UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2001
Commission file number 0-29403
RHINO ENTERPRISES GROUP, INC.,
a Nevada corporation
2925 LBJ Freeway, Suite 188, Dallas, Texas 75234
(972) 241-2669
IRS Tax ID #: 88-0333844
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.
YES [X] NO [ ]
As of May 10, 2001, there were 1,705,721 shares of common stock,
$0.001 par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES [ ] NO [X]
-1-
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
The consolidated financial statements for the quarter
ended March 31, 2001 for Rhino Enterprises Group, Inc. ("Rhino"
or the "Company") follow.
RHINO ENTERPRISES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
ASSETS 3-31-2001 12-31-2000
- ---------------------- ------------ -----------
Current Assets
Cash $ 10,870 $ 7,920
Accounts receivable 67,709 64,436
Inventory 4,000 4,000
------------ -----------
Total Current Assets 82,579 76,356
------------ -----------
Property, plant and
equipment -- net 212,370 222,797
Investment in e-Data
Alliance Corp. 129,387 132,443
Intangible assets -- net 174,466 194,050
Goodwill -- net 92,342 94,072
Deposits 14,621 14,621
Deferred marketing expense 800,000 800,000
Advances to operating and
start-up entities 518,968 1,485,999
------------ -----------
Total Non-current Assets 1,942,154 2,943,982
------------ -----------
Total Assets $ 2,024,733 $ 3,020,338
============ ===========
CURRENT LIABILITIES
- -----------------------------
Accounts payable $ 655,685 $ 577,079
Accrued expenses 696,668 568,917
Notes payable 4,092,695 3,939,590
------------ -----------
Total Current Liabilities 5,445,048 5,085,586
Deferred marketing obligation 800,000 800,000
------------ -----------
Total Liabilities 6,245,048 5,885,586
------------ -----------
STOCKHOLDERS' DEFICIT
- ------------------------------
Common stock 1,706 1,706
Preferred stock 334 334
Paid in capital 2,050,405 2,050,405
Accumulated deficit (6,201,934) (4,846,867)
Non-controlling interest 1,864 1,864
Treasury stock, at cost (72,690) (72,690)
------------ -----------
Total Stockholders' Deficit (4,220,315) (2,865,248)
------------ -----------
Total Liabilities and
Stockholders' Deficit $ 2,024,733 $ 3,020,338
============ ===========
See Notes to Consolidated Financial Statements.
-2-
RHINO ENTERPRISES GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
3-31-2001 3-31-2000
--------- ---------
REVENUES $ 292,331 $ 7,523
COST OF REVENUES 182,024 2,500
-------- --------
GROSS PROFIT 110,307 5,023
-------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Operating costs 86,489 165,735
Personnel costs 195,753 253,258
Legal and professional fees 93,118 66,671
Write off uncollectible advances 986,300 0
Depreciation and amortization 22,854 24,656
--------- --------
Total General and Administrative
Expenses 1,384,514 510,320
--------- --------
LOSS FROM OPERATIONS (1,274,207) (505,297)
--------- --------
OTHER INCOME (EXPENSE)
Interest income 6,945 38,797
Interest expense (74,289) (70,238)
Other 4,156 2,218
Equity in loss of
e-Data Alliance Corp. (3,056) (29,345)
-------- --------
Total Other Income (Expense) (66,244) (58,568)
-------- --------
LOSS BEFORE INCOME TAX (1,340,451) (563,865)
PROVISION FOR INCOME TAX 0 0
--------- --------
NET LOSS $(1,340,451) $(563,865)
========= ========
LOSS PER SHARE $ (0.79) $ (0.36)
========= ========
See Notes to Consolidated Financial Statements.
-3-
RHINO ENTERPRISES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
3-31-2001 3-31-2000
---------- ----------
CASH FROM OPERATING ACTIVITIES
Net Loss $(1,340,451) $(563,865)
Add (deduct) non cash
items affecting net loss -
Depreciation and amortization 30,880 24,656
Interest accrued but not paid 73,917 84,579
Interest on advances
accrued not collected (6,929) (21 697)
Write off unrecoverable advances 986,300 0
Equity in losses of investee 3,056 29,345
Increase in accounts receivable (3,273) 0
Increase in accounts payable 78,606 54 206
Increase in accrued expenses 39,218 5,661
--------- ---------
Net Cash Used By Operations (138,676) (387,115)
--------- ---------
CASH USED BY INVESTING ACTIVITIES
Purchase equipment 0 (19,605)
Proceeds from sale of equipment 861 37,869
Advances to operating
and start-up entities (12,340) (611,633)
Collect advances from
operating and start-up entities 0 455,232
--------- ---------
Net Cash Used by
Investing Activities (11,479) (138,137)
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES
Borrowings 153,105 654,338
Repayments 0 (364,524)
Purchase treasury stock 0 (72 690)
--------- ---------
Net Cash Provided by
Financing Activities 153,105 217,124
--------- ---------
NET CHANGE IN CASH 2,950 (308,128)
CASH, beginning of quarter 7,920 390,071
--------- ---------
CASH, end of quarter $ 10,870 $ 81,943
========= =========
See Notes to Consolidated Financial Statements.
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS
Rhino Enterprises Group, Inc. has two operating segments
business incubation and eye care. Our business incubation
activities include providing management, consulting services, and
financing to assist both start-up and emerging or developing
entities as well as established operating enterprises to avail
themselves of various growth opportunities. Our eye care segment
is positioning itself to be a leading provider of affordable
laser eye surgical procedures. In addition, we intend to develop
our web site - www.Eyesite.com - to provide information, products
and services related to vision correction and eye care. See
further discussion in Note N- Operating Segments.
We are highly leveraged and have accumulated a considerable
deficit from operations. Our ability to repay our indebtedness
and related interest charges is dependent on our ability to
obtain additional working capital. See Note K for further
discussion of our liquidity and capital resources.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of
Rhino Enterprises Group, Inc. and our wholly-owned subsidiary
Executive Assistance, Inc., our 90%-owned subsidiary -
Eyesite.com, Inc, and our 68% - owned subsidiary, Framing
Systems, Inc. Significant inter-company transactions and
balances have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the 2000 amounts to
conform to the 2001 presentation.
-4-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Accounting Estimates
The preparation of consolidated financial statements requires us
to make estimates and assumptions which affect the reported
amounts of assets, liabilities, revenues and expenses, as well as
the disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements. Actual results
could differ from those estimates.
Allowance for Uncollectible Accounts Receivable
We believe that an allowance for uncollectible accounts
receivable was not necessary at March 31, 2001.
Inventory
Inventory consists of medical supplies and is recorded at cost.
Property, Plant and Equipment
Fixed assets are recorded at cost and depreciated over their
estimated useful lives, which range from three to ten years,
using the straight-line method.
Investment in e-Data Alliance Corp.
We account for our 50%-owned investee, e-Data Alliance Corp. ("e-
Data") using the equity method of accounting. We record our
share of e-Data's income or loss and either increase or decrease
our investment in e-Data accordingly.
Intangible Assets
Intangible assets consist of certain proprietary knowledge and an
internet web-site domain totaling $287,439 and are being
amortized over 3 years.
-5-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Goodwill
Goodwill represents the excess purchase price over the fair
market value of net assets acquired of Executive Assistance, Inc.
and Framing Systems, Inc. totaling $103,769. Goodwill is being
amortized on a straight-line basis over 15 years. Accumulated
amortization of intangibles and goodwill was $124,635 and
$103,322 as of March 31, 2001 and December 31, 2000,
respectively. Amortization expense of intangibles and goodwill
is shown below for the quarters ended March 31, 2001 and 2000 -
2001 2000
-------- --------
Intangibles $19,583 $20,000
Goodwill 1,730 1,678
Impairment of Long-Lived Assets
We account for the impairment of long-lived assets in accordance
with SFAS No. 121 which requires that such assets be reviewed for
impairment whenever events or changes in circumstances indicate
that the book value of the asset may not be recoverable. We have
recorded an impairment charge of $986,300 related to
unrecoverable advances to start up and operating entities as of
the date of these consolidated financial statements. (See Note D
below).
Income Tax Accounting
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of
taxes currently due plus deferred taxes. Deferred tax assets or
liabilities are recognized for temporary differences between the
tax basis of assets and liabilities for financial statement and
income tax purposes. Deferred tax assets and liabilities
represent future tax consequences of those temporary differences.
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue Recognition
We utilize informal agreements to provide management, consulting
services and other financial assistance to operating companies
and start-up entities. Typical agreements call for either a
flat monthly fee or hourly rates plus reimbursement of out-of-
pocket expenses. Revenues from such agreements are recognized as
services are provided. Our web-hosting services are billed on a
monthly basis and revenues recognized accordingly; while web site
design revenues are recognized as the services are performed.
Lasik surgeries fees are recorded when procedures are performed.
In 1999, the staff of the SEC issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements ("SAB 101"),
which presents some of the staff's interpretations of the
application of generally accepted accounting principles to
revenue recognition. We adopted SAB 101 during 2000 and believe
that the accompanying consolidated financial statements comply
with the provisions of SAB 101.
Comprehensive Income (SFAS No. 130)
We have no components of "other comprehensive income".
Advertising
We expense advertising ($19,650 and $64,858 in the quarters ended
March 31, 2001 and 2000, respectively) as it is incurred.
Loss Per Share
Loss per share was computed using the weighted monthly average
number of common shares outstanding during the periods, and the
anti-dilutive effect of stock options discussed in Note M below
was excluded.
-5-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Stock-based Compensation
We have elected to follow APB Opinion No. 25, Accounting for
Stock Issued to Employees in accounting for our employee stock
options. Under APB No. 25, if the exercise price of an
employee's stock options equals or exceeds the market price of
the underlying stock on the date of grant and certain other plan
conditions are met, no compensation expense is recognized. See
Note O regarding pro forma net loss per common share information
as required by the alternative fair value accounting provided for
under SFAS No. 123, Accounting for Stock-Based Compensation. We
account for stock-based awards issued to non-employees in
accordance with the fair value method of SFAS No.123 and Emerging
Issues Task Force Issue No. 96-18. Consequently, we measure the
cost of such awards based on the estimated fair market value of
the stock awards using the Black-Scholes option-pricing model.
NOTE C - INVESTMENT IN e-DATA ALLIANCE CORP.
On December 17, 1999, we acquired (for $200,000 cash) 50% of the
outstanding shares of e-Data Alliance Corp. ("e-Data"), a Texas
corporation, which provides web hosting, off-site data storage,
and web site design and data base services. The data servers
operated by e-Data are located in premium telecommunications
facilities in Dallas.
Un-audited condensed financial information of e-Data for the
quarters ended March 31, 2001 and 2000 follows:
-6-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - INVESTMENT IN e-DATA ALLIANCE CORP. (continued)
Balance Sheets 3-31-2001 3-31-2000
- --------------------------------- --------- ---------
Cash $ 10,106 $ 79,420
Receivables 8,281 21,814
Other current assets 9,000 9,000
--------- ---------
Total Current Assets 27,387 110,234
Property, plant and equipment, net 41,387 57,040
--------- ---------
Total Assets $ 68,774 $ 167,274
========= =========
Current Liabilities $ 0 $ 14,742
Stockholders' Equity 68,774 152,532
-------- --------
Total Liabilities and
Stockholder's Equity $ 68,774 $ 167,274
========= =========
Statements of Operations
- -------------------------------------
Revenues $ 8,392 $ 24,490
Operating Expenses 14,504 76,586
--------- ---------
Net Loss $ (6,112) $ (52,096)
========= =========
-7-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C INVESTMENT IN e-DATA ALLIANCE CORP., continued
The acquisition agreement with e-DATA provides, among other things, that we
place contracts with various media marketing entities to purchase $800,000 of
advertising. Due to current cash constraints and the uncertainty of obtaining
additional resources through borrowings and/or sale of equity securities, we
may not be able to fulfill our part of the acquisition agreement regarding the
advertising. If we were not be able to honor that commitment, we would re-
negotiate the acquisition agreement.
NOTE D- ADVANCES TO OPERATING AND START-UP ENTITIES
As a vital part of our strategic role as a business incubator, we advance
funds to established operating entities and start-up or emerging enterprises
under the terms of a financing arrangement which typically provides for
recoupment in one of three forms -
(1) Our primary preference is to convert all or a significant portion of
the outstanding advances into an equity position in lieu of receiving cash.
(2) Cash representing the return of all advances plus an amount for the
time value of money. The repayment of any advances usually is scheduled for a
period of three to five years in the future.
(3) Repayment of any advances is accelerated if the entity obtains cash
infusions from public sources.
Subsequent to the end of the first quarter and prior to the filing of this
Form 10-QSB, certain information came to our attention involving three of the
entities to which we had advanced funds that called into question the ultimate
recoupment of our investment. Our assessment of these new circumstances
caused us to conclude that it was more likely than not that we would not
recoup our advances and consequently we have written them off.
-8-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D ADVANCES TO OPERATING AND START-UP ENTITIES, continued
The following table summarizes outstanding advances:
3-31-2001 12-31-2000
--------- ----------
Advances to operating enterprises -
Energy Systems Solutions, Inc. $ 0 $ 329,691
Teman Electrical Contractors, Inc. 0 318,766
Memorabilia and Antiquities, Inc. 29,290 19,793
Sarwin Family, LLC 140,236 138,164
R and R Foods, Inc. 6,090 6,000
Eyemakers, Inc. 184,632 182,211
--------- ---------
360,248 994,625
--------- ---------
Advances to start-up entities -
Emerging Pharmacy Solutions, Inc. 0 335,000
Legend Security, Inc. 16,372 16,130
Target Marketing International, Inc. 48,941 48,218
Historic Inns of America, Inc. 3,449 3,398
Canton Auction House, Inc. 39,208 38,628
Swan River Corporation 50,750 50,000
--------- ---------
158,720 491,374
--------- ---------
Total Advances $ 518,968 $1,485,999
======== =========
Advances are generally due in periods ranging from 3 to 5 years, bear
interest at 6% and are unsecured. The totals shown above includes
approximately $60,000 of accrued interest. Our policy is to require entities
to which we advance funds to sign a financing agreement(described above)thus
protecting our investment.
-9-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D ADVANCES TO OPERATING AND START-UP ENTITIES, continued
As part of our ongoing business strategy, we continue to seek investment
opportunities which complement our existing portfolio. Operating decisions
for the various entities are made by the managers of those business entities.
Our Board of Directors makes investment decisions and all other capital
resource allocations. The boards of each enterprise to which we advance funds
make similar decisions for their entities.
NOTE E - STOCKHOLDERS' DEFICIT
Capital Structure
We are authorized to issue 25,000,000 shares of common stock with a par value
of $0.001 per share. At March 31, 2001, there were 1,705,721 shares
outstanding.
Our subsidiary, Eyesite.com, Inc. is authorized to issue 5,000,000 shares of
convertible, cumulative preferred stock, $0.002 par value, of which 1,000,000
shares have been designated as 14% Cumulative Convertible Preferred Stock,
Series A by Eyesite.com, Inc.'s Certificate of Designation. The Series A
preferred shares are convertible at anytime six months after issuance into one
share of Eyesite.com, Inc.'s common stock, including all accrued and unpaid
dividends. The conversion price is $2.50 per share. Further, at
Eyesite.com, Inc.'s option, the Series A preferred shares are convertible at
any time after six months from issuance, upon 30 days notice, in whole or
part, at $2.50 per share. Finally, if the "ask" price of Eyesite.com, Inc.'s
common stock as quoted on the OTC Bulletin Board or other exchange ever meets
or exceeds $3.25 per share for ten consecutive trading days, then each
outstanding share of Series A preferred stock is mandatorily convertible into
one share of Eyesite.com, Inc.'s common stock, including all accrued and
unpaid dividends at $2.50 per share.
There were no transactions involving our capital structure during the quarter
ended March 31, 2001.
-10-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F- NOTES PAYABLE
3-31-2001 12-31-2000
--------- ----------
Note payable to Digital Information &
Virtual Access, Inc., 6% interest,
unsecured. Note is due on demand $1,029,888 $1,029,888
Notes payable to Southern Leasing, Inc.,
8% interest, unsecured, due on demand 136,480 136,480
Notes payable to Net.Return, Inc. 10%
interest, unsecured. Notes are due
during 2001 2,507,000 2,507,000
Note payable to Hart-Prince Group, Inc.,
8% interest, unsecured, due on demand 25,000 25,000
Notes payable to Southern Leasing, Inc.,
interest ranging from 8% to 10%, due
during 2001 163,200 163,200
Note payable to The Strateia Group, Inc.,
interest at 10%, unsecured and due on
demand 80,962 78,022
Note payable to Media Star Productions,
Inc., interest at 10%, unsecured and due
on demand 132,165 0
Other 18,000 0
--------- ---------
Total Indebtedness $4,092,695 $3,939,590
========= =========
-11-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G-- LOSS PER SHARE
The following table summarizes the amounts used to calculate the loss per
share as reported in the accompanying consolidated statements of operations.
For the Quarters Ended March 31
----------------------------------
2001 2000
---------- ---------
Net Loss $1,340,451 $ 563,865
Add - deemed preferred
stock dividend 14,616 0
--------- ---------
Loss applicable to
common stockholders $1,355,067 $ 563,865
========= =========
Weighted average number of
shares outstanding 1,705,721 1,566,292
========= =========
Loss per Share $(0.79) $(0.36)
========= =========
NOTE H - LEASE COMMITMENTS
We operate in sub-leased facilities under the terms of a month-to-month rental
agreement. The primary tenant is one of our shareholders. Rent expense was
$19,662 for the quarter ended March 31, 2001, and $21,568 for the quarter
ended March 31, 2000. We also agreed to reimburse our landlord for overhead
expenses such as telephone, utilities, etc. based on the square-footage
occupied. Our arrangement calls for monthly billings. Management believes
that the allocation method used for overhead reimbursements is reasonable.
-12-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - LEASE COMMITMENTS, continued
Our Dallas Eyesite Laser Center, which opened July 1, 2000, operates in
facilities leased from an unrelated third party. Rent expense was $15,061
for the quarter ended March 31, 2001. The lease term is three years.
In connection with the opening of our Dallas Eyesite Laser Center, we entered
into an operating lease agreement for the surgical laser device which performs
the eye surgery. The terms of the lease provide for payments of $225 per
procedure with a base minimum of 70 procedures per month for the first year
($15,750 per month). The base minimum number of procedures per month for the
second and third years are negotiable. The amounts shown below represent our
minimum lease obligations through the terms of our existing leases.
FUTURE
OBLIGATIONS
-----------
December 31, 2001 $350,552
December 31, 2002 683,698
December 31, 2003 456,999
NOTE I - INCOME TAX
We have tax net operating loss carry-forwards of approximately $3,700,000
which expire, if not used, starting in 2010. Deferred tax assets of
approximately $1,258,000 have been fully allowed for, since we believe that it
is not "more likely than not" that these tax benefits will be realized.
Consolidated tax returns are not filed. Each entity files separately. The
2000 tax returns are under extension.
-13-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 2001 and December 31, 2000
consisted of the following -
3-31-2001 12-31-2000
--------- ----------
Equipment $ 132,540 $133,549
Furniture and fixtures 63,871 63,871
Automobiles 0 0
Leasehold improvements 54,082 54,082
--------- --------
250,493 251,502
Less - accumulated depreciation (38,123) (28,705)
--------- --------
Net property, plant and equipment $ 212,370 $222,797
========= ========
Depreciation expense (included in general and administrative expenses) was
$9,418 and $2,978 for the quarters ended March 31, 2001 and 2000,
respectively. In 2001 $8,026 of depreciation was included in "cost of
revenues".
NOTE K - LIQUIDITY AND CAPITAL RESOURCES
Since restarting operations in 1999, we have incurred losses and accumulated a
deficit of approximately $6,158,600. In addition, we have approximately
$5,500,000 of current liabilities against approximately $83,000 of current
assets.
-14-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K LIQUIDITY AND CAPITAL RESOURCES, continued
We have been able to obtain long term capital resources through private
placement offerings of our common and preferred stock, and to arrange for
short term liquidity by issuing notes payable. However, there can be no
assurance that we may not continue to experience liquidity problems or be
successful in obtaining sufficient working capital on a timely basis in the
future. We anticipate that we will have to continue to sell common and/or
preferred stock and borrow additional funds to provide sufficient working
capital to fund operations during 2001.
NOTE L -- RELATED PARTY TRANSACTIONS
The following summarizes the transactions with related parties during the
quarter ended March 31, 2001 -
Memorabilia and Antiquities, Inc. ("M&A") is a corporation owned by our chief
executive officer, who owns 11.6% of our outstanding common stock. M&A owed
us $19,793 at January 1, 2001 for advances made to them during prior years.
During the quarter, M&A received additional advances of $9,497 leaving an
outstanding balance due us of $29,290.
Media Star Productions, Inc. ("MEDIA") is an entity whose CEO is also the CEO
of The Strateia Group, Inc., which owns 6.3% of our outstanding common stock.
During the fourth quarter of 2000, MEDIA paid us $110,000 (income in advance)
for certain information technology services which will be recognized into our
income at the rate of $8,000 per month beginning November, 2000. At January
1, 2001, we had a liability of $139,586 to MEDIA, consisting of unearned
income of $94,000 and the obligation to reimburse MEDIA for funding certain
expenditures. During the quarter ended March 31, 2000, MEDIA advanced an
additional $132,165 for working capital, and we recognized $24,000 of the
unearned income, leaving a liability of $247,751.
-15-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - RELATED PARTY TRANSACTIONS, continued
The Strateia Group, Inc. ("Strateia") is one of our shareholders with a 6.3%
ownership position. As mentioned in Note H - Lease Commitments, we sub-lease
office facilities from them. At January 1, 2001, we had an outstanding
balance of $102,750 due to Strateia which consists of $78,022 in a note
payable with the remainder in trade payables. During the quarter ended March
31, 2001, Strateia advanced us an additional $37,000 leaving a balance owed to
Strateia of $139,750.
Digital Information and Virtual Access, Inc. ("DIVA") is an entity whose CEO
is also the CEO of The Strateia Group, Inc. mentioned above. At January 1,
2001, we had an obligation to DIVA of $1,085,486, which included accrued
interest of $55,598. The only activity during the quarter ended March 31,
2001, was the accrual of $15,448 additional interest expense resulting in a
balance owed of $1,100,934 at March 31, 2001.
NOTE M -- STOCK OPTIONS
The following table summarizes activity related to our outstanding stock
options:
No. of Options
--------------
Balance at December 31, 1999 952,500
Granted 175,000
Exercised ( 89,495)
Expired (373,332)
--------------
Balance at December 31, 2000 664,673
Granted 0
Exercised 0
Expired 0
--------------
Balance at March 31, 2001 664,673
==============
-16-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - STOCK OPTIONS, continued
At March 31, 2001, exercisable options outstanding are as follows:
Range of Exercise Prices Number Exercisable
------------------------ ------------------
Granted at $0.25 per share 129,517
Granted at $0.50 per share 175,000
-------
304,517
-------
The terms of options to purchase shares of our common stock are summarized
below -
Option Price
--------------------
Weighted
Average
Number Contractual Weighted
Range of Exercise Prices Granted Life Average Total
- ------------------------ --------- ----------- ---------- -------
Granted at market
value $0.50 489,673 5.0 years $0.25 $122,418
Granted at market
value $0.25 175,000 5.0 years $0.50 87,500
------- ----- -------
664,673 $0.32 $209,918
====== ==== ======
Options granted during 1999 had an exercise price equal to the
market value of the underlying common stock. Options granted
during 2000 had an exercise price less than the fair market of
the underlying common stock. Had compensation cost for our stock
options been determined in accordance with SFAS No. 123, our net
loss and loss per share would have been adjusted to the pro forma
amounts indicated below. The effects of applying SFAS No. 123 in
this pro forma disclosure are not indicative of future amounts.
-17-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - STOCK OPTIONS, continued
Quarter Ended March 31
----------------------------------
2001 2000
---------- ---------
Net loss reported, adjusted
for deemed dividend $(1,355,067) $ (563,865)
Pro forma amount assuming
SFAS No. 123 $(1,359,855) $ (566,272)
Loss per common share
as reported $ (0.79) $ (0.36)
Pro forma loss per share
assuming SFAS No. 123 $ (0.80) $ (0.36)
The fair value of options granted to employees and non-employees
was estimated on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were used for
grants in 1999 and 2000 - dividend yield of 0%, volatility of 0%,
risk-free interest rate estimated as 6%; estimated life of 5
years. The estimated fair value of options granted to employees
in 1999 was $0.06 per share. The estimated fair value of the
options granted during 2000 to employees was $0.875 per share,
while the estimated fair value of options granted to non-
employees was $0.50 per share. The model is based on historical
stock prices and volatility, which, due to low volume of
transactions, may not be representative of future price
variances.
-18-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - OPERATING SEGMENT INFORMATION
We organize and manage our business in two operating segments -
business incubation and eye care services.
The business incubation segment includes the parent company,
Rhino, its subsidiaries Executive Assistance, Inc. and Framing
Systems, Inc., and its equity method investee, e-Data Alliance
Corp. This segment provides various forms of assistance (in the
form of management, consulting services, and financing) to assist
start-up enterprises as well as established operating companies
to position themselves for growth opportunities. Segment
revenues consist of fees, overhead reimbursements, interest
income on funds advanced in the form of short term notes,
earnings of subsidiaries and equity method investees.
Our eye care services segment represents the activities of our
90%-owned subsidiary Eyesite.Com, Inc. All operations, at
present, are located within the United States. Revenues arise
from sales primarily to unrelated third parties.
The accounting policies followed in presenting the segment
information are the same as those described in the summary of
significant accounting policies included in our consolidated
financial statements. A summary, by segment, of our significant
assets, liabilities, revenues and expenses is presented below for
the quarters ended March 31, 2001, and 2000.
-19-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - OPERATING SEGMENT INFORMATION, continued
Asset Data March 31, 2001 Incubator Eye Care Eliminations Consolidated
============================= ------------ ------------ -------------- --------------
Current Assets $ 766,869 $ 64,190 $ (748,480) $ 82,579
Advances 334,336 184,632 0 518,968
Investment in equity method
investees 129,387 0 0 129,387
Other long-lived assets 1,004,165 299,634 (10,000) 1,293,799
------------ ------------ -------------- --------------
Total Assets $ 2,234,757 $ 548,456 $ (758,480) $ 2,024,733
============ ============ ============== ==============
Profit and Loss Information Three Months Ended March 31, 2001
===============================================================
Revenues - external sources $ 0 $ 292,331 $ 0 $ 292,331
Inter-segment revenues 0 0 0 0
Interest income 4,525 2,420 0 6,945
Other income 4,155 0 0 4,155
Cost of revenues 0 (182,023) 0 (182,023)
Operating expenses (243,624) (131,736) 0 (375,360)
Interest expense (67,560) (6,729) 0 (74,289)
Depreciation and amortization (14,931) (6,194) (1,729) (22,854)
Equity in losses of e-Data (3,056) 0 0 (3,056)
Write off advances (986,300) 0 0 (986,300)
------------ ------------ -------------- --------------
Net Loss $ (1,306,791) $ (31,931) $ (1,729) $ (1,340,451)
============ ============ ============== ==============
Asset Data March 31, 2000 Incubator Eye Care Eliminations Consolidated
============================= ------------ ------------ -------------- --------------
Current Assets $ 50,268 $ 56,675 $ 0 $ 106,943
Advances 1,966,493 181,506 (407,554) 1,740,445
Investment in equity
method investees 170,655 0 0 170,655
Other long-lived assets 1,080,205 102,043 (11,627) 1,170,621
------------ ------------ -------------- --------------
Total Assets $ 3,267,621 $ 340,224 $ (419,181) $ 3,188,664
============ ============ ============== ==============
-20-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - OPERATING SEGMENT INFORMATION, continued
Profit and Loss Information for the Three Months Ended March 31, 2000
=====================================================================
Revenues from external sources $ 1,500 $ 6,023 $ 0 $ 7,523
Inter-segment revenues 0 0 0 0
Interest income 35,255 3,542 0 38,797
Other income 2,218 0 0 2,218
Equity in losses of e-Data (29,345) 0 0 (29,345)
Operating expenses (295,261) (192,903) 0 (488,164)
Interest expense (69,413) (825) 0 (70,238)
Depreciation and amortization (15,988) (6,990) (1,678) (24,656)
------------ ------------ -------------- --------------
Net Loss $ (371,034) $ (191,153) $ (1,678) $ (563,865)
============ ============ ============= ==============
NOTE O - CONTINGENCIES
As of the date of the auditor's report on these consolidated
financial statements, several of the notes comprising our
obligation to Net.Return, Inc. (See Note F - Notes Payable) are
past due. Efforts of management to renew, extend or renegotiate
the terms and conditions of those notes have proved unsuccessful
to date. It is uncertain as to the ultimate disposition of the
notes payable to Net. Return, Inc. Management is continuing
with efforts to resolve this matter.
-21-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - CONTINGENCIES, continued
The Company has been notified of a recommendation by the staff of
the Securities and Exchange Commission (the "Commission") that
the Commission bring a civil injunction action against the
Company and two (2) of its directors, alleging certain violations
of the Securities Act of 1933 and the Securities Exchange Act of
1934. The Company has hired securities counsel and intends to
defend itself and its directors against such allegations and
proposed action.
NOTE P - SUBSEQUENT EVENTS
Subsequent to March 31, 2001, the following events and/or
transactions have occurred:
(1) We established an investment banking relationship with
Donner Corp. International. Simultaneously, we entered into
consulting agreements with two employees of Donner to provide us
with expertise and strategies related to our capital structure
and long-term financing needs. Compensation to be paid under the
terms of these agreements will be in the form of cash, stock and
options to purchase our common stock.
(2) We filed an S-8 Registration Statement for the issuance of
600,000 shares of our common stock issuable pursuant to
consultant agreements with two affiliates and a third employee of
Donner Corp. International. The consultants may purchase these
shares under warrants priced at $1.25 per share.
(3) We issued 450,000 fully-vested stock options to our
directors at $0.375 per share, exercisable over five years.
(4) We received $320,000 from a third party in the form of a
demand loan. These funds were used to make payments of $152,000
on note obligations, advance $120,000 to Swan River Corporation,
and the remainder was used for working capital.
-22-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - SUBSEQUENT EVENTS, continued
(5) We entered into an agreement with an individual consultant
who will be compensated with options to purchase up to 50,000
shares of our common stock at $0.25 per share over three years.
(6) We set aside 250,000 shares of our common restricted stock to
used to fund an Incentive Stock Ownership and Employee Stock
Ownership Plan that might be established at some future date.
(7) We set aside 2,000,000 shares of common restricted stock to
be used to finance future operations and activities.
Item 2. Management's Discussion and Analysis
The following discussion of the financial condition and
results of operations of Rhino Enterprises Group, Inc. and its
business segments should be read in conjunction with the
Management's Discussion and Analysis and the consolidated
financial statements and the notes thereto included in the
Company's annual filing on Form 10-KSB.
This quarterly report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements using
terminology such as "anticipates", "expect", "will", "believes",
"foresees", "could", "may" or the negative thereof or other
comparable terminology regarding beliefs, plans, expectations or
intentions regarding the future. These forward-looking statements
involve risks and uncertainties and actual results could differ
materially from those discussed in the forward-looking
statements. All forward-looking statements and risk factors
included in this document are made as of the date hereof, based
on information available as of the date thereof, and we assume no
obligation to update any forward-looking statement or risk
factors.
-23-
Factors That May Impact Future Operating Results
- ------------------------------------------------
We operate in a rapidly changing environment that involves
numerous risks and uncertainties. This section lists
some, but not all, of the factors, risks, and uncertainties that
may have a material adverse effect on our business, financial
condition or results of operations.
Important factors that could cause the actual results,
performance or achievement of the Company to differ materially
from the Company's expectations include, but are not limited to
the following: 1) one or more of the assumptions or other factors
discussed in connection with particular forward-looking
statements prove not to be accurate; 2) mistakes in estimates of
revenues and expenses; 3) the Company's inability to obtain
additional capital through borrowing's or the sale of securities;
4) non-acceptance of the Company's services in the marketplace
for whatever reason; 5) the Company's inability to support any
product or service to meet market demand; 6) generally
unfavorable economic conditions which would adversely affect the
Company, its subsidiaries or any of the companies to which we
have advanced funds; 7) loss of key personnel and the inability
to hire and/or retain competent personnel; and 8) if the Company
experiences unanticipated problems and/or "force majeure" events
(including but not limited to accidents, fires, acts of God,
etc.) or is adversely affected by problems of its suppliers,
shippers, customers or others. All written or oral forward-
looking statements attributable to the Company are expressly
qualified in their entirety by such factors. The Company
undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
We are dependent upon our current management team. Should any
one or more of our management team leave, we could face a
financial setback or suffer in other ways related to our planned
business. It could take a significant period of time to locate
and train replacements, if and when necessary. We have an
employment agreement with our President, which may be terminated
upon certain circumstances. This agreement was filed as an
exhibit to the Company's First Amendment to the Form 10-SB filed
with the Securities and Exchange Commission.
-24-
Since revenues are not presently sufficient to provide enough
working capital to fund current operations, we are dependent upon
outside financing. It may be difficult to borrow additional
funds or have access to additional funds via some other method.
If such a situation occurs, we may not be able to make debt
service payments, provide the services we have planned, increase
our staff as planned or otherwise grow our business.
There are significant debt obligations which must be repaid in
cash at some point or we must explore other alternatives for
repayment, which could be in the form of conversion of debt to
equity, replacement financing and/or repayment by an offering of
securities. It may be difficult to repay the existing debt when
due, extend the due date of the existing debt, reach some
agreement with regard to converting the debt to equity or
otherwise satisfy our obligation. Likewise, if a new source of
financing is found to replace our current sources, we could face
similar risks in the future with regard to our ability to repay
or otherwise take care of any future debt. Also, any additional
issuances of securities, whether in the form of converting debt
to equity or the form of a securities offering, would dilute the
share value of current shareholders.
One of our business segments advances funds to small operating
and start-up entities. These advances are evidenced with an
interest bearing note and financing agreement so as to protect
our investment. There is a risk that these entities will not be
able to repay their advances. We are carrying these advances as
assets on our balance sheet. The Company anticipates that these
start-up and small operating companies may take 3 to 5 years to
be in a position to repay our advances. If, because of current
economic conditions and the effect of the lack of availability of
capital to the start-up and small operating companies, or their
inability to successfully implement their business plans, or
because of actual results and lack of acceptance by the market
place, the Company believes the carrying value of these advances
may become impaired, their company would adjust carrying value to
reflect anticipated recoverability. Alternatively, we may seek to
convert the advances into an equity interest in the entity.
However, we may face difficulty in negotiating with such
borrowers with regard to the ability to convert the debt into
equity or the conversion ratio. If the advances are converted
-25-
into equity of the borrowing entity, there exists a great
possibility that the equity interest will not be a liquid
investment or that the value of such equity interest will not be
at or near the value of the advances made. Further, if one or
more of the entities to which funds have been advanced is unable
to repay the advance when due or if the advance is converted into
a non-liquid equity investment, we could face a working capital
shortage.
Our eye care-business segment has planned its operation in
accordance with current legislation. If new legislation is passed
at a local, state or federal level, it could materially adversely
affect our strategic plan. We face the risks that we might not
be able to (1) continue our business as planned, (2) adjust our
business plan in accordance with any new legislation, or (3)
operate in such a manner that would eventually be profitable.
In order to grow as planned, we will have to hire additional
personnel for a number of positions. The current low unemployment
rate presents a challenge to locate and attract qualified
individuals to fill the positions that might be necessary. We
face the risk that we might not be able to (1) fill every
position as it becomes available in a timely manner, (2) retain
employees we currently have or that may be hired, or (3) offer a
compensation package to attract top quality candidates to our
positions.
Results of Operations
- ---------------------
The Company posted revenues of $292,331 for the quarter ended
March 31, 2001, up from $7,523 for the same quarter in 2000. This
revenue was derived from our eyecare business segment. Cost of
goods sold was $182,024 for the quarter ended March 31, 2001
while cost of goods sold was $2,500 for the comparable period in
2000. In the event that working capital becomes available to
promote and advertise our Eyesite Laser Center, we anticipate
that our eyecare segment revenue will grow in the ensuing
quarters. However, if resources are not available, we anticipate
that revenue growth will be negligible. Our incubation segment
did not produce any revenues other than interest income accrued
-26-
on advances during the first quarter and we do not anticipate
this segment producing significant revenue during the remainder
of this fiscal year.
The Company's total general and administrative expenses
increased from $510,320 in the first quarter of 2000 to
$1,384,514 in the same period of 2001. The overall increase in
general and administrative expenses was due to the write-off
$986,300 of certain advances in our incubation segment that we
presently believe to be unrecoverable. Exclusive of this write-
off, general and administrative expenses decreased by $112,106,
reflecting the reduction of personnel and other overhead costs
since the Company is continuing to experience cash flow and
liquidity problems.
We had $986,300 in losses from writing off unrecoverable advances
in the first quarter of 2001, compared to no such losses for the
same period in 2000. We expected to obtain capital resources
either from borrowings or the sale of securities during the first
quarter of 2001 to fund both our operating expenses and business
incubation activities. However, we received only minimal amounts
of working capital to fund overhead and personnel costs.
Consequently, there were no resources available for the business
incubation segment to further assist the start-up and small
operating entities to which we had previously advanced funds.
This, in combination with weak and deteriorating economic
conditions, adversely impacted three specific entities and the
implementation of their business plans. Therefore, we have re-
assessed the prospects of the viability of their business
strategy without additional funding from our business incubation
segment. We have concluded that our advances to these three
entities have been impaired and we wrote them off.
Other Income/(Expense) went from $58,568 net expense in the first
quarter of 2000 to $66,244 expense in the first quarter of 2001.
The net increase was due to a reduction in interest income of
$31,582 due to our writing-off certain advances discussed above.
Additionally, interest expense increased by $4,051 over the same
period a year ago. Finally, our share of the loss in e-Data
declined from $(29,345) to $(3,056). If resources become
available to implement our incubation strategy, the Company will
continue to advance funds to companies as a way to pursue
-27-
business opportunities. This would mean that interest expense
would possibly increase in the future if capital resources are
obtained by borrowings. It would also mean that interest income
would possibly increase if additional advances are made.
Financial Condition
- -------------------
At quarter end, cash and cash equivalents were $10,870 as
compared to $7,920 at the beginning of the period. Operating
activities used $138,676 of cash in the first quarter of 2001.
The majority of the cash utilized by operations in the first
quarter was attributable to the payment of general and
administrative costs. Investing activities consumed $11,479 of
cash during the first quarter primarily from advances to start-up
and operating activities. Financing activities provided the
Company with $153,105 of cash during the first quarter, all from
borrowings.
Cash flow from anticipated repayments on advances, and revenues
from our eyecare segment are not sufficient at this time to fund
current operations, provide capital for our business incubation
activities and provide growth capital for our eyecare segment.
In order to fund these activities, we will need to obtain
additional capital through additional borrowings or the sale of
securities. There is no guarantee that we will be able to obtain
such capital. If we cannot obtain additional capital, our
ability to continue operations will be in doubt. Additionally,
the Company has significant debt obligations which must be
repaid. It may be difficult to repay the existing debt when due
or negotiate changes such as extending the term or reaching an
agreement to convert the debt to equity or otherwise satisfy our
obligation. The Company will attempt to negotiate satisfactory
arrangements with our lenders.
-28-
PART II - OTHER INFORMATION
(Items 3, 4 and 5 have been omitted as there is no information
to report.)
Item 1. Legal Proceedings
The Company has been notified of a recommendation by the staff of
the Securities and Exchange Commission (the "Commission") that
the Commission bring a civil injunction action against the
Company and two (2) of its directors, alleging certain violations
of the Securities Act of 1933 and the Securities Exchange Act of
1934. The Company has hired securities counsel and intends to
defend itself and its directors against such allegations and
proposed action.
Item 2. Changes in Securities.
There were no changes in securities for the quarter ended March
31, 2001. On May 7, 2001, the Company filed an S-8 Registration
Statement under The Securities Act of 1933 to register 600,000
shares of the Company's $0.001 par value common stock
Item 6. Exhibits and Reports on Form 8-K.
Exhibits - none
Reports on Form 8-K
- ------------------------------------------------------------
During the quarter ended March 31, 2001, the Company did not file
any reports on Form 8-K with the Securities and Exchange
Commission. On May 7, 2001, the Company filed a Current Report
on Form 8-K with the Securities and Exchange Commission reporting
on an investment banking agreement with Donner Corp.
International and the filing of an S-8 Registration Statement
under the Securities Act of 1933 and the registration of 600,000
shares of the Company's $0.001 par value common stock.
-29-
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.
Rhino Enterprises Group, Inc.
(Registrant)
Date: May 15, 2001 By:/S/ DANIEL H. WEAVER
--------------------------------
Daniel H. Weaver
Chief Financial Officer and duly
authorized officer
-30-