FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter ended September 30, 2000
Commission File Number: 0-29183
EKNOWLEDGE GROUP, INC.
formerly known as Richmond Services, Inc.
Nevada 91-1982250
(Incorporation) (IRS Number)
1520 West Sixth Street, Suite 101, Corona, CA 92880
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 372-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 19,555,556
Yes[x] No[] (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 for such 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.)
As of September 30, 2000, the number of shares outstanding of the Registrant's
Common Stock was 19,555,556.
1
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
eKnowledge Group, Inc., previously eTestPrep, Inc. (the Company), was
incorporated in the state of Nevada on June 1, 1999, for the purpose of
providing educational training courses over the Internet and through other media
sources. Effective April 17, 2000, Richmond Services, Inc. (Richmond), acquired
all of the issued and outstanding common stock of the Company. Currently the
Company has 50,000,000 common shares authorized, with 19,555,556 shares of
common stock issued and outstanding. There are currently approximately 450
shareholders in the Company. As a result of the transaction, the Company's
former shareholders obtained control of Richmond, a blank-check corporation with
no operations. For accounting purposes, this acquisition has been treated as a
re-capitalization of the Company. The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. Attached hereto and
incorporated herein by this reference are the following financial statements:
--------------------------------------------------------------------------------
Exhibit FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
00QF-2 Un-Audited Financial Statements for the three months and nine months
ended September 30, 2000
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
EKNOWLEDGE GROUP, INC. OVERVIEW
We provide online interactive video streamed learning programs in the
supplemental education market. Additionally, we provide corporate solutions
designed to address the strategic business objectives of our customers by
helping them to increase employee productivity, education access and decrease
the overwhelming cost of corporate training. We host and centrally manage all
software and content, significantly reducing our customers' learning
infrastructure costs and enabling us to rapidly update or customize our courses.
Our Web-based solutions deliver content on new initiatives, products or
processes to large, geographically dispersed groups who can access courses from
anywhere, at anytime through a standard Web browser. Our interactive video-based
design approach encourages active learning among the participants.
As of September 30, 2000, we had over 2000 customers. We also maintained online
courses in the standardized test preparation area and providing corporate online
delivery services in the technology, financial services, and telecommunications
industries. Clients in the corporate education arena include Citibank, eGoose
and Practicing Law Institute.
In August, the Company successfully acquired the rights to the domain name
"eKnowledge.com." This acquisition gives us all rights and interests in the
trademark "eknowledge," as registered by the U.S. Patent and Trademark Office.
We believe that the use of this trademark provides us intellectual property and
a recognizable trademark in the online, educational marketplace. As such, our
domain name was changed at that time to "eKnowledge.com."
2
<PAGE>
(B) DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
NET SALES
Net product sales include the selling price of the HOME LSAT program offering
sold by the Company, net of returns, as well as outbound shipping and handling
charges.
For the nine months ended September 30, 2000, total revenues increased from
$23,128 to $91,857 over the same period last year. This increase is largely due
to the start-up nature of the Company as of September 30, 1999 and the increase
in product offerings. Further, by virtue of the acquisition by Richmond
Services and the contribution of cash on April 17, 2000, the majority of
operations have taken place since then. We expect that revenues from product
sales will continue to grow as we launch new products and continue to increase
our product offerings and services.
GROSS PROFIT
Gross profit is calculated as net sales less the cost of sales, which consists
of the cost of developing and producing the products sold to customers. Cost of
sales exceeded net revenues resulting in a gross loss due to the Company's focus
on product development for the quarter ending September 30, 2000. As a result
of these product development efforts, the Company's product offering has grown
from one test review course to five courses, as well as continue developing
contracts for individual companies.
MARKETING AND SALES
Marketing and sales expenses consist primarily of advertising, public relations
and promotional expenditures. Through the quarter ended September 30, 2000, the
Company had not spent significant amounts on marketing and sales. The Company
intends to increase these expenses as it continues its branding and marketing
campaigns, and as it increases is sales efforts. As a result, the Company
expects marketing and sales expenses to continue to increase significantly.
PRODUCT DEVELOPMENT
Product development expenses are reported as Cost of Sales and consist of
payroll and related expenses for developing new products, developing and
maintaining the Company's web sites and supporting technology.
GENERAL AND ADMINISTRATIVE
General and administrative ('G&A') expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses. These expenses
increased dramatically in the quarter ended September 30, 2000 as the company
began building its management team and staffing its technical department. The
Company expects these costs to continue to increase, as additional resources
will be needed to support our new products and continue to offer new services.
STOCK-BASED COMPENSATION
Stock-based compensation is comprised of consideration offered to a number of
key employees as part of their employment agreements. This consideration must
3
<PAGE>
be classified as compensation expense under generally accepted accounting
principles.
Approximately 1.4 million shares of restricted common stock were issued to
several key employees of the Company in May 2000. The compensation is being
amortized over the vesting period that ends on May 30, 2001
LIQUIDITY AND CAPITAL RESOURCES
Since April 17, 2000, the Company has satisfied its cash requirements primarily
through private placements of equity securities (including the cash received at
the time of the acquisition by Richmond).
Net cash used in operating activities was approximately $546,000 for the nine
months ended September 30, 2000. Net operating cash flows were primarily
attributable to quarterly net losses, increases in current assets, and continued
development activities. This is typical of start-up companies.
Net cash provided by investing activities was $396,000, due primarily to the
cash infusion at the time of the merger with Richmond.
Net cash provided by financing activities of approximately $188,000 relates to
additional cash received for stock, also a result of the merger with Richmond.
The Company is currently in the process of raising additional funds. The
Company believes that the cash proceeds from current investment agreements, in
addition to the current cash balance of $38,000 at September 30, 2000, is
sufficient to meet the Company's anticipated cash needs. We are continuing our
discussions with potential investors to raise the additional funds that will be
necessary to meet our operating needs. However, any projections of future cash
needs and cash flows are subject to substantial uncertainty. If current cash
that may be generated from operations are insufficient to satisfy the Company's
liquidity requirements, the Company may seek to sell additional equity. Such a
sale could result in additional dilution to the Company's stockholders. In
addition, the Company will, from time to time, consider the acquisition of or
investment in complementary businesses, products, services and technologies,
which might impact the Company's liquidity requirements or cause the Company to
issue additional equity. There can be no assurance that financing will be
available in amounts or on terms acceptable to the Company, if at all.
4
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On April 17, 2000, our shareholders approved a Plan of Reorganization by
which we acquired 100% of eKnowledge Group, Inc. (a private Nevada state
corporation engaged in providing supplemental, distance learning over the
internet), as a wholly-owned subsidiary, for the issuance of 15,155,556 new
investment shares of common stock; and we changed of our corporate name to
eKnowledge Group, Inc.
The terms and conditions of this acquisition are that Richmond Services,
Inc. would issue 15,155,556 shares (post reverse split) of the common stock of
the Company. These shares will not have been registered under the Securities Act
of 1933, and may not be resold unless the shares are registered under the Act or
an exemption from such registration is available. They would be Restricted
Securities subject to the holding periods of Rule 144. These shares shall be
issued to the shareholders of eKnowledge Group, Inc. As a part of the proposed
reorganization and acquisition, the representatives of eKnowledge Group, Inc.
with our cooperation will attempt to consummate a private placement offering on
behalf of the to-be-reorganized Company, of up to 500,000 new investment shares
of our common stock on a post-reverse stock split basis, by which approximately
$500,000 in funding would be obtained.
Also elected were five Directors to serve until the next meeting of
shareholders: Gary S. Saunders, Scott Hildebrandt, Chris DeSantis, Mark S.
Zouvas and Wayne Saunders as Directors of the Company. The business experience
and biographies of all the proposed Directors are as follows:
GARY S. SAUNDERS is the President and Chief Executive Officer of
eKnowledge. Prior to starting eKnowledge, Mr. Saunders was the President of
Longacre/White Patent Education ("LWPE"), a company that offers Patent Bar
Review courses. He is widely credited with taking LWPE to the number one market
share position in less than a year in the face of stiff competition, a mature
market, and a company undergoing a name change. Mr. Saunders has produced an
Online Bar Exam Review Program for Practicing Law Institute, the Nation's
leading Continuing Legal Education provider. Mr. Saunders was also the Director
of Operations for the Western United States for West Publishing's West Bar
Review, Vice President of Bar Review Operations for American Professional
Testing Services, Inc., the parent company of Barpassers bar review, and on the
management team that oversaw the Sum & Substance product line, a line of
supplemental study aids for law students. Prior to APTS, Mr. Saunders was the
Director of GRE/GMAT/LSAT/MCAT Operations for the Western United States for
Bar/bri's Professional Testing Centers, then a market leader in the field. A
leading expert in both test preparation and sales and marketing to the student
market, Mr. Saunders has participated in the start up of two other companies. He
is a member of the State Bar of California, a graduate of Brigham Young
University and University of San Diego School of Law, and is one of the
principal lecturers in eKnowledge's initial Home LSAT program as well as the
5
<PAGE>
eTestprep.com SAT program.
SCOTT HILDEBRANDT is the author and a principal lecturer in the Home LSAT
program and a coauthor and lecturer in the eTestprep SAT program. Mr.
Hildebrandt is the Senior Vice President of Academics for eKnowledge as well as
a partner in the Silicon Valley law firm of Hildebrandt and Welker. Mr.
Hildebrandt formerly created the curriculum for a San Francisco test preparation
company, Columbia Review Course. When he taught for Bar/bri's Professional
Testing Centers he was the Western United States top rated lecturer. Mr.
Hildebrandt is also the author of a line of study aids for law students. Mr.
Hildebrandt is a member of the State Bar of California, a graduate of Brigham
Young University and its J. Reuben Clark Law School.
CHRIS DESANTIS is currently the Director of the Online Bar Review Program
at Practicing Law Institute. PLI, a non-profit organization founded in 1933, is
the nation's premier provider of continuing legal education programs. Prior to
PLI Mr. DeSantis was with The Washington Post's Kaplan Division working in both
the Test Preparation and Online Law School areas. As Director of Kaplan CPA
Review, Mr. DeSantis introduced the concept of Online Test Preparation for those
taking the CPA examination. He was on the management team that designed and
implemented the first Online Law School, Concord. Prior to Kaplan, Mr. DeSantis
was a Director for West Bar Review. A graduate of Swarthmore College and
California Western University School of Law, Mr. DeSantis is licensed to
practice law in California, New Jersey, New York, and Pennsylvania.
MARK ZOUVAS was previously our Sole Officer & Director. He was elected
August 12, 1999 and is nominated for re-election. Mr. Zouvas is 37 years old. He
was appointed to the Board of Directors of the Company on October 5, 1999. He
serves as the Company's Chief Financial Officer, a position he has held since
September, 1997. From September 1993 to September, 1997, Mr. Zouvas worked for
Vantage Capital Management Company in Chicago, Illinois. Mr. Zouvas has a BA
from the University of California at Berkeley (Accounting and Real Estate). As a
staff auditor with Price Waterhouse, he performed services for clients in the
banking and real estate industries. Mr. Zouvas has been involved in several
venture capital transactions over the past five years. He is a Licensed Real
Estate Broker and an Accountant in California. Mr. Zouvas is currently a
principal in Delphi Consulting Group that specializes in taking companies public
through reverse-merger acquisitions. Mr. Zouvas is also the Chief Financial
Officer of Power Exploration, Inc., a publicly traded oil exploration firm
located in Fort Worth, Texas.
WAYNE SAUNDERS began his career in Consumer and Commercial Finance, rising
to the level of President of Universal Finance. From Finance Saunders went to
Manufacturing in the Plumbing and Air Conditioning Industries leading Wright
Manufacturing to the market share leader position. Saunders has successfully
started many businesses including, Life Insurance, Manufacturing, Equipment
Rental, Commodities Investment, Oil Development, and Real Estate Development
companies. Saunders is credited with starting TuneMatic, the quick auto tune up
with a 6 month or 6,000 mile guarantee that he originated and sold to Andy
Granatelli. Tune-up Masters continues to lead the tune up industry. Saunders is
a graduate of St. Mary's with a BA in Business Administration.
ITEM 5. OTHER INFORMATION
(A) SECURITY OWNERSHIP OF MANAGEMENT AND 5% OWNERS.
6
<PAGE>
TABLE A
OFFICERS AND DIRECTORS AND OWNERS OF 5% OR MORE
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address of Beneficial Owner. Share
Ownership %
------------------------------------------------------------
Gary S. Saunders. . . . . . . . . . . . 12,107,696 61.91
527 Redwing Circle
Corona CA 92882
------------------------------------------------------------
Scott Hildebrandt . . . . . . . . . . . 1,000,000 5.11
1520 West Sixth Street, Suite 101
Corona, CA 92880
------------------------------------------------------------
Chris DeSantis. . . . . . . . . . . . . 200,000 1.02
1520 West Sixth Street, Suite 101
Corona, CA 92880
------------------------------------------------------------
Mark S. Zouvas. . . . . . . . . . . . . 0 0.00
1520 West Sixth Street, Suite 101
Corona, CA 92880
------------------------------------------------------------
Wayne Saunders. . . . . . . . . . . . . 50,000 0.26
1520 West Sixth Street, Suite 101
Corona, CA 92880
------------------------------------------------------------
All Officers and Directors as a Group . 13,357,696 68.31
------------------------------------------------------------
Total Shares Issued and Outstanding (1) 19,555,556 100.00
------------------------------------------------------------
</TABLE>
(1) This is the total issued and outstanding. It is not the total of the
previous columns. Ownership of shares may be attributed to more than one person.
The total of the items shown therefore may be more or less than this total of
all shares issued and outstanding.
(B) NEW AUDITOR. We have engaged a new Independent Auditor, prospectively,
to review and comment on its next Annual Report, and to assist management in
preparing other current reports. There has been no dispute of any kind or sort
with any auditor on any subject. The new and prospective Auditing firm is
Merdiner, Fruchter, Rosen & Corso, 888 7th Avenue, New York, NY 10106,
212-757-8400. The decision to change accountants was recommended or approved by
our new Board of Directors, following the change of control of this Reporting
Corporation. The former accountant, Todd Chisholm, and Crouch, Bierwolf &
Chisholm, neither resigned or declined to stand for election. The former
accountant's report on the financial statements for either of the past two years
contained no adverse opinion or disclaimer of opinion, nor was modified as to
uncertainty, audit scope or accounting principles. During the two most recent
fiscal years and later interim period through the termination of the
client-auditor relationship, there were no disagreements of the type described
under Item 304(a)(1)(iv)(A) of Regulation S-B.
ITEM 6. REPORTS ON FORM 8-K
A Form 8-K was filed on April 17, 2000 to report the shareholder action
reported in Item 4 above. A Form 8-K was also filed on August 28, 2000 to
report the change of auditor in the above Item 5 (b).
EXHIBITS
--------------------------------------------------------------------------------
Exhibit FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
00QF-2 Un-Audited Financial Statements for the three months and nine months
ended September 30, 2000
--------------------------------------------------------------------------------
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-Q Report for the Quarter ended September 30, 2000, has been signed below
by the following person on behalf of the Registrant and in the capacity and on
the date indicated.
Dated: November 10, 2000
BY THE BOARD OF DIRECTORS
EKNOWLEDGE GROUP, INC.
formerly known as Richmond Services, Inc.
by
/s/Gary S. Saunders /s/Scott Hildebrandt /s/Chris DeSantis
Gary S. Saunders Scott Hildebrandt Chris DeSantis
/s/Mark S. Zouvas /s/Wayne Saunders
Mark S. Zouvas Wayne Saunders
8
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT 00QF-2
UN-AUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
9
<PAGE>
EKNOWLEDGE GROUP, INC.
Balance Sheet
For the fiscal year ended December 31, 1999
And for the periods ended September 30, 1999 and 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(unaudited) (unaudited) (audited)
September 30, 2000 June 30, 1999 Dec. 31, 1999
-------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents. . . . . . . . . . 38,265 3,571 36
Accounts Receivable. . . . . . . . . . . . . 42,694 0 0
Inventory and Supplies . . . . . . . . . . . 7,621 6,765 14,221
Prepaid Expenses . . . . . . . . . . . . . . 5,625 0 0
Deposits . . . . . . . . . . . . . . . . . . 1,000 0 0
------------------- -------------- --------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . 95,205 10,336 14,257
PROPERTY AND EQUIPMENT
Furniture and Equipment. . . . . . . . . . . 80,924 2,057 2,057
Less: Accumulated Depreciation . . . . . . . (5,850) (59) (411)
------------------- -------------- --------------
PROPERTY AND EQUIPMENT, NET. . . . . . . . . 75,074 1,998 1,646
OTHER ASSETS
Deposits - Rent. . . . . . . . . . . . . . . 9,806 0 0
Intangible Assets, net . . . . . . . . . . . 39,725 15,146 15,988
------------------- -------------- --------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . 49,531 15,146 15,988
------------------- -------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . 219,810 27,480 31,891
=================== ============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable . . . . . . . . . . . . . . 75,759 0 12,022
Contracts Payable. . . . . . . . . . . . . . 31,366
Deposits Payable . . . . . . . . . . . . . . 800 2,400 2,400
Income Tax Payable . . . . . . . . . . . . . 0 800 800
------------------- -------------- --------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . 107,925 3,200 15,222
LONG-TERM LIABILITIES
Note Payable . . . . . . . . . . . . . . . . 7,500 0 9,500
------------------- -------------- --------------
TOTAL LONG-TERM LIABILITIES. . . . . . . . . 7,500 0 9,500
------------------ -------------- --------------
TOTAL LIABILITIES. . . . . . . . . . . . . . 115,425 3,200 24,722
STOCKHOLDER'S EQUITY
Common Stock . . . . . . . . . . . . . . . . 19,556 25,000 25,000
Additional Paid-in Capital . . . . . . . . . 1,409,996 1,618 1,618
Unearned Compensation. . . . . . . . . . . . (468,333) (2,338) 0
Accumulated Deficit. . . . . . . . . . . . . (856,834) 0 (19,449)
------------------- -------------- --------------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . 104,385 24,280 7,169
------------------ -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 219,810 27,480 31,891
=================== ============== ==============
</TABLE>
10
<PAGE>
EKNOWLEDGE GROUP, INC.
Statement of Operations
For the fiscal year ended December 31, 1999
And for the periods ended September 30, 1999 and 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Nine Months Ended Quarter Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
----------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales. . . . . . . . . . . . . . . . $ 73,389 $ 23,128 $ 35,247 $ 23,128
Sales Returns and Allowances . . . . (2,318) 0 (545) 0
Other Income . . . . . . . . . . . . 14210 0 0 0
Interest Income. . . . . . . . . . . 6576 0 2807 0
-------------------- -------------------- -------------------- --------------------
Total Revenues . . . . . . . . . . . 91857 23128 37509 23128
COST OF SALES
1398 0 0
33 0 0 0
8500 0 0 0
3135 0 0 0
31467 0 0 0
136388 0 0 0
COST OF SALES. . . . . . . . . . . . 180921 7269 104627 7269
-------------------- -------------------- -------------------- --------------------
GROSS PROFIT . . . . . . . . . . . . ($89,064) $ 15,860 ($67,118) $ 15,860
GENERAL AND ADMINISTRATIVE EXPENSES
Wages Expense. . . . . . . . . . . . 510762 4398 309441 3372
Consulting . . . . . . . . . . . . . 0 5090 0 5000
Rent . . . . . . . . . . . . . . . . 17547 670 8189 670
Small Equipment. . . . . . . . . . . 8596 0 55 0
Legal and Professional Expense . . . 16933 1125 12633 1125
Travel and Entertainment Expense . . 37353 5186 4246 5186
Investor Relations . . . . . . . . . 46647 0 34144 0
Marketing and Advertising. . . . . . 18008 3084 16412 3084
Shipping and Printing. . . . . . . . 37556 3940 28460 3940
Depreciation & Amortization. . . . . 6702 686 4364 627
Other Expense. . . . . . . . . . . . 48217 745 37701 292
-------------------- -------------------- -------------------- --------------------
TOTAL GENERAL AND ADMINISTRATIVE . . 748321 24924 455645 23295
-------------------- -------------------- -------------------- --------------------
Net Operating Income before taxes. . ($837,385) ($9,064) ($522,763) ($7,436)
Provisions for Income taxes. . . . . 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Income (Loss). . . . . . . . . . $ (837,385) $ (9,064) $ (522,763) $ (7,436)
==================== ==================== ==================== ====================
Weighted Average Common Shares . . . 19,555,556 1,000,000 19,555,556 1,000,000
==================== ==================== ==================== ====================
Loss Per Share, Basic and Diluted. . $ (0.0428) $ (0.0091) $ (0.0267) $ (0.0074)
==================== ==================== ==================== ====================
</TABLE>
11
<PAGE>
EKNOWLEDGE GROUP, INC.
Statement of Cash Flows
For the periods ended September 30, 1999 and 2000
<TABLE>
<CAPTION>
<S> <C> <C>
(unaudited) (unaudited)
September 30, 2000 September 30, 1999
--------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . $ (837,385) $ (9,063)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization. . . . . . . 6,702 568
Stock Compensation . . . . . . . . . . . . 234,167 0
Consulting Paid in Stock . . . . . . . . . 10,000 0
Accounts Receivable. . . . . . . . . . . . (42,694) 0
Inventory. . . . . . . . . . . . . . . . . 6,600 2,543
Prepaid Expenses . . . . . . . . . . . . . (5,625) 0
Deposits . . . . . . . . . . . . . . . . . (1,000) 0
Deposits - Rent. . . . . . . . . . . . . . (9,806)
Accounts Payable . . . . . . . . . . . . . 63,737 (516)
Contracts Payable. . . . . . . . . . . . . 31,366 0
Deposits Payable . . . . . . . . . . . . . (1,600) 0
Income Tax Payable . . . . . . . . . . . . (800) 400
--------------------
Total Adjustments. . . . . . . . . . . . . 291,047 2,995
--------------------
NET CASH USED IN OPERATIONS. . . . . . . . (546,338) (3,073)
CASH FLOWS FROM INVESTING ACTIVITIES
Furniture and Equipment. . . . . . . . . . (78,867) 0
Intangible Assets. . . . . . . . . . . . . (25,000)
Cash acquired through acquisition. . . . . 500,000 0
--------------------
NET CASH PROVIDED BY INVESTING . . . . . . 396,133 0
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayment) Proceeds of Note Payable . . . (2,000) 4,750
Additional Paid-in Capital . . . . . . . . 190,434 0
NET CASH PROVIDED BY FINANCING ACTIVITIES. 188,434 4,750
NET INCREASE IN CASH . . . . . . . . . . . 38,229 1,677
CASH BALANCE AT BEGINNING OF PERIOD. . . . 36 2,092
--------------------
CASH BALANCE AT END OF PERIOD. . . . . . . $ 38,265 $ 3,769
======================================================================================
</TABLE>
12
<PAGE>
EKNOWLEDGE GROUP, INC.
Statement of Stockholder's Equity
For the Period from Inception (June 1, 1999) to September 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN UNEARNED ACCUMULATED STOCKHOLDERS'
DESCRIPTION . . . . . . . . . . . . . . . . SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
-------------------------------------------------------------------------------------------------------------------------
BALANCE, 6/1/99 (INCEPTION) . . . . . . . . . . . . 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock, 6/1/99. . . . . . . . . . 1,000,000 1,000 25,618 0 0
Net (loss) at 12/31/99. . . . . . . . . . . . . . . 0 0 0 0 (19,449)
Stock Split, 3/31/00. . . . . . . . . . . . . . . . 14,155,556 14,156 (14,156) 0 0
Acquisition of public shell corporation, 4/17/00. . 4,400,000 4,400 495,600 0 0
Shares transferred by shareholder for services. . . 0 0 190,434 0 0
Shares transferred by shareholder for compensation. 0 0 702,500 (468,333) 0
Shares transferred by shareholder for consulting. . 0 0 10,000 0 0
Net (loss) for period ended 9/30/00 . . . . . . . . 0 0 0 0 (837,385)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, 9/30/00. . . . . . . . . . . . . . . . . . 19,555,556 $ 19,556 $1,409,996 $ (468,333) $ (856,834)
13
<PAGE>
EKNOWLEDGE GROUP, INC.
Statement of Stockholder's Equity
For the Period from Inception (June 1, 1999) to September 30, 2000
<S> <C>
DESCRIPTION . . . . . . . . . . . . . . . . EQUITY
---------------------------------------------------------------
BALANCE, 6/1/99 (INCEPTION) . . . . . . . . . . . . $ 0
Issuance of common stock, 6/1/99. . . . . . . . . . 26,618
Net (loss) at 12/31/99. . . . . . . . . . . . . . . (19,449)
Stock Split, 3/31/00
Acquisition of public shell corporation, 4/17/00. . 500,000
Shares transferred by shareholder for services. . . 190,434
Shares transferred by shareholder for compensation. 234,167
Shares transferred by shareholder for consulting. . 10,000
Net (loss) for period ended 9/30/00 . . . . . . . . (837,385)
---------------------------------------------------------------
BALANCE, 9/30/00. . . . . . . . . . . . . . . . . . $ 104,385
</TABLE>
14
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
UNAUDITED FINANCIAL INFORMATION. In the opinion of the Company, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly its financial
position as of September 30, 2000 and the results of its operations and cash
flows for the nine months ended September 30, 2000. These statements are
condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of operations for the nine months ended September 30,
2000 are not necessarily indicative of the results to be expected for the full
year.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK. The Company places its cash in what is believes to
be credit-worthy financial institutions. However, cash balances may exceed FDIC
insured levels at various times during the year.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable, and notes payable
approximates fair value due to the relatively short maturity of these
instruments.
INVENTORY. Inventory at September 30, 2000, consists of brochures, posters,
banners, t-shirts, handouts, audiotapes, and other related materials that are
provided to customers who purchase the products. Inventory is valued at the
lower of cost or market. Cost is determined using first-in-first-out (FIFO)
method.
INTANGIBLE ASSETS. The Company's intangible assets include all intellectual
property including course names, mailing lists, contacts and licenses for Home
Education, Home LSAT, the World Wide Web address of Home-LSAT.com, eCorpEd.com,
eAfterSchool.com, eTestPrep.com, eLifeEd.com, eClassicNotes.com,
eCollegeNotes.com. A license from the Law School Admissions Council, Inc. has
been obtained for the use of prior testing questions. Management estimates the
useful life of these assets to be approximately 10 years.
Additionally, the Company's intangible assets include the intellectual property
rights associated with the trademark "eKnowledge." This includes all rights,
interests and title to the name "eKnowledge" which has been registered with the
U.S. Patent and Trademark Office. Amortization expense for the period ended
September 30, 2000, was $1,263.
MANAGEMENT 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
disclosures 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 AND EXPENSE RECOGNITION. Revenues are recognized from the sale of course
publications as products are shipped. Other revenues are recognized as earned.
Cost of sales includes the cost of production and development of related course
materials. Such costs include professional consultation, printing, copying, and
related promotional materials and costs.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation and amortization expense for the year is calculated by the
straight-line method over their estimated useful lives.
ADVERTISING. The Company expenses advertising costs as they are incurred.
Advertising expenses for the nine months ending September 30, 2000, were $8,112.
LONG-LIVED ASSETS. Long-lived assets and certain identifiable intangibles to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be recoverable.
When required, impairment losses on assets to be held and used are recognized
based on the fair value of the assets and long-lived assets to be disposed of
are reported at the lower of carrying amount or fair value less cost to sell.
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income" establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. As of September 30, 2000 and 1999, the
Company has no items that represent comprehensive income and, therefore, has not
included a schedule of comprehensive income in the accompanying consolidated
financial statements.
INCOME TAXES. Income taxes are provided for based on the liability method of
accounting pursuant to SFAS No. 109, "Accounting for Income Taxes". Deferred
income taxes, if any, are recorded to reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end.
EARNINGS PER SHARE. The Company calculates earnings per share in accordance with
SFAS No. 128, "Earnings Per Share", which requires presentation of basic
earnings per share ("BEPS") and diluted earnings per share ("DEPS'). The
computation of BEPS is computed by dividing income available to common
stockholders by the weighted average number of outstanding during the period.
DEPS gives effect to all dilutive potential common shares during the period.
The computation of DEPS does not assume conversion, exercise or contingent
exercise of securities that would have an antidilutive effect on earnings. As
of September 30, 2000, the Company has no securities that would affect loss per
share if they were to be dilutive.
CORPORATE REORGANIZATION AND MERGER. On April 17, 2000 Richmond and the Company
executed an Acquisition Agreement (the "Agreement") that provided whereby
Richmond would acquire all of the issued and outstanding common stock of the
Company. In connection with the transaction, the shareholders of the Company
received 15,155,556 shares of Richmond common stock for its 15,155,556 shares,
which represents 77.5% of the Company. As a result of this transaction the
former shareholders of the Company acquired or exercised control over a majority
of the shares of Richmond. Accordingly, the transaction has been treated for
accounting purposes as a recapitalization of the Company and, therefore, these
financial statements represent a continuation of the accounting acquirer, the
Company, not Richmond, the legal acquirer. In accounting for this transaction:
i) The Company is deemed to be the purchaser and surviving company for
accounting purposes. Accordingly, its net assets are included in the balance
sheet at their historical book values.
ii) Control of the net assets and business of Richmond was acquired
effective April 17, 2000 (the "Effective Date"). This transaction has been
accounted for as a purchase of the assets and liabilities of Richmond by the
Company. At the effective date Richmond had some liabilities in the form of
accounts payable. These were paid prior to the effective date under the terms
of the transaction agreement.
iii) The consolidated statements of operations and cash flows include the
Company's results of operations and cash flows from June 1, 1999 (date of
inception) and Richmond's results of operations from the Effective Date.
ACQUISITION OF EKNOWLEDGE.COM. In August, the Company purchased the domain name
and mark "eknowledge.com" for $25,000 cash and an option to purchase 32,500
options. The options, which will be granted at a later date, are fully vested,
may be exercised beginning in May, 2001 and have a four year term. The purchase
gives the Company all rights, title and interest in the trademark "eknowledge"
as registered and maintained by the U.S. Patent and Trademark Office. The
purchase price of $25,000 was reported as and intangible asset and is being
amortized.
CONVERTIBLE PROMISSORY NOTES. The Company entered into a convertible promissory
note agreement with Margie Whistler for $20,000 for consulting services. The
note bears interest at 5 percent per annum. Principle and any accrued interest
shall be due and payable upon the closing of a subsequent equity financing
undertaken for the purpose of raising proceeds, or October 12, 2001, if no
subsequent financing takes place. The provisions for conversion are available
upon the closing of a subsequent financing prior to October 12, 2001, and
provide that the holder may choose to have the balance due of this note plus all
accrued and unpaid interest thereon automatically converted into shares of the
Company's stock at a price of $1.50 per share. As of December 31, 1999, the
Company had incurred expenses on the contract in the amount of $10,000 and paid
$500. During the nine months ending September 30, 2000, the Company paid $2,000
towards the note. Additionally, during the same period, the Company incurred
expenses for the contract balance of $10,000. On March 31, 2000, the holder of
the note accepted 6,667 shares of common stock as payment of the additional
$10,000. These shares were transferred by the majority shareholder of the
Company.
INCOME TAXES. The provision for income taxes for the nine months ended September
30, 2000, consist of the following:
Current
Federal $ 0
State 800
------------
Total Current 800
------------
Deferred Income Taxes 293,085
Valuation Allowance (293,085)
----------
Total Deferred 0
-----------------------------------------
Provision for Income Taxes $ 800
The income tax provision differs from the expense that would result from
applying federal statutory rates to income before taxes due to the valuation
allowance described below. Provision for deferred income taxes of $293,085 have
been made for temporary differences existing in recognition of a net operating
loss being carried forward for tax and financial statement purposes. The Company
has established a valuation allowance for the deferred tax asset related to the
net operating loss carryforward of $837,385 due to the start-up nature of the
Company. The Company has total net loss carry-forwards of approximately $856,834
through the nine months ending September 30, 2000. The net operating losses
expire as follows:
Amount Expiration Year
---------------------------------------------------------
$837,385 2020
19,449 2019
---------------------------------------------------------
Total $856,834
SHAREHOLDER EQUITY. On April17, 2000 Richmond issued 15,155,556 shares of stock
for all the stock - 15,155,556 shares - of the Company. Before the transaction,
there were 4,400,000 shares of Richmond outstanding. After the transaction the
ownership of Richmond is as follows:
Shares Percent
-----------------------------------------------------------------------
Original shareholders 4,400,000 22.5
(including public owners)
Former owners of the Company 15,155,556 77.5
-----------------------------------------------------------------------
Total 19,555,556 100
Because the former owners of the Company end up with control of Richmond, the
transaction would normally be considered a purchase by the Company. However,
since Richmond is not a business, the transaction is not a business combination.
Instead, the transaction is accounted for as a recapitalization of the Company
and the issuance of stock by the Company (represented by the outstanding shares
of Richmond) for the assets and liabilities of Richmond. The value of the net
assets of Richmond is the same as their historical book value. As part of this
recapitalization, Richmond shareholders agreed to pay all liabilities existing
prior to the date of the transaction. Richmond's liabilities prior to the
transaction were immaterial.
For the recapitalization, the Company's equity accounts are restated to reflect
the 4,400,000 shares of the Original shareholders of Richmond and the 15,155,556
shares issued based on the ratio of the exchange of 15,155,556 Richmond shares
for 15,155,556 of the Company shares. Currently, the Company is authorized to
issue up to 50,000,000 shares of Common Stock with a par value of $.001 per
share.
STOCK COMPENSATION. As part of their employment agreements, several employees
were offered stock certificates of common stock as part of their compensation.
The stock certificates were transferred by the Company's sole shareholder at
that time. These stock offerings are deemed a benefit to the corporation and as
such, compensation is recognized based on the value of the stock. The stock
vests over the course of twelve months. As a result, approximately $703,000 was
reported as an increase to Additional Paid in Capital and approximately $468,000
was reported as a charge to Unearned Compensation. The resulting effect was a
net compensation expense of approximately $235,000, reported for the nine months
ending September 30, 2000.
