10QSB 1 0001.txt FORM 10-QSB FOR SEPTEMBER 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 Date of Report November 20, 2000 GLOBAL E TUTOR, INC. (Exact Name of Registrant as Specified in Charter) DELAWARE State or other jurisdiction of incorporation or organization 000-30743 Commission File No. 88-0444539 I.R.S. Employer I.D. No. 3340 PEACHTREE ROAD, SUITE 1800, ATLANTA, GA (Address of Principal Executive Offices) 30326 (Zip Code) Registrant's telephone number, including area code: (404) 978-1640 GLOBALETUTOR, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS ------ Subsidiary September 30, December 31, 2000 1999 ------------- ------------ Current assets -------------- Cash $ - $ 774,911 Other current assets - 20,000 ---------- ----------- Total current assets - 794,911 ---------- ----------- Property and equipment, at cost ------------------------------- Furniture and equipment 40,033 - Computer equipment 27,842 5,369 Software 2,208 - Leasehold improvements 15,386 - Web site development costs 539,301 - ---------- ----------- 624,770 5,369 Allowance for depreciation (337,456) (79) ---------- ----------- Net property and equipment 287,314 5,290 ---------- ----------- Other assets ------------ Employee advances 500 - Intangibles, net of accumulated amortization 19,070 132 Other assets 18,078 75,000 ---------- ----------- Total other assets 37,648 75,132 ---------- ----------- $ 324,962 $ 875,333 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- Current liabilities ------------------- Cash overdraft $ 51,263 $ - Accounts payable 464,212 98,500 Accrued Expenses 80,226 11,606 Due to related parties 595,540 923,890 ---------- ----------- Total current liabilities 1,191,241 1,033,996 ---------- ----------- Stockholders' equity (deficit) ------------------------------ Common stock 27,584 9,640 Additional paid in capital 2,545,955 15,360 Deferred compensation, net of accumulated amortization (429,981) - Accumulated deficit (3,009,837) (183,663) ---------- ----------- Total stockholders' equity (deficit) (866,279) (158,663) ---------- ----------- $ 324,962 $ 875,333 ========== ===========
Note: The balance sheet at December 31, 1999 was taken from the audited financial statements at that date and condensed See notes to unaudited condensed consolidated financial statements GLOBALETUTOR, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Period For the Nine For the Three From inception Months Ended Months Ended on December 10, September 30, September 30, 1999 Through 2000 2000 September 30, 2000 ------------- ------------- ------------------ Revenue $ - $ - $ - ------- ----------- ----------- ----------- Costs of goods sold - - - ------------------- ----------- ----------- ----------- Gross profit - - - ------------ ----------- ----------- ----------- Expenses -------- General and administrative 1,697,758 616,468 1,832,646 Depreciation/amortization 655,541 435,496 655,541 Research and development 60,022 16,950 60,022 Sales and marketing 417,954 62,437 458,246 ----------- ----------- ----------- Total expenses 2,831,275 1,131,351 3,006,455 ----------- ----------- ----------- Loss from operations (2,831,275) (1,131,351) (3,006,455) -------------------- ----------- ----------- ----------- Other income (expense) --------------------- Interest income 17,758 155 17,758 Misc. income 1,200 - 1,200 Interest expense (13,857) (6,735) (22,340) ----------- ----------- ----------- Total other income (expense) 5,101 (6,580) (3,382) ----------- ----------- ----------- Loss before income taxes (2,826,174) (1,137,931) (3,009,837) ------------------------ Income tax expense - - - ------------------ ----------- ----------- ----------- Net loss $(2,826,174) $(1,137,931) $(3,009,837) -------- =========== =========== =========== Loss per common share $ (0.11) $ (0.04) $ (0.12) --------------------- =========== =========== =========== See notes to unaudited condensed consolidated financial statements
GLOBALETUTOR, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FROM INCEPTION ON DECEMBER 10, 1999 THROUGH SEPTEMBER 30, 2000 (UNAUDITED) Common Stock Additional Total ------------------------ Paid In Deferred Accumulated Stockholders' Shares Amount Capital Compensation Deficit Equity (Deficit) ----------- ---------- ----------- ------------ ----------- ---------------- Balance, December 10, 1999 9,640,000 $ 9,640 $ 15,360 $ - $ - $ 25,000 Compensation for options and warrants issued at below market value - - - - - - Net loss for the period ended December 31, 1999 - - - (183,663) (183,663) ---------- ------- ---------- ---------- ----------- ----------- Balance, December 31, 1999 9,640,000 9,640 15,360 - (183,663) (158,663) Shares issued for cash at $.25 per share 5,000,000 5,000 1,245,000 - - 1,250,000 Effect of recapitalization of the subsidiary January 21, 2000 12,827,747 12,828 537,173 - 550,001 Share issued to purchase Kilimanjaro Group.com, Inc. at $.50 per share 50,000 50 24,950 - 25,000 Shares issued for services at $2.68 per share 49,520 50 132,560 132,610 Compensation for options and warrants issued at below market value - - 528,942 (474,422) - 54,520 Shares issued for services at $.81 per share 10,000 10 8,116 8,126 Shares issued for services at $.99 per share 6,612 6 6,604 6,610 Warrants issued for services at $.63 per share 47,250 47,250 Amortization of deferred compensation 44,441 44,441 Net loss for the period ended September 30, 2000 (2,826,174) (2,826,174) -------------------------------------------------------------------------------------------------- Balance, September 30, 2000 27,583,879 $27,584 $2,545,955 $(429,981) $(3,009,837) $ (866,279) ==================================================================================================
See notes to unaudited condensed consolidated financial statements GLOBALETUTOR, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) In Cash (UNAUDITED)
For the Period For the Nine From Inception Months Ended on December 10, September 30, 1999 Through 2000 September 30, 2000 ------------------- ------------------ Cash flows from operating activities ------------------------------------ Net loss $(2,826,174) $(3,009,837) ----------- ----------- Adjustments to reconcile net loss to net cash (used) by operating activities Depreciation and amortization 423,971 424,057 Deferred compensation 98,961 98,961 Non-cash expense 194,597 194,597 Changes in assets and liabilities - - Other assets (18,078) (18,078) Pre-paid expenses 20,000 - Cash overdraft/Accounts payable/accrued expenses 484,395 519,501 ----------- ----------- Total adjustments 1,203,846 1,219,038 ----------- ----------- Net cash (used) by operating activities (1,622,328) (1,790,799) ----------- ----------- Cash flows from investing activities ------------------------------------ (Acquisition) of fixed assets (619,401) (624,770) (Acquisition) of subsidiary (75,000) (75,000) (Acquisition) of intangible assets (4,332) (4,471) ----------- ----------- Net cash (used) by investing activities (698,733) (704,241) ----------- ----------- Cash flows from financing activities ------------------------------------ Proceeds from related parties 421,150 1,345,040 Proceeds from sale of common stock 1,125,000 1,150,000 ----------- ----------- Net cash provided by financing activities 1,546,150 2,495,040 ----------- ----------- Net increase (decrease) in cash (774,911) - Cash, beginning of period 774,911 - ----------- ----------- Cash, end of period $ - $ - =========== ===========
NON-CASH TRANSACTIONS --------------------- The Company paid $75,000 in cash, assumed $1,200 in liabilities and issued 50,000 shares of common stock to purchase all the outstanding common shares of Kilimanjaro Group.Com, Inc., resulting in Company recording goodwill of $101,200 The Company issued 66,132 restricted common shares, 36,782 non-qualified options, and 291,208 warrants during the nine months ended September 30, 2000, in exchange for services, totaling $147,347, $26,391 and $549,802 respectively. In accordance with the merger and plan of reorganization, on January 21, 2000, 9,640,000 common shares of GlobalETutor, Inc. (formerly Digital Launch, Inc.) were exchanged for all of the outstanding common shares, 4,820,000, of GlobaleTutor.com, Inc. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ------------------------------------------------- June 30, 2000 -------- Cash paid during the periods for Interest $ - Income Taxes $ - See notes to unaudited condensed consolidated financial statements GLOBAL E TUTOR, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDING SEPTEMBER 30, 2000 Note A - BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements of Global e Tutor, Inc. and subsidiary (the "Company") for the nine months ended September 30, 2000, have been prepared in accordance with Generally Accepted Accounting Principles for interim financial information and instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information in notes required by Generally Accepted Accounting Principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited financial statements for this interim period have been included. The results of the interim periods are not necessarily indicative of the results to be obtained for the year ended December 31, 2000. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto included in the Company's Form 8-K 12G3 for the fiscal year ended December 31, 1999, filed with the Securities and Exchange Commission on June 1, 2000. The Company is developing a website for global education via web based, interactive, video-on-demand tutoring services for grades K-12. The Company is considered a development stage company as defined in SFAS No.7. In a development stage company, management devotes most of its activities to investigating business opportunities. Planned principal activities have not yet begun. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to raise additional equity financing. There is no guarantee that the Company will be able to raise any equity financing. There is substantial doubt regarding the Company's ability to continue as a going concern. See Note F. INCOME TAXES: ------------- The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the temporary difference between the financial statement and tax basis of assets and liabilities using presently enacted tax rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. PROPERTY AND EQUIPMENT: ----------------------- Property and equipment are stated at cost. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation are eliminated from the accounts, and any resulting gain or loss is recognized. Depreciation for the Company is provided using the straight-line method over the estimated useful lives of the assets which are as follows:
Furniture and equipment 5-7 years Computer equipment 5 years Software 5 years Leasehold improvements 5 years Web site development costs 3 years
INTERNAL USE SOFTWARE: ---------------------- The Company accounts for the costs of software and development cost in accordance with Statement of Position 98-1, "ACCOUNTING FOR COMPUTER SOFTWARE DEVELOPED FOR OR OBTAINED FOR INTERNAL USE". The SOP requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. ORGANIZATION COSTS: ------------------- In accordance with SOP 98-5, "Reporting on the Costs of Start-up Activities", the Company expenses all organizational costs as incurred. LOSS PER SHARE: --------------- The Company computes basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128 requires the Company to report both basic earnings per share, which is based on the weighted average number of common shares outstanding, and diluted earnings per share, which is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. Since the Company incurred losses for all periods presented, the inclusion of options and warrants in the calculation of weighted average common shares is anti-dilutive; and, therefore, there is no difference between basic and diluted earnings per share. INTANGIBLE ASSETS: ------------------ Intangible assets for the Company, consist of domain name registrations, the Company's web site and goodwill. Domain name registrations are amortized on a straight-line basis over two years. Goodwill is amortized on a straight-line basis over five years. The Company revised its estimate of the value of Goodwill recorded as a result of the Kilimanjaro merger, and amortized $83,333 for the quarter ended September 30, 2000. The remaining balance of goodwill at September 30, 2000 is $15,760. Amortization expense for the nine and three months ended September 30, 2000 totaled $86,594 and $83,871 respectively. USE OF ESTIMATES: ----------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: -------------------- The Company has earned no revenue to date. NON-EMPLOYEE EQUITY COMPENSATION: --------------------------------- The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty's performance is complete or the date on which it is probable that performance will occur. FAIR VALUE OF FINANCIAL INSTRUMENTS: ------------------------------------ The book values of cash and cash equivalents, trade accounts receivable, trade accounts payable, investments, and other financial instruments approximate their fair values principally because of the short-term maturities of these instruments. The fair value of the Company's related-party debt is estimated based on current rates offered to the Company for debt with similar terms and maturities. Under this method, the Company's fair value of financial instruments was not materially different from the stated value at September 30, 2000. IMPAIRMENT OF LONG-LIVED ASSETS: -------------------------------- The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards "SFAS" No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. ADVERTISING: ------------ Advertising is expensed as incurred. Advertising expense for the nine and three months ended September 30, 2000 totaled approximately $161,647 and $14,543, respectively. STOCK BASED COMPENSATION: ------------------------- The Company accounts for its stock-based compensation plan under Accounting Principles Board ("APB") Opinion No. 25,"Accounting for Stock Issued to Employees." The Company has adopted the disclosure option of SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 requires that companies which do not choose to account for stock-based compensation as prescribed by the statement shall disclose the pro forma effects on earnings and earnings per share as if SFAS 123 had been adopted. RECENTLY ENACTED ACCOUNTING STANDARDS: -------------------------------------- Statement of Financial Accounting Standards SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical Corrections", SFAS No. 136, "Transfer of Assets to a Not-for-Profit Organization or Charitable Trust that Raise or Hold Contributions for Others", SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date and Amendment of SFAS No. 133", were recently issued. SFAS No. 135, 136, and 137 have no current applicability to the Company or their effect on the financial statements would not have been significant. COMPREHENSIVE LOSS: ------------------- Comprehensive loss for the nine and three months ended September 30, 2000 and from inception on December 10, 1999 through September 30, 2000 is the same as net loss presented in the accompanying statement of operations for the periods then ended. NOTE B - RELATED PARTY TRANSACTIONS The due to related party balance on the accompanying balance sheet as of September 30, 2000 consists of the following: Due from Officer $173,399 Due to Affiliates (768,939) --------- (595,540) --------- As of September 30, 2000, due to affiliates consist of unsecured, interest bearing, due on demand notes payable to two affiliates in the amount of $768,939. Interest on the notes to the affiliates is 10% per annum. Accrued interest on the affiliate notes totaled $22,340 as of September 30, 2000 and is included in accrued expenses. NOTE C - STOCKHOLDERS' EQUITY Common Stock - The Company is authorized to issue 50,000,000 shares of $.001 par value common stock. As of September 30, 2000 27,583,879 shares were issued and outstanding. During the nine months ended September 30, 2000 the Company issued 66,132 shares of common stock for professional services. Preferred Stock - The Company is authorized to issue 500,000 shares of $.001 par value preferred stock with such rights and preferences and in such series as determined by the Board of Directors at the time of issuance. No shares are issued or outstanding as of September 30, 2000. Warrants - At September 30, 2000 the Company had 216,208 warrants to purchase common stock outstanding at prices from $.25 to $1.00 per share, and expiring from 2002 to 2005. The warrants were issued prior to the recapitalization in connection with Global e Tutor, Inc. (the "Parent") obtaining short-term notes payable and equity investments and for professional services rendered. At September 30, 2000 we had outstanding options to purchase 5,686,063 shares. Of these options, 27,500 were granted prior to the year ended December 31, 1999 outside of any option plan and 416,000 were granted first quarter 2000 outside of any option plan. At September 30, 2000, we had outstanding warrants to purchase 291,208 shares. In addition, pursuant to an agreement with Habif, Arogeti & Wynne, LLP, we have agreed to issue 76,127 shares and warrants to purchase 156,208 shares for work performed during February through September 2000. The warrants will be exercisable at prices ranging from $0.25 to $0.50 per share. The agreement provides that 20% of fees earned by this firm for its services will be compensated in equity, up to $100,000 annually. Options - See Note D NOTE D - STOCK OPTION PLANS In December 1999, the Parent adopted the 1999 Stock Option Plan (the "1999 Plan"), and on January 21, 2000 the shareholders approved an employee stock option plan, pursuant to which the Company is authorized to grant options to key employees, officers, directors, and consultants. Awards under the plan will consist of both non-qualified options and options intended to qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue code of 1986, as amended. In addition, the Company had previously adopted the 1996 Omnibus Plan (the "1996 Plan"). The 1999 Plan and 1996 Plan provide for grants of options to purchase up to 5,000,000 and 900,000 shares of Common Stock, respectively, at a purchase price equal to the fair market value on the date of grant. Generally, options from both plans vest over three years from the date of grant. Compensation expense for options granted to non-employees, included in general and administrative, aggregated $955 and $0 during the periods ended September 30, 2000 and December 31, 1999, respectively. A summary of the status of the options granted under the Company's stock option plans and other agreements at September 30, 2000 and changes during the three month period then ended are presented below: 2000 STOCK OPTION PLAN On July 24, 2000 we adopted the 2000 Stock Option Plan pursuant to which we are authorized to issue 2,000,000 shares to our key employees, officers, directors, and consultants. Awards under the plan will consist of both non-qualified options and options intended to qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue Code of 1986, as amended.
Three months ended September 30, 2000 -------------------------------- Weighted Average Shares Exercise Price ------------- ---------------- Outstanding at June 30, 2000 4,177,789 $.25 Granted 2,011,607 .50 Exercised -- -- Forfeited (503,333) .25 Expired -- -- --------- ----- Outstanding at end Of period September 30, 2000 5,686,063 $ .34 --------- ----- Weighted average fair value of options granted during the nine months ended September 30, 2000 2,464,389 $ .56 --------- -----
The fair value of each option granted is estimated on the date granted using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants during the three months ended September 30, 2000: risk free interest rate of 6%, expected dividend yield of zero, expected life of 3.0 years, and expected volatility of 141%. Note E - LOSS PER SHARE The following data shows the amounts used in computing loss per share for the periods presented:
For the Nine For the Three From Inception Months Ended Months Ended on December 10 September 30, September 30, 1999 through 2000 2000 September 30, 2000 ------------- ------------- ------------------ Loss from operations available to common shareholders (numerator) (2,826,175) (1,137,931) (3,009,837) ---------- ---------- ---------- Weighted average number of common shares outstanding used in loss per share for the period (denominator) 26,188,252 27,572,807 25,046,993 ========== ========== ==========
The Company had outstanding at September 30, 2000, options to purchase 5,686,063 common shares at prices ranging from $.001 to $3.50 and warrants to purchase 291,208 common shares that were not included in the computation of loss per share because their effect is anti-dilutive. Note F - Going Concern The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has incurred losses since its inception, and has not yet been successful in establishing profitable operations. Further, the Company has current liabilities in excess of current assets. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regards management is proposing to raise any necessary additional funds not provided by operations through loans and/or through additional sales of its common stock. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. These financial statements do not include any adjustments that might result from the outcome on these uncertainties. Note G - Subsequent Events Subsequent to September 30, 2000 the Company is negotiating terms for additional equity. No final agreement has been reached but the Company received $100,000 as an interim advance. Note H - Committments and Agreements On July 27, 2000 GLOBAL E TUTOR, INC. entered into an Affiliate Agreement with Phoenix Multimedia, Inc. The Agreement is for a term of twelve months and is renewable on an annual basis thereafter. It may be terminated by written notice after the initial twelve months. GLOBAL E TUTOR, INC. will participate in Phoenix Multimedia, Inc.'s E-learning program "e-Mapp" in order to link to the Phoenix world wide web. Phoenix will pay a 20% commission on the retail sale of courses or course modules, based on sales of Products and Services through GLOBAL's web link to Phoenix's web site. On August 31, 2000, we entered into an agreement with Phoenix Multimedia, Inc. to complete Phase I of the GlobaleTutor.com web site. Phoenix Multimedia, Inc is a Huntsville, AL based development and software design company that specializes in the development of training and performance improvement applications and web-based infotainment and multimedia software products. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview -------- The following discussion and analysis should be read in conjunction with the Balance Sheets as of September 30, 2000 and the Statements of Operations for the nine months and the three months ended September 30, 2000 and for the period from inception through September 30, 2000 included with this Form 10-QSB. Forward Looking Statements This report contains statements that plan for or anticipate the future. Forward- looking statements include statements about the future of operations involving the on-line tutoring industry, statements about our future business plans and strategies, and most other statements that are not historical in nature. In this report forward-looking statements are generally identified by the words "anticipate," "plan," "believe," "expect," "estimate," and the like. Although we believe that any forward-looking statements we make in this report are reasonable, because forward-looking statements involve future risks and uncertainties, there are factors that could cause actual results to differ materially from those expressed or implied. For example, a few of the uncertainties that could affect the accuracy of forward-looking statements include the following: - We may not be able to raise money to continue operating. - Subscription to our ISP internet service provider "ISP" may not accelerate as quickly as we have predicted. The plethora of existing ISP's with similar value propositions could slow growth if the differentiated features are not communicated clearly to the target market. - Our personal sanctuary databases may not be as secure or meet the minimum requirements of COPA, which could subject our information to Internet hackers. - The value of click-through rates may decline faster than projected. - Our system may receive more volume than it can handle. - We may experience delays in web site or database design. - Our youth foundation may be unable to secure funding for its ongoing operations. In light of the significant uncertainties inherent in the forward looking statements made in this report, particularly in view of our early stage of operations, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. History and Organization ------------------------- Our Company was incorporated under the laws of the State of Delaware on May 9, 1995, under the name Essex Enterprises, Inc. On December 12, 1996, the Company changed its name to Veronique, Inc. and on April 13, 1999, it changed its name to Digital Launch, Inc. Finally, on February 3, 2000, the name was changed to Global e Tutor, Inc. We were originally organized to engage in the television marketing of hair products, but abandoned this business in approximately 1996. In December 1996 we acquired Veronique, Inc. as a wholly owned subsidiary and control of our Company was transferred to the shareholders of Veronique. Also, in connection with such transaction, we forward split the outstanding stock at the rate of two shares for each one share outstanding. Prior to this forward split we had outstanding 800,000 common shares; following the forward split we had approximately 1,600,000 shares outstanding. We issued 3,012,500 shares to the shareholders of Veronique. Veronique was incorporated on September 28, 1995, and was engaged in the business of developing, packaging, marketing and distributing skincare and beauty products. After its acquisition, it was renamed VI Sub, Inc. On September 29, 1997, we merged VI Sub, Inc., a wholly owned subsidiary, into our parent corporation because there was no benefit to maintaining both a holding company and the operating subsidiary. In 1999 we determined it was no longer feasible to finance our skincare business under the prevailing corporate structure. We reached an agreement in principle to transfer the assets of the skincare business, subject to the assumption of the related liabilities, and started the search for a new business venture. In contemplation of a proposed transaction with GLOBALETUTOR.COM, INC., in December 1999 we transferred all of our assets to Veronique Europe Ltd, our wholly owned subsidiary which was not conducting any business operations, in exchange for the assumption of all of our outstanding liabilities. The subsidiary has agreed to indemnify us from these liabilities. Subsequent to this transaction we transferred all of the outstanding stock of Veronique Europe Ltd., which has been renamed to Veronique, Inc., to Alford S.A. for nominal consideration. Alford S.A. is an entity whose beneficiaries are relatives of Terrence O.McGrath, our former chairman and CEO. In December 1999 we entered into an agreement with GLOBALETUTOR.COM, INC., a Nevada corporation, incorporated on December 10, 1999 to exchange all of the issued and outstanding shares of this entity for 9,640,000 shares of our common stock. The reorganization agreement was closed by the parties on January 21, 2000. GLOBALETUTOR.COM, INC. was incorporated in the State of Nevada on December 10, 1999, to provide educational services over the Internet. The Company has not yet commenced its principle operations. In connection with the reorganization transaction we assumed all of the outstanding options of GLOBALETUTOR.COM, INC. to acquire 3,964,174 shares of our common stock at prices ranging from $0.25 to $0.275 per share. We also granted to Thomas E. McMurrain, an officer, director and principal shareholder, options to purchase 6,584,000 shares. These options were subsequently canceled. At this time we also granted 416,000 options to Robert V. Willison, an executive officer, outside of our stock option plan. We also issued warrants to Finn Partners, an entity controlled by Thomas E. McMurrain, to purchase 3,000,000 shares. These warrants were subsequently canceled. We also converted an outstanding promissory note payable to Lancer Offshore, Inc., an entity for which Michael Lauer, one of our principal shareholders, acts as investment manager, in the principal amount of $750,000 into 3,000,000 shares of common stock. These funds had been loaned to us in December 1999 by Lancer Offshore, Inc. and were in turn loaned to GLOBALETUTOR.COM, INC. pending closing. We also privately placed 500,000 shares at $0.20 per share and 5,000,000 shares at $0.25 per share. An Agreement and Plan of Merger with Kilimanjaro Group.com, Inc. ("Kilimanjaro"), a Nevada corporation became effective on May 25, 2000. The agreement provided that Kilimanjaro would merge into GLOBAL E TUTOR, INC. It also provided that GLOBAL E TUTOR, INC. would issue 50,000 common shares pro rata to the three shareholders of Kilimanjaro and pay $75,000 pro rata to these shareholders in exchange for all of the outstanding shares of Kilimanjaro. As a result, Kilimanjaro was merged into GLOBAL E TUTOR, Inc. GLOBAL E TUTOR, Inc. was the surviving entity and assumed Kilimanjaro's reporting obligations as its successor pursuant to Section 12(g)(3) of the Securities Exchange Act. Prior to the merger, GLOBAL E TUTOR, Inc. had an aggregate of 27,467,747 shares of common stock issued and outstanding. As a result of the merger, the Company had a total of 27,517,747 shares outstanding. The officers, directors, bylaws, and the certificate of incorporation of GLOBAL E TUTOR, Inc. remain unchanged as a result of the merger, and the control of the successor entity rests with GLOBAL E TUTOR, Inc. We presently have one wholly owned subsidiary, GLOBALETUTOR.COM, INC., through which we propose to conduct our principal business. Proposed Business ----------------- Our Company is in the development stage and our efforts have been focused primarily on the start-up of our proposed business. We are in the process of creating an Internet destination for global education and entertainment through Internet-based, interactive, video-on-demand tutoring services for kindergarten through 12th grade students with the goal of making learning fun, convenient, and affordable. Strategic developments and additional market research has prompted the expansion of our educational offering to include the corporate market. The Company will offer training courses that we will promote to corporations to support their ongoing training needs. We believe that several of these advanced courses will also appeal to the upper secondary level of children's education as well. The online product planned for Phase I of the web site includes on-line interactive tutorials. This Phase launched during September and October 2000. Our web site, upon its completion, is expected to have five distinct areas for children: a virtual community for children; on-line tutorials; a global educational broadcast network; a global entertainment network; and a nonprofit foundation. As stated above, most of these services are not currently being offered on-line by us, but we are in the process of developing each of these areas. Phase I was offered at the time of our launch and October 2000. Phase I includes the educational interactive tutorials and some of the elements of the entertainment network. Our goals include providing our services to children worldwide by offering them in several different languages. It is our intention to work with corporate sponsors that will provide financial support to the programs we offer children. In return, we will provide them with marketing opportunities on the web site. At present, we do not have any corporate sponsors. It is also our intention to work with government funded programs. While we feel confident of our chances of success with these opportunities, there is no guarantee that our Company will receive this funding. Rather than focusing on developing educational content, we intend to concentrate on marketing and distribution. This means that we are interested in creating and growing an audience for ourselves and for our five major areas of focus described above. As a marketing company we will use traditional and non- traditional marketing, advertising and public relations strategies to attract students worldwide to our web site. By increasing the audience for our foundation, we anticipate increasing the marketing value for our associates, both corporate sponsors and educational content providers. On July 27, 2000 GLOBAL E TUTOR, INC. entered into an Affiliate Agreement with Phoenix Multimedia, Inc. The Agreement is for a term of twelve months and is renewable on an annual basis thereafter. It may be terminated by written notice after the initial twelve months. GLOBAL E TUTOR, INC. will participate in Phoenix Multimedia, Inc.'s E-learning program "e-Mapp" in order to link to the Phoenix world wide web. Phoenix will pay a 20% commission on the retail sale of courses or course modules, based on sales of Products and Services through GLOBAL's web link to Phoenix's web site. On August 31, 2000, we entered into an agreement with Phoenix Multimedia, Inc. to complete Phase I of the GlobaleTutor.com web site. Phoenix Multimedia, Inc is a Huntsville, AL based development and software design company that specializes in the development of training and performance improvement applications and web-based infotainment and multimedia software products. Our strategy also allows for the introduction of outside developers to lend to the overall development of web-based products we will offer. We are currently in negotiations with such developers. Market Overview --------------- The World Wide Web is the fastest growing technology in history, achieving 25% penetration in less than seven years. Over 700,000 students are now taking some form of distributed learning courses, including online classes. Since 1994, education and training companies have raised more than $3.4 billion in equity capital through more than 38 initial public offerings and 30 follow-up offerings. The power of technology provides greater access of tutorial services at a lower cost, largely enabled by growing access to personal computers and the Internet, as well as expanding bandwidth. In the United States alone, there are 55 million children in kindergarten through 12th grade schools, 14 million students in post-secondary institutions and 136 million working adults. Globally, over 20 percent of the world's six billion people are currently enrolled in a kindergarten through 12th grade or post-secondary education system. As the result of technological innovations like the Internet, video- conferencing and satellite systems, a new economy has emerged driven by knowledge and information. Management believes that creating an education- focused gateway to the Internet is a huge opportunity. (Statistical information provided by the Wit Capital, "E Knowledge Industry Report," August 11, 1999 and the Merrill Lynch "Book of Knowledge," April 9, 1999.) Research and Development ------------------------ We have spent approximately $599,323, which was raised in our private funding in December 1999, on the research and development of our technology from the date of the inception of our current business on December 10, 1999 through September 30, 2000. The money has been spent on our web based educational content distribution. During the months of July through September, we spent $132,000 for the development of Phase I of the website, www.globaletutor.com, which was funded to the Company through a related party as a loan. Competition ----------- The market for children's educational products and services is highly competitive. Competition is generally based on the quality and range of educational materials made available, price, promotion, and customer service. Marketing --------- Management believes that a strong marketing effort is crucial to our success. Our mission is to attract students to our web site to use our services and retain their loyalty throughout their education process. Our marketing plan focuses on distribution of educational content and the entertainment aspect our on-line community, and concentrates on succeeding in the following categories: - traffic - the number of users; - branding - global recognition of products and services for us and our partners; - stickiness - how long a user stays at the destination once there; and - bonding - loyalty of the user over the long term. During the first years following the launch of our services, our marketing efforts will be dedicated to the four following areas: - Traditional print and broadcast - We intend to implement an advertising campaign to create brand awareness through traditional advertising mediums. - Co-branding sponsorship model - As an inherent part of the relationship with future strategic partners. We anticipate cooperative marketing, branding, advertising and public relations efforts. - Grass roots - We intend to engage in web-site and community-based awareness programs designed to interact with students, parents, and educators directly to achieve our goals, as well as those of our affiliates and corporate sponsors. We have been in negotiations with MRESA, formally known as the Metropolitan Regional Education Strategic Alliance. This relationship will allow us to market products offered via the Globaletutor.com website in the public schools with which they are affiliated. Terms of the agreement have not yet been completed. - Public Relations - As a part of an intensive public relations campaign, both traditional and non-traditional methods will be utilized. We have considered selecting a celebrity spokesperson that will appeal to children of all ages. This is an idea that we anticipate to put in effect by mid- 2001. Government Regulation --------------------- Among the regulatory measures directly applicable to our business model are those concerning the collection, use, and dissemination of personal information. As a routine part of our operations it will be necessary for us to collect individually-identifying information about consumers of our services and to use that information both in the delivery of services and for certain marketing and other purposes. We intend to implement appropriate privacy policies informing our users about the information we collect and how we use it; how and to what extent we may disclose it to third parties; what choices our users have in these matters; and how we protect this information from unauthorized use and disclosure. Specific laws will apply to our information practices with respect to certain consumers those twelve years of age and younger and those located in the countries composing the European Union. The Child Online Privacy Protection Act of 1998, 15 U.S.C. Sections 6501-6506, also known as COPPA, applies to the online collection of personal information from persons twelve and under. In general, COPPA requires obtaining verifiable parental consent to the collection, maintenance and disclosure of information about children; gives parents the right at any time to stop further use or collection of information from their children, and also gives parents the right to access stored information about their children. The law also imposes specific requirements for the content and placement of a web site's privacy policy, and requires web sites to use reasonable procedures to protect the confidentiality, security, and integrity of personal information collected from children. "The European Union Privacy Directive (Counsel Directive 95/46, 1995 O.J.(L281) 31) similarly imposes restrictions on the collection, use and disclosure of information about residents of EU member states. In addition to operating within the borders of those nations, the EU Privacy Directive prohibits the export of personal data concerning Europeans to countries considered not to have "adequate" privacy protection. At this time the United States has not been recognized as providing adequate protection, but enforcement of the embargo on exportation of data to the U.S. has been postponed pending completion of negotiations between the United States and the European Union concerning "Safe Harbor" principles that would enable U.S. persons to collect this information if they agree to comply with the Safe Harbor principles. We anticipate that in connection with our business in Europe, we will ultimately be required to comply with the substance of the EU Privacy Directive, either by virtue of acceding to the Safe Harbor principles or by virtue of direct application of the EU Privacy Directive and implementing national legislation to our operations in Europe. We do not anticipate that compliance with the EU Privacy Directive or with COPPA will have a materially adverse effect upon our operations; however, it should be noted that there is a great deal of ongoing legislative, regulatory, and lobbying activity in the area of privacy and information practices, with new measures being introduced frequently, and there can be no assurance that our business will not be materially adversely impacted by future regulations in this field. Intellectual Property Rights ---------------------------- To protect the rights to our intellectual property, we will rely on a combination of trademark and copyright law, patent, trade secret protection, confidentiality agreements, and other contractual arrangements with our employees, affiliates, clients, strategic partners, and others. The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Employees --------- At November 1, 2000, we employed 8 persons on a full-time basis, including our executive officers, reduced from 14 as of August, 2000. Approximately 60% of the compensation of two of our employees, Lara Stegman and Shawn Cartmill, is paid by Emergency One Cash Card,Inc., a company controlled by Thomas E. McMurrain. Ms. Stegman devotes essentially all of her time to our Company and Mr. Cartmill devotes approximately 60% of his time to our Company. We hire independent contractors on an as-needed basis only. We have no collective bargaining agreements with our employees. We believe that our employee relationships are satisfactory. In the long term, we will attempt to hire additional employees as needed based upon our growth rate and availability of funds. Description of Property ----------------------- On July 1, 2000 we moved our offices to 3565 Piedmont Road, Suites 715 and 707, Atlanta, GA 30305. The total square footage for both suites is 5,165. Our mailing address is still 3340 Peachtree Road, Suite 1800, Atlanta, GA 30326. The space is sublet until November 2000 at a monthly rent of $6,025.83. We intend to continue the lease for the month of December for $8,000. From January 2001 forward, we have an open ended agreement for new space at $2,600 per month. Plan of Operation ----------------- In September and October 2000, our launch commenced with the opening of our website including "edutainment" offerings and a catalog offering education related products. Also at this time, we began a roll out of interactive tutoring modules that include collaborative learning and tutoring sessions for grades 4- 8. During the initial launch phase (developing throughout the final quarter of 2000), the Company incorporated virtual ISP elements into the site, some examples of which are email, chatrooms, and a calendar. Management anticipates that initial revenues will be generated through subscription sales of online course curriculums, corporate sponsorships, and government funding. Revenues We anticipate that our revenues will come from several sources: - Corporate site sponsorships; - Advertising revenue; - Virtual ISP (V-ISP or "Community") subscription fees; - Tutorial sales; - Exchange membership fees and transactions fees; and - Government funding. Expenses We expect marketing, product development and our information technology infrastructure will make up the largest portion of our operational expenses. Capital Requirements -------------------- We have been out of cash from the original investment for approximately five months and are being funded by a related party entity and $100,000 in equity funding. We do not have cash to continue development beyond standing operations. Directors, Executive Officers, Promoters and Control Persons ------------------------------------------------------------ The following table sets forth as of November 15, 2000, the name, age, and position of each of our executive officers and directors:
Name Age Position(s) --------------------------------------------------------------------------------------- Thomas E. McMurrain 32 Founder, Vice Chairman Jerry Barton 62 CEO, President, Director, Acting CFO Shawn Cartmill 37 Treasurer Lara Stegman 29 Secretary, Director of Operations James Lewis 45 Board Member Cole Smith 38 Board Member and CTO John Miller 33 Executive Vice President of Operations Glenn Carver 33 Executive Vice President of Marketing
Directors are elected for terms of one year or until their successors are elected and qualified. Annual meetings of the stockholders, for the selection of directors to succeed those whose terms expire, are to be held at such time each year as designated by the Board of Directors. The Board of Directors has not selected a date for the next annual meeting of shareholders. Officers are chosen by the Board of Directors. Each officer holds his office for one year or until his successor is chosen and qualified. Set forth below is certain biographical information regarding our executive officers and directors: THOMAS E. MCMURRAIN is currently the Founder and Vice-Chairman of GLOBAL E TUTOR, INC. He was the president, CEO, and co-chairman of GLOBALETUTOR.COM, INC. from December 1999 to July 7, 2000. Since February 1999 he has been the president, chief executive officer, and sole owner of Emergency One Holding Corporation, Inc., a commercial holding company providing funding to private subsidiaries. Since September 1997 Mr. McMurrain has been the president, chief executive officer, and sole owner of Emergency One Cash Card, Inc., a financial lending company. From March 1993 until July 1997 he worked as an independent contractor to World Marketing Alliance, a broker of insurance and securities. Mr. McMurrain's Company, Emergency Cash Card One, Inc., is currently funding the day-to-day operations of GLOBAL E TUTOR, INC. JERRY BARTON is the new CEO and President of GLOBAL E TUTOR, INC. He was voted in on July 7, 2000. Mr. Barton was self-employed from May 1995, prior to becoming President in July 2000. He became a board member of GLOBAL E TUTOR on June 2, 2000. From January 1994 to May 1995, Barton served as President of Parts Central, Inc., an automotive parts and retail distribution company in Macon, Georgia. Barton is a member of the Board of Directors of Parts Central, Macon, Georgia. LARA STEGMAN has been the director of operations, assistant to the president, and corporate secretary for GLOBALETUTOR.COM, INC. since January 2000. Executive Compensation ---------------------- Compensation The following table sets forth the aggregate executive compensation awarded to, earned by, or paid to the named executive officer by any person for all services rendered in all capacities to Global e Tutor, Inc. and its subsidiaries for the nine months ended September 30, 2000 and the fiscal years ended December 31, 1999, 1998, and 1997:
Terrence O. McGrath, CEO(1) 1999 $120,000 1998 $120,000 1,000,000 options (2) 1997 $105,000 Jerry Barton, CEO(3) 1999 $ -0- 2000 $ 6,667 Thomas E. McMurrain, CEO 1999 $ 3,123 62,174 options 2000 $ 45,000
(1) Mr. McGrath resigned as an officer and a director effective January 21, 2000. (2) These options were canceled in January 2000 in connection with the reorganization with GLOBALETUTOR.COM, INC. (3) Mr. Barton was named CEO on July 7, 2000. Stock Option and Incentive Plans 1996 INCENTIVE PLAN On December 12, 1996, we adopted an incentive plan, pursuant to which we are authorized to issue up to 900,000 shares of common stock, either as options to purchase such shares or as restricted stock awards, to certain employees, officers, directors, and consultants. Awards of stock options under the plan consist of both non-qualified options and options intended to qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue Code of 1986, as amended. 1999 STOCK OPTION PLAN On December 27, 1999, we adopted, and on January 21, 2000, the shareholders approved, an employee stock option plan, pursuant to which we are authorized to grant up to 5,000,000 options to our key employees, officers, directors, and consultants. Awards under the plan will consist of both non-qualified options and options intended to qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue Code of 1986, as amended. 2000 STOCK OPTION PLAN On July 24, 2000 we adopted the 2000 Stock Option Plan pursuant to which we are authorized to issue 2,000,000 shares to our key employees, officers, directors, and consultants. Awards under the plan will consist of both non-qualified options and options intended to qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue Code of 1986, as amended. Stock Option Grants ------------------- The following table sets forth information concerning individual grants of stock options made through the date of this table to each of the named executive officers and significant employees, each of which option grant was made under our 1999 stock option plan, unless otherwise noted, and vests one-third on January 21, 2000, one-third on January 21, 2001, and one- third on January 21, 2002, unless otherwise noted:
Number of Securities Percent of Total Name Underlying Options Outstanding Options Exercise Price Expiration Date ------------------------------------------------------------------------------------------------------------ Thomas E. McMurrain 62,174 0.010934 0.275 1/31/10 Claus Nobel 482,000 0.084769 0.25 1/31/10 Shawn Cartmill 185,000 0.032536 0.25 1/31/10 Robert Willison 816,000 0.143509 0.25 1/31/10 Lara Stegman 185,000 0.032536 0.25 1/31/10 Glenn Carver 185,000 0.032536 0.25 1/31/10 John Miller 185,000 0.032536 0.25 1/31/10 Phyllis Grant 100,000 0.017587 0.5 9/12/10 Scott Fellows 100,000 0.017587 0.5 7/24/10 Jerry Barton 750,000 0.131900 0.5 7/24/10
(2) Of these options, 100,000 were granted under the 2000 stock incentive plan and vested immediately upon the date they were granted on September 12, 2000. The following table sets forth the base salary for each of the executive officers:
Name Annual Base Salary -------------------------------------------------------------------------------- Thomas E. McMurrain $ 60,000 (not taken) Shawn Cartmill $ 24,000 Jerry Barton $175,000 (receives $80,000) John Miller $ 40,000 Glenn Carver $ 40,000 Scott Fellows $ 60,000 Phyllis Grant $ 60,000 Lara Stegman $ 24,000
As additional compensation, each of the employees is entitled to participate in all bonus programs generally available to all executive officers. He or she is also entitled to receive stock options as determined by the Board of Directors under our stock option plans. Each employee is entitled to vacation and sick leave in accordance with the Company's policy. Each of the employment contracts contains similar provisions for reimbursing the employee for business related expenses in accordance with the policies of the Company. Each employee is entitled to benefits as generally may be made available to all other employees of the Company from time to time. The employment contracts are automatically renewable for additional one-year terms unless terminated by either party ninety days before the end of the relevant term of employment. The agreements may be terminated at any time with or without cause by either party. If terminated without cause, the employee is entitled to two weeks of base salary, provided the employee shall continue to work during such period. In the case of termination for cause or the death of the employee, base salary payments shall terminate immediately. If the employment agreement is terminated for disability of the employee, we shall continue to pay base salary to the extent the employee has any unpaid sick leave. The contracts also contain provisions preventing the employees from disclosing any proprietary information. Each of the contracts also includes provisions which restrict the employee from certain actions during and after termination of the agreement. During the term of the contract and for a period of two years following termination, the employee may not attempt to divert or solicit any person employed by the Company. During the term of the contract and for a period of one year following termination, the employee may not divert or solicit to a competing business any individual or entity who is a customer, or prospective customer, of ours during the two years prior to termination. Also during the contract and for a period of one year following termination, the employee may not engage in a competing business in any territory in which we were engaged in a similar business. Certain Relationships and Related Transactions ---------------------------------------------- In December 1999 our wholly owned subsidiary, GLOBALETUTOR.COM, INC., entered into an agreement with Bristol Capital Limited, a company controlled by Robert V. Willison, a former employee of ours, to assist us in locating investment capital financing. If Bristol is successful in locating financiers or investors which provide financing to us, we are obligated to pay a fee to Bristol equal to 10% of the amount received by us, plus warrants for 10% of the stock in our Company. We have also agreed to grant a first right of refusal to Bristol for any subsequent financing. The agreement expires on December 21, 2000, but we can terminate the contract upon 30 days' written notice beginning June 22, 2000. In connection with the acquisition of GLOBALETUTOR.COM, INC. by us in January 2000, we paid Mr. Willison's company $200,000 pursuant to the terms of this agreement for locating the company and the financing for the transaction. The due to related party balance on the accompanying balance sheet as of September 30, 2000 consists of the following: Due from Officer $ 173,399 Due to Affiliates (768,939) ---------- (595,540) ---------- As of September 30, 2000, due to affiliates amounts consist of unsecured, interest bearing, due on demand notes payable to two affiliates totaling $768,939. Interest on the notes to the affiliates is 10% per annum. Accrued interest on the affiliate notes totaled $22,340 as of September 30, 2000 and is included in accrued expenses. Description of Securities ------------------------- Common Stock We are authorized to issue 50,000,000 shares of common stock, par value $.001 per share. As of September 30, 2000, we had outstanding 27,583,879 shares of common stock. All common shares are equal to each other with respect to voting rights. They are also equal to each other with respect to dividend rights and with respect to liquidation rights, subject to any preferential rights of any then- outstanding preferred stock. Special meetings of the shareholders may be called by the Board of Directors, the president, or the holders of not less than one- fifth of all the shares entitled to vote at the meeting. Holders of shares of common stock are entitled to one vote at any meeting of the shareholders for each share of common stock they own as of the record date fixed by the Board of Directors. At any meeting of shareholders, one-third of the outstanding shares of common stock entitled to vote, represented in person or by proxy, constitutes a quorum. A vote of the majority of the shares of common stock represented at a meeting will govern, even if this is substantially less than a majority of the shares of common stock outstanding. Holders of shares are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor, and upon liquidation are entitled to participate pro rata in a distribution of assets available for such a distribution to shareholders, subject to any preferential rights of any then-outstanding preferred stock. There are no conversion, pre-emptive, or other subscription rights or privileges granted by us with respect to any shares. Reference is made to our certificate of incorporation and bylaws, as well as to the applicable statutes of the State of Delaware for a more complete description of the rights and liabilities of holders of shares. The common shares do not have cumulative voting rights, which means that the holders of more than fifty percent of the shares of common stock voting for election of directors may elect all the directors if they choose to do so. Preferred Stock Our certificate of incorporation authorizes 500,000 shares of preferred stock, par value $.001 per share. Such shares may be issued in such series and have such rights, preferences, an designation as determined by the Board of Directors. No preferred shares are outstanding. Change of Control The creation and issuance of a series of preferred stock or the issuance of shares of common stock by the Board of Directors could be used to delay, defer, or prevent a change of control of the Company in certain takeover attempts. Using such shares, the Board of Directors could create impediments to, or delay persons seeking to effect, a takeover or transfer of control by causing such additional authorized shares to be issued to a holder or holders who might side with the Board in opposing a takeover bid that the Board of Directors determines is not in the best interests of our Company and its shareholders. Such an issuance could diminish the voting power of existing shareholders who favor a change in control, and the ability to issue the shares could discourage an attempt to acquire control of our Company. Market Price of and Dividends on the Registrant's Common Equity and Other ------------------------------------------------------------------------- Shareholder Matters ------------------- Market for Stock Our common stock was quoted on the OTC Electronic Bulletin Board (OTC BB: "GETT") through September 2000. The table below sets forth for the periods indicated the high and low bid quotations as reported by Nasdaq Trading & Market Services. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
Quarter High Low FISCAL YEAR ENDED DECEMBER 31, 1998 First $3.00 $1.5625 Second $3.125 $2.00 Third $3.25 $1.50 Fourth $3.25 $2.25 FISCAL YEAR ENDED DECEMBER 31, 1999 First $3.00 $2.00 Second $2.50 $0.3125 Third $0.875 $0.2813 Fourth $7.00 $0.25 FISCAL YEAR ENDING DECEMBER 31, 2000 First $7.9375 $1.875 Second $2.5469 $1.0625 Third $1.875 $0.2812
Outstanding Options, Warrants, and Convertible Instruments At September 30, 2000 we had outstanding options to purchase 5,686,063 shares. Of these options, 27,500 were granted prior to the year ended December 31, 1999 outside of any option plan and 416,000 were granted first quarter 2000 outside of any option plan. At September 30, 2000, we had outstanding warrants to purchase 291,208 shares. In addition, pursuant to an agreement with Habif, Arogeti & Wynne, LLP, we have agreed to issue 76,127 shares and warrants to purchase 156,208 shares for work performed during February through September 2000. The warrants will be exercisable at prices ranging from $0.25 to $0.50 per share. The agreement provides that 20% of fees earned by this firm for its services will be compensated in equity, up to $100,000 annually. We have also entered into a six-month agreement dated May 9, 2000, with Trinity Investment Services Corporation to provide marketing and consulting services. This agreement that we will issue 100,000 shares to them, issuable 20,000 as of May 9, 2000, and 20,000 each 30 days thereafter. It also provides that we will grant options to them to purchase up to 300,000 shares at prices ranging from $4.00 to $8.00 per share, to be issued beginning in June 2000 through November 2000. Shares Eligible for Future Sale under Rule 144 We had 27,583,879 shares of our common stock outstanding at September 30, 2000. Of these shares, 19,408,307 are believed to be restricted securities pursuant to Rule 144 promulgated by the Securities and Exchange Commission Record Holders of Stock; Transfer Agent At September 30, 2000, we had approximately 118 shareholders of record as reported by our transfer agent. The transfer agent is Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117. Dividends Since our inception, we have not paid any cash dividends on the Company's common stock and we do not anticipate that we will pay dividends in the foreseeable future. The Board of Directors has not adopted a policy regarding dividends. Risks ----- As with any new venture, there are risks associated with Global e Tutor's plans. Recognition of these risks, evaluation of their severity and proper contingency planning of outcomes must be considered. The following are a list of potential risks, although not all inclusive: Slower than predicted subscription rates; the Global e Tutor Personal Sanctuary Databases are not viewed as secure or meeting the minimum requirements of COPA; eroding value of click-through rates; scalability of IT structure; potential competitors impart an interest in the market prior to Global e Tutor reaching its critical mass; delays in website or database development; our youth foundation may be unable to secure funding for its ongoing operations. Results of Operations --------------------- For the nine and three months ended September 30, 2000 we did not generate any operating revenues and incurred a cumulative net loss of $2,826,175 and $1,137,931 respectively. Our operating expense consisted of general and administrative costs, depreciation, sales and marketing expenses and research and development. General and administrative costs consist primarily of payroll totaling $407,039 and $127,767 respectively, professional fees totaling $945,238 and $291,151 respectively, travel and entertainment totaling $137,407 and $20,106 respectively and other general and administrative expense totaling $208,075 and $177,445 respectively. Depreciation and amortization expense for the nine and three months ended September 30, 2000 totaled $655,541 and $435,497, respectively. Research and development costs totaled $60,022 and $16,450 respectively. These costs are discussed above. Sales and marketing expenses consist primarily of advertising totaling $161,647 and $14,543, public relations totaling $133,930 and $13,930 and other selling expenses totaling $122,378 and $33,963. The results of operations for the nine and three months ended September 30, 2000 are not necessarily indicative of the results for any future interim periods or for the year ending December 31, 2000. We expect to expand our personnel, continue research and development and continue to develop content, which will result in increasing expenses. Liquidity and Capital Resources Our operating and capital requirements have exceeded our cash flow from operations as we have been building our business. Operating activities during the nine months ended September 30, 2000 created a net cash use of $1,622,328 which has primarily been funded by cash on hand, a related party loan, and sales of common stock. At September 30, 2000 we had no cash nor cash equivalents. We expect the fulfillment of equity financing of $500,000 by the beginning of December to meet our cash requirements for the remainder of the year. We are seeking equity financing of $3,000,000 to $5,000,000 to meet our cash requirements through 2001 and to accomplish the objectives of our business plan. Subsequent Event ---------------- On October 23, 2000 we launched Phase I of the Globaletutor.com website. This can be viewed at www.globaletutor.com. It consists of information related to an -------------------- education portal entitled "GET Smart", an entertainment portal entitled "GET Fun", an online educational mall, and the GEBN portal, which is currently unpopulated. The GET Smart portal offers over 80 tutorials targeting grades 4-8 and the mall offers over 300 online courses for sale and included courses for 4- 12 grades plus adult tutorials. On October 27, 2000, Mr. Claes Nobel resigned from the chairmanship of Global e Tutor, Inc of his own accord. No successor chairman has been named at this time. On November 13, 2000, we received an additional investment of $100,000 for equity. Details have not been finalized as of the date this filing. Item 3. Quantitative and Qualitative Disclosures about Market Risk - Not Applicable PART II. OTHER INFORMATION Item 1. Legal Proceedings On February 22, 2000, counsel for a company called E-Tutor sent a letter to us demanding that we cease and desist all use of our "GlobaleTutor" name. The demand letter claimed that our use of that name violated E-Tutor's service mark rights in the federally registered trademark "E-TUTOR." We denied that E-Tutor has service mark rights in E-TUTOR and denied that our use of the GlobaleTutor name is confusingly similar to or otherwise infringes the E-TUTOR mark. We have responded to E-Tutor's demand through correspondence by our counsel dated March 7, 2000. In addition to denying infringement on the grounds stated above, our counsel noted that the term "E-TUTOR is likely a generic term that, although federally registered, may be subject to cancellation. Although we suggested the possibility of cancellation, we did not indicate an intent to initiate such cancellation proceedings. No formal proceedings have been filed by either party to date. We intend to vigorously defend any claims asserted by E-Tutor, if necessary. It is possible that E-Tutor will not pursue any claims against us or will seek to compromise our claims. While there is some possibility of an adverse outcome for us, at this stage of the matter, our counsel cannot fairly determine either the likelihood of an adverse outcome or the extent of any possible loss. During the months of July-September, we entered negotiations regarding ending the Company's relationship with our first web site developer, OneWeb Systems, Inc. Legal counsel for both companies met to come to a satisfactory settlement agreement. The issue was resolved via a settlement agreement on September 5, 2000 in which Globaletutor.com, Inc. agreed to pay OneWeb Systems, Inc. $100,000 over 12 months. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Exhibit Title ------ ------------- 4.1 Consent Action of the Board of Directors of Global e Tutor, Inc., effective August 16, 2000 4.2 Consent Action of the Board of Directors of Global e Tutor, Inc., Effective September 12, 2000 10.1 Purchase Order to Phoenix Multimedia, Inc. for Phase I of the Globaletutor.com web site, dated as of August 31, 2000 and the Proposal for Global e Tutor from Phoenix Multimedia, Inc. dated August 23, 2000 10.2 Premium Assignment Corporation financing agreement, dated August 29, 2000 27.1 Financial Data Schedule (b) Reports on Form 8-K Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLOBAL E TUTOR, INC. Date: November 20, 2000 /s/ Jerry Barton President and CEO Date: November 20, 2000 /s/ Jerry Barton Chief Financial Officer