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 JUNE 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 (IRS Employer
of incorporation or 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 June 30, 2002, the Registrant had 15,439,579 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 MARCH 31, 2002 3
INTERIM STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2002 4
INTERIM STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 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
JUNE 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
June 30, December 31,
2002 2001
------------------------------------------------------------------------------
(Unaudited) (Note 1)
$ $
ASSETS
CURRENT ASSETS
Cash 2,665 5,669
Accounts receivable 14,625 -
Prepaid expenses 4,194 3,758
Inventory 6,057 -
------------------------------------------------------------------------------
27,541 9,427
LICENSE RIGHTS, net of amortization of $9,000
(2001 - $6,000) (Note 4) 21,000 24,000
FIXED ASSETS, net of depreciation of $1,110
(2001 - $600) 2,890 3,400
------------------------------------------------------------------------------
51,431 36,827
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 77,046 26,091
Due to related parties (Note 6) 8,970 33,486
------------------------------------------------------------------------------
86,016 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
15,580,371 (2001 - 14,733,000)
issued and outstanding 156 147
Additional paid-in capital 460,873 242,302
Accumulated comprehensive loss (4,552) (1,950)
Deficit accumulated during development stage (491,062) (263,249)
-------------------------------------------------------------------------------
(34,585) (22,750)
-------------------------------------------------------------------------------
51,431 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 Six Six Oct 13,
months months months months 2000
ended ended ended ended (inception)
June 30, June 30, June 30, June 30, to June
2002 2001 2002 2001 30, 2002
$ $ $ $ $
(Note 1)
HARDWARE SALES 14,625 - 15,450 - 15,450
--------------------------------------------------------------------------------
EXPENSES
Depreciation and
Amortization 1,755 3,000 3,510 3,000 10,110
Consulting 21,881 - 38,836 - 56,136
License fees 60,000 30,000 120,000 60,000 240,000
Office and general 19,295 18,795 29,581 24,833 80,111
Marketing 15,709 10,145 31,555 14,376 70,984
Professional fees 16,238 5,841 19,781 7,161 49,171
--------------------------------------------------------------------------------
134,878 67,781 243,263 109,370 506,512
--------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (120,253) (67,781) (227,813) (109,370) (491,062)
================================================================================
BASIC NET LOSS PER SHARE (0.01) (0.01) (0.02) (0.01)
====================================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,439,579 12,343,000 15,175,483 12,343,000
=====================================================================
The accompanying notes are an integral part of these
interim consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
October 13,
Six months Six months 2000
ended June ended June (inception)
30, 2002 30, 2001 to June 30, 2002
$ $ $
--------------------------------------------------------------------------------
(Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (227,813) (109,370) (491,062)
Adjusted for item not involving cash:
Depreciation and amortization 3,510 3,000 10,110
Changes in operating assets
and liabilities:
Accrued consulting fees (17,300) - -
Changes in accounts receivable (14,625) - (14,625)
Changes in inventory (6,057) - (6,057)
Changes in prepaid expenses (435) - (4,194)
Changes in accounts payable 50,955 14,395 72,906
--------------------------------------------------------------------------------
NET CASH FLOWS USED IN
PERATING ACTIVITIES (211,766) (91,975) (432,922)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from related parties (7,216) 20,985 5,132
Proceeds on sale of common stock 218,580 128,100 438,933
--------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 211,364 149,085 444,065
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets - (4,000) (4,000)
Cash acquired on reverse acquisition
of SchoolWeb - - 74
--------------------------------------------------------------------------------
NET CASH FLOWS USED IN INVESTING
ACTIVITIES - (4,000) (3,926)
--------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (2,602) - (4,552)
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (3,004) 53,110 2,665
CASH, BEGINNING OF PERIOD 5,669 3 -
-------------------------------------------------------------------------------
CASH, END OF PERIOD 2,665 53,113 2,665
================================================================================
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
JUNE 30, 2002 AND 2001
(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 incorpor-
ated 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. Accord-
ingly, 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 subsid-
iary, SchoolWeb Systems (Canada) Ltd. a company incorporated April 17, 2001 in
the Province of British Columbia. The comparative balance sheet as at December
31, 2001 and the comparative results of operations and cash flows for the three
and six months ended June 30, 2001 are those of SW Holdings. 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 informa-
tion 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 includ-
ed in the Form 10-KSB. In the opinion of Management, all adjustments considered
necessary for a fair presentation, consisting solely of normal recurring adjust-
ments, have been made. Operating results for the six months ended June 30, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 assump-
tions 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.
Fixed Assets
Fixed assets 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 shown net of hardware
acquisition costs and are recognized upon completion and acceptance of installa-
tion 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 eq uivalents 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' e quity, 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 inform-
ation 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 consid-
eration other than employee services is determined on the earliest of a perform-
ance 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 carry-
ing 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 June 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 June 30, 2002, the Company has not granted any stock options and has not
recorded any stock-based compensation.
During the period ended June 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 June 30, 2002, the Company completed a private placement
of 100,000 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 March 15, 2004.
During the period ended June 30, 2002, the Company completed a private placement
of 140,000 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 addi-
tional share at a price of $0.50 per share to April 30, 2004.
The Company is in the process of completing a private placement of 146,514 units
at a price of $0.35 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 July 18, 2004. To June 30, 2002, the Company had
received total subscription proceeds of $32,580 and issued a total of 97,371
units in connection with this private placement.
At June 30, 2002 there were 510,000 warrants outstanding to purchase 510,000
common shares at a price of $0.50 per share to February 28, 2004, 375,000
warrants outstanding to purchase 375,000 common shares at a price of $0.50 per
share to November 24, 2003, 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 97,371 warrants outstanding to purchase 97,371 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 six months ended June 30, 2002, certain directors were paid for
previously accrued consulting fees of $17,300 and were repaid cash advances
totalling $7,216. At June 30, 2002 a total of $8,970 is owing to directors and
shareholders. Amounts due from related parties are non-interest bearing and
have no specific terms of repayment.
During the six months ended June 30, 2002, the following amounts were incurred
to directors of the Company or its subsidiary, and a company with a director in
common.
Six months ended June 30,
2002 2001
$ $
--------------------------
Consulting 29,096 -
License fees 120,000 -
Marketing 25,921 14,376
--------------------------
175,017 14,376
==========================
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.
NOTE 8 - SUBSEQUENT EVENT
Subsequent to June 30, 2002, the Company received $18,700 towards the purchase
of 53,429 units at a price of $0.35 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 July 18, 2004.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
The Company's subsidiary AI Systems Group Inc., in January of 2000, entered into
a software license agreement (the "Licence Agreement") with Advanced Interactive
Inc. ("AII") by which it acquired the exclusive North American rights to market
and distribute broadcast / caching software ( the SchoolWeb software system it
currently markets and distributes)owned by AII.
Pursuant to an agreement dated July 2, 2001 (the "Subsidiary Purchase Agree-
ment") the Company purchased its subsidiary, AI Systems Group Inc. in exchange
for the issuance of 12,843,000 common shares of which 3,000,000 common shares
were issued to AII which became an affiliate of the Company as a result.
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 exclusively with Hewlett
Packard hardware, subject to Alternet Systems consent.
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.
Management of the Company consented to the Hewlett Packard Agreement because in
it Hewlett Packard (Canada) agrees to use its best efforts to provide distribu-
tion and marketing of the broadcast caching software products the Company has
licensed from AII. The Company hopes that Hewlett Packard and its distribution
capability will generate sales of the SchoolWeb software system.
(a) RESULTS OF OPERATIONS
With the closing of the SchoolWeb Agreement, the Company's results reflected its
own results, consolidated with its subsidiary, AI Systems Group Inc. (formerly
nown 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 six months ending June 30, 2002, the Company had a net loss of $227,813
or $(0.02) per share. The net loss for the corresponding period of January 1,
2001 to June 30, 2001 was $109,370 or $(0.01) per share. The increased loss was
due to: an increase in marketing expenses, consulting fees, professional fees
and licence fees payable under the Licence Agreement. The increase in licence
fees payable under the Licence Agreement alone accounted for $60,000 of the
increase in net loss (see figures for payments below).
SALES
For the six month period ending June 30, 2002, the Company had sales of $15,450.
During the corresponding period of January 1 to June 30, 2001, the Company had
no sales. The increase in sales is attributable to the fact that the S choolWeb
product was in development and testing during the prior period (and almost all
of the present six month period) and not ready for commercial sale.
EXPENSES
For the six months ended June 30, 2002, the Company incurred general and
administrative expenses of $29,581; marketing expenses of $31,555; consulting
fees of $38,836; fees payable under the License Agreement of $60,000; and
$19,781 in professional fees. For the corresponding period of January 1, 2001
to June 30, 2001, the Company had general and administrative expenses of
$24,833; marketing expenses of $14,376; no consulting fees; fees paid under the
License Agreement of $30,000 and professional fees of $7,161.
The increase in marketing and consulting expense, compared to the corresponding
period of January 1, 2001 to June 30 2001, is a result of increased activity in
marketing the SchoolWeb and 1nterLink products since their commercial launch in
May/June 2002. License fees payable to Advanced Interactive have increased to
$20,000 per month compared to $10,000 per month during the period of January 1,
2001 to June 30 2001, as per the License Agreement; professional fees higher
this quarter due primarily to increased audit expenses.
(b) Plan of Operations
As at June 30, 2002, the Company had $2,665 cash in the bank, accounts
receivable of $14,625 and prepaid expenses of $4,074.
The Company hopes to realize significant cash flow from sales of the SchoolWeb
and InterLink products in the third quarter of 2002. The Company has received a
purchase order of approximately $22,000 (which has not yet been recognized as
revenue under the Company's revenue recognition policy, see notes to financial
statements) from the Heiltsuk aboriginal nation, located at Bella Bella, British
Columbia, Canada, for installation of an 1nterlink system. This system was
installed in June 2002, and it is expected it will be invoiced in the third
quarter and recognized as revenue. The Company anticipates that in the third
quarter it will realize revenues as a result of the Hewlett Packard Agreement
and from sales of the 1nterlink software system but cannot, at this time, give
any reliable indication or prediction of the amount of the revenue.
It is likely that the Company will remain at least partially (if not almost
wholly) dependent on raising capital or receiving advances and shareholders
loans from related parties in order to meet the continuing costs of marketing
the Licensed Technology. Failure to secure access to these funds could result
in the Company being unable to continue operations. If available working
capital permits, the Company hopes to hire an additional 3 - 4 persons for
marketing and general administrative purposes in the next 12 months.
Audit Fees
During the quarter ended June 30, 2002, the Company incurred approximately
$3,200 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
During the 3 month period ended June 30, 2002, the Registrant sold a total of
140,000 units (each unit comprised of one common share and one share purchase
warrant) at a price of $0.35 per unit. Each warrant is exercisable until April
30, 2004 at an exercise price of $0.50 per warrant. Upon exercise, a warrant
entitles the holder to one common share.
A total of 75,000 of the 140,000 units sold were sold to a US resident person
under the exemption from registration provided by Rule 506 of Regulation D.
A total of 65,000 of the 140,000 units sold were sold to persons not resident in
the US under the exemption from registration provided by Regulation S.
For those offerings (shares and warrants) which were undertaken under Rule 506
of Regulation D:
- the sales were made to accredited investors as defined in Rule
502;
- the company gave each purchaser the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering and to obtain any
additional information which the company possessed or could acquire without
unreasonable effort or expense that is necessary to verify the accuracy of the
information furnished;
- at a reasonable time before the sale of securities, the company advised the
purchasers of limitations on resale in the manner contained in Rule 502(d)(2);
- neither the company nor any person acting on its behalf sold securities by
any form of general solicitation or general advertising; and
- the company exercised reasonable care to assure that the purchasers of the
securities are not underwriters within the meaning of Section 2(11) of the Act
in compliance with Rule 502(d).
For those offerings which were undertaken under Regulation S:
- the sale was made in an offshore transaction;
- no directed selling efforts were made in the United States by the Company;
and
- purchasers were advised of offering restrictions in compliance with Rule
902(g) under the Securities Act of 1933, the sale was not made to a US person or
for the account or benefit of a US person and the sale was made under the
following conditions:
- the purchaser certified that it is not a US person and is not acquiring the
securities for the account or benefit of any US person;
- the purchaser agreed to resell such securities only in accordance with the
provisions of the Securities Act of 1933 or regulations applicable to their
securities; and
- the securities contained a legend to the effect that transfer was prohibited
unless the securities were first registered under the Securities Act of 1933 or
resale was made pursuant to an exemption therefrom.
There was no principal underwriter for these issuances. The securities were not
publically offered and were only offered to accredited investors or to persons
not resident in the United States. No underwriting discounts or commissions
were offered or paid in connection with the issuance of the units.
The Registrant relied upon the exemptions from registration under the Securities
Act of 1933 which is provided by Regulation S and Regulation D Rule 506. Each
purchaser was asked to confirm in writing that they were accredited investors
(in the case of US residents) or that they were non-resident in the US.
Investors residing outside of the US were advised of resale restrictions under
the Regulation S exemption.
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 reports on Form 8-K on April 22,
2002 and May 23, 2002. The report on Form 8-K on April 22, 2002 concerned a
material distribution contract entered into by the Registrant with Hewlett
Packard (Canada). The report on Form 8-K on May 23, 2002 concerned the
Registrant's name change to Alternet Systems, Inc.
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: August 8, 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 November 7, 2000).
3.2 Certificate of Amendment to Articles of Incorporation (incorporated by
reference to Exhibit 2 of the Form 10-SB filed on November 7, 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)
3.5 Certificate of Amendment to Articles of Incorporation dated May 14, 2002
regarding the name change of the Registrant to Alternet Systems, Inc.
99.1 Certification pursuant to 18 U.S.C. section 1350, as adopted, to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C. section 1350, as adopted, to Section
906 of the Sarbanes-Oxley Act of 2002
EXHIBITS
Exhibit 3.5: Certificate of Amendment to Articles of Incorporation
DEAN HELLER CERTIFICATE OF Filed C17563-00
Secretary of State AMENDMENT May 14, 2002
(Pursuant to NRS 78.385 and 78.390)
In the office of:
202 North Carson Street Dean Heller
Carson City, Nevada 89701-4201 Secretary of State
(775) 684-5708
Important: Read attached instructions before completing form
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After issuance of Stock)
- Remit in Duplicate -
1. Name of Corporation: SCHOOLWEB SYSTEMS, INC.
2. The articles have been amended as follows (provide article numbers, if
available):
Article 1: Change name to:
ALTERNET SYSTEMS, INC.
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater proportion of the voting power as may be required in the case of a vote
by classes or series, or as may be required by the provisions of the articles of
incorporation have voted in favour of the amendment is: simple majority.
4. Officer Signature (Required):
/s/ Michael Dearden /s/ Griffin Jones
------------------------ ------------------
Michael Dearden Griffin Jones
*If any proposed amendment would alter or change any preference or any relative
or other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
Nevada Secretary of State Form 78.385 PROFIT AMENDMENT 1999.01
Revised on: 07/21/01
EXHIBIT 99.1
Certification pursuant to 18 U.S.C. section 1350, as adopted, to Section 906 of
the Sarbanes-Oxley Act of 2002
In connection with the filing of the Quarterly Report on Form 10QSB for the
quarterly period ended June 30, 2002 (the Report) by Alternet Systems, Inc. (the
Company), the undersigned, as the President of the Company (performing the
functions of a Chief Executive Officer of the Company), hereby certifies
pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly present, in all material
respects, the financial condition and results of operations of the Company.
/s/ Michael Dearden
Michael Dearden, President and Director
EXHIBIT 99.2
Certification pursuant to 18 U.S.C. section 1350, as adopted, to Section 906 of
the Sarbanes-Oxley Act of 2002
In connection with the filing of the Quarterly Report on Form 10QSB for the
quarterly period ended June 30, 2002 (the Report) by Alternet Systems, Inc. (the
Company), the undersigned, as the Secretary and Treasurer of the Company
(performing the functions of a Chief Financial Officer of the Company), hereby
certifies pursuant to Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly present, in all material
respects, the financial condition and results of operations of the Company.
/s/ Griffin Jones
Griffin Jones, Secretary, Treasurer and Director
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