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 29, 2000
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act for the
Transition Period from ________ to ___________
Commission File Number: 0-25247
ADVANCED KNOWLEDGE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4675095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17337 Ventura Boulevard, Suite 224
Encino, California 91316
Issuer's Telephone Number: (818) 784-0040
(Address and phone number of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [X]
No [ ]
The Registrant has 16,000,000 shares of common stock, par value $.001, per
share issued and outstanding as of April 11, 2000.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
1
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INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
PART I FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements 3
Balance Sheet (unaudited) 4
Statements of Operations (unaudited) 5
Statements of Cash Flows (unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operation 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 15
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements
include all statements that are not statements of historical fact. Our actual
results could differ materially from the anticipated results described in the
forward-looking statements. Factors that could affect our results include, but
are not limited to, those discussed in Item 2, "Management's Discussion and
Analysis or Plan of Operation," and our current views with respect to future
events that involve risks and uncertainties including uncertainties related to
successful negotiations with third parties, capital availability, operational
and other risks, selection of profitable sites, and uncertainties and factors
described from time to time in our publicly available SEC reports. In light of
these risks and uncertainties, the forward-looking events described in this
report might not occur.
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(Financial Statements Commence on Following Page)
3
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<TABLE>
ADVANCED KNOWLEDGE, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<CAPTION>
February 29,
2000 August 31
(UNAUDITED) 1999
--------- ---------
<S> <C> <C>
ASSETS
CASH $ 13,931 $ 10,859
ACCOUNTS RECEIVABLE 55,423 28,568
VIDEO INVENTORY AND PRODUCTION COSTS 47,444 49,444
PREPAID EXPENSES 1,050 1,050
--------- ---------
TOTAL ASSETS $ 117,848 $ 89,921
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
Accrued royalties $ 62,503 $ 27,874
Accrued expenses 33,484 22,061
Note payable to shareholder 187,962 127,962
Accrued interest due to shareholder 17,034 9,682
--------- ---------
Total liabilities 300,983 187,579
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, par value - $.001,
25,000,000 shares authorized, 6,000,000
and 4,000,000 shares issued and
outstanding at February 29, 2000 and
August 31, 1999, respectively 6,000 4,000
Additional paid-in capital 222,000 99,000
Accumulated deficit (411,135) (200,658)
--------- ---------
Total shareholders' deficit (183,135) (97,658)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 117,848 $ 89,921
========= =========
See accompanying notes to financial statements.
</TABLE>
4
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<TABLE>
ADVANCED KNOWLEDGE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS AND SIX MONTHS ENDED
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<CAPTION>
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
February 29, February 29, February 28, February 28,
2000 2000 1999 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 70,433 $ 137,122 $ 48,897 $ 87,515
COST OF SALES 27,976 53,773 16,463 35,034
--------- --------- --------- ---------
GROSS PROFIT 42,457 83,349 32,434 52,481
--------- --------- --------- ---------
EXPENSES:
Selling and marketing 32,177 81,789 7,653 18,187
General and
administrative 18,218 35,207 12,926 28,168
Professional fees 127,339 167,879 18,751 44,141
Interest expense 3,693 7,352 2,205 3,659
--------- --------- --------- ---------
Total expenses 182,426 292,226 41,535 94,155
--------- --------- --------- ---------
LOSS BEFORE
INCOME TAXES (138,969) (208,877) (9,101) (41,674)
INCOME TAXES 1,600 900
--------- ---------
NET LOSS $(138,969) (210,477) $ (9,101) (42,574)
========= =========
ACCUMULATED DEFICIT,
BEGINNING OF PERIOD (200,658) (86,645)
--------- ---------
ACCUMULATED DEFICIT,
END OF PERIOD $(411,135) $(129,219)
========= =========
BASIC LOSS PER SHARE $ (.03) $ (.05) $ N/A $ (.01)
========= ========= ========= =========
COMMON SHARES
OUTSTANDING 4,333,333 4,166,667 3,133,333 3,066,667
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
ADVANCED KNOWLEDGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<CAPTION>
February 29, February 28,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(210,477) $ (42,574)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Amortization 213 2,500
Issuance of stock for services 125,000
Changes in operating assets and
liabilities:
Accounts receivable (26,855) (21,151)
Inventory 1,787 (19,284)
Prepaid expenses (1,110)
Accrued expenses 53,404 (20,661)
--------- ---------
Net cash used by operating activities (56,928) (102,280)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 612
Sale of common stock 20,000
Borrowings from shareholder 60,000 70,750
--------- ---------
Net cash provided by financing activities 60,000 91,362
--------- ---------
NET INCREASE (DECREASE) IN CASH 3,072 (10,918)
CASH, BEGINNING OF PERIOD 10,859 10,918
--------- ---------
CASH, END OF PERIOD $ 13,931 $ -0-
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ -0- $ -0-
Cash paid for income taxes $ 1,600 $ 900
See notes to financial statements.
</TABLE>
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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 29, 2000, are
not necessarily indicative of the results that may be expected for the
year ended August 31, 2000. For further information, refer to the
financial statements and footnotes thereto included in the Company's
report on Form 10K-SB for the year ended August 31, 1999.
The balance sheet at August 31, 1999, 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 - The core business of the Company during the
periods covered by this report was the production and marketing of
business training videos.
GOING CONCERN - The Company experienced significant operating losses
for the year ended August 31, 1999 and through February 29, 2000. The
financial statements have been prepared assuming the Company would
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, on March 20, 2000, subsequent to
the periods covered by these financial statements, the Company
completed the acquisition of all of the outstanding common shares of
Soccer Magic Inc. ("Soccer Magic") and subsequently sold all of its
other assets to Becor Internet Inc. in exchange for the assumption of
the Company's liabilities. Soccer Magic is considered the accounting
acquiror of the Company and, going forward, the financial statements of
the Company will be those of Soccer Magic.
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
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management's estimate of remaining gross revenues. Accumulated
amortization at February 29, 2000 totaled $10,497.
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.
2. ISSUANCE OF COMMON STOCK
During December 1999, the Company issued 2,000,000 shares of its common
stock in exchange for consulting services valued at $125,000.
3. SUBSEQUENT EVENTS -- ACQUISITION OF SOCCER MAGIC INC.
On March 20, 2000, pursuant to an Acquisition Agreement dated as of
December 14, 1999, the Company purchased all of the outstanding shares
of Soccer Magic through an exchange of 0.84244082 of its shares for
each share of Soccer Magic. The Company issued a total of 10,000,000
shares of its common stock to the former shareholders of Soccer Magic
in the transaction. As a result of the acquisition, Soccer Magic became
a wholly owned subsidiary of the Company. Under reverse takeover
accounting principles, Soccer Magic is deemed to be the accounting
acquirer in the transaction.
Immediately following the Soccer Magic acquisition, the Company sold
all of the assets related to its workforce training video business to
Becor Internet Inc. ("Becor"), a corporation controlled by Buddy Young,
who is a significant shareholder and, at the time of the sale, was a
director and executive officer of the Company. The assets transferred
included all rights to the "Advanced Knowledge" name; the
advancedknowledge.com web site; four workforce training videos; and all
cash, accounts receivable, inventory, equipment, personal property, and
rights under production and distribution agreements held by the Company
as of March 20, 2000. In exchange for the assets, Becor assumed, and
both Becor and Mr. Young agreed to indemnify the Company with respect
to, all of the liabilities incurred or accrued by the Company prior to
March 20, 2000. According to the unaudited balance sheet of the Company
as of March 20, 2000, the Company had total assets of $117,848 and
total liabilities of $300,983 at that date. The total liabilities as of
such date included approximately $204,995 of principal and interest
owed to Mr. Young under a secured promissory note.
The acquisition of Soccer Magic's stock is subject to automatic
rescission and unwinding at 5:00 p.m. Pacific Time on June 30, 2000
(the "Deadline") unless, prior to the Deadline, the Company completes a
private placement of common stock raising gross proceeds for the
Company of at least $2,700,000 and the Company is then current in its
filing obligations with the SEC. To facilitate any rescission, the
shares and other items delivered
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by the parties at the closing of the acquisition were deposited in an
escrow, with an independent third party serving as escrow agent. If
there is a rescission, the Soccer Magic shares acquired by the Company
will be returned to the former Soccer Magic shareholders, and the
Company shares issued to the Soccer Magic shareholders will be returned
to the Company for cancellation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ACQUISITION OF SOCCER MAGIC INC., SALE OF EXISTING ASSETS AND PLAN OF OPERATION
On March 20, 2000, pursuant to an Acquisition Agreement dated as of December 14,
1999, the Company purchased all of the outstanding shares of Soccer Magic Inc.
("Soccer Magic") through an exchange of 0.84244082 of its shares for each share
of Soccer Magic. The Company issued a total of 10,000,000 shares of its common
stock to the former shareholders of Soccer Magic in the transaction. As a result
of the acquisition, Soccer Magic became a wholly owned subsidiary of the
Company. Under reverse takeover accounting principles, Soccer Magic is deemed to
be the accounting acquirer in the transaction.
Soccer Magic was incorporated in Canada under the laws of the Province of
Ontario on January 29, 1997. Soccer Magic designs, constructs, owns and operates
modern multi-recreational and family oriented facilities, with soccer as its
primary venue. These facilities also serve a variety of other field sports such
as touch football, rugby, lacrosse, field hockey and golf. The facilities can
accommodate both seasoned and novice players of these sports. Soccer Magic
currently operates two such facilities through wholly owned subsidiaries in
Kingston and London, Ontario, but is positioned to acquire additional facilities
capitalizing on the growing demand for indoor soccer facilities.
Soccer Magic's business strategy for company owned locations is to be the first
entrant in each target market satisfying an identifiable local demand for indoor
facilities. Each target market will be selected based on the presence of a
significant soccer playing population and its relation with the local soccer
association. Soccer Magic competes on the basis of its distinctive facility
design, superior quality, and pricing strategy.
Going forward, the Company plans to focus its business exclusively on the
continuation and expansion of Soccer Magic's business. Accordingly, the Company
plans to change its name from Advanced Knowledge, Inc. to Sporting Magic Inc. as
soon as possible, after obtaining shareholder approval.
In furtherance of its change of business, on March 20, 2000, following the
Soccer Magic acquisition, the Company sold all of the assets and liabilities
related to its workforce training video business to Becor Internet Inc.
("Becor"), a corporation controlled by Buddy Young, who is a significant
shareholder and, at the time of the sale, was a director and executive officer
of the Company. The sale was made pursuant to an Asset Sale Agreement dated as
of March 16, 2000, which was unanimously approved by the disinterested directors
of the Company. The assets transferred included all rights to the "Advanced
Knowledge" name; the advancedknowledge.com web site; four workforce training
videos; and all cash, accounts receivable, inventory, equipment, personal
property, and rights under production and distribution agreements held by the
Company as of March 20, 2000. In exchange for the assets, Becor assumed, and
both Becor and Mr. Young agreed to indemnify the Company with respect to, all of
the liabilities incurred or accrued by the Company prior to March 20, 2000.
According to the unaudited balance sheet of the Company as of March 20, 2000,
the Company had total assets of $117,848 and total liabilities of $300,983 at
that date. The total liabilities as of such date included approximately $204,995
of principal and interest owed to Mr. Young under a secured promissory note.
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In the Asset Sale Agreement, the Company covenanted not to (i) use the Advanced
Knowledge name after completion of the asset sale, except for using the
corporate name for general corporate purposes until it is able to change its
corporate name; (ii) change the transfer agent for its common stock for two
years after March 20, 2000; (iii) engage in any recapitalization,
reorganization, or reverse split or consolidation of shares for two years after
March 20, 2000; or (iv) issue more than 6,000,000 shares of common stock, or
other securities which may be converted into or exercised for the purchase of
shares of common stock, between March 20, 2000 and the Deadline, as defined
below.
The acquisition of Soccer Magic's stock is subject to automatic rescission and
unwinding at 5:00 p.m. Pacific Time on June 30, 2000 (the "Deadline") unless,
prior to the Deadline, the Company completes a private placement of common stock
raising gross proceeds for the Company of at least $2,700,000 and the Company is
then current in its filing obligations with the SEC. To facilitate any
rescission, the shares and other items delivered by the parties at the closing
of the acquisition were deposited in an escrow, with an independent third party
serving as escrow agent. If there is a rescission, the Soccer Magic shares
acquired by the Company will be returned to the former Soccer Magic
shareholders, and the Company shares issued to the Soccer Magic shareholders
will be returned to the Company for cancellation.
The Company requires additional equity and/or debt financing to fund its current
operations and expansion plans. The Company anticipates being able to raise the
necessary financing from private sources. However, no assurances can be given
that such financing will be available to the Company on favorable terms or on a
timely basis.
The number of people employed by the Company varies during the year and is
greatest during the cooler months when indoor sports are in season. From
September 1999 to April 2000, the Company has averaged about ten employees. The
Company plans to reduce that number to three during the warmer months of May
through August 2000. The Company also employs part-time workers on an as-needed
basis.
THE QUARTER ENDED FEBRUARY 29, 2000 COMPARED WITH THE QUARTER ENDED FEBRUARY 28,
1999
Operations during the quarter ended February 29, 2000 resulted in a net loss of
$138,969 compared to a net loss of $9,101 for the quarter ended February 28,
1999. The difference is attributable to the Company's issuance of 2,000,000
shares of common stock in exchange for consulting services valued at $125,000
during the recent period.
Revenue for the quarter ended February 29, 2000 totaled $70,433 compared to
revenue of $48,897 for the quarter ended February 28, 1999. This increase of
approximately $22,000 is mainly attributable to the Company having added two
additional training videos to its product line and a sales representative in
Northern California.
General and Administrative Expense. The Company incurred $18,218 and $12,926 in
general and administrative expenses during the quarters ended February 29, 2000
and February 28, 1999, respectively. The difference is attributable to the
establishment of a sales office in Northern California.
Interest Expense. The Company recorded $3,693 in interest expense for the
quarter ended February 29, 2000 as compared to $2,205 for the quarter ended
February 28, 1999. These
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amounts are associated with the monies that were owed by the Company to its
former President.
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 29, 2000, no matters were submitted to the
Company's security holders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are included or incorporated by reference as
exhibits to this report:
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- ----------------------------------------------------------
(2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION
2.1 Form of Acquisition Agreement by and between the Company
and Soccer Magic dated as of December 14, 1999(1)
2.2 Escrow Agreement dated as of March 16, 2000 by and among
the Company, Soccer Magic and Jack L. Chegwidden, a
professional corporation, as escrow agent(2)
The following attachment to the Escrow Agreement will be
provided to the Commission upon request:
ATTACHMENT DESCRIPTION
---------- -----------
Schedule A Addresses of SMI Shareholders
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2.3 Asset Sale Agreement dated as of March 16, 2000 by and
among the Company, Becor Internet Inc. and Buddy Young
and ratified and approved by Soccer Magic(2)
The following attachments to the Asset Sale Agreement will
be provided to the Commission upon request:
ATTACHMENT DESCRIPTION
---------- -----------
Exhibit A Schedule of Trademarks, Patents and
Copyrights
Exhibit B Schedule of Personal Property
Exhibit C Schedule of Equipment Leases
Exhibit D Schedule of Contracts, Accounts Receivable
and Inventory
Exhibit E Schedule of Other Events
Exhibit F Schedule of Assumed Liabilities
2.4 Form of Purchase and Sale Agreement dated as of December
1999 by and between the Company and each of the former
shareholders of Soccer Magic(2)
2.5 Representation Letter from Buddy Young to Soccer Magic and
its former shareholders(2)
2.6 Amendment Agreement dated as of February 14, 2000 by and
among the Company; Soccer Magic; Becor Internet Inc.; Jack
L. Chegwidden, a professional corporation, as escrow
agent; officers of Advanced Knowledge; officers of Soccer
Magic; and Buddy Young, Manny Gross, Myron Grunberg and
Brian Rattenbury, as individuals(2)
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Certificate of Incorporation(3)
3.2 Certificate of Amendment dated March 11, 1987(4)
3.3 Certificate of Amendment dated September 18, 1990(4)
3.4 Certificate of Amendment dated August 5, 1998(3)
3.5 Certificate of Merger(3)
3.6 By-laws(3)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Facsimile of specimen common stock certificate(4)
(27) FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
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- -----------------------
(1) Previously filed as an exhibit to the Company's report on Form 10-QSB
for the quarter ended November 30, 1999, which was filed on December
12, 1999, and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's current report on Form
8-K, which was filed on April 4, 2000, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's registration statement
on Form 10-SB, which was filed on January 7, 1999, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's annual report on Form
10-KSB, which was filed on October 21, 1999, and
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
None.
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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.
ADVANCED KNOWLEDGE, INC.
(Registrant)
Date: April 11, 2000 /S/ MYRON GRUNBERG
------------------
Myron Grunberg, President and Chief
Executive Officer
Date: April 11, 2000 /S/ BRIAN RATTENBURY
--------------------
Brian Rattenbury, Chief Financial
Officer and Principal Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 13,931
<SECURITIES> 0
<RECEIVABLES> 55,423
<ALLOWANCES> 0
<INVENTORY> 47,444
<CURRENT-ASSETS> 117,848
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 117,848
<CURRENT-LIABILITIES> 300,983
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> (189,135)
<TOTAL-LIABILITY-AND-EQUITY> 117,848
<SALES> 137,122
<TOTAL-REVENUES> 137,122
<CGS> 53,773
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 284,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,352
<INCOME-PRETAX> (208,877)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (210,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (210,477)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
