U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2002
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NUMBER: 000-31909
ALTERNET SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0473897
(State or other jurisdiction of incorporation or (IRS Employer
organization Identification No.)
#280 - 815 West Hastings Street
Vancouver, British Columbia
V6C 1B4
(604) 608-2540
(Registrant's telephone number)
SchoolWeb Systems, Inc.
Suite 2602 - 1111 Beach Ave Vancouver, BC Canada V6E 1T9
(Former name, former address and former fiscal year, if changed since
last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or shorter period that the
Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [x] No
As of September 30, 2002, the Registrant had 15,858,085 shares of
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one) Yes [] No [x]
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION 3
ITEM 1 FINANCIAL STATEMENTS 3
BALANCE SHEET AS OF SEPTEMBER 30, 2002 3
INTERIM STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2002 4
INTERIM STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2002 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION 9
ITEM 1 LEGAL PROCEEDINGS 9
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30 December 31
2002 2001
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
Cash $ 19,254 $ 5,669
Accounts receivable 30,619 -
Prepaid expenses 5,897 3,758
Inventory 6,057 -
61,827 9,427
LICENSE RIGHTS, net of amortization of $10,500
(Note 4) 19,500 24,000
FURNITURE AND EQUIPMENT, net of depreciation of
$1,365 (2001 - $600) 3,691 3,400
85,018 36,827
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 86,771 26,091
Deferred license revenue 5,615 -
Due to related parties (Note 6) 12,542 33,486
104,928 59,577
COMMITMENTS AND CONTINGENCIES (Notes 1 and 4)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock (Note 5)
Common stock, $0.00001 par value, 100,000,000
shares authorized
15,858,085 (2001 - 14,733,000) issued and
outstanding 158 147
Additional paid-in capital 559,571 242,302
Obligation to issue shares 62,300 -
Deficit accumulated during development stage (636,898) (263,249)
Accumulated other comprehensive loss (5,041) (1,950)
(19,910) (22,750)
85,018 36,827
The accompanying notes are an integral part of these interim
consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Three Nine Nine October 13
months months months months 2002
ended ended ended ended (inception)
September 30 September 30 September 30 September 30 to
2002 2001 2002 2001 Sept 30 2002
(Note 1)
HARDWARE SALES AND FEES $ 40,923 $ - $ 58,398 $ - $ 58,398
COST OF SALES 46,090 - 48,115 - 48,115
GROSS PROFIT (LOSS) (5,167) - 10,283 - 10,283
EXPENSES
Depreciation and amortization 1,755 1,650 5,265 4,650 11,865
Consulting 22,080 - 60,916 - 78,216
License fees 60,000 30,000 180,000 90,000 300,000
Office and general 21,115 3,689 50,696 28,522 101,226
Marketing 25,585 12,162 57,140 26,538 96,569
Professional fees 10,134 8,450 29,915 15,611 59,305
140,669 55,951 383,932 165,321 647,181
NET LOSS FOR THE PERIOD (145,836) (55,951) (373,649) (165,321) (636,898)
BASIC NET LOSS PER SHARE (0.01) (0.00) (0.02) (0.01)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,672,446 12,762,022 15,346,800 12,484,208
The accompanying notes are an integral part of these interim
consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Nine months Oct 13
ended ended 2000
September September (inception)
30, 2002 30, 2001 to September
30, 2002
(Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (373,649) $ (165,321) $ (636,898)
Adjusted for item not involving cash:
Depreciation and amortization 5,265 4,650 11,865
Changes in operating assets and
liabilities:
Changes in accounts receivable (30,619) - (30,619)
Changes in inventory (6,057) - (6,057)
Changes in prepaid expenses (2,139) (3,758) (5,897)
Changes in deferred license revenue 5,615 - 5,615
Changes in accounts payable 140,680 15,743 179,931
NET CASH FLOWS USED IN OPERATING
ACTIVITIES (260,904) (148,686) (482,060)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from related parties (20,944) 15,558 (8,596)
Obligation to issue shares 62,300 - 62,300
Proceeds on sale of common stock 237,280 138,100 457,633
NET CASH FLOWS FROM FINANCING
ACTIVITIES 278,636 153,658 511,337
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (1,056) (4,000) (5,056)
Cash acquired on reverse acquisition
of SchoolWeb - 74 74
NET CASH FLOWS USED IN INVESTING
ACTIVITIES (1,056) (3,926) (4,982)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,091) (706) (5,041)
INCREASE IN CASH 13,585 340 19,254
CASH, BEGINNING OF PERIOD 5,669 3 -
CASH, END OF PERIOD 19,254 343 19,254
OTHER NON-CASH TRANSACTIONS:
During 2002 the Company issued 228,571 common shares at a price of
$0.35 per share to settle debt of $80,000.
The accompanying notes are an integral part of these interim
consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on June 26, 2000 in the State of Nevada
as North Pacific Capital Corp. and was organized for the purpose of
creating a corporate vehicle to locate and acquire an operating
business. On December 19, 2001 the Company changed its name to
Schoolweb Systems Inc. and on May 14, 2002 the Company changed its
name to Alternet Systems Inc. ("Alternet" or the "Company"). On
November 6, 2000, the Company filed a Form 10SB registration with the
United States Securities and Exchange Commission ("SEC") and as a
result is subject to the regulations governing reporting issuers in
the United States.
By agreement dated July 2, 2001 and completed September 10, 2001,
Alternet issued 12,343,000 shares of restricted common stock to the
shareholders of Schoolweb Holdings Inc. ("SW Holdings"), a
development stage company incorporated October 13, 2000 in the State
of Nevada, in exchange for all of the issued and outstanding shares
of SW Holdings. On June 26, 2002 SW Holdings changed its name to AI
Systems Group, Inc.
The acquisition resulted in the former shareholders of SW Holdings
acquiring 90.1% of the outstanding shares of the Company and has been
accounted for as a reverse merger with SW Holdings being treated as
the accounting parent and Alternet, the legal parent, being treated
as the accounting subsidiary. Accordingly, the consolidated results
of operations of the Company include those of SW Holdings for all
periods shown and those of the Alternet since the date of the reverse
acquisition. The results of operations of SW Holdings are from its
inception, October 13, 2000 and include the results of its wholly-
owned subsidiary, SchoolWeb Systems (Canada) Ltd. a company
incorporated April 17, 2001 in the Province of British Columbia.
Refer to Note 3.
SW Holdings, through a License Agreement dated January 1, 2001,
distributes, markets, sells and licenses in the United States and
Canada, certain proprietary software and hardware systems technology
known as "SchoolWeb" used for caching Internet and multimedia files
on special servers (refer to Note 4).
The consolidated financial statements have been prepared on the basis
of a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
Company has incurred losses since inception and further losses are
anticipated before the Company reaches a commercial stage raising
substantial doubt as to the Company's ability to continue as a going
concern. The Company's continued operations are dependent on the
successful implementation of its business plan, its ability to obtain
additional financing as needed, and ultimately to attain profitable
operations.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB of Regulation S-B. They do not include
all information and footnotes required by generally accepted
accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material changes in the
information disclosed in the notes to the financial statements for
the year ended December 31, 2001 included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange
Commission. The interim unaudited financial statements should be read
in conjunction with those financial statements included in the Form
10-KSB. In the opinion of Management, all adjustments considered
necessary for a fair presentation, consisting solely of normal
recurring adjustments, have been made. Operating results for the nine
months ended September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, AI Systems Group, Inc. and
Schoolweb Systems (Canada) Ltd. All significant intercompany
transactions and account balances have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original
maturity of three months or less when purchased, to be cash equivalents.
Inventory
Inventory consists of computer hardware products held for resale and
is carried at the lower of cost and net realizable value.
License Rights
The Company amortizes the cost of acquiring license rights on a
straight-line basis over the term of the license. The Company
evaluates the carrying amount of its unamortized license rights
against the undiscounted future cash flows associated with them. If
the evaluation indicates that the future undiscounted cash flows are
not sufficient to recover the carrying value, an impairment provision
is recorded to adjust the carrying value of the license rights to
their fair value.
Furniture and Equipment
Furniture and equipment are recorded at cost and depreciated on a
declining balance basis at a rate of 30% per annum.
Revenue recognition
To date, the Company has not generated any revenues from the
licensing of its SchoolWeb system. The Company will license its
SchoolWeb system on a prepaid basis for terms ranging from one to
three years. The Company will recognize license revenues on a
straight-line basis over the license term upon completion of the
required hardware and software installations and upon acceptance by
the purchasers.
The Company has generated revenues from hardware sales in connection
with the testing of the SchoolWeb system. Hardware sales are
recognized upon completion and acceptance of installation by the purchasers.
Foreign Currency Translation
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", foreign denominated monetary assets
and liabilities are translated to their United States dollar
equivalents using foreign exchange rates which prevailed at the
balance sheet date. Revenue and expenses are translated at average
rates of exchange during the year. Related translation adjustments
are reported as a separate component of stockholders' equity, whereas
gains or losses resulting from foreign currency transactions are
included in results of operations.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has
determined the estimated fair value of financial instruments using
available market information and appropriate valuation methodologies.
The fair value of financial instruments classified as current assets
or liabilities approximate carrying value due to the short-term
maturity of the instruments.
Stock-Based Compensation
The Company accounts for stock-based compensation in respect to stock
options granted to employees and officers using the intrinsic value
based method in accordance with APB 25. Stock options granted to non-
employees are accounted for using the fair value method in accordance
with SFAS No. 123. In addition, with respect to stock options
granted to employees, the Company provides pro-forma information as
required by SFAS No. 123 showing the results of applying the fair
value method using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for
the receipt of goods or services from other than employees in
accordance with SFAS No. 123 and the conclusions reached by the
Emerging Issues Task Force in Issue No. 96-18. Costs are measured at
the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is
more reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by
the provider of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial
Accounting Standards Board Interpretation No.44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation
of APB Opinion No. 25 ("FIN 44"), which provides guidance as to
certain applications of APB 25. FIN 44 is generally effective July
1, 2000 with the exception of certain events occurring after December
15, 1998.
Income taxes
The Company follows the liability method of accounting for income
taxes. Under this method, future tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax balances.
Future tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable
income in the years in which those differences are expected to be
recovered or settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the date of enactment or substantive enactment.
As at September 30, 2002 the Company had net operating loss
carryforwards; however, due to the uncertainty of realization the
Company has provided a full valuation allowance for the deferred tax
assets resulting from these loss carryforwards.
Net Loss per Common Share
Basic loss per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average
number of common shares outstanding for the period. Dilutive
earnings per share reflects the potential dilution of securities that
could share in the earnings of the Company. The accompanying
presentation is only of basic loss per share as the potentially
dilutive factors are anti-dilutive to basic loss per share.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 142, Goodwill and Other Intangible Assets ("SFAS
142"), which requires that goodwill not be amortized. SFAS requires
that the Company review goodwill at least annually to determine if an
impairment has occurred and if so that goodwill should be reduced
accordingly. The Company has determined that the implementation of
this standard does not have any impact on its financial statements.
NOTE 3 - ACQUISITION OF SW HOLDINGS
By agreement dated July 2, 2001 and completed September 10, 2001,
Alternet acquired 100 % of the issued and outstanding shares of SW
Holdings in exchange for 12,343,000 shares of restricted common stock
of Alternet. At the time of this transaction, the former
shareholders of SW Holdings acquired 90.1% of the 13,693,000 total
issued and outstanding shares of Alternet.
This acquisition has been accounted for as a recapitalization using
accounting principles applicable to reverse acquisitions with SW
Holdings being treated as the accounting parent (acquirer) and
Alternet being treated as the accounting subsidiary (acquiree). The
value assigned to the capital stock of consolidated Alternet on
acquisition of SW Holdings is equal to the book value of the capital
stock of SW Holdings plus the book value of the net assets
(liabilities) of Alternet as at the date of the acquisition.
The book value of SW System's capital stock subsequent to the
acquisition is calculated and allocated as follows:
SW Holdings capital stock $ 153,103
Alternet net assets (liabilities) (7,904)
$ 145,199
Capital stock $ 137
Additional paid-in capital 145,062
$ 145,199
These consolidated financial statements include the results of
operations of SW Holdings since October 13, 2000 (inception) and the
results of operations of Alternet since the date of the reverse
acquisition on September 10, 2001.
NOTE 4 - LICENSE AGREEMENT
By agreement dated January 1, 2001, SW Holdings entered into an
agreement with Advanced Interactive Inc. ("AII") and Advanced
Interactive (Canada) Inc. ("AIC") whereby SW Holdings acquired
exclusive and non-exclusive rights and licenses to commercialise,
distribute and market SW Holdings related licensed technology,
products and services in the United States and Canada for a period of
five years renewable for a further five years at SW Holdings' option.
SW Holdings must pay royalties equal to 40% of net revenue received
plus a fixed amount of $10,000 per month in the first year, $20,000
per month in year two, and increasing by $8,000 per month in each of
the subsequent years to a maximum of $84,000 per month in year ten.
After year three, the fixed monthly payment is reduced by the amount
of royalties otherwise payable. In addition SW Holdings issued
2,500,000 shares on June 29, 2001 valued at $.01 per share or $25,000.
Effective September 10, 2001 SW Holdings, AII and AIC amended the
original agreement such that AI and AIC would receive an additional
500,000 shares valued at $5,000 which Alternet issued on September 10, 2001.
Also effective September 10, 2001 the President and director of AII
and AIC became a director of the Company.
NOTE 5 - CAPITAL STOCK
To September 30, 2002, the Company has not granted any stock options
and has not recorded any stock-based compensation.
During the period ended September 30, 2002, the Company completed a
private placement of 510,000 units at a price of $.20 per unit. Each
unit consists of one common share and one share purchase warrant
entitling the holder to acquire an additional share at a price of
$0.50 per share to February 28, 2004.
During the period ended September 30, 2002, the Company completed
private placements of 386,514 units at a price of $.35 per unit. Each
unit consists of one common share and one share purchase warrant
entitling the holder to acquire an additional share at a price of
$0.50 per share for two years.
The Company is in the process of completing a private placement of
193,000 units at a price of $.35 per unit. Each unit consists of one
common share and one share purchase warrant entitling the holder to
acquire an additional share at a price of $0.50 per share to October
2, 2004. To September 30, 2002, the Company had received total
subscription proceeds of $62,300 in connection with this private
placement which was completed subsequently.
At September 30, 2002 there were 375,000 warrants outstanding to
purchase 375,000 common shares at a price of $0.50 per share to
November 24, 2003; 510,000 warrants outstanding to purchase 510,000
common shares at a price of $0.50 per share to February 28, 2004,
100,000 warrants outstanding to purchase 100,000 common shares at a
price of $0.50 per share to March 15, 2004, 140,000 warrants
outstanding to purchase 140,000 common shares at a price of $0.50 per
share to April 30, 2004, and 146,514 warrants outstanding to purchase
146,514 common shares at a price of $0.50 per share to July 18, 2004.
Effective June 3, 2002 the Company filed a Form SB-2 Registration
Statement with the SEC for the registration of a total of 7,764,000
shares of the Company's common stock of which 6,639,000 are issued and
outstanding and 1,125,000 will be reserved to be issued upon the
exercise of 1,125,000 share purchase warrants.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2002, certain directors
were repaid for net cash advances and consulting fees owed totalling
$20,944. At September 30, 2002 a total of $12,542 is owing to
directors and shareholders. Amounts due from related parties are
non-interest bearing and have no specific terms of repayment.
During the nine months ended September 30, 2002, the following
amounts were incurred to directors of the Company or its subsidiary,
and a company with a director in common.
Nine months
ended
September 30,
2002 2001
Consulting $ 45,319 $ -
License fees 180,000 -
Marketing 40,159 21,719
$ 265,478 $ 21,719
NOTE 7 - INCOME TAXES
The Company and its subsidiaries have tax losses which may be
available to reduce future year's taxable income, that result in
deferred tax assets. Management believes that the realization of the
benefits from these deferred tax assets appears uncertain due to the
Company's limited operating history and losses to date. Accordingly
a full, deferred tax asset valuation allowance has been provided and
no deferred tax asset benefit has been recorded.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL OPERATIONS
AND FINANCIAL RESULTS
The Company' subsidiary, in January of 2001, entered into a software
license agreement with Advanced Interactive Inc. ("AII") by which it
acquired the North American rights to market and distribute AII's
broadcast / caching software (the SchoolWeb software system it
currently markets and distributes).
On March 6, 2002, AII and Hewlett Packard (Canada) entered into an
agreement (the "Hewlett Packard Agreement") where AII agreed that the
broadcast caching software it had licensed to the Company would, be
sold in conjunction with Hewlett Packard hardware and with financing
provided by a division of Hewlett Packard (Canada), Hewlett Packard's
leasing and finance division.
Effective March 6, 2002 but executed on April 10, 2002, the Company
granted to AII its consent to the Hewlett Packard Agreement. As a
result, the Company must only sell broadcast caching server software
(including the SchoolWeb software system) in conjunction with Hewlett
Packard hardware and with financing provided by Hewlett Packard's
leasing and finance division.
Management of the Company consented to the Hewlett Packard Agreement
because in it Hewlett Packard (Canada) agrees to use its best efforts
to provide distribution and marketing of the broadcast caching
software products the Company has licensed from AII. The Company
hopes that Hewlett Packard (Canada) and its distribution capability
will generate sales of the SchoolWeb software system and the
HealthWeb software system. In exchange for its consent, the Company
also secured rights under the License Agreement to a broader range of
products than it previously had rights to. The License Agreement
with AII originally entitled the Company only to the SchoolWeb and
OfficeServer software products. The License Agreement has now been
amended to expand the Company's rights to a North American license of
all broadcast caching software products AII has developed.
(a) RESULTS OF OPERATIONS
With the closing of the SchoolWeb Agreement, the Company's results,
on a consolidated basis, reflected its own results consolidated with
its subsidiary, AI Systems Group Inc. (formerly known as SchoolWeb
Holdings Inc). For the remainder of this part, the term "Company"
refers to both the Company and its wholly owned subsidiary, AI
Systems Group Inc.
For the quarter ending September 30, 2002, the Company had a net loss
of $145,836 or $(0.01) per share. The net loss for the corresponding
period of July 1, 2001, to September 30, 2001 was $55,591 or $(0.01)
per share. The increased loss was due to: an increase in marketing
expenses, consulting fees, professional fees, office expense and an
increase in license fees due to Advanced Interactive Inc.
SALES
For the period ending September 30, 2002, the Company had sales of
$40,923. During the corresponding period of July 1 2001 to September
30 2001, the Company had no sales. The increase in sales is
attributable to the fact that the SchoolWeb and 1nterLink products
were in development during the prior period and not ready for
commercial sale.
EXPENSES
For the quarter ended September 30, 2002, the Company incurred
general and administrative expenses of $21,115; marketing expenses of
$25,585; consulting fees of $22,080; fees payable under the License
Agreement of $60,000; and $10,134 in professional fees. For the
corresponding period of July 1, 2001 to September 30, 2001, the
Company had general and administrative expenses of $3,689; marketing
expenses of $12,162; no consulting fees; fees payable under the
License Agreement of $30,000 and professional fees of $8,450.
The increase in marketing, consulting and office and general expense
this quarter, compared to the corresponding period of July 1 2001 to
June 30 2002, is a result of increased activity in marketing the
SchoolWeb and 1nterLink products since their commercial launch in May
2002. License fees payable to Advanced Interactive have increased to
$20,000 per month compared to $10,000 per month during the period of
July 1 2001 to September 30 2001, as per the License Agreement; and
professional fees increased this quarter due to fees associated with
achieving a public listing.
(b) Liquidity and Capital Resources
As at September 30, 2002, the Company had $19,254 cash in the bank,
accounts receivable of $30,619 and prepaid expenses of $5,897.
Inventory as of that date was $6,057.
The Company has installed an 1nterLink ISP system at the Heiltsuk
aboriginal nation, located at Bella Bella, British Columbia, Canada.
This system was installed in June 2002, and invoiced this quarter.
Partial payment was received during this quarter, with the balance
received subsequent to the quarter. The Company also installed and
invoiced a SchoolWeb system during the quarter. It is likely that
the Company will either entirely or partially dependant on raising
capital or receiving advances from related parties in order to meet
the continuing costs of marketing the Licensed Technology and,
possibly, developing products other than the SchoolWeb software
system which are based on the Licensed Technology (if available funds
permit such development).
Audit Fees
During the period ended September 30, 2002, the Company incurred
approximately $5,700 in fees to its principal independent accountant
for all non-audit services (including reviews of the Company's
quarterly financial statements).
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Registrant is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by or
against the Registrant has been threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Registrant issued a total of 193,000 shares of common stock and
193,000 share purchase warrants (each share purchase warrant
exercisable for a period of two years at an exercise price of $0.50
per warrant) for total consideration of $62,300.
These shares and warrants were issued to three persons who are non-US
residents as that term is defined in the Securities Act of 1933 and
the Rules and Regulations. The issuance was undertaken without
registration under Regulation S. As a result, all three persons were
advised that:
- the shares and warrants had not been registered under the Securities
Act of 1933;
- the shares and warrants could not be resold in the United States or
to a US resident person unless some other resale registration
exemption was available to them;
- the transfer of the shares was restricted under the Registrant's
constating bylaws; and
- other restrictions, such as short sale, were imposed by the issuance
of the shares and warrants under Regulation S.
The three persons purchasing the 193,000 shares and 193,000 share
purchase warrants represented and warranted to the Registrant in
writing that they were purchasing the shares and share purchase
warrants for their own account and not for any other person and
further agreed to the restrictions imposed under Regulation S.
The Registrant intends to seek registration of the 193,000 shares and
193,000 share purchase warrants by inclusion of the three persons
purchasing them as selling shareholders in its registration statement
on Form SB-2 which is presently being reviewed by the SEC.
Proceeds from the sales of these securities have been applied to the
general working capital of the Registrant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K. The Registrant filed one report on
Form 8-K, filed September 12, 2002, during the quarterly period ended
September 30, 2002.
(b) Exhibits. Exhibits included or incorporated by reference
herein: See Exhibit Index.
SIGNATURE
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.
ALTERNET SYSTEMS, INC.
Dated: November 14, 2002 By: /s/ Michael Dearden
Michael Dearden, President and Director
EXHIBIT INDEX
Number Exhibit Description
3.1 Articles of Incorporation (incorporated by reference to Exhibit
3 of the Registration Statement on Form 10-SB filed on September
28, 2000).
3.2 Certificate of Amendment to Articles of Incorporation
(incorporated by reference to Exhibit 2 of the Form 10-SB filed
on September 28, 2000).
3.3 Certificate of Amendment to Articles of Incorporation dated
October 13, 2000. (incorporated by reference to Exhibit 3.3 of
the Form 10-QSB filed on November 7, 2000)
3.4 ByLaws (incorporated by reference to Exhibit 3.3 of the Form 10-
QSB filed on November 7, 2001)
99.1 Certification