essay tutorial program means software that will guide students as to how to write essays. Our content engineers have finished a written description of an electronic grading system for designated student work. Our database engineers have developed initial algorithms for the web-based electronic essay grader. The targeted users for this service are teachers.
o Teacher, student and parent tools to enhance learning. These tools include existing reference web-based software, such as thesaurus, dictionary, encyclopedia, atlas, word processor and calculator. These tools also include non-reference type tools designed by our technology engineers to help students learn by working systematically through a problem, including:
o an Inquiry Step Tool, meaning a tool which sets out in linear fashion the steps a student should take to solve a problem, inclusive of identifying the problem, formulating hypotheses and conducting research;
o a Cognitive Mapping Tool, meaning a tool which promotes the discovery and segregation of various elements associated with a problem (i.e., identifying the elements, determining how to retrieve the elements using the student's prior knowledge and determining how to organize the elements into categories and subcategories) and facilitates an examination of the elements and the logical ways to connect them so as to arrive at a solution. This tool is intended to provide the student with a "map" of his thought processes, and for example, prompt the student for more information or ask if one response might better fit into another category; and
o an Intelligent Student Coaching Tool, meaning a tool which will inform the student, on-line, when he is not properly processing the problem (i.e. the student improperly formulates a hypothesis). Existing reference web-based tools have been identified and located and the content engineers have developed a written description of non-reference web-based tools that are to be developed. Our database engineers have designed the database in order to integrate the tools into the database. The targeted users for this service are teachers, students and parents.
o The Content Editor Tool, which is a teacher authoring tool kit (inclusive of a web-based lesson design template) to publish teacher created lessons inside the proposed Smart Schoolhouse system. Our database engineers have designed, developed and produced the Content Editor Tool and it has undergone alpha testing. A teacher authoring tool means a software tool which allows a teacher to gather digital data (inclusive of multimedia content) from various locations and formats in a user-friendly manner, so as to create and/or edit lesson plans. In order to utilize portions of any material which is not stored within the Smart Schoolhouse system, together with portions of lessons, activities or other material stored within the Smart Schoolhouse system, the teacher must place that outside material inside the proposed Smart Schoolhouse system (meaning inputting the text thus converting it to a digital format). The targeted users for this service are teachers.
o Tutorial services for use by students in the home. EduLink plans to hire teachers as tutors, accessible through Edu-Chat e-mail, chat rooms and/or telephone lines. Tutorial services will be offered to students for a nominal fee. The targeted users for this service are students.
o The School Store. The School Store means an area planned to be within the Smart Schoolhouse system, which allows a user to purchase products such as school sweaters, notebooks and sportswear. The software to facilitate this part of the proposed Smart Schoolhouse system is being designed by hired technology engineers. In order to operate such a store, EduLink must conclude agreements with product suppliers who will warehouse and ship products as they are ordered by users of the system. The targeted users for this service are students, parents, teachers and administrators.
o An educational system that is adaptable to a worldwide educational audience. The proposed Smart Schoolhouse system is adaptable to a world wide educational audience because its targeted users, i.e., students, parents, teachers and schools, have universal educational characteristics. The curriculum structure can be made specific to a country's educational requirements. The structure of the proposed Smart Schoolhouse system can be used in any country, but the educational content must be created or obtained specifically so as to satisfy the language and educational requirements of the country in question. EduLink has no expertise in terms of non-U.S. educational content; thus, in order to bring the proposed Smart Schoolhouse system to other countries, EduLink must form alliances with entities based in the particular country, which have the expertise necessary to create the appropriate educational content and which will provide the funds required to create the applicable educational content. EduLink currently is negotiating with one entity for purposes of expanding the proposed Smart Schoolhouse system to a country outside of the U. S. The targeted users for this service are administrators, teachers, parents and students of the applicable foreign country.
Our Proprietary Software
Our proprietary software includes our delivery and content management system and our tools. We have one patent claim pending with the U. S. Patent and Trademark Office for "System and Method For Developing Instructional Material using a Content Database" (our Content Editor), and have one additional patent claim filed "System and Method for Automating a Purchase Approval Process". Our delivery system and content management includes:
o our content server, consisting of EduLink's proprietary data model and a licensed database known as Structured Information Management, or SIM;
o an authoring system, consisting of the Company's Content Editor Tool with use of the licensed XMETAL product from SoftQuad;
o a rendering engine, consisting of the Company's style and content composition software; and
o our form generator.
This system may be easily adapted for use in many information intensive applications, both within and outside of education markets.
We have designed and developed the following software tools for use in the Smart Schoolhouse system: the Content Editor Tool, Cognitive Mapper, Map Maker, Crossword Puzzle Builder, Integrated Working Environment, Teacher/Student/Parent Planner, 3-D Virtual World, Chart Maker, Math Plotter, Virtual Microscope, Calculator, Homework Builder/Grader, Student Portfolio, Test Generator and Progress Report Generator. Software tools which have been designed but not yet developed include Study Pal, School Store Query, Master Scheduler, Essay Grader, Speed Reader and Remediation Tool.
Customers and Users
We intend that the proposed Smart Schoolhouse system will be used by school administrators, teachers, students and parents. There will be no requirement that schools use the proposed Smart Schoolhouse system. Instead, schools will be able to voluntarily adapt to the proposed Smart Schoolhouse system because the school is not charged for the service and as such, they will be able to utilize the system when and how they please.
School Administrators
It is planned that the portions of the proposed Smart Schoolhouse system designed for school administrators will serve as the administrative arm of the proposed Smart Schoolhouse system in a particular school and that it will, among other things, detail school district resources and Internet technology capabilities. EduLink intends to provide a full array of services to school administrators including:
o a web-based home page to the school with active links to additional web pages about the school, its community, faculty and staff and school information;
o comprehensive calendar and scheduling capabilities which will automatically be propagated to teacher, student, and parent desktops;
o school-wide and staff-only announcement capabilities which will also be propagated to the appropriate persons;
o collaboration capabilities both within the school and with outside educators using the proposed Smart Schoolhouse system;
o home pages for administrative staff, with information (such as education and areas of interest) for use in establishing collaborative connections with outside educators; and
o site administrators associated with the school, to permit them to register themselves and their classes with the proposed Smart Schoolhouse system. It is planned that all information to support these basic functions will reside on EduLink host computers. Administrators will have the same basic abilities as teachers to examine the curriculum (unit, lessons and activities) offered by EduLink. Administrators will also have access to the common set of office tools: word processing, dictionary and thesaurus. We also plan to furnish news feeds to administrators.
EduLink believes that administrators will want this information describe above because it is essential to their daily operations, housed in one place and will be easily accessible.
Teachers
It is planned that teachers will have access to all proposed Smart Schoolhouse system curriculum units, lessons, news feeds, video teasers, the Virtual Labs and the inquiry-based problems and tools. Teachers will be able to use the proposed Smart Schoolhouse system to enhance their existing programs and to allow them more time to individualize instruction. By using the time saving tools, such as the electronic essay grader and the inquiry step tool, teachers can become facilitators of the student's learning experiences rather than dispensers of knowledge. Teachers will be able to guide students into inquiry learning while encouraging them to interact and collaborate with other students. Teachers will be able to use the proposed Smart Schoolhouse system to assess student performance, to collaborate with students on writing and problem solving exercises, to create lessons from the news feeds and from the bank of archived resources using EduLink electronic authoring tools, to exchange information instantaneously with other educators, and to communicate quickly and directly to parents.
Teachers can encourage students to interact and collaborate via the proposed Smart Schoolhouse system by explaining orally in the classroom, or in writing through e-mail or individual chat sessions or group chat sessions in chat rooms. Teachers can use this proposed Smart Schoolhouse system to assess student performance by observing the student's work while using the Cognitive Mapping and Inquiry Step tools, and this assessment can be accomplished by reviewing the student's work after completion (it will be stored) or by reviewing the Student's work "real time," i.e., while in progress, which therefore enables the teacher to collaborate with the student while in the problem solving process. It is anticipated that a teacher/student collaboration will include e-mails, individual chat sessions, group chat sessions and other interactive collaboration within the Virtual Lab environment. EduLink intends to save teachers' time in some areas (i.e., by the use of electronic essay graders, use of the system's lessons and activities) while causing them to expend some of the time saved in other areas (such as those that are designed to promote critical thinking and assessment of thinking skills). A teacher will be able to "pick and choose" from the services offered in that a teacher can, for example, opt to communicate with parents via the proposed Smart Schoolhouse system or elect not to do so; a teacher can use one, more than one or none of EduLink's lessons and activities within a unit in the classroom; a teacher can use traditional curriculum textbook material while also using related EduLink lessons, activities or Virtual Lab inquiry-based problems as a supplement. The proposed Smart Schoolhouse system is not intended to replace traditional curriculum, but rather to be used by teachers as an additional asset to draw from. Moreover, even if the proposed Smart Schoolhouse system is accepted into a school it does not mean every teacher within that school will desire or be given the opportunity to access the proposed Smart Schoolhouse system; and EduLink assumes that, initially, those teachers within an EduLink affiliated school who have technological awareness will be more likely to desire and be given the opportunity to use the system in the classroom. It is the school, through administrators (usually with guidance from teachers) that will elect to affiliate with EduLink, and because EduLink is not attempting to replace the traditional curriculum, no formal adoption of the proposed Smart Schoolhouse system's curriculum is required.
Additionally, it is planned that the archived resources will be developed from strategic alliances that EduLink plans to make with national and regional organizations to license their electronic educational media resources. It is anticipated that the image and informational banks of archived resources will be integrated into the EduLink database. Moreover, the proposed Smart Schoolhouse system will provide a repository for teaching and learning practices as well as a distribution outlet for teachers employed by EduLink affiliated schools around the world to publish and license their lessons. To facilitate this publishing aspect, EduLink intends to build and integrate into its database a web-based teacher-authoring tool (including a web-based lesson design template).
Students
It is intended that students will be able to access the proposed Smart Schoolhouse system at any time through a computer that has Internet access, including through a home computer. This will allow them to supplement and enhance their learning, and collaborate with other students and teachers. Students will be able to review their course work, obtain materials and interactive resources related to their course work and, if necessary, receive direct tutorial aid. EduLink expects that the interactive resources will include videos, audios and still pictures that will have the capacity to be stopped and played back within the proposed Smart Schoolhouse system, making each resource interactive. EduLink expects to offer students direct tutorial aid in the home, for a fee, through its e-mail program and the Edu-Chat program as well as by telephone connection.
The portion of the proposed Smart Schoolhouse system designed for students is intended to have, among other things, the applicable educational information for the grade of the particular student courses, daily lessons and elated materials, as well as a school information guide to help organize a student's schedule, events, sports activities and clubs. Students will be able to access via the Internet student-run web pages, current news events, updated bus schedules and a daily read out of their teachers, classes and activities. Students will also have their assignment lists and personal "lockers" with their own private passwords to record their outside activities, appointments and errands.
The proposed Smart Schoolhouse system, and all of the elements to be designed for student use, inclusive of applicable tools, will be structured so that it can be used by all age groups (i.e., 3rd graders through 12th graders) but the curriculum content itself and the language appearing within the proposed Smart Schoolhouse system to direct the student's use of the various components of the proposed Smart Schoolhouse system (including the tools) will be made age appropriate.
Parents
It is planned that through the use of the proposed Smart Schoolhouse system, parents will have the ability to interact directly with a variety of persons involved in their child's education, including teachers, guidance counselors and career counselors. For college-bound students, all of the pertinent information relating to prospective colleges, scholarships, financial aid and sample SAT and ACT tests will be available to parents. Parents will also be able to maintain direct contact with teachers, school administrators, coaches and other parents through a special PTA menu. They will be able to schedule "chat" sessions on a regular basis and at their own convenience. "Chat" sessions and bulletin board postings will allow parents to participate by sharing experiences with parents of same age students around the city, state, nation, and world. Parents using their own personal access code will be able to interact with their child's school program from any computer with access to the Internet. Parents will be able to enter the School Store and shop for educational merchandise at discounted rates. The majority of the School Store merchandise will be rated and endorsed by EduLink.
EduLink believes that parents will want access to the proposed Smart Schoolhouse system not only to provide their children with access to the proposed Smart Schoolhouse system at home, but also to allow the parents to become more involved in their child's educational experiences.
The parents of homeschoolers will also be able to access the proposed Smart Schoolhouse system. EduLink also believes there is a significant opportunity in the homeschoolers market and plans to focus on trying to gain penetration into this market. In order to penetrate this market, curriculum content may have to be modified in order to satisfy various states' educational agendas; however, the National Standards upon which EduLink's curriculum content is to be based are generally more rigorous and demanding than the standards set forth in the various 50 United States; accordingly, we expect that the modifications that might be required with respect to any specific state would generally not be significant.
Delivery of and Access to the Smart Schoolhouse System
It is intended that school administrators, teachers, students and parents will access the Smart Schoolhouse system website through desktop computers using his or her personal account. Within each end user group, a member of the particular group will only have access to certain information and services. For example, students will receive access codes allowing them access to the curriculum services, but not to the grades or records of other students. Only a student's teacher and school administrator will have such access. Each end user will have a personal identification code, which will allow them access to their private information.
EduLink will host the system for Internet use. Through the Internet, administrators, teachers, parents and students will be able to access and use the system. The content and services provided by the system will be delivered via the web to the users. The computers hosting the system will be provided by EduLink.
It is expected that the school, not EduLink, will operate as the system administrator. When the school registers itself with EduLink, a site administrator (such as the principal or an assistant principal) will be selected by the registering school. The site administrator will be furnished with a special access code, which will permit the site administrator to provide and manage access privileges for the administrators, teachers, students and parents associated with that school.
EduLink anticipates that schools (administrators), teachers, students, and parents, will each furnish pertinent data that will be maintained on the EduLink computers. It is expected that this will include general contact information, and also (for all except the parents) the additional profile information necessary to maintain such user's calendar, activities and interests, progress on assignments, class schedules, course work and other EduLink preferences. The school, teacher, parent and student information will be gathered by using electronic templates that identify specific fields of information. The data content from these templates will be stored on the EduLink host computers.
Current Status of Our Proposed Services and Products
Smart Schoolhouse System
EduLink has conducted alpha tests and now expects to beta test the Smart Schoolhouse system for the 3rd through 12th grades and the home schooling market in Summer of 2005, and to launch the service for the 3rd through 12th grades and the home schooling market in September 2005 following the completion of the beta test and resultant modifications to the system, if any. The launch will incorporate our proprietary 7th and 8th grade curriculum content, as well as other curriculum content licensed from third parties for all grades 3 through 12.
The technology consultants we have hired, Science Applications International Corporation, have designed and built the material elements of the EduLink architecture and the delivery and content management system, and have completed the design, development and production of the material aspects of numerous software tools, including the following tools: Content Editor Tool; Cognitive Mapping Tool; Map Maker Tool; 3-D Virtual World Tool; Virtual Microscope; Crossword Puzzle Builder; Chart Maker Tool; Math Plotter Tool; Progress Report Generator; Teacher/Student/Parent Planner; Calculator; Homework Builder/Grader Tool; Student Portfolio; and Test Generator. In addition, we have completed the design for, and expect to continue development of, the following tools: Study Pal; Speed Reader Tool; Essay Grader Tool; Smart Technology for Remediation; Master Scheduling Tool; and School Store Query Tool.
The software relating to the Smart Schoolhouse system's information and communication system (i.e. e-mail, chat, schedules, school store) has been designed by our technology engineers but not yet integrated and it is now Edulink's intent to license some of these software items from third parties and integrate them into the system. The graphics within the Smart Schoolhouse system are also being designed by SAIC and we have completed the initial graphics relating to the student, teacher, parent and administrator desktops, and the 7th and 8th grade proprietary curriculum as well as the graphics associated with the completed software tools described above. Over 5 of the 10 units of the proprietary curriculum content for the 7th and 8th grades (units, lessons, activities, inquiry based problems) have been created by our content design team. We have also received third party U. S. History educational content from the University of California at Los Angeles.
Proprietary Software
In addition to the software tools which have been designed, developed and produced, the design and development of the material elements of our system architecture and our delivery and content management system have been completed, and these elements provide for the following functionalities:
o The Learning Content Management System understands and captures the environment in which its users interact. The system defines each of the objects which the system represents, and the relationships between and among each of these objects in a way that represents the real world. The XML Data Type Definition defines each of the objects specifically or generally. Users, generally have access to similar information. However, Teachers must have a relationship to a class where their role is a Teacher. A Student is a person who participates in a class as a pupil. The system registers users as Students, Teachers, and Parents not for the benefit of the system, but for the benefit of the users who need and want information presented to them in a certain way. Telling the system "I am a Student" will not necessarily make a user a Student. It will give the user a Student view of the information and expose the user to the Student's learning process. A Student and a Parent can create a class and in effect become a Teacher. With self-study also being part of the system, a Home Study Parent can easily use the system to educate that Parent's child.
o The Learning Content Management System provides teachers with a multi-tiered approach to managing educational information or content. The system has the ability to store, search, browse categories, view, author, and re-purpose educational information or content. The system is designed to rapidly use and re-purpose content which can then be presented by teachers to their students in the form of activities, lesson plans, or units. The main features of the system are as follows:
o Storage: The system manages and stores text intensive information. This textual information can be broken or indexed according to categories. In addition to documents, the system also stores and indexes web sites, video files, images, and audio files.
o Search: Content within the system can be searched at a number of levels. Teachers can search for information using keywords, phrases, or categories. The search capability allows them to narrow their criteria, meaning narrow the search to a combination of words in the same sentence or paragraph, not just within the same document. Searching by category can further refine the criteria. Categories of information or materials can include, among other things, articles, research papers, contracts, e-mail, news or lessons. The same refined search functionality is available to the teacher for web sites, images, video clips, audio files, and other items. Content from external sources can be imported and searched from the system. Using the Content Editor, teachers can import content from external web sites and store the content within the system.
o Retrieval: The search results display the document name with a portion of the text containing the keyword or phrase. Teachers are able to hyperlink and view the entire text of the document. Keywords or phrases given as search criteria are highlighted in the documents contained in the search results. The keyword or phrase is indicated in red, while the sentence is highlighted in blue. All occurrences of the keyword or phrase are highlighted through out the document. The first place either the keyword or phrase appears in the document will be initially displayed to the teacher. This eliminates the need to browse through a lengthy document to search for the highlighting.
o Re-purposing /Authoring: The system's Content Editor assists the teacher (or any user) in re-purposing content initially searched for and retrieved. The Content Editor gives the teacher a view of the basic document (i.e., an activity, a report, manual, brief, contract, or lesson) and icons representing different types of resources that might be added to the document. Resources are simply different types of information such as articles, contracts, website links, research reports, video clips, images or tasks. The teacher determines the type of resource(s) desired, then drags and drops the appropriate icon to the text. If an existing resource is desired, the teacher may implement the system's search functionality. The search will automatically categorize according to the type of resource. The teacher will then be able to preview and insert the resource into the text of the document. The resource will be inserted where the teacher dropped the icon. New resources or content can also be created with the use of templates. Templates provide the teacher with an easy-to-follow outline of expected information, based upon pre-determined standards. When a teacher re-purposes information or changes a resource previously included within document and once the modified information or resources have been stored in he system, it becomes subject to the system's search.
o Security/Delivery/Rendering/Tracking: The system has built in controls and security. All teachers must register with the system and at that time the new registrant's type will be established. There are different levels of user types and a user's ability to access certain information and functionalities will depend on the user type. To gain access to certain information, a student must join a group. Access into a group must be requested and only the group's creator can confirm acceptance. A group can consist of one member or any number of members. Once a student has gained group acceptance, the group's information and response requests become visible to that student. This process ensures order and structure and prevents open access to specific group information. The student's view is dynamically updated to include current group information. Manual configuration is not required. The teacher is able to communicate andexchange documents with all the members of the group. The group's creator is able to view responses and track group members not responding. As new information or documents become available, the student's view is updated.
Marketing
Smart Schoolhouse System
EduLink plans to market the proposed Smart Schoolhouse system to public and private schools throughout the United States and to homes with school-aged children. In addition, EduLink intends to market the proposed Smart Schoolhouse system to a worldwide market and outside the core 3rd through 12th grade market. EduLink intends to reach schools and homes by several methods, including direct sales,sales to State departments of education and to large school district alliances, with companies that have a substantial regional and national presence in school and/or home markets (such as local telephone companies, cable companies, computer companies local marketing companies, non profit technology consulting firms and internet service providers), cross promotion with companies attempting to reach demographics similar to those of EduLink, and public relations activities that will illustrate the value of EduLink's overall content management system.
The type of alliances EduLink envisions include co-branding agreements with well known portals such as Yahoo; bundling agreements with computer companies like Dell and telcos like Verizon; co-promotional agreements with sponsors and advertisers which provide promotional material about EduLink through the distribution of their own products or within their own environment, such as Pepsi Cola and Wal-Mart; and companies engaged by States and large school districts to provide technological advice, such as JES & Company. The companies used in the previous sentence are examples of the type of alliances EduLink envisions; EduLink does not currently have any alliance or agreement in place with any of these companies.
Current Status - Marketing The Smart Schoolhouse System
EduLink has concluded a co-marketing alliance with SAIC and is currently working with Sun Microsystems to market Sun Microsystems-developed education portals, incorporating the core elements of our Learning Content Management System. Joint presentations have been made by Sun Microsystems and EduLink to Florida's Department of Education and Florida's Rural Learning Alliance, and we are continuing discussions with these entities. Edulink has also made presentations of its core Content Management System for implementation in the Digital California Portal, for use by the State of Maryland Department of Education, for inclusion in pilot programs conducted in the States of Oklahoma and Texas and for use within public schools in Mexico.
Application Outside of the Education Markets
EduLink believes that its proprietary software technology, particularly the content management and interface aspects, can be used in any number of applications outside of the grade 3-12 education market. We contracted with Cap Ventures, a consulting firm with specialized expertise in content and knowledge management software, to prepare a business plan for us. The business plan was completed and delivered. We have prepared a PowerPoint demo for presentation of our core content management system to markets outside of the grade 3-12 education market. We have commenced discussions with a number of software and technology companies to explore structures, such as licenses or joint ventures, as well as to a number of potential licensees, including governmental entities and higher education institutions.
Potential Sources of Revenue
Smart Schoolhouse System
If EduLink is able to fully develop and market the proposed Smart Schoolhouse system, it expects to derive revenue from one or more of the following sources:
o Fees from schools;
o Home subscriptions for premium services and tools;
o Tutorial services;
o Transactional revenue from the school store and links to other websites;
o Traditional corporate advertising within the commercial zones of the Smart Schoolhouse system;
o Corporate sponsorship in various forms, including corporate underwriting;
o Distribution fees from the proprietors of content and software distributed through the system;
o International franchises of the proposed Smart Schoolhouse system; and
o Federal grants.
Applications Outside of the Smart Schoolhouse
If EduLink is able to market its proprietary software for application outside of the grade 3-12 education market in the United States, we expect to derive revenue from licensing fees, maintenance fees and in-service training fees as a result of issuing licenses directly to enterprises or from licensing activities generated by resellers or joint ventures that could be formed with software, hardware or other technology companies and/or telecommunication companies, among others.
Competition
The market for companies providing educational related materials is highly and intensely competitive. EduLink will be in direct competition with companies with significantly longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition and larger customer bases than that of EduLink. Competitors of EduLink include education curriculum software companies such as Blackboard, Big Chalk, Net Schools, WebCt, Edscape Corporation, Lightspan Networks, Inc., Softkey International, Inc., National Education Corporation, Davidson and Associates, Inc., Scholastic Corporation, Broderbund Software, Inc., Knowledge Adventures, Inc., Jostens LLC, PBS Mathline, CTB McGraw Hill, Net School/ACTV Inc., e Schooland, and CCC, Inc. Moreover, other entities not currently in this industry may in the future attempt to launch a business similar to or identical to that of EduLink's. EduLink's competitors may develop products comparable or superior to those developed by EduLink, adapt more quickly than EduLink to new technologies, evolving industry trends or customer requirements, or devote greater resources to the development, promotion and license of their products than EduLink. Accordingly, there can be no assurance that competition will not intensify or that EduLink will be able to compete effectively in its proposed market. However, to EduLink's knowledge, there are no other companies currently engaged in the business of providing all of the various elements of the proposed Smart Schoolhouse system from a single system, which EduLink intends to provide. There are various software companies that are providing organizational information between teachers and administrators, but we are not aware of any company currently providing organizational information between parent and teacher, parent and student, teacher and student, parents and administrators, and student and administrator, inside one system. EduLink does not believe it will be in competition with companies that provide extra curriculum games that are designed to be educational because EduLink's content is focused on a national standards based curriculum that relates directly to history, math, science and literature.
Employees
As of December 31, 2004, EduLink had three employees, Michael Rosenfeld, Dr. Ronald Rescigno and Ian Rescigno. The Company entered into employment agreements with each of the foregoing full-time employees on September 1, 1999, which are more fully described in Item 10.
SUBSEQUENT EVENTS
On August 11, 2006 Edulink acquired all of the outstanding capital stock of Mega Media Group, Inc., a New York Corporation ("MMG") in exchange for the issuance to the MMG Shareholders, upon the increase in the authorized capital stock, of a total number of shares of Edulink common stock, which will represent, and equate to, 90% of Edulink's issued and outstanding common stock. As further consideration for the acquisition, on the Closing Date, Edulink obtained from a majority of its shareholders duly executed irrevocable proxies to vote their shares for a period of 120 days or until such time as 90% of EduLink's shares are issued to the MMG Shareholders, and delivered them to MMG and its shareholders, along with the aforementioned EduLink shareholders' share certificates to be held in escrow. Upon the closing of the Merger, MMG became a wholly-owned subsidiary of Edulink. Upon the increase in the authorized capital stock, and issuance to the MMG Shareholders of 90% of the outstanding common stock, the former stockholders of Edulink will own 10% of the issued and outstanding Common Stock of EduLink. The transaction will be accounted for as a reverse acquisition.
On August 18, 2006, Edulink entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (collectively, the "Investors"). Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $1,500,000 in callable convertible secured notes (the "Notes") and (ii) warrants to purchase 50,000,000 shares of Edulink common stock (the "Warrants").
Pursuant to the Securities Purchase Agreement, the Investors will purchase the Notes and Warrants in three tranches as set forth below:
1. At closing on August 21, 2006 ("Closing"), the Investors purchased Notes aggregating $200,000 and Warrants to purchase 50,000,000 shares of Edulink common stock;
2. Upon Edulink being re-listed on the OTCBB, the Investors will purchase Notes aggregating $300,000; and,
3. Upon the filing of a registration statement registering the shares of common stock underlying the Notes ("Registration Statement"), the Investors will purchase Notes aggregating $400,000; and,
4. Upon effectiveness of the Registration Statement, the Investors will purchase Notes aggregating $600,000.
The Notes carry an interest rate of 6% per annum and a maturity date of August 18, 2009. The notes are convertible into Edulink common shares at the Applicable Percentage of the average of the lowest three (3) trading prices for Edulink shares of common stock during the twenty (20) trading day period prior to conversion. The "Applicable Percentage" means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the Closing.
At Edulink's option, Edulink may prepay the Notes in the event that no event of default exists, there are a sufficient number of shares available for conversion of the Notes and the market price is at or below $.25 per share. In addition, in the event that the average daily price of the common stock, as reported by the reporting service, for each day of the month ending on any determination date is below $.25, Edulink may prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month's interest. Exercise of this option will stay all conversions for the following month. The full principal amount of the Notes is due upon default under the terms of Notes. In addition, Edulink has granted the investors a security interest in substantially all of its assets and intellectual property as well as registration rights.
Edulink simultaneously issued to the Investors seven year warrants to purchase 50,000,000 shares of Edulink common stock at an exercise price of $.01. The Investors have contractually agreed to restrict their ability to convert the Notes and exercise the Warrants and receive shares of Edulink's common stock such that the number of shares of the Company's common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of Edulink's common stock.
Edulink is committed to filing an SB-2 Registration Statement with the SEC within 45 days from the Closing Date. Edulink will receive the second tranche of the funding when the SB-2 is filed with the SEC and the third and final tranche of the funding when the SB-2 is declared effective by the SEC. There are penalty provisions for Edulink should the filing not become effective within 135 days of the Closing Date. The notes are secured by all of Edulink's assets to the extent of the outstanding note.
Item 1A.
Item 1A. Risk Factors.
RISK FACTORS
The following important factors, among others, could cause our actual operating and financial results to differ materially from those contained in this report and our other oral and written communications. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, including those that we do not know about now or that we currently deem immaterial, may also adversely affect our business.
We Have Generated No Revenues To Date And Expect To Incur Losses For The Foreseeable Future, Which Could Cause The Value Of Our Common Stock To Decline
Since our inception, we have generated no revenues. We do not anticipate generating revenues until our Smart Schoolhouse system is launched, which is currently anticipated to be in September 2005. However, if our Internet educational services are not accepted and adopted by a significant number of school districts and schools we will not generate significant revenues or become profitable. As of December 31, 2004, our accumulated deficit was $18,999,309.
For the fiscal years ended December 31, 1999, 2000, 2001, 2002, 2003 and 2004, the report of our independent certified public accountants contained a going concern qualification. We expect to continue to experience significant operating losses in the future as we continue our development efforts. Our future losses could cause the market value of our common stock to decline.
We Will Need Additional Capital In The Future To Support The Final Development And Launch Of Our Smart Schoolhouse System, And To Fund Our Capital Needs After The Launch, And If We Do Not Have Available Financing We Could Have To Curtail Our Operations
Our current cash resources is not be sufficient to meet our immediate requirements nor is it sufficient to meet our requirements for the next twelve months. We are not currently generating revenues to fund our ongoing operations and, if we do not raise additional capital we will not be able to fund our ongoing basic cash requirements.
We currently anticipate that $5 million will be needed to complete modifications to the system for application to the home school market, to license third-party curriculum content, complete the alpha and beta testing of our Smart Schoolhouse system for grades 3 through 12, to complete the development of additional enabling tools, to upgrade our technology, to engage additional managerial, marketing and staff personnel, and carry through the rescheduled September 2005 launch through the spring 2006. Additionally, following the spring 2006, we currently anticipate the need for an additional $5 million per year thereafter to fund continuing operations, upgrade existing content, upgrade technology, and produce and license additional content, beta test and launch additional tools and content for our Smart Schoolhouse system. During the year ended December 31, 2004, we used $208,383 in our operating activities. During the year ended December 31, 2003, we used $86,449 in our operating activities. Changes in our development program or other changes affecting our operating expenses could, however, alter the timing and amount of our expenditures and when we will require additional funding. The additional funding we require may not be available to us on favorable terms or at all. If we cannot obtain adequate funding, we will be required to shut-down our operations.
We Have No Operating History, Which Makes It Difficult To Value Our Common Stock
We are a development stage company with no operating history. We commenced our current operations in July 1996 and have not yet commercially offered our services. We may not grow or achieve profitability. We face a number of risks encountered by development stage companies in the Internet information industry, including:
o the uncertainty of market acceptance of our services;
o our need to introduce reliable and robust products and services that meet the demanding needs of customers;
o our need to first create and then expand our marketing, sales and support organizations, as well as our distribution channels;
o our ability to anticipate and respond to market competition; and
o our need to manage expanding operations.
Our business strategy may not be successful, and we may not successfully address these risks.
Our Smart Schoolhouse System Is Currently In Development And We May Not Be Able To Complete That Development In A Timely And Cost Effective Manner, Or At All
We are currently developing our Smart Schoolhouse system for the 3rd through 12th grades and the home school market, with initial or "alpha" testing among a limited user group completed as of December 2001. The second or "beta" round of testing among a wider group that includes more "real world" users is now intended to begin in the Summer of 2005 and we expect it to be completed prior to the anticipated September 2005 commercial launch of the 3rd through 12th grade and home school portions of the Smart Schoolhouse system. However, this schedule assumes that the alpha and beta tests do not reveal significant defects or faults in the system. If significant defects or faults are found, EduLink may not be able to meet this schedule, which would delay the commercial launch and therefore delay the generation of revenue. This, in turn, could cause the market value of our common stock to decline.
Other factors, including many of the risk factors identified in this section, could also delay the development of our Smart Schoolhouse system, including among others the failure to raise additional capital and the failure to recruit needed employees, with the same negative effect on EduLink and its common stock.
We May Establish Alliances Or Acquire Technologies Or Companies In The Future, Which Could Result In The Dilution Of Our Stockholders And Disruption Of Our Business
We are continually evaluating potential business alliances and external investments in technologies related to our business. Acquisitions of companies, divisions, businesses or products and strategic alliances entail numerous risks, any of which could materially harm our business in several ways, including:
o diversion of management's attention from our core business objective and other business concerns;
o failure to integrate the acquired company or business into our existing business;
o potential loss of key employees from either our existing business or the acquired business;
o dilution of our existing stockholders as a result of issuing equity securities; and
o assumption of liabilities of the acquired company.
Some or all of these problems may result from current or future alliances, acquisitions or investments. Furthermore, we may not realize any value from these alliances, acquisitions or investments.
If We Cannot Deliver The Features And Functionality Our Customers Demand, We Will Be Unable To Retain Or Attract New Customers
Our success depends upon our ability to determine the features and functionality our customers demand and to design and implement these features and functionality in our Smart Schoolhouse system to meet their needs in an efficient manner. We cannot guarantee that we can successfully determine customer requirements or that our future services will adequately satisfy customer demands. To date, the design of our Smart Schoolhouse system has been based on our internal efforts and feedback from a limited number of potential customers. In addition, we may experience difficulties that could delay or prevent the successful development, introduction or marketing of new features and service enhancements in our Smart Schoolhouse system. If we cannot effectively deploy, maintain and enhance our services, we may not generate sufficient revenue, our expenses may increase, we may not be able to recover our costs and our competitive position may be harmed.
Our Success Depends On Our Ability To Build And Expand Our Sales Force
In order to build our customer base and revenues, we need to build and expand our sales operations. There is strong competition for qualified sales personnel in our business, and we may not be able to attract and retain sufficient new sales personnel to build and expand our operations. New sales personnel will require training and will take time to achieve full productivity, so the costs associated with hiring sales personnel will impact our financial results before the revenues generated from any additional sales, likely increasing our losses.
We Have Limited Resources And May Be Unable To Manage Our Anticipated Growth
If we fail to develop and maintain our services as we experience anticipated rapid growth after the launch of our Smart Schoolhouse system, demand for our services and our revenues could decrease. Our development and expansion has placed, and will continue to place, significant strain on our managerial, operational, and financial resources. Due to the limited deployment of our services, we are unable to assess our ability to grow the business and manage a substantially larger operation.
The Operation Of Our Smart Schoolhouse System Will Depend On Internet Access Operated And Controlled By Others. If Our Customers Do Not Have Continued Access To Sufficient Capacity On Reliable Networks, We May Be Unable To Deliver Services And Our Revenues Could Be Affected
Our success will depend, in large part, upon a robust communications industry and infrastructure for providing Internet access and carrying Internet traffic. The Internet may not prove to be a viable commercial medium because of a variety of factors including inadequate development of the necessary infrastructure such as reliable network backbone; timely development of complementary products such as high speed modems; delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity; or increased government regulation.
Moreover, we rely on the Internet and, accordingly, depend upon the continuous, reliable and secure operation of Internet servers and related hardware and software. Several large Internet commerce companies have suffered highly publicized system failures which resulted in adverse reactions to their stock prices, significant negative publicity and, in certain instances, litigation. We may also suffer service outages from time to time. To the extent that our service is interrupted, users will be inconvenienced or adversely effected, and our reputation may be diminished.
We also depend upon third parties to provide users with web browsers and Internet and on-line services necessary for access to our Smart Schoolhouse system. From time to time, our users may experience difficulties with Internet and other on-line services due to system failures, including failures unrelated to our systems. Any sustained disruption in Internet access provided by third parties could adversely impact our business.
We Depend On Recruiting And Retaining Qualified Personnel And Our Inability To Do So Would Seriously Harm Our Business
Because of the technical nature of our services and the market in which we compete, our success depends on the continued services of our current executive officers and our ability to attract and retain qualified personnel, including personnel with Internet software expertise. Competition for qualified personnel is intense. New employees generally require substantial training, which requires significant resources and management attention. Even if we invest significant resources to recruit, train and retain qualified personnel, we may not be successful in our efforts.
The Convergence of Currently Distinct Industries May Adversely Affect Us
Due to the relative infancy of the Internet and its rapid growth, it is not possible to predict the paths along which future development will proceed. The Company cannot anticipate the effects that a convergence of currently distinct industries may have on the Company's business. An example is the AOL-Time/Warner merger and the continuing effect that combination has on the entertainment and internet service provider markets. In the event a similar convergence takes place in the educational services or other related industries, the long term effect on our business plan may be material and adverse.
Rapid Changes In Technology May Adversely Affect Us
To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our Smart Schoolhouse system. The Internet and the e-commerce industries are characterized by rapid technological change, changes in user requirements and preferences, frequent new product and service introductions embodying new technologies and the emergency of new industry standards and practices that could render our Internet services and proprietary technology and systems obsolete. Our success will depend, in part, on our ability to license leading technologies useful in our business, enhance our existing services, develop new services and technology that address the increasingly sophisticated and varied needs of prospective customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
The development of a Website and other proprietary technology entails significant technical, financial and business risks. There can be no assurance that we will successfully implement new technologies or adapt our Website and proprietary technology to customer requirements or emerging industry standards. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, our business could be materially adversely effected. Further, the adoption of new Internet, networking or telecommunications technologies may require us to devote substantial resources to modify and adapt our products and services.
Our Quarterly Operating Results Are Subject To Fluctuations, And Our Stock Price May Decline If We Do Not Meet The Expectations Of Investors
We anticipate that after the launch of our Smart Schoolhouse system our quarterly operating results will be difficult to predict and may fluctuate significantly from quarter to quarter due to a number of factors, many of which will be outside our control. These factors will likely include, but are not limited to:
o delays in our fund raising initiatives;
o delays in market acceptance or implementation by our customers of our Smart Schoolhouse system;
o changes in demand by our customers for existing and additional services;
o introduction of new services by us or our competitors;
o changes in our pricing policies or those of our competitors or suppliers; and
o changes in accounting standards, including standards relating to revenue recognition, business combinations and stock-based compensation.
We believe period-to-period comparisons of our operating results are not currently meaningful and will not be meaningful for the foreseeable future. Quarterly revenues and operating results are not predictors of our future performance. In some future quarter our operating results may be below the expectations of public market analysts and investors and, as a result, the price of our common stock may fall.
System Failures Could Reduce Revenues, Increase Costs Or Result In Liability Claims And Seriously Harm Our Business
Any disruption to our services, information systems or communications networks could result in the inability of our customers to receive our services for an indeterminate period of time. Our services may not function properly if our systems fail, or if there is an earthquake, fire, flood or other natural disaster, or an act of war. Any disruption to our services could cause us to lose customers or revenue, or face litigation, customer service or repair work that would involve substantial costs and distract management from operating our business. We currently do not have fully redundant systems for our services at an alternate site. Our operations depend upon our ability to maintain and protect our computer systems located at SAIC's facilities in Orlando, Florida.
We Could Face Claims That Our Services Infringe On Intellectual Property. These And Other Claims Which May Arise Could Result In Significant Expenses And Distract Our Management
Third parties may claim that our current or future products infringe their proprietary rights or assert other claims against us. As the number of entrants into our market increases, the possibility of an intellectual property or other claim against us grows. Any intellectual property or other claim, with or without merit, would be time-consuming and expensive to litigate or settle and could divert management attention from focusing on our core business. As a result of such a dispute, we may have to pay damages, incur substantial legal fees, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us. This would increase our expenses and could decrease the functionality of our service, which would make our services less attractive to our current or potential customers.
If The Use Of The Internet By School Districts, Schools, Students and Parents Does Not Continue To Grow, Our Business Will Be Harmed
Our future success is dependent on continued growth in the use of the Internet by school districts, schools, students and parents. The use and acceptance of the Internet by schools, students and parents may not increase for a number of reasons, including the cost and availability of Internet access and concerns about privacy, security, reliability, and concerns related to students' unintended access to adult oriented websites.
Capacity constraints caused by growth in the general use of the Internet may impede further development of the Internet to the extent that users experience delays, transmission errors and other difficulties. If the necessary infrastructure, products, services or facilities are not developed, or if the Internet does not become a viable and widespread commercial medium, we may not be able to grow our business.
Government Regulations And Standards May Harm Our Business And Could Increase Our Costs Or Reduce Our Opportunities To Earn Revenues
In addition to regulations applicable to business in general, we may also be subject to direct regulation of the Internet by governmental agencies. A number of legislative and regulatory proposals under consideration by federal, state, and local governmental organizations may lead to laws or regulations concerning various aspects of the Internet, including on-line content, user privacy, taxation, access charges and liability for third-party activities. Additionally, it is uncertain how existing laws governing issues such as taxation on intellectual property, libel, user privacy and property ownership, will be applied to our services. The adoption of new laws or the application of existing laws may expose us to significant liabilities and additional operational requirements, which could decrease the demand for our services and increase our cost of doing business.
Item 2.
Item 2. Properties.
At December 31, 2004 EduLink utilized a portion of the offices used by Michael Rosenfeld at 450 North Roxbury Drive, Suite 602, Beverly Hills, California 90210 as its administrative offices. EduLink also had its production offices located at 5743 Corsa Avenue, Suite 207, Westlake Village, California 91362. EduLink paid $0, $0, $30,491, $62,067, $68,426 and $31,711 in 2004, 2003, 2002, 2001, 2000, and 1999, respectively, to the landlords of the premises, which are not affiliates of EduLink. In January 2002, the lease for the Westlake Village office expired in accordance with its terms, and the Company no longer leases facilities at that location.
Item 3.
Item 3. Legal Proceedings.
There is no litigation pending or threatened by or against us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and issuer Purchases of Equity Securities.
EduLink's common stock was traded on Nasdaq's OTC Bulletin Board under the symbol "MYIQ.OB" from November 23, 1999 until May 3, 2000 when it was removed from the OTC Bulletin Board. Trading on the OTC Bulletin Board resumed on July 24, 2000 after the common stock was registered under the Securities Exchange Act of 1934.
The following table sets forth the range of high and low bid prices for our common stock for each quarterly period from January 1, 2002 through December 31, 2004, as reported by brokers and dealers making a market in the capital stock. Such quotations reflect inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions:
HIGH LOW
Fiscal 2002 First Quarter $ .015. $ .01. Second Quarter 0.006. 0.0035 Third Quarter 0.006 0.0035 Fourth Quarter 0.006 0.002
Fiscal 2003 First Quarter $ .0003 $ .002 Second Quarter 0.133 0.004 Third Quarter 0.019 0.006 Fourth Quarter 0.07 0.006
Fiscal 2004 First Quarter $ .01 $ .003 Second Quarter 0.19 0.001 Third Quarter 0.001 0.00 Fourth Quarter 0.001 0.00
Holders
As of January 31, 2005, there were 619 record holders of Edulink's common stock.
Dividends ---------
Historically, we have not paid dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business.
Recent Sales of Unregistered Securities
Subsequent to December 31, 2003, the Company secured funding through the issuance of notes and warrants. On August 18, 2006, Edulink entered into a Securities Purchase Agreement with the Investors. Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $1,500,000 in callable convertible secured notes and (ii) warrants to purchase 50,000,000 shares of Edulink common stock. The initial closing was for financing of the principal amount of $200,000 for which we issued callable secured convertible notes. The initial funding was undertaken as follows: AJW Capital Partners, LLC - $19,400; AJW Offshore, Ltd. - $118,000; AJW Qualified Partners, LLC - $60,000; and New Millennium Capital Partners II, LLC - $2,600. Under the securities purchase agreement, we will receive the principal amount of $300,000 upon the Company being re-listed on the OTCBB; the third principal amount of $400,000 upon the filing of a registration statement with the SEC registering the shares of common stock underlying the Notes; and the final principal amount of $600,000 when the registration statement is declared effective. At all times, we will issue callable secured convertible notes for such amounts. The note is convertible into our common shares at the lowest 3 intra-day trading prices during the 20 trading days immediately prior to the conversion date discounted by 40%. The investors in the financing shall not be entitled to convert the promissory note if such conversion would result in any investor solely owning more than 4.99% of our outstanding shares of common stock.
Based on our recent financing, we have also issued 50,000,000 warrants convertible into shares of our common stock. Each Warrant entitles to holder to one share of our common stock. The warrants were issued as follows: AJW Capital Partners, LLC - 4,850,000 warrants; AJW Offshore, Ltd. - 29,500,000 warrants; AJW Qualified Partners, LLC - 15,000,000 warrants; and New Millennium Capital Partners II, LLC - 650,000 warrants. The exercise price is $.01 and is exercisable for seven years from the date of issuance. The warrants have a cashless exercise feature. For the 50,000,000 warrants issued on August 18, 2006, the expiration date is August 18, 2013.
The convertible notes and the warrants (the "Securities") were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. No commissions were paid for the issuance of such Securities. The above issuance of Securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of such shares by us did not involve a public offering. The holders set forth above were each accredited investors and had access to information normally provided in a prospectus regarding us. The offering was not a "public offering" as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of Securities offered. We did not undertake an offering in which we sold a high number of Securities to a high number of investors. In addition, the holders set forth above had the necessary investment intent as required by Section 4(2) since they agreed to receive a share certificate bearing a legend stating that such shares underlying the Securities are restricted pursuant to Rule 144 of the Securities Act. These restrictions ensure that these shares would not be immediately redistributed into the market and therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the above transaction.
Equity Compensation Plan Information - ------------------------------------
The Company does not have any equity compensation plans in effect.
Item 6.
Item 6. Selected Financial Data.
Year Ended December 31, 2004 as compared to Year Ended December 31, 2003
For The Years Ended December 31, Income statement: 2004 2003 --------------------------------
Revenue $ -- $ 50,000 Interest income $ -- $ -- General and administrative expenses $ 993,942 $ 2,747,183 Total Operating Expenses $ 993,942 $ 2,765,755 Net loss from operations $ (993,942) $ (2,715,755)
Basic and diluted loss per share $ 0.00 $ 0.00 Weighted average shares outstanding 1,256,635,402 894,948,681
As Of December 31, 2004 2003 ------------------------------ Balance Sheet Data Cash and prepaid assets $ 25,849 $ 1,968 Total assets 25,849 $ 4,166
Stockholders' equity (deficit) $(1,401,250) $(1,145,035)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The discussion in this section contains certain statements of a forward-looking nature relating to future events or our future performance. Words such as "anticipates," "believes," "expects," "intends," "future," "may" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements. Such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, you should specifically consider various factors identified in this report, including the matters set forth under the caption "business risks," which could cause actual results to differ materially from those indicated by such forward-looking statements.
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. As of December 31, 2002, the Company had raised only an additional $150,000. The Company now estimates that it needs to raise a total of $5 million in capital to upgrade its technology, license and integrate third party content for the 3rd through 12th grades, produce additional enabling tools, conduct marketing activities and launch the system in September 2005. The Company intends to raise the additional $5 million in capital it needs to complete those modifications and enabling tools and to beta test the system while working with various school districts, school district alliances and/or State Departments of Education. Concurrently, the Company intends to obtain additional content from educational publishers, universities and other content providers and to launch the system upon the start of the next customary school year (i.e., August-September 2005),as well as to create the infrastructure to market and exploit its technology in other markets.
The Company raised $10,407,121, net of expenses, as of December 31, 2004, toward the goal of a total of $13.5 million, primarily through the private placement of its common stock.
The Company now expects that expenses (including software development costs and general and administrative costs) will be approximately $5 million per year from April 1, 2005 to March 31, 2006, to license additional third party curriculum content, to produce additional software tools, to alpha test and beta test the content so licensed and the tools so produced, to upgrade technologies, to continue operations, to provide necessary support and maintenance services to licensees, to increase marketing activities for the Smart Schoolhouse system and to continue and increase development, marketing and support activities relating to the Company's technologies for application in markets outside of the 3rd through 12th grade U.S. education market.
Results of Operations
Year Ended December 31, 2004 as compared to Year Ended December 31, 2003
For The Years Ended December 31, Income statement: 2004 2003 -------------------------------------
Revenue $ -- $ 50,000 Interest income $ -- $ -- Software development costs $ -- $ --
General and administrative expenses $ 993,942 $ 2,747,183 Impairment -- 18,572 Interest expense 132,146 355,166 Forgiveness of debt -- (75,264) (Gain) loss on derivative 169,020 --
Net loss $ 1,295,108 $ 2,995,657
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 next customary school year in September 2003 following the completion of the beta test and resultant modifications to the system, if any. Accordingly, EduLink has not generated any substantial revenues to date. EduLink's cumulative losses from inception through December 31, 2004 are $19,244,601.
General and Administrative Expenses
General and administrative expenses decreased $1,753,241 for the year ended December 31, 2004 to $993,942 compared with $2,747,183 for the year ended December 31, 2003. The decrease was due to an overall scaling back of our operations.
Interest Expense
The Company's interest expense decreased to $132,146 for the year ended December 31, 2004 compared with $355,166 for the year ended December 31, 2003. This decrease was due to additional borrowings in 2003 and the amortization of the discount related to the note payable.
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, 2004, the Company had cash of approximately $0. Cash used in operations was $208,383 for the year ended December 31, 2004, and $10,388,549 from inception through December 31, 2004. 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, 2004, the Company has raised $9,370,177, through sales of common stock and approximately $923,000 through bridge loans.
The Company's current cash resources will not be sufficient to meet its Immediate requirements.. The Company is not currently generating 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 over the next twelve months will require $5 million in capital to provide the 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. EduLink currently plans to raise funds through either revenues 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.
Year Ended December 31, 2003 as compared to Year Ended December 31, 2002
For The Years Ended December 31, Income statement: 2003 2002 -----------------------------------
Revenue $ 50,000 $ -- Interest income $ -- $ 130 Software development costs $ -- $ 12,884
General and administrative expenses $ 2,747,183 $ 905,644 Impairment 18,572 -- Interest expense 355,166 -- Forgiveness of debt (75,264) --
Net loss $ 2,995,657 $ 918,398
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 next customary school year in September 2003 following the completion of the beta test and resultant modifications to the system, if any. Accordingly, EduLink has not generated any substantial revenues to date. EduLink's cumulative losses from inception through December 31, 2003 are $17,949,493.
Software Development Costs
Software development costs decreased by $ 12,884 to $ 0 for the year ended December 31, 2003, from $ 12,884 for the year ended December 31, 2002. The decrease in software development costs in 2002 resulted from the completion of a substantial part of Edulink's software development activities in 2000 and due to limited funds.
General and Administrative Expenses
General and administrative expenses increased $1,841,539 for the year ended December 31, 2003 to $2,747,183 compared with $905,644 for the year ended December 31, 2002. Higher fees were paid for legal and accounting, printing and reproduction.
Interest Expense
The Company's interest expense increased to $355,166 for the year ended December 31, 2003 compared with $0 for the year ended December 31, 2002. This increase was due to to loans of $350,000, together with $128,654 in accrued interest, converted into 119,000,000 common shares valued at $833,000. The $354,346 difference was recorded as additional interest expense.
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, 2003, the Company had cash of approximately $1,968. Cash used in operations was $(208,383) for the year ended December 31, 2004, and $(10,388,549) from inception through December 31, 2004. 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, 2004, the Company has raised $9,370,177, through sales of common stock, $250,000 through debentures, and $923,000 through bridge loans.
The Company's current cash resources will not be sufficient to meet its immediate requirements.. The Company is not currently generating 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 over the next twelve months will require $5 million in capital to provide the 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. EduLink currently plans to raise funds through either revenues 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.
Subsequent Financing
Subsequent to December 31, 2003, the Company secured funding through the issuance of notes and warrants. On August 18, 2006, Edulink entered into a Securities Purchase Agreement with the Investors. Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $1,500,000 in callable convertible secured notes and (ii) warrants to purchase 50,000,000 shares of Edulink common stock. The Notes carry an interest rate of 6% per annum and a maturity date of August 18, 2009. The notes are convertible into Edulink common shares at the Applicable Percentage of the average of the lowest three (3) trading prices for Edulink shares of common stock during the twenty (20) trading day period prior to conversion. The "Applicable Percentage" means 50% of the average of the lowest three (3) trading prices for our shares of common stock during the twenty (20) trading day period prior to conversion. However, the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the Closing. In addition, the Company has granted the investors a security interest in substantially all of its assets and intellectual property as well as registration rights. In connection with the Securities Purchase Agreement, the Company issued to the Investors seven year warrants to purchase 50,000,000 shares of our common stock at an exercise price of $.01.
Going Concern
As reflected in the Company's Financial Statements which accompany this report, our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. In the near term, we expect operating costs to continue to exceed funds generated from operations. As a result, we expect to continue to incur operating losses and we may not have sufficient funds to grow our business in the future. We can give no assurance that we will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital.
To successfully grow the individual segments of the business, we must decrease our cash burn rate, improve our cash position and the revenue base of each segment, and succeed in our ability to raise additional capital through a combination of public or private debt and equity offerings or strategic alliances. We also depend on certain third party contractors and our executives.
As of December 31, 2004, we had total assets of $25,849 and total liabilities of $1,427,099 creating a working capital deficiency of $1,401,250. The Company currently has approximately $25,849 in cash and prepaid assets as of December 31, 2004. We incurred a net loss of $1,295,108 for the fiscal year ended December 31, 2004, and have an accumulated deficit of $19,244,601 at December 31, 2004. Management recognizes that the Company must generate or obtain additional capital to enable it to continue operations.
Critical Accounting Policies - ----------------------------
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in the summary "Background and Significant Accounting Policies" accompanying our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
Off-Balance Sheet Arrangements - ------------------------------
We have no off-balance sheet arrangements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
EduLink's exposure to market risk is principally confined to cash in bank and money market accounts, which have short maturities and therefore we believe to be minimal and immaterial market risk.
Item 8.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders Edulink, Inc. (A Development Stage Company) Santa Monica, California
We have audited the accompanying balance sheets of Edulink, Inc. as of December 31, 2004 and 2003 and the related statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 2004 and 2003 and the period from January 25, 1996 (inception) through December 31, 2004. The financial statements for the period January 25, 1996 (inception) through December 31, 2002, were audited by other auditors whose reports expressed unqualified opinions on those statements. The financial statements for the period January 25, 1996 (inception) through December 31, 2002, include total revenues and net loss of $0 and $14,953,836, respectively. Our opinion on the statements of operations, stockholders' deficit, and cash flows for the period January 25, 1996 (inception) through December 31, 2004, insofar as it relates to amounts for prior periods through December 31, 2002, is based solely on the report of other auditors. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edulink, Inc. as of December 31, 2004 and 2003 and the results of operations and cash flows for the years ended December 31, 2004 and 2003 and the period from January 25, 1996 (inception) through December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Edulink, Inc. will continue as a going concern. As discussed in Note 2 to the financial statements, Edulink, Inc. suffered recurring losses from operations and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Malone & Bailey, PC www.malone-bailey.com Houston, Texas
27 September, 2006
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Certified Public Accountants & Management Consultants
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders EduLink, Inc., dba The Learning Priority
We have audited the accompanying statements of operations and cash flows of EduLink, Inc., dba The Learning Priority (a development stage company) for the year ended December 31, 2002, and the statement of stockholders' deficit for the period January 25, 1996 (Inception) to December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EduLink, Inc., dba The Learning Priority as of December 31, 2002, and the results of its operations and its cash flows for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During the years ended December 31, 2002, the Company incurred net losses of $918,398 and had net cash used in operating activities of $442,734. In addition, the Company's accumulated deficit was $14,953,836 as of December 31, 2002. These factors, among others, as discussed in Note 2 to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP - ------------------------------------------- SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California March 26, 2003
EDULINK, INC. (a development stage company) STATEMENTS OF OPERATIONS Years Ended December 31, 2004, 2003 and 2002 and the Period from January 25, 1996 (Inception) through December 31, 2004
EDULINK, INC. (a development stage company) STATEMENTS OF CASH FLOWS Years Ended December 31, 2004, 2003 and 2002 and the Period from January 25, 1996 (Inception) through December 31, 2004
EDULINK, INC. (a development stage company) STATEMENT OF STOCKHOLDERS' DEFICIT January 25, 1996 (Inception) through December 31, 2004
EDULINK, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
URREA Enterprises, Inc. was incorporated in California on January 5, 1994.
Edulink entered into a reorganization with an inactive publicly-traded Nevada corporation, URREA Enterprises, Inc. (URREA) on October 28, 1999. In this transaction, URREA issued 388,800,000 shares to Edulink shareholders in exchange for 100% of the outstanding Edulink stock. Immediately prior to this transaction, URREA had 259,022,500 shares outstanding. Because Edulink shareholders ended up with more than half the resulting total stock outstanding, this transaction is accounted for as a recapitalization of Edulink. Edulink disappeared as a separate entity and URREA was renamed Edulink.
Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.
Reclassifications. Certain amounts from 2002 and 2001 have been reclassified to conform with the current year presentation.
Cash Equivalents. Highly liquid investments with original maturities of three months or less are considered cash equivalents.
Revenue Recognition. Edulink recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. This typically occurs upon delivery of the services or finished products. Edulink's sole revenues in 2003 were a non-recurring license fee of $50,000.
Income Taxes. U.S. and foreign income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.
Stock Compensation. Edulink issues stock as compensation to employees and outside consultants for services rendered. These shares are recorded at the fair value of the stock as measured on the date or dates the services were rendered.
Edulink adopted the disclosure requirements of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation (FAS No. 123) with respect to pro forma disclosure of compensation expense for options issued. For purposes of the pro forma disclosures, the fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model.
Edulink applies APB No. 25 in accounting for its employee stock option plans and, accordingly, no compensation cost has been recognized in Edulink's financial statements for stock options under any of the stock plans which on the date of grant the exercise price per share was equal to or exceeded the fair value per share. However, compensation cost has been recognized for warrants and options granted to non-employees for services provided. The following table illustrates the effect on net loss and net loss per share if Edulink had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
2004 2003 2002 ------------ ------------ ------------ Net loss as reported $ (1,295,108) $(2,995,657) $(918,398) Pro forma net loss $ (1,295,108) $(2,995,657) $(918,398) Basic and diluted net loss per common share: As reported $ - $ - $ - Pro forma - - -
Basic and diluted net loss per share. Basic and diluted net loss per share calculations are presented in accordance with Financial Accounting Standards Statement 128, and are calculated on the basis of the weighted average number of common shares outstanding during the year. They include the dilutive effect of common stock equivalents in years with net income. Basic and diluted loss per share are the same due to the absence of common stock equivalents.
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, Edulink has not completed its software development to the point of technological feasibility, and accordingly, no costs have been capitalized.
Impairment of Long-Lived Assets. Edulink reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. Edulink assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. In 2003 Edulink determined the remaining property and equipment was impaired and recorded impairment expense of $18,572.
Recent Accounting Pronouncements. Edulink does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
NOTE 2 - GOING CONCERN
As shown in the accompanying financial statements, Edulink incurred recurring net losses of, respectively, has an accumulated deficit of $19,244,601 and a working capital deficit ofDecember 31, 2004. These conditions raise substantial doubt as to Edulink's ability to continue as a going concern. Management is seeking merger candidates. The financial statements do not include any adjustments that might be necessary if Edulink is unable to continue as a going concern.
NOTE 3 - LOANS PAYABLE
Edulink borrowed $100,000 in 2001 and $250,000 in 2002. These loans defaulted in 2002 and were converted in 2003, together with $128,654 in accrued interest, into 119,000,000 common shares valued at $833,000. The additional $354,346 of value was recorded as additional interest expense.
The lender was also assigned an aggregate of 6,000,000 existing warrants to purchase shares of Edulink's common stock at an exercise price of $0.0022 per share.
The proceeds of the $250,000 loan were 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.
Edulink borrowed $250,000 in May 2004 through several notes with the same terms. The notes are due in May 2006, carry initial interest of 12%, default interest of 15% and are secured by all assets of Edulink. The notes are convertible at the lower of $.005 or 50% of the average of the three lowest prices during the 20 day period prior to conversion. The lender received two puts (a) the lender cannot receive shares for conversion that would make the lender's ownership of Edulink greater than 19.99% of total shares outstanding of Edulink. If the lender reaches 19.99% ownership of Edulink, the lender can require Edulink to pay 130% of principal and unpaid interest. (b)If a default event occurs, the lender can require Edulink to pay 130% of principal and unpaid interest. In addition to the notes payable, the lender received 750,000 warrants to purchase Edulink's common stock. The warrants have an exercise price of $.005 and expire in May 2009. The convertible notes were determined to have a compound embedded derivative consisting of the conversion option and the puts and the warrants were determined to be freestanding derivatives. See note 5 for details. The derivatives resulted in a discount to the convertible notes carrying amount at inception of the notes. The discount will be amortized over the maturity period of the notes using the effective interest method. The carrying value as of December 31, 2004 was determined as follows:
Face value of notes $ 250,000 Less: discount for derivatives (250,000) Add: amortization of discount 90,048 --------- Carrying value $ 90,048 =========
NOTE 4 - INCOME TAXES
Income taxes are not due since Edulink has losses since inception. Since inception, Edulink has approximately $9,400,000 in net operating losses, which expire in the years 2019 through 2024.
The components of deferred taxes are as follows:
2004 2003 ----------- ----------- Deferred tax assets Net operating loss carryforwards $ 3,180,000 $ 3,160,000 Software development costs capitalized for tax purposes 2,889,000 2,889,000
Less: valuation allowance (6,069,000) (6,049,000) ----------- ----------- Net deferred tax assets $ 0 $ 0 =========== ===========
NOTE 5 - DERIVATIVES
Edulink evaluated the application of SFAS 133 and EITF 00-19 for the convertible debentures and warrants issued in fiscal 2004. Based on the guidance in SFAS 133 and EITF 00-19, Edulink concluded all of these instruments were required to be accounted for as derivatives. SFAS 133 and EITF 00-19 require Edulink bifurcate and separately account for the conversion features and puts of the debentures as embedded derivatives. Pursuant to SFAS 133, Edulink bifurcated the conversion features and puts from the debentures because the economic characteristics and risks of the conversion features and puts were determined to not be clearly and closely related to the economic characteristics and risks of the debentures. In addition, because there was no explicit cap on the amount of shares that might be required to be issued pursuant to the conversion features, Edulink determined that the warrants met the attributes of a liability and therefore recorded the fair value of the conversion features and puts as a compound derivative and the warrants freestanding derivatives. Edulink is required to record the fair value of the derivatives on its balance sheet as liabilities at fair value with changes in the values of these derivatives reflected in the statement of operations as "Gain or loss on derivatives." The impact of the application of SFAS 133 and EITF 00-19 on the balance sheets as of December 31, 2004 and the impact on the statements of operations for the year ended December 31, 2004 are as follows:
(a) the first $250,000 of derivatives was a discount to the note payable therefore reducing the total derivative loss through December 31, 2004.
Edulink uses the Black-Scholes valuation model for calculation of the value of derivative liabilities. The company uses volatility rates based upon the closing stock price of its common stock, risk free interest rates which are the U.S. Treasury bill rate for securities with a maturity that approximates the estimated expected life of a derivative, closing market prices of common stock on the date of issuance of a derivative or at the end of a quarter when a derivative is valued at fair value. The volatility factor used in the Black-Scholes pricing model has a significant effect on the resulting valuation of the derivative liabilities on the balance sheets. The following table shows the volatility, risk free rate and market price used in the calculation of the Black-Scholes call value for the debentures and warrants at issuance date and for the period from derivative inception to December 31, 2004.
NOTE 6 - COMMON STOCK
Since inception, Edulink issued the following shares valued at the market prices shown as representing fair value on the dates issued:
1996 233,280,000 shares - to founders $.000 per share 101,774,118 - for services .001 28,302,353 - for cash .022 1997 17,152,942 - for cash .025 2,287,058 - for services .002 6,003,529 - for note conversion .030 1999 259,022,500 - reverse merger - 2000 150,300,000 - for cash .049 100,000 - for services .050 2,480,000 - for note conversion .050 ( 725,000) - stock canceled - 2001 14,000,000 - for cash .050 2,000,000 - for cash .050 5,717,600 - for options exercise .002 2003 2,550,000 - for options exercise .007 150,450,000 - for services .010 119,000,000 - for note conversion .007 2004 187,366,536 - for services .006 218,938,364 - settlement of lawsuit .0003 ------------- 1,500,000,000 total shares issued through December 31, 2004 =============
An additional 516,061,636 shares is payable for a lawsuit judgment entered in 2004 for which additional shares haven't been authorized for issuance. This amount is valued at $154,819 and is included in compensation payable.
NOTE 7 - STOCK OPTIONS AND WARRANTS
Common Stock Warrants
No warrants were issued, expired or exercised, during the years ended December 31, 2002 and 2003.
During the year ended December 31, 2004, 1,143,529 warrants were canceled. 750,000 warrants were issued during the year ended December 31, 2004. No warrants were exercised during the year ended December 31, 2004.
Summary information regarding warrants is as follows:
Warrants ---------- Outstanding at December 31, 2001 227,388,538
Year ended: December 31, 2002 No activity ---------- Outstanding at December 31, 2002 227,388,538
Year ended: December 31, 2003 No activity ---------- Outstanding at December 31, 2003 227,388,538
Year ended: December 31, 2004 Granted 750,000 Canceled (1,143,529) ---------- Outstanding at December 31, 2004 226,995,009 ==========
Warrants outstanding and exercisable as of December 31, 2004:
Weighted- Weighted- Average Average Exercise Exercise Stock Stock Remaining Price of Price Warrants Warrants Contractual and Warrants Exercisable Outstanding Exercisable Life Outstanding - -----------------------------------------------------------------------
$0.0022 179,646,185 166,373,069 .25 years $0.0022 $0.0350 46,598,824 46,598,824 .06 years $0.0350 $0.0050 750,000 750,000 4.40 years $0.0050 ------------- ------------- 226,995,009 213,721,893 ============= =============
Options
No options were granted, expired or exercised, during the year ended December 31, 2002.
During the year ended December 31, 2003, 2,550,000 options were granted and exercised. No options expired during the year ended December 31, 2003.
No options were granted, expired or exercised, during the year ended December 31, 2004.
Summary information regarding options is as follows:
Options ---------- Outstanding at Decemeber 31, 2001 4,000,000 Year ended: Decemeber 31, 2002 No activity ---------- Outstanding at Decemeber 31, 2002 4,000,000
Year ended: Decemeber 31, 2003 Granted 2,550,000 Exercised 2,550,000 --------- Outstanding at Decemeber 31, 2003 4,000,000
Year ended: Decemeber 31, 2004 No activity --------- Outstanding at Decemeber 31, 2004 4,000,000 =========
Options outstanding and exercisable as of December 31, 2004:
Weighted- Average Exercise Weighted- Price of Average Options Exercise Stock Stock Remaining Outstanding Price Options Options Contractual and Exercisable Outstanding Exercisable Life Exercisable - -----------------------------------------------------------------------
$0.0250 3,000,000 3,000,000 2.88 years $0.0250 $0.2500 1,000,000 1,000,000 2.67 years $0.2500 ------------- ------------- 4,000,000 4,000,000 ============= =============
Compensation expense for 2004, 2003 and 2002 was $0, $82,644 and $37,706, respectively.
NOTE 8 - DEBT FORGIVENESS
Edulink's legal counsel determined that third party collection attempts on certain accounts payable are barred by California's Statute of Limitation because of their age, lack of prior collection attempts and the absence of agreement by Edulink to extend their due dates. $75,264 of accounts payable were written off to debt forgiveness income in the year ended December 31, 2003.
NOTE 9 - SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary data relating to the results of operations for each quarter of the year ended December 31, 2004 is as follows:
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Lease
The Company co-leased its facility under an operating lease agreement with an unrelated third party, which expired in November 2002, but was extended on a month to month basis through December 31, 2002. Rent expense was $30,491 for the year ended December 31, 2002.
Since 2002, Edulink's principal office has been in the office of Edulink's president pursuant to a verbal agreement on a rent-free month-to-month basis.
Employment Agreement
In September 1999, the Company entered into five-year employment contracts with its President, Chief Executive Officer, and Senior Vice President that provide for a minimum annual salary, incentives, and bonuses, which are based on the Company's attainment of specified levels of sales and earnings. The annual salaries for the three officers are $150,000, $150,000, and $90,000, respectively.
In June 2003, the annual salary for the Chief Executive Officer was reduced to $30,000. During the year ended December 31, 2003, $350,000 in salaries were accrued.
In May 2004, the employment contracts with the President and Senior Vice President were terminated and in September 2004 the employment contract with the Chief Executive Officer was terminated. During the year ended December 31, 2004, $90,000 in salaries were accrued.
NOTE 11 - SUBSEQUENT EVENTS (Unaudited)
On August 11, 2006 Edulink acquired all of the outstanding capital stock of Mega Media Group, Inc., a New York Corporation ("MMG") in exchange for the issuance to the MMG Shareholders, upon the increase in the authorized capital stock, of a total number of shares of Edulink common stock, which will represent, and equate to, 90% of Edulink's issued and outstanding common stock. As further consideration for the acquisition, on the Closing Date, Edulink obtained from a majority of its shareholders duly executed irrevocable proxies to vote their shares for a period of 120 days or until such time as 90% of EduLink's shares are issued to the MMG Shareholders, and delivered them to MMG and its shareholders, along with the aforementioned EduLink shareholders' share certificates to be held in escrow. Upon the closing of the Merger, MMG became a wholly-owned subsidiary of Edulink. Upon the increase in the authorized capital stock, and issuance to the MMG Shareholders of 90% of the outstanding common stock, the former stockholders of Edulink will own 10% of the issued and outstanding Common Stock of EduLink. The transaction will be accounted for as a reverse acquisition.
On August 18, 2006, Edulink entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (collectively, the "Investors"). Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $1,500,000 in callable convertible secured notes (the "Notes") and (ii) warrants to purchase 50,000,000 shares of Edulink common stock (the "Warrants").
Pursuant to the Securities Purchase Agreement, the Investors will purchase the Notes and Warrants in three tranches as set forth below:
1. At closing on August 21, 2006 ("Closing"), the Investors purchased Notes aggregating $200,000 and Warrants to purchase 50,000,000 shares of Edulink common stock;
2. Upon Edulink being re-listed on the OTCBB, the Investors will purchase Notes aggregating $300,000; and,
3. Upon the filing of a registration statement registering the shares of common stock underlying the Notes ("Registration Statement"), the Investors will purchase Notes aggregating $400,000; and,
4. Upon effectiveness of the Registration Statement, the Investors will purchase Notes aggregating $600,000.
The Notes carry an interest rate of 6% per annum and a maturity date of August 18, 2009. The notes are convertible into Edulink common shares at the Applicable Percentage of the average of the lowest three (3) trading prices for Edulink shares of common stock during the twenty (20) trading day period prior to conversion. The "Applicable Percentage" means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the Closing.
At Edulink's option, Edulink may prepay the Notes in the event that no event of default exists, there are a sufficient number of shares available for conversion of the Notes and the market price is at or below $.25 per share. In addition, in the event that the average daily price of the common stock, as reported by the reporting service, for each day of the month ending on any determination date is below $.25, Edulink may prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month's interest. Exercise of this option will stay all conversions for the following month. The full principal amount of the Notes is due upon default under the terms of Notes. In addition, Edulink has granted the investors a security interest in substantially all of its assets and intellectual property as well as registration rights.
Edulink simultaneously issued to the Investors seven year warrants to purchase 50,000,000 shares of Edulink common stock at an exercise price of $.01. The Investors have contractually agreed to restrict their ability to convert the Notes and exercise the Warrants and receive shares of Edulink's common stock such that the number of shares of the Company's common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of Edulink's common stock.
Edulink is committed to filing an SB-2 Registration Statement with the SEC within 45 days from the Closing Date. Edulink will receive the second tranche of the funding when the SB-2 is filed with the SEC and the third and final tranche of the funding when the SB-2 is declared effective by the SEC. There are penalty provisions for Edulink should the filing not become effective within 135 days of the Closing Date. The notes are secured by all of Edulink's assets to the extent of the outstanding note.
Item 9.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Effective August 19, 2004, Edulink, Inc. (the "Registrant") dismissed Singer Lewak Greenbaum & Goldstein LLP ("Singer") which audited the Registrant's financial statements for the fiscal years ended December 31, 2002 and 2001, with Malone & Bailey PC ("Malone & Bailey") to act as the Registrant's independent registered accountants. The reports of Singer for these fiscal years did not contain an adverse opinion, or disclaimer of opinion and were not qualified or modified as to audit scope or accounting principles except as described herein. The report of Singer for these fiscal years was qualified with respect to uncertainty as to the Registrant's ability to continue as a going concern. During the Registrant's two most recent fiscal years and the period from the end of the most recently completed fiscal year through August 19, 2004, the date of dismissal, there were no disagreements with Singer on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Singer would have caused it to make reference to such disagreements in its reports.
The Registrant's financial statements for the year ended December 31, 2003 were audited and the quarters ended March 31, 2004, June 30, 2004, and September 30, 2004, will be reviewed by Malone & Bailey; Singer was not involved in any way with the audit of the financial statements for the year ended December 31, 2003 or the review of the unaudited financial statements for the quarters ended March 31, 2004, June 30, 2004, and September 30, 2004. The Registrant has authorized Singer to discuss any matter relating to the Registrant and its operations with Malone & Bailey.
The change in the Registrant's auditors was recommended and approved by the board of directors of the Registrant since the Registrant does not have an audit committee.
During the two most recent fiscal years and subsequent interim periods, the Registrant did not consult with Malone & Bailey, regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrant's financial statements, or any matter that was the subject of a disagreement or a reportable event as defined in the regulations of the Securities and Exchange Commission.
Singer will be given the opportunity to review the disclosures contained in this Form10-K. The Registrant will advise Singer that it has the opportunity to furnish the Registrant with a letter addressed to the Securities and Exchange Commission concerning any new information, clarifying the Registrant's disclosures herein or stating any reason why Singer does not agree with any statements made by the Registrant in this report.
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. This was the result of communication from the Securities and Exchange Commission whereby management identified several filings which need to be filed which the Company is in the process of doing.
Changes in Internal Controls
There were no changes in our internal controls during this annual period.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10
Item 10 Directors and Executive Officers of the Registrant.
Directors and Executive Officers of the Registrant
Information regarding our directors and executive officers as of March 26, 2003 is set forth below. Each officer's term of office will expire at the first Board of Directors meeting held after our next annual meeting of stockholders. There is no arrangement or understanding between any of the executive officers or any other person pursuant to which such executive officer was selected for the office held. Ronald Rescigno, Co-chair of the Board of Directors and President of EduLink, is the father of Ian Rescigno, EduLink's Senior Vice-President - Operations. The following table sets forth information regarding EduLink's directors and executive officers:
NAME AGE POSITION ---- --- -------- Michael Rosenfeld 63 Co-Chairman of the Board of Directors and Chief Executive Officer
Ronald Rescigno 70 Co-Chairman of the Board of Directors and President Dorothy Tucker 55 Senior Vice President - Operations Shawn Gross 33 Director
MICHAEL ROSENFELD is Co-Chairman and Chief Executive Officer of EduLink. Mr. Rosenfeld has spent approximately the last thirty years practicing entertainment law with an emphasis on the music recording and publishing industry. Mr. Rosenfeld formerly was of counsel to Rosenfeld, Meyer & Susman, LP, an entertainment law firm with offices in Beverly Hills, California, from January 1995 through December 1997. He has been Chief Executive Officer and Co-Chairman of the Board of Directors of EduLink since January 1998 and devotes substantially all his working time and energies on the business of EduLink. Mr. Rosenfeld received his Bachelors of Arts degree from UCLA in 1964, and his L.L.B. from UCLA in 1967, where he was a member of the UCLA Law Review.
RONALD R. RESCIGNO, Ed.D., D.H.L., Co-Chairman and President, EduLink Inc. Effective January 1997, Dr. Rescigno retired as a public school superintendent in California. Dr. Rescigno served in the public schools of the United States for 39 years, 17 as a school superintendent. Dr. Rescigno was Superintendent of the Hueneme School district located in Port Hueneme, California from 1983 through 1996. Since January 1997 Dr. Rescigno has been President and Co-Chairman of the Board of Directors of EduLink. Dr. Rescigno holds two doctorates; the degree of Doctor of Humane Letters (honoris causa) awarded by Wilkes University, Wilkes-Barre, Pennsylvania, in 1989 for his international work in student learning and the integration of computer networked technology and a Doctor of Education degree awarded by the University of North Colorado, Greeley, Colorado in 1978. Dr. Rescigno received his Bachelor of Science degree from Wilkes College, Wilkes-Barre, Pennsylvania in 1958 and a Master of Arts degree from Columbia University, New York, New York, in 1967. He is the author of the book Smarter Classrooms - Smarter World and produced a video on the same subject. He is currently working on a sequel to the above book describing his vision of the cyberspace school - i.e., the proposed Smart Schoolhouse system.
IAN RESCIGNO, Vice President - Operations, has responsibilities which include video production, content licensing and acquisition, strategic content partnerships, project management. Mr. Rescigno was the founder and president of Eco International, Inc. ("Eco") from 1989 through December 1996. Mr. Rescigno has been working for EduLink in varying capacities since January 1997. After graduating from UCLA in 1988, Mr. Rescigno formed ECO International, Inc. ECO established a training and consultancy center in manufacturing technologies in Bulgaria for the purpose of improving the technological capabilities and efficiency of the Bulgarian industry through the accelerated introduction of computers in automation of manufacturing. ECO conducted research to develop and integrate different elements of advanced manufacturing technologies, such as CAD/CAM, FMS cells, industrial robotics, computerized factory management, automated inventory and distribution systems.
DOROTHY TUCKER, Ph.D., is a Director of the Company. Since January 1995, Dr. Tucker has been President of Dorothy M. Tucker, Associates, psychological consultants to corporations and governmental agencies, including the Los Angeles Police Department and General Electric. Dr. Tucker received her Ph.D. in Psychology from California School of Professional Psychology and her Ph.D. in Counselor Education from Ohio State University. She currently serves as a member of the California State Bar Board of Governors and the President's Task Force on Urban Initiatives.
SHAWN GROSS is a Director of the Company. Mr. Gross was, until he resigned in the fourth Quarter of 2002, the Corporate Manager for Strategic Alliances at Sun Microsystems' Global Education and Research division, where he focused on the acquisition of new partners who support the implementation of Sun's vision into the worldwide K - 12 educational market. Mr. Gross also served as a governmental relations liaison for Sun in Washington, D.C. regarding education technology policy, including service as an Honorary Executive to the Congressional Web Based Education Commission, contributing author to the National Education Technology Plan, Chairperson of the DC Mayor's Task Force on Education Technology, and author of a handbook on portal implementation technology guide for the 1997 Summit of the Americas. Mr. Gross holds a B.A. in International Studies, an M.B.A. and a Masters of Public Policy and International Affairs
Term of Office - --------------
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. We do not have any standing committees.
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Certain Legal Proceedings - -------------------------
No director, nominee for director, or executive officer has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.
Significant Employees
None.
Family Relationships
None.
Board Committees
The Company does not have a separate Compensation Committee, Audit Committee or Nominating Committee. These functions are done by the Board of Directors meeting as a whole.
Audit Committee
The board of directors has not yet established an audit committee. The functions of the audit committee are currently performed by the entire board of directors. The Company is under no legal obligation to establish an audit committee and has elected not to do so at this time so as to avoid the time and expense of identifying independent directors willing to serve on the audit committee. The Company may establish an audit committee in the future if the board determines it to be advisable or we are otherwise required to do so by applicable law, rule or regulation.
As the board of directors does not have an audit committee, it therefore has no "audit committee financial expert" within the meaning of Item 401(e) of Regulation S-B. In general, an "audit committee financial expert" is an individual member of the audit committee who:
|X| understands generally accepted accounting principles and financial statements;
|X| is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves;
|X| has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements;
|X| understands internal controls over financial reporting; and
|X| understands audit committee functions.
Compliance with Section 16(a) of the Exchange Act - -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Officers, directors, and greater than 10 percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, all reports under Section 16(a) required to be filed by its officers and directors and greater than ten percent beneficial owners were not timely filed as of the date of this filing.
Code of Ethics - --------------
We have not adopted a Code of Ethics.
Item 11.
Item 11. Executive Compensation.
Compensation of Executive Officers
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the fiscal years ended December 31, 2004, 2003 and 2002 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
((1) The indicated Officer agreed to waive compensation for the three month period April 1, 2002 through June 30, 2002, and to defer any compensation for the six month period July 1, 2002, through December 31, 2002.
Option Grants Table. There were no individual grants of stock options to purchase our common stock made to the named executive officers named in the Summary Compensation Table during the fiscal year ended December 31, 2003, and the subsequent period up to the date of the filing of this Prospectus.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. There were no stock options exercised during fiscal year ending December 31, 2004, by the executive officers named in the Summary Compensation Table.
Long-Term Incentive Plan ("LTIP") Awards Table. There were no awards made to a named executive officer in the last completed fiscal year under any LTIP Stock Options Granted In Last Fiscal Year
During the fiscal years ended December 31, 2004, 2003, and 2002, the Company did not grant any options to its Chief Executive Officer or any other officer or director.
Employment Agreements
Ronald Rescigno has been employed as President of EduLink since September 1, 1999, and his employment agreement runs through December 31, 2004. Compensation originally equaled $150,000 per year (the monthly pro-rata compensation from September 1 - December 31, 1999 was waived), plus a bonus equal to the greater of 10% of the Net Pre-Tax Profits or 10% of the Net Cash Flow of EduLink computed annually, but not to exceed an amount equal to $300,000 for each of the calendar years 2000 and 2001 and $450,000 for each of the calendar years 2002, 2003 and 2004; in addition, Dr. Rescigno is entitled to four weeks vacation, annually, fifteen paid sick days annually, and insurance benefits. The agreement also originally provided that warrants to purchase 5,717,650 shares of EduLink's common stock at $.0022 per share were to be issued to Dr. Rescigno upon completion of each of the Design Phase, the Build-Out Elements, the Beta Test and the National launch of the proposed Smart Schoolhouse system for the 7th and 8th grades. These warrants were to vest ratably over 7 years from the date of issuance. In 2000, following the issuance of warrants for completion of the Design Phase but prior to the issuance of any of the remaining warrants, the agreement was amended to eliminate the right to receive the remaining warrants in exchange for $50,000 additional salary in 2000 and a base salary of $300,000 in 2001. Dr. Rescigno must devote all of his work efforts to EduLink, Inc. for the term of his employment agreement.
Michael Rosenfeld has been employed as Chief Executive Officer of EduLink since September 1, 1999, and his employment agreement runs through December 31, 2004. Compensation originally equaled $150,000 per year (the monthly pro-rata compensation from September 1 - December 31, 1999 was waived), plus a bonus equal to the greater of 10% of the Net Pre-Tax Profits or 10% of the Net Cash Flow of EduLink computed annually, but not to exceed an amount equal to $300,000 for each of the calendar years 2000 and 2001 and $450,000 for each of the calendar years 2002, 2003, and 2004; in addition, Mr. Rosenfeld is entitled to four weeks vacation, annually, fifteen paid sick days, annually, and insurance benefits. The agreement also originally provided that warrants to purchase 5,717,650 shares of EduLink's common stock at $.0022 per share were to be issued to Mr. Rosenfeld upon completion of each of the Design Phase, the Build-Out Elements, the Beta Test and the National launch of the proposed Smart Schoolhouse system for the 7th and 8th grades. These warrants were to vest ratably over 7 years from the date of issuance. In 2000, following the issuance of warrants for completion of the Design Phase but prior to the issuance of any of the remaining warrants, the agreement was amended to eliminate the right to receive the remaining warrants in exchange for $50,000 additional salary in 2000 and a base salary of $300,000 in 2001. Mr. Rosenfeld may render outside services so long as it does not interfere with his obligation as an officer of EduLink.
Ian Rescigno has been employed as Senior Vice President of Operations for EduLink since September 1, 1999, and his employment agreement runs through December 31, 2004. Compensation originally equaled $90,000 per year (the monthly pro-rata compensation from September 1 - December 31, 1999 was waived), plus a bonus equal to the greater of 10% of the Net Pre-Tax Profits or 10% of the Net Cash Flow of EduLink computed annually, but not to exceed an amount equal to $180,000 for each of the calendar years 2000 and 2001 and $270,000 for each of the calendar years 2002, 2003, and 2004; in addition, the employee is entitled to four weeks vacation, annually, and fifteen paid sick days, annually, and insurance benefits. The agreement also originally provided that warrants to purchase 5,717,650 shares of EduLink's common stock at $.0022 per share were to be issued to Mr. Rescigno upon completion of each of the Design Phase, the Build-Out Elements, the Beta Test and the National launch of the proposed Smart Schoolhouse system for the 7th and 8th grades. These warrants were to vest ratably over 7 years from the date of issuance. In 2000, following the issuance of warrants for completion of the Design Phase but prior to the issuance of any of the remaining warrants, the agreement was amended to eliminate the right to receive the remaining warrants in exchange for $30,000 additional salary in 2000. In February 2000, Mr. Rescigno was issued additional warrants to purchase 34,305,000 shares of common stock at an exercise price of $.0022 per share. Mr. Rescigno must devote all of his work efforts to EduLink, Inc. for the term of his employment agreement.
Each of these employees waived compensation during the second quarter of 2002 and deferred receipt of any compensation from July 1, 2002 through December 31, 2003
Compensation of Directors
Directors are entitled to reimbursement of expenses incurred in attendance of Board Meeting and fulfilling their duties as a director.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table shows the stockholdings of all directors and executive officers of the Company, principal stockholders who own beneficially more than five percent of the Company's 1,281,061,636 issued and outstanding common stock, and all directors and officers of the Company as a group as of May 19, 2004.
Name and Address of Beneficial Owner Number Percentage (1) - ------------------------------------ ------ -------------
MICHAEL ROSENFELD (2) 199,752,789(3) 15.59% RONALD RESCIGNO (2) 172,233,276(4) 13.44% IAN RESCIGNO (2) 38,822,600(5) 3.03% DOROTHY TUCKER (2) 5,717,647(6) 0.45% SHAWN GROSS (2) 7,000,000(7) 0.55% ALL EXECUTIVE OFFICERS AND 368,752,353 33.06% DIRECTORS AS A GROUP (5 PERSONS)
(1) Calculated on the basis of 1,281,061,636 shares of common stock issued and outstanding on May 19, 2005. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares which such person has the right to acquire within 60 days after the date of this filing. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above on the date of this filing, any security which such person or group of persons has the right to acquire within 60 days after such date is deemed to be outstanding for the purpose of computing the percentage ownership for such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
(2) Address is c/o EduLink, Inc., 201 Wilshire Boulevard, Second Floor, Santa Monica, CA 90401.
(3) Includes 31,456,309 shares issuable upon exercise of warrants, at an exercise price of $.0022 per share, which expire on August 14, 2004, and further includes 3,317,650 shares issuable upon exercise of warrants,at an exercise price of $.0022 per share, which expire on June 7, 2007.
(4) Includes 57,176,470 shares issuable upon exercise of warrants, at an exercise price of $.0022 per share, which expire on August 14, 2004, and further includes 3,317,650 shares issuable upon exercise of warrants, at exercise price of $.0022 per share, which expire on June 7, 2007.
(5) Includes 33,921,807 shares issuable upon exercise of warrants, at an exercise price of $.0022 per share, which expire on February 1, 2007, and further includes 5,176,650 shares issuable upon exercise of warrants, at an exercise price of $.0022 per share, which expire on June 7, 2007.
(6) Consists of 5,717,647 shares issuable upon exercise of warrants, at an exercise price of $.0022 per share, which expire on September 14, 2003.
(7) Consists of 7,000,000 shares issuable upon exercise of an option, at an exercise price of $.025 per share, which expires on November 19, 2008.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Mr. Rosenfeld advanced funds to or on behalf of EduLink during 1999 equal to $112,902 at an implied interest rate of 8.9%, and EduLink agreed to repay these funds to Mr. Rosenfeld on a periodic basis, such payments being made in lieu of, and serving to reduce, the monthly compensation otherwise payable to him under the terms of his EduLink employment agreement. The entire loan was repaid to Mr. Rosenfeld in 2000, with interest due on the loan repaid thereafter. In addition, Mr. Rosenfeld has waived his right to receive reimbursement for $140,403 in sums advanced by him to or on behalf of EduLink during the years 1996, 1997 and 1998. Dr. Rescigno was reimbursed $22,500 by EduLink in December 1999 and January 2000 for expenses incurred in 1998 and 1999 relating to secretarial services, office supply purchases and travel expenses incurred by him on behalf of EduLink.
EduLink utilizes a portion of Mr. Rosenfeld's offices. EduLink paid $0, $0, $30,491, $40,963, $37,335 and $31,711 in 2004, 2003, 2002, 2001, 2000, and 1999, respectively, to the landlord of the premises, which is not an affiliate of EduLink.
Item 14.
Item 14. Principal Accountant Fees and Services.
Audit Fees - ----------
For our fiscal year ended December 31, 2004, we were billed approximately $19,000 for professional services rendered for the audit and reviews of our financial statements. For our fiscal year ended December 31, 2003, we were billed approximately $19,000 for professional services rendered for the audit and reviews of our financial statements.
Tax Fees - --------
For the Company's fiscal year ended December 31, 2004 and December 31, 2003, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees - --------------
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal year ended December 31, 2004 and December 31, 2003.
Item 15.
Item 15. Exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EDULINK, INC.
By: /s/ Aleksandr Shvarts --------------------- ALEKSANDR SHVARTS Chief Executive Officer
By: /s/ Gennady Pomeranets ---------------------- Gennady Pomeranets CPA Chief Financial Officer
Date: November 1, 2006
Pursuant to the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.