10-Q 1 edulink_10q-093007.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2007 |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File number 000-29953 EDULINK, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) NEVADA 95-4562316 -------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 605 WARWICK AVENUE #4, THOUSAND OAKS, CALIFORNIA 91360 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (805) 449-1614 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Indicate by check mark if the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |_| No |X| Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |x| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | | Yes |X| No As of September 30, 2007, there were 1,500,000,000 outstanding shares of the Registrant's Common Stock, $0.001 par value. 13 TABLE OF CONTENTS Part I FINANCIAL INFORMATION Item 1. Financial Statements and Supplementary Data 2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 5 Item 3. Quantitative and Qualitative Disclosures about Market Risk 9 Item 4. Controls and Procedures 9 Part II OTHER INFORMATION Item 1. Legal Proceedings 9 Item 1A. Risk Factors 9 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits 11 Signatures 11 As used in this annual report, "we", "us", "our", "Edulink", the "Company", or "our Company" refers to Edulink, Inc. and its predecessor. Forward-Looking Statements and Associated Risks The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Some of the statements contained in this annual report of Edulink discuss future expectations, contain projections of our operations or financial condition or state other forward-looking information. Some statements contained in this annual report on Form 10-K that are not historical facts (including without limitation statements to the effect that we "believe," "expect," "anticipate," "plan," "intend," "foresee," or other similar expressions) and are forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those anticipated by us. All comments concerning our expectations for future revenue and operating results are based on our forecasts of our plan of operation and do not include the potential impact of any future acquisitions or operations. These forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements.
EDULINK, INC. (a development stage company) BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 2007 2006 ----------- ----------- TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable and accrued expenses Compensation payable Loan payable, net of unamortized debt discount of $0 and $37,634, respectively Due to related party Accrued interest Stock payable Derivative liability Total Current Liabilities Stockholders' Deficit Common stock, $.001 par value, 1,500,000,000 shares authorized, 1,500,000,000 shares issued and outstanding as of 9/30/07 1,500,000 1,500,000 Additional paid-in capital 16,343,350 16,343,350 Deficit accumulated during the development (17,843,350) (17,843,350) Total Stockholders' Deficit TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT See accompanying summary of accounting policies and notes to financial statements 3 EDULINK, INC. (a development stage company) STATEMENTS OF OPERATIONS Three and Nine Months ended September 30, 2007 and 2006 and the Period from January 25, 1996 (Inception) to September 30, 2007 (unaudited) Three months Three months Nine months Nine months Inception ended ended ended ended through September 30, September 30, September 30, September 30, September 30, 2007 2006 2007 2006 2007 ------------- ------------- ------------- ------------- ----------- License Fee Income $ 50,000 Selling, general and 11,624,432 administrative Software development 7,220,268 costs Impairment of property 18,572 and equipment Interest expense 786,908 (Gain) loss on (335,231) derivatives Interest income (144,239) Forgiveness of debt 506,488 NET LOSS 17,843,350 BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00) N/A WEIGHTED-AVERAGE SHARES OUTSTANDING 1,500,000,000 1,500,000,000 1,500,000,000 1,500,000,000 N/A ------------- ------------- ------------- ------------- See accompanying summary of accounting policies and notes to financial statements 4 EDULINK, INC. (a development stage company) STATEMENTS OF CASH FLOWS Nine Months ended September 30, 2007 and 2006 and the Period from January 25, 1996 (Inception) to September 30, 2007 (unaudited) Inception Nine months ended Nine months ended through September 30, September 30, September 30, 2007 2006 2007 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss -- 17,843,350 Adjustments to reconcile net income (loss) to net cash used in operating activities: Stock for services 3,322,436 Additional stock issued for note conversion 354,346 Stock for settlement of dispute 223,500 Option and warrant expense 3,530,974 Change in fair value of derivative liability (335,231) Accretion of debt discount on loan payable 260,166 Forgiveness of debt (506,488) Impairment of property and equipment 18,572 Compensation waived by officers 270,403 Changes in: Prepaid expense Accounts payable and accrued expenses 1,046,720 NET CASH USED BY OPERATING ACTIVITIES (10,398,809) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (18,572) NET CASH USED BY INVESTING ACTIVITIES (18,572) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock, net of offering costs 9,370,177 Proceeds from issuance of debenture 250,000 Proceeds from issuance of bridge notes and other short-term notes payable 933,260 Payments on bridge notes and other short-term notes payable (136,056) NET CASH PROVIDED BY FINANCING ACTIVITIES 10,417,381 NET CHANGE IN CASH CASH: Beginning of period End of period NET-CASH TRANSACTIONS Conversion of notes and accrued interest to common stock 781,033 Contribution of accrued compensation to officers to additional paid in capital 97,500 Discount on debt 297,800 See accompanying summary of accounting policies and notes to financial statements
5 EDULINK, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION AND NEW ACCOUNTING POLICIES The accompanying unaudited interim financial statements of Edulink, a development stage company, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Edulink's latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in Form 10-K, have been omitted. NOTE 2 - COMMITMENTS AND CONTINGENCIES Ian Rescigno has been employed as Chief Executive Officer of Edulink, Inc. since August 1, 2007, and his employment agreement runs through December 31, 2012. Compensation is $150,000 per year plus a bonus equal to the greater of 10% of the Net Pre-Tax Profits or 10% of the Net Cash Flow of Learning Priority, Inc. computed annually, but not to exceed an amount equal to $300,000 for each of the calendar years 2008 and 2009 and $450,000 for each of the calendar years 2010, 2011, and 2012; in addition, Mr. Rescigno is entitled to four weeks vacation, annually, fifteen paid sick days, annually, and insurance benefits. Mr. Rescigno must devote all of his work efforts to Learning Priority, Inc. for the term of his employment agreement. Item 2. 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. 6 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, 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, 2006, 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 2008 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 2008), as well as to create the infrastructure to market and exploit its technology in other markets. The Company raised $10,417,381, net of expenses, as of September 30, 2007, 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, 2007 to March 31, 2008, 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. On July 21st, 2007, Ian Rescigno was appointed to the Board of Directors and michael rosenfeld resigned from the Board of Directors. Results of Operation -------------------- Three Months Ended September 30, 2007 as compared to Three Months Ended September 30, 2006. FOR THREE MONTHS ENDED September 30, INCOME STATEMENT: 2007 2006 ------------------------------- REVENUE $ -- $ -- INTEREST INCOME $ -- $ -- SOFTWARE DEVELOPMENT COSTS $ -- $ -- GENERAL AND ADMINISTRATIVE EXPENSES $ -- $ TOTAL OPERATING EXPENSES $ -- $ NET LOSS FROM OPERATIONS $ --- $ 7 Comparison of the Three Months Ended September 30, 2007 as compared to Three Months Ended September 30, 2007. REVENUE. Our revenue remained the same during the period ended September 30, 2007, compared with the period ended September 30, 2006. INTEREST INCOME. Interest income expense remained the same during the period ended September 30, 2007, compared with the period ended September 30, 2006. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses remained the same during the period ended September 30, 2007, compared with the period ended September 30, 2006. SOFTWARE DEVELOPMENT COSTS. Software development costs remained the same during the period ended September 30, 2007, compared with the period ended September 30, 2006. TOTAL OPERATING EXPENSES. Total operating expenses remained the same during the period ended September 30, 2007, compared with the period ended September 30, 2006. 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 September 30, 2007, the Company had cash of approximately $0. As of December 31, 2006, the Company had cash of approximately $0. Cash used in operations was $0 for the three months ended June 30, 2007, and $10,398,809 from inception through September 30, 2007. 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 June 30, 2007, the Company has raised $9,370,177 through sales of common stock, $250,000 from the issuance of debentures and approximately $933,260 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. Going Concern ------------- As reflected in the Company's Financial Statements which accompany this report, our 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. 8 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. 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. Subsequent Events ----------------- As of January 25, 2008, NASDAQ approved the Company to amend our Articles of Incorporation to: (i) change the Company's name to "Learning Priority, Inc." and symbol to "LRNP"; (ii) effectuate a 1-for-1,500 reverse stock split of our authorized and issued and outstanding shares of common stock; (iii) increase the number of authorized shares of Common Stock to two billion, sixteen million, sixty one thousand, six hundred and thirty six (2,016,061,636) shares of common stock, par value $0.001 per share. Off-Balance Sheet Arrangements ------------------------------ We have no off-balance sheet arrangements. Item 3. 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 4. 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 have concluded that our 9 disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are 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. The Company's current management has begun to do the required filings that are delinquent. Current management recognized that Company's prior management and executive team did not have adequate controls in place to ensure that filings were made in an accurate and timely manner. Changes in Internal Controls ---------------------------- In new management's evaluation of the Company's internal controls and procedures, some improvements were made as follows: ? Updating internal controls and procedures. ? Engaging outside legal counsel experienced in SEC rules and regulations to review the Company's controls and procedures and ensure ongoing compliance with SEC rules and policies. ? Adopting a new Code of Business Ethics. ? Mandatory continued education for the Company's executive management to keep them abreast of changes in legal accounting rules and SEC regulations. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On February 28, 2006, a default judgment was entered against us in the Los Angeles Superior Court. The Judgment ordered Standard Registrar and Transfer Company, Inc., our transfer agent, to issue to Ian Rescigno 735,000,000 shares of our common stock, as well as attorney fees and costs in the amount of $5,679.50, for breaching a settlement agreement which arose from an employment agreement dispute with Mr. Rescigno. The transfer agent issued the shares on March 6, 2006, which resulted in an issuance of 516,061,636 shares above our authorized common stock of 1,500,000,000. On November 8, 2006, Mr. Rescigno returned to the transfer agent the stock certificate for 735,000,000 shares and requested a re-issuance of shares within our authorized common stock, with the balance of shares to be issued once there are sufficient shares authorized. On November 9, 2006, the transfer agent canceled the excessive issuance and re-issued to Mr. Rescigno 218,938,364 shares of common stock. We are committed to complying with the above default judgment and issuing to Mr. Rescigno the full amount of shares. The Company is not involved in any other pending legal proceedings. Item 1A. Risk Factors. The risks relating to our company have not materially changed since our Form 10-k filed on December 31, 2006, which information is hereby incorporated by reference. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. 10 Item 6. Exhibits.
Exhibit No. Title of Document Location ---------------------------------------------------------------------------------------------- 31.1 Certification of Chief Executive Officer Pursuant Filed herewith to Rule 13a-14(a) of the Securities Exchange Act of 1934 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Filed herewith Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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. Date: June 5, 2008 /s/ IAN RESCIGNO -------------------------------- Ian Rescigno Chief Executive Officer (Principal Executive Officer and Authorized Signatory) 11