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 February 28, 1999
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[ ] Transition Report under Section 13 or 15(d) of the Exchange Act For the
Transition Period from ________ to ___________
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Commission File Number: 0-25247
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ADVANCED KNOWLEDGE, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 95-4675095
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17337 Ventura Boulevard, Suite 224
Encino, California 91316
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(Address of principal executive offices)
(818) 784-0040
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(Issuer's telephone number)
N/A
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or 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.
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securitie sunder a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The Registrant has 3,200,000 shares of Common stock, par value $.001 per share
issued and outstanding as of February 28, 1999.
Traditional Small Business Disclosure Format (check one) Yes [ ] No [X]
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................. 3
Balance Sheet (unaudited)............................ 4
Statements of Operations (unaudited)................. 5
Statements of Cash Flows (unaudited)................. 6
Item 2. Management's Discussion and Analysis of Plan
of Operation........................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 10
Item 2. Changes in Securities and Use of Proceeds............ 10
Item 3. Defaults upon Senior Securities...................... 10
Item 4. Submission of Matters to a Vote
of Security Holders................................. 10
Item 5. Other Information..................................... 10
Item 6. Exhibits and Reports on Form 8-K...................... 10
Signatures...................................................... 11
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
(Financial Statements Commence on Following Page)
ADVANCED KNOWLEDGE, INC.
BALANCE SHEETS
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February 28,
1999 August 31,
(Unaudited) 1998
ASSETS
CASH $ 10,918
ACCOUNTS RECEIVABLE $ 27,987 6,836
VIDEO INVENTORY AND PRODUCTION COSTS 50,069 33,285
PREPAID EXPENSES 3,110 2,000
--------- --------
TOTAL ASSETS $ 81,166 $ 53,039
========= ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
Bank overdraft $ 612
Accrued expenses 40,152 $ 64,472
Note payable to shareholder 142,962 72,212
Accrued interest due to shareholder 3,659
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Total liabilities 187,385 136,684
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, par value - $.001,
25,000,000 shares authorized, 3,200,000
and 3,000,000 shares issued and
outstanding at February 28, 1999 and
August 31, 1998, respectively 3,200 3,000
Additional paid-in capital 19,800
Accumulated deficit (129,219) (86,645)
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Total shareholders' deficit (106,219) (83,645)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 81,166 $ 53,039
========= ========
See accompanying notes to financial statements.
3
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ADVANCED KNOWLEDGE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS AND SIX MONTHS ENDED FEBRUARY 28, 1999
Three Months Six Months
Ended Ended
February 28, February 28,
1999 1999
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REVENUES $ 48,897 $ 87,515
COST OF SALES 16,463 35,034
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GROSS PROFIT 32,434 52,481
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EXPENSES:
Selling and marketing 7,653 18,187
General and administrative 12,926 28,168
Professional fees 18,751 44,141
Interest expense 2,205 3,659
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Total expenses 41,535 94,155
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LOSS BEFORE INCOME TAXES (9,101) (41,674)
INCOME TAXES 900
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NET LOSS $ (9,101) (42,574)
ACCUMULATED DEFICIT AT SEPTEMBER 1, 1998 (86,645)
---------
ACCUMULATED DEFICIT AT FEBRUARY 28, 1999 $ 129,219
=========
BASIC LOSS PER SHARE $ N/A $ (.01)
========= =========
COMMON SHARES OUTSTANDING 3,133,333 3,066,667
========= ==========
See accompanying notes to financial statements.
4
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ADVANCED KNOWLEDGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED FEBRUARY 28, 1999
Three Months Six Months
Ended Ended
February 28, February 28,
1999 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,101) $ (42,574)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 1,245 2,500
Changes in operating assets
and liabilities:
Accounts receivable (4,468) (21,151)
Inventory (12,298) (19,284)
Prepaid expenses (110) (1,110)
Accrued expenses (11,401) (20,661)
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Net cash used by operating activities (36,133) (102,280)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft (16,617) 612
Sale of common stock 20,000 20,000
Borrowings from shareholder 32,750 70,750
Net cash provided by financing
activities 36,133 91,362
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NET DECREASE IN CASH -0- (10,918)
CASH, BEGINNING OF PERIOD -0- 10,918
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CASH, END OF PERIOD $ -0- $ -0-
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ -0- $ -0-
Cash paid for income taxes $ -0- $ 900
See notes to financial statements.
5
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ADVANCED KNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six-month period ended February 28, 1999, are not necessarily
indicative of the results that may be expected for the year ended August
31, 1999. For further information, refer to the financial statements and
footnotes thereto included in the company's report on Form 10-SB for the
year ended August 31, 1998.
The balance sheet at August 31, 1998, has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
General Information - At a special meeting held on June 30, 1998, the
shareholders of DMA-Radtech, Inc. ("DMA"); a wholly-owned subsidiary of
Electro-Kinetic Systems, Inc. ("EKSI"), approved a plan of merger and
reorganization, as set forth in an Agreement and Plan of Merger and
Reorganization dated as of June 30, 1998, with Advanced Knowledge, Inc.
("AKIP"). DMA issued 2,700,000 shares of its common stock in exchange for
all outstanding shares of Advanced Knowledge, Inc. Concurrent with the
agreement, DMA changed its name to Advanced Knowledge, Inc. ("AK"). DMA, a
Delaware corporation, was incorporated under the laws of the State of
Delaware in January 1987. During the three months ended February 28, 1999,
the Company sold 200,000 shares of its common stock for $20,000.
The financial statements for the three-months and six-months ended February
28, 1998 have not been included herein as the Company was effectively
dormant during the period.
The current core business of Advanced Knowledge is the production and
marketing of business training videos.
6
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Going Concern - The Company experienced significant operating losses for
the period ended August 31, 1998 and through February 28, 1999. The
financial statements have been prepared assuming the Company will continue
to operate as a going concern which contemplates the realization of assets
and the settlement of liabilities in the normal course of business. No
adjustment has been made to the recorded amount of assets or the recorded
amount or classification of liabilities which would be required if the
Company were unable to continue its operations. As discussed in Note 2,
management has developed an operating plan which they believe will generate
sufficient cash to meet its obligations in the normal course of business.
In addition, the Company has an agreement with its President and majority
shareholder which provides for borrowings up to $300,000.
Unclassified Balance Sheet - In accordance with the provisions of SFAS No.
53, the Company has elected to present an unclassified balance sheet.
Video Inventory - Video inventory consists of video tapes, demos, training
manuals and film production costs. Inventory is stated at the lower of cost
or estimated net realizable value and is amortized in the ratio of the
current year's gross revenues to management's estimate of remaining gross
revenues. Accumulated amortization at February 28, 1999 totalled $2,917.
Loss Per Share - The Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" that
established standards for the computation, presentation and disclosure of
earnings per share ("EPS"), replacing the presentation of Primary EPS with
a presentation of Basic EPS. It also requires dual presentation of Basic
EPS and Diluted EPS on the face of the income statement for entities with
complex capital structures. The Company did not present Diluted EPS since
it has a simple capital structure.
The loss per share for the three months ended February 28, 1999 has been
indicated as "N/A" (not available) since the amount is less than $0.01 per
share.
7
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2. MANAGEMENT PLANS
During the six months ended February 28, 1999, the Company commenced shipping of
its new training videos. Management expects that the forecasted higher sales and
cash flows from operations will be adequate to finance the 1999 cash flow
requirements. Management is considering various options related thereto,
including, but not limited to, merging with another company and obtaining
additional equity and financing sources. While exploratory discussions have been
held with various companies concerning the possibility of an acquisition or
merger, at this time there are no proposals, agreements or understandings for
the acquisition of, or merger with, any company. However, the Company intends to
continue to explore opportunities for an acquisition or merger that the Company
believes will increase shareholder value.
Item 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
The Company will continue to devote its resources to marketing its workforce
training video library and related training materials. At this time these
efforts are focused on three titles, "Twelve Angry Men: Teams That Don't Quit",
"The Cuban Missile Crisis: A Case Study In Decision Making And Its
Consequences", and "What It Really Takes To Be A World Class Company". In
addition, the Company anticipates spending some of its resources on the
production of additional training videos.
Marketing expenses and production costs during the fiscal year ending August 31,
1999 are estimated to approximate $500,000. Management expects that sales of its
videos and training materials, along with available funds under an agreement
with its President and majority shareholder, and the sale of equity should
satisfy its cash requirements over the next year. However, there can be no
assurance that its President will continue to supply funds pursuant to such
agreement, nor that the Company will be successful in raising capital through
the sale of equity. The Company's marketing expenses and the production of new
training videos will be adjusted accordingly.
During December 1998 the Company sold 200,000 shares of its common stock for
$20,000.
The Company currently has 2 employees. These employees received no compensation
through February 28, 1999. If cash resources permit, the Company plans to
increase its employees to 6 during calendar 1999, (4 administrative, 2 sales).
8
<PAGE>
Results of Operations
During the period December 1, 1998 through February 28, 1999, the Company had
revenues of $48,897 and expended approximately $41,535 in the production and
development of its workforce training video and materials and in general and
administrative expenses in establishing its corporate business. These expenses
included. $18,751 in professional fees and $2,205 in interest expenses due its
President.
The Company has an agreement with its President and majority shareholder to
provide, at the President's discretion, up to $300,000 at 8% interest. Repayment
is to be made when funds are available with the balance of principal and
interest due December 31, 2001. The Company has borrowed approximately $143,000
through February 28, 1999.
The Company has no material commitments for capital expenditures nor does it
foresee the need for such expenditures over the next year. In connection with
the production of its video and training materials, the Company has an agreement
with the co-producer of the video, 12 Angry Men, and The Cuban Missile Crisis to
pay a royalty based on a specified formula, which has averaged to approximately
35% of gross sales.
The Company was effectively dormant during the six months ended February 28,
1998, expending only $758 in order to maintain its corporate status.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any legal proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the quarter ended February 28, 1999, no matters were submitted to the
Company's security holders.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCE KNOWLEDGE, INC.
(Registrant)
Dated: April 14, 1999 /s/ Buddy Young
--------------------------
Buddy Young, President and Chief
Executive Officer
11
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS SET FORTH IN THE FORM 10-SB OF OF ADVANCED KNOWELDGE, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
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