SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 20, 2000
Advanced Knowledge, Inc.
(Exact name of issuer as specified in its charter)
California
(State or other jurisdiction of incorporation)
0-25247 95-4067606
(Commission File Number) (IRS Employer Identification No.)
17337 Ventura Boulevard, Suite 224, Encino, CA 91316
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 878-0040
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
SOCCER MAGIC INC.
CONSOLIDATED FINANCIAL STATEMENTS:
(Expressed in Canadian Dollars)
Auditors' Report 3
Consolidated Statements of Loss and Deficit 4
Consolidated Balance Sheets 5
Statements of Consolidated Cash Flows 6
Notes to the Consolidated Financial Statements 7-13
2
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Soccer Magic Inc.
We have audited the consolidated balance sheets of Soccer Magic Inc. as at
October 31, 1999 and 1998 and the consolidated statements of loss and deficit
and cash flows for the two years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at October 31, 1999
and 1998 and the results of its operations and its cash flows for the two years
then ended in accordance with generally accepted accounting principles.
Generally accepted accounting principles in Canada differ in some respects from
those applicable in the United States (see Note 11).
/s/ Grant Thornton LLP
Chartered Accountants
Markham, Canada
May 25, 2000
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the consolidated
financial statements are affected by conditions and events that cast substantial
doubt on the company's ability to continue as a going concern, such as those
described in Note 2 to the consolidated financial statements. Our report to the
shareholders dated May 25, 2000 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the auditor's report when these are adequately disclosed in the
consolidated financial statements.
/s/ Grant Thornton LLP
Chartered Accountants
Markham, Canada
May 25, 2000
3
<PAGE>
<TABLE>
SOCCER MAGIC INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Expressed in Canadian Dollars)
<CAPTION>
Year Ended October 31 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Revenue
League play, tournaments and field
rentals $ 478,288 $ 183,948
Golf 25,215 -
------------- -------------
503,503 183,948
------------- -------------
Expenses
Depreciation 289,644 231,946
Insurance 30,270 17,796
Interest and bank charges 4,852 4,618
Interest on long term debt 173,331 144,095
Maintenance and supplies 58,558 53,899
Management fees - 51,500
Marketing 79,496 92,372
Office and occupancy costs 57,732 98,246
Professional fees 45,943 191,419
Property tax 105,437 80,820
Rent 80,733 87,683
Salaries and wages 289,448 272,712
Travel 31,350 50,990
Utilities 76,327 63,661
------------- -------------
1,323,121 1,441,757
Net loss $ (819,618) $ (1,257,809)
============= =============
--------------------------------------------------------------------------------
Deficit, beginning of year $ (1,465,223) $ (207,414)
Net loss (819,618) (1,257,809)
------------- -------------
Deficit, end of year $ (2,284,841) $ (1,465,223)
============= =============
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
SOCCER MAGIC INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
<CAPTION>
October 31 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 48,604 $ -
Receivables (Note 4) 69,906 66,359
Prepaids 36,075 51,987
------------- -------------
154,585 118,346
Capital assets (Note 5) 2,292,702 2,486,983
------------- -------------
$ 2,447,287 $ 2,605,329
============= =============
--------------------------------------------------------------------------------
LIABILITIES
Current
Bank indebtedness $ - $ 9,198
Accounts payable 523,106 411,982
Deferred revenue 241,265 158,158
Current portion of long term debt (Note 7) 219,454 206,750
------------- -------------
983,825 786,088
Long term debt (Note 7) 1,144,347 1,356,179
Due to shareholders (Note 6) 2,603,306 1,927,685
------------- -------------
4,731,478 4,069,952
------------- -------------
SHAREHOLDERS' DEFICIT
Capital stock (Note 8) 650 600
Deficit (2,284,841) (1,465,223)
------------- -------------
(2,284,191) (1,464,623)
------------- -------------
$ 2,447,287 $ 2,605,329
============= =============
--------------------------------------------------------------------------------
Commitments (Note 9)
See accompanying notes to the consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
SOCCER MAGIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
<CAPTION>
Year Ended October 31 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Cash and equivalents derived from (applied to)
OPERATING
Net loss $ (819,618) $ (1,257,809)
Depreciation 289,644 231,946
------------- -------------
(529,974) (1,025,863)
Change in non-cash operating working
capital:
Receivables (3,547) (18,869)
Prepaids 15,912 (5,951)
Payables and accruals 111,124 197,221
Deferred revenue 83,107 140,484
------------- -------------
(323,378) (712,978)
------------- -------------
FINANCING
Bank financing (9,198) 9,198
Advances from shareholders 675,621 1,291,685
Issuance of common shares 50 -
Long term debt (199,128) 4,417
------------- -------------
467,345 1,305,300
------------- -------------
INVESTING
Purchase of capital assets (95,363) (631,882)
------------- -------------
Net increase in cash and cash equivalents 48,604 (39,560)
Cash and cash equivalents, beginning of year - 39,560
------------- -------------
Cash and cash equivalents, end of year $ 48,604 $ -
============= =============
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
6
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS
Soccer Magic Inc. was incorporated under the laws of the Province of Ontario on
January 29, 1997. The company designs, constructs, owns and operates modern
multi-recreational and family orientated facilities with soccer as its primary
purpose. These facilities also serve a variety of other field sports such as
touch-football, rugby, lacrosse, field hockey and golf. The company currently
operates two such facilities through wholly owned subsidiaries in Kingston and
London, Ontario.
--------------------------------------------------------------------------------
2. ONGOING OPERATIONS
These consolidated financial statements have been prepared using generally
accepted accounting principles applicable to a "going concern", which assumes
that the Company will continue in operation for the foreseeable future and will
be able to realize its assets and discharge its liabilities in the normal course
of operations.
Several adverse conditions cast doubt on the validity of this assumption. The
Company has incurred significant losses, has a working capital deficiency and a
shareholders' deficit. The Company's continued existence is dependent upon
obtaining additional capital, the continued financial support of its
shareholders and the achievement of profitable operations. The outcome of these
matters cannot be predicted at this time.
These consolidated financial statements do not reflect adjustments that would be
necessary if the "going concern" assumption were not appropriate because
management believes that the actions already taken or planned will mitigate the
adverse conditions and events which raise doubts about the validity of the
"going concern" assumption used in preparing these consolidated financial
statements.
If the "going concern" assumption were not appropriate for these consolidated
financial statements, then adjustments would be necessary in the carrying values
of assets and liabilities, the reported expenses, and the balance sheet
classifications used.
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The Company's accounting and reporting policies conform to generally accepted
accounting principles and industry practice in Canada. The consolidated
financial statements are prepared using Canadian dollars.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all companies in
which the Company has a controlling interest, after the elimination of
inter-company transactions and balances.
7
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITAL ASSETS
Capital assets are stated at cost. Cost includes acquisition or construction
costs, including direct financial costs incurred with respect to construction
until the beginning of commercial production.
<TABLE>
The cost less the estimated salvage value of capital assets is depreciated over
the estimated lives of the assets using the following annual rates and bases:
<CAPTION>
<S> <C>
Site development costs Straight-line - 10 years
Dome installation Straight-line - 10 years
Dome structure Straight-line - 10 years
Modular buildings Straight-line - 10 years
Field Turf Straight-line - 10 years
Boards, netting and equipment Straight-line - 3 to 10 years
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue when services are rendered.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and balances with banks, net of
bank overdrafts, and highly liquid temporary money market instruments with
original maturities of three months or less. Bank borrowings are considered to
be financing activities.
USE OF ESTIMATES
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities and the
reported amounts of revenue and expenses. Significant areas requiring the use of
management estimates include the useful lives of capital assets, the salvage
values of capital assets, the evaluation of impairment for long term assets, the
value of assets acquired and liabilities assumed in business combinations, the
provision for income taxes and the determination of fair values for financial
instruments. Actual results could differ from estimates.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. RECEIVABLES 1999 1998
------- -------
<S> <C> <C>
Trade receivables $61,350 $62,955
Employee advances 8,556 3,404
------- -------
$69,906 $66,359
======= =======
</TABLE>
8
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. CAPITAL ASSETS 1999 1998
---------- ----------
<S> <C> <C>
COST
Site development costs $ 334,709 $ 293,336
Dome installation 421,675 415,499
Dome structure 885,700 885,700
Modular buildings 472,716 465,048
Field turf 322,254 304,731
Boards, netting and equipment 377,238 354,615
---------- ----------
2,814,292 2,718,929
---------- ----------
ACCUMULATED DEPRECIATION
Site development costs 50,200 21,919
Dome installation 76,361 34,512
Dome structure 162,940 74,370
Modular buildings 85,211 38,323
Field Turf 57,086 24,860
Boards, netting and equipment 89,792 37,962
---------- ----------
521,590 231,946
---------- ----------
NET BOOK VALUE
Site development costs 284,509 271,417
Dome installation 345,314 380,987
Dome structure 722,760 811,330
Modular buildings 387,505 426,725
Field turf 265,168 279,871
Boards, netting and equipment 287,446 316,653
---------- ----------
$2,292,702 $2,486,983
========== ==========
Included in the capital assets above are assets under capital lease with a total
net book value of $ 1,150,504 (1998 - $1,283,269).
</TABLE>
--------------------------------------------------------------------------------
6. DUE TO SHAREHOLDERS
The advances from shareholders are non-interest bearing, have no set terms of
repayment and are unsecured.
9
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7. LONG TERM DEBT 1999 1998
---------- ----------
<S> <C> <C>
Equipment leases, repayable in blended
monthly installments of principal and
interest at 13.25% totalling $11,900,
secured by a direct charge on specific
equipment, maturing December 2007 and
January 2008 $ 710,969 $ 752,225
Equipment leases, repayable in blended
monthly installments of principal and
interest at 8.86% totalling $7,486,
secured by a direct charge on specific
equipment, maturing December 2002 and
January 2003 254,963 314,819
Equipment leases, repayable in blended
monthly installments of principal and
interest at 14.5% totalling $570,
secured by a direct charge on specific
equipment, maturing January and February
2008 34,380 36,396
Bank loans, repayable in monthly
installments of principal totalling $8,000
plus interest at prime plus 2.25%, secured
by a general security agreement covering
all assets, maturing July and August 2003 363,489 459,489
---------- ----------
1,363,801 1,562,929
Current portion 219,454 206,750
---------- ----------
$1,144,347 $1,356,179
========== ==========
</TABLE>
<TABLE>
Principal repayments due in each of the next five years and in aggregate are as
follows:
<CAPTION>
<S> <C>
2000 $ 219,454
2001 233,371
2002 249,161
2003 172,947
2004 90,362
Subsequently 398,506
----------
$1,363,801
==========
</TABLE>
10
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8. CAPITAL STOCK 1999 1998
---- ----
<S> <C> <C>
Authorized:
Unlimited Common shares with no par value
Issued:
11,870,270 Common shares (1998 - 10,980,000) $650 $600
==== ====
</TABLE>
The following capital stock transactions occurred during the 1999 fiscal year:
(a) In January 1998, a stock split of 18,300:1 was declared.
(b) In October 1999, 890,270 common shares were issued for a total of $50.
--------------------------------------------------------------------------------
<TABLE>
9. COMMITMENTS
The company has entered into agreements to lease the land used by its wholly
owned subsidiaries. Rent payable for each of the next five years is as follows:
<CAPTION>
<S> <C>
2000 $ 81,250
2001 83,593
2002 87,993
2003 90,032
2004 90,032
Subsequently 230,670
----------
$ 663,570
==========
</TABLE>
--------------------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS
CREDIT RISK
Concentrations of credit risk with respect to receivables are limited due to the
large number of customers.
INTEREST RISK
The company is exposed to interest rate risk because the interest on its bank
loans is based on the lender prime, which may vary from time to time.
11
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS (CONTINUED)
Fair value of financial instruments
The Company's estimate of the fair value of cash, receivables, payables, bank
indebtedness, accruals and long term debt approximates the carrying value.
--------------------------------------------------------------------------------
11. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES OF AMERICA
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States generally accepted accounting
principles ("U.S. GAAP"). It has been determined that for the company, Canadian
GAAP is essentially the same as U.S. GAAP in all material respects.
--------------------------------------------------------------------------------
12. SUBSEQUENT EVENT
On March 20, 2000, Advanced Knowledge Inc., a non-operating U.S. public company
acquired 100% of the outstanding common stock of Soccer Magic Inc. from various
shareholders (the acquisition). The acquisition resulted in the owners and
management of Soccer Magic Inc. having effective control of the combined entity.
--------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
Included in professional fees are amounts paid to a director for consulting fees
totalling $4,000 (1998 - $20,000).
--------------------------------------------------------------------------------
<TABLE>
14. INCOME TAXES
The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows:
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Statutory tax benefit $(368,800) $(566,000)
Non-deductible expense 300 800
Other 200 900
Increase in valuation allowance 368,300 564,300
--------- ---------
$ - $ -
========= =========
</TABLE>
12
<PAGE>
SOCCER MAGIC INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
October 31, 1999
--------------------------------------------------------------------------------
14. INCOME TAXES (CONTINUED)
Under SFAS No. 109, Accounting for Income Taxes, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates.
<TABLE>
The tax effect of temporary differences that give rise to deferred income taxes
is as follows:
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 789,500 $ 551,600
Capital assets 234,700 104,300
Valuation allowance (1,024,200) (655,900)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
<TABLE>
At October 31, 1999, the company had approximately $ 1,754,400 of net operating
loss carryforwards which expire as follow:
<CAPTION>
<S> <C>
2004 $ 203,600
2005 $ 1,022,300
2006 $ 528,500
</TABLE>
--------------------------------------------------------------------------------
15. INDUSTRY SEGMENT AND FOREIGN SALES INFORMATION
Management has determined that it operates in one industry segment.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCED KNOWLEDGE, INC.
(Registrant)
By: /S/ MYRON GRUNBERG
--------------------------------------
Myron Grunberg
President
Dated: June 5, 2000
14
