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 SEPTEMBER 30, 2001
Commission file number 0-29403
RHINO ENTERPRISES GROUP, INC.,
a Nevada corporation
1620 Rafe Street, Suite 114, Carrollton, Texas 75006
(469) 574-2200
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 November 9, 2001, there were 4,519,735 shares of common
stock,$0.001 par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES [ ] NO [X]
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
The consolidated financial statements for the quarter and nine
months ended September 30, 2001 for Rhino Enterprises Group, Inc.
("Rhino" or the "Company") follow.
-1-
RHINO ENTERPRISES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
ASSETS 9-30-2001 12-31-2000
- ---------------------- ------------ -----------
Current Assets
Cash $ 23,489 $ 7,920
Accounts receivable 44,324 64,436
Inventory 4,000 4,000
------------ -----------
Total Current Assets 71,813 76,356
------------ -----------
Property and equipment net 194,339 222,797
Investment in e-Data
Alliance Corp. 124,265 132,443
Intangible assets -- net 122,189 194,050
Goodwill -- net 0 94,072
Deposits 14,621 14,621
Deferred marketing expense 800,000 800,000
Advances to operating and
start-up entities 728,564 1,485,999
------------ -----------
Total Non-current Assets 1,983,978 2,943,982
------------ -----------
Total Assets $ 2,055,791 $ 3,020,338
============ ===========
CURRENT LIABILITIES
- -----------------------------
Accounts payable $ 779,809 $ 577,079
Accrued expenses 943,342 568,917
Notes payable 3,973,692 3,939,590
------------ -----------
Total Current Liabilities 5,696,843 5,085,586
Deferred marketing obligation 800,000 800,000
------------ -----------
Total Liabilities 6,496,843 5,885,586
------------ -----------
STOCKHOLDERS' DEFICIT
- ------------------------------
Common stock 4,053 1,706
Preferred stock 334 334
Paid in capital 3,001,777 2,050,405
Accumulated deficit (7,376,390) (4,846,867)
Non-controlling interest 1,864 1,864
Treasury stock, at cost (72,690) (72,690)
------------ -----------
Total Stockholders' Deficit (4,441,052) (2,865,248)
------------ -----------
Total Liabilities and
Stockholders' Deficit $ 2,055,791 $ 3,020,338
============ ===========
See Notes to Consolidated Financial Statements.
-2-
RHINO ENTERPRISES GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
3rd Quarter 3rd Quarter 9 Months 9 Months
2001 2000 2001 2000
---------- ---------- --------- ---------
REVENUES $ 164,706 $ 193,504 $681,021 $224,205
COST OF REVENUES 245,903 110,773 613,203 173,970
-------- -------- ------- -------
GROSS PROFIT (81,197) 82,731 67,818 50,235
-------- -------- ------- -------
GENERAL AND ADMINISTRATIVE EXPENSES
Operating costs 156,198 80,228 462,708 486,774
Personnel costs 191,908 270,748 579,592 735,417
Legal and professional fees 18,787 14,222 210,136 87,094
Impairment losses 0 0 1,089,911 0
Depreciation and amortization 34,086 27,342 76,452 78,815
-------- -------- --------- ---------
Total General and Administrative
Expenses 400,979 392,540 2,418,799 1,388,100
-------- -------- --------- ---------
LOSS FROM OPERATIONS (482,176) (309,809) (2,350,981) (1,337,865)
-------- -------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income 2,428 39,071 16,313 117,434
Interest expense (46,449) (85,739) (153,360) (233,752)
Other 6,199 117 10,354 2,715
Equity in loss of
e-Data Alliance Corp. (2,600) (15,900) (8,178) (60,648)
-------- -------- --------- ---------
Total Other Income (Expense) (40,422) (62,451) (134,871) (174,251)
-------- -------- --------- ---------
LOSS BEFORE INCOME TAX (522,598) (372,260) (2,485,852) (1,512,116)
PROVISION FOR INCOME TAX 0 0 0 0
--------- ------- --------- ---------
NET LOSS $(522,598) $(372,260)$(2,485,852)$(1,512,116)
========= ======= ========= =========
LOSS PER SHARE $ (0.26) $ (0.23) $ (1.41) $ (0.94)
========= ======== ========= =========
See Notes to Consolidated Financial Statements.
-3-
RHINO ENTERPRISES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
9-30-2001 9-30-2000
----------- -----------
CASH FROM OPERATING ACTIVITIES
Net Loss $(2,485,852) $(1,512,116)
Add (deduct) non cash
items affecting net loss -
Depreciation and amortization 101,809 82,583
Other non cash expenses 2,126 (4,722)
Impairment losses 1,089,912 0
Equity in losses of investee 8,178 60,647
Increase in accounts receivable 20,112 (256,155)
Increase in prepaid expenses 0 (34,621)
Increase in accounts payable 202,730 96,421
Increase in accrued expenses 296,165 289,781
--------- ---------
Net Cash Used By Operations (764,820) (1,278,182)
--------- ---------
CASH USED BY INVESTING ACTIVITIES
Purchase equipment and intangibles 0 (219,623)
Proceeds from sale of equipment 0 53,384
Advances to investees (251,876) (655,508)
Collect advances from investees 27,328 481,456
--------- ---------
Net Cash Used by
Investing Activities (224,548) (340,291)
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES
Borrowings 1,122,055 1,267,570
Repayments (210,353) (385,369)
Purchase treasury stock 0 (72,690)
Proceeds from sale of common stock 93,235 16,094
Proceeds from sale of preferred stock 0 417,600
--------- ---------
Net Cash Provided by
Financing Activities 1,004,937 1,243,205
--------- ---------
NET CHANGE IN CASH 15,569 (375,268)
CASH, beginning of year 7,920 390,071
--------- ---------
CASH, end of nine months $ 23,489 $ 14,803
========= =========
INTEREST PAID $ 80,066 $ 0
========= =========
NON CASH FINANCING AND INVESTING DISCLOSURES
Conversion of debt to equity $882,593 N/A
========= =========
See Notes to Consolidated Financial Statements.
-4-
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 P Operating Segments.
We are highly leveraged and have accumulated a considerable deficit
from operations. Repayment of our indebtedness and related
interest charges is dependent on our ability to obtain additional
working capital. During the quarter our investment banker, Donner
Corp International and several of our financial consultants have
provided assistance in negotiating for and raising limited amounts
of capital.
See Note K for further discussion of our liquidity and capital
resources.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the accounting
principles generally accepted in the United States for interim
information, and with the instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the
three-month and nine-month periods ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 2001.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
Our 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. All 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 quarterly presentation.
-5-
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 September 30, 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 which are being
amortized over 3 years.
Goodwill
Goodwill represented the excess purchase price over the fair market
value of net assets acquired of Executive Assistance, Inc. and
Framing Systems, Inc. totaling $103,770. During the second quarter,
we determined that goodwill was impaired and wrote the unamortized
balance ($94,072) off since neither entity has any operations.
Accumulated amortization of intangibles and goodwill was $165,485
and $103,322 as of September 30, 2001 and December 31, 2000,
respectively.
-6-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Amortization expense of intangibles and goodwill is shown below
3rd Quarter 3rd Quarter 9 Months 9 Months
2001 2000 2001 2000
---------- ---------- --------- ---------
Intangibles $32,278 $23,636 $71,861 $67,375
Goodwill 0 1,730 1,730 5,112
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. During
the first quarter of 2001, we recorded an impairment charge of
$986,300 related to certain unrecoverable advances to start up and
operating entities. During the second quarter, we took an
additional charge of $9,539 related to certain other advances which
we consider to be unrecoverable. No charges were taken during the
third quarter. (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.
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.
Comprehensive Income (SFAS No. 130)
We have no components of "other comprehensive income".
Advertising
We expense advertising ($36,325 and $45,119 in the quarters ended
September 30, 2001 and 2000, respectively; and $62,474 and $163,116
for the nine months ended September 30, 2001 and 2000,
respectively)as it is incurred.
-7-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
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 M 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 guidance contained in SFAS No.123
which provides that transactions be measured based on the fair
value of the goods or services received or the fair value of the
equity instrument issued, whichever can be more reliably
determined.
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, 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 at
June 30, 2001 (latest information available) and 2000 follows:
Balance Sheets 6-30-2001 12-31-2000
- --------------------------------- --------- ----------
Cash $ 8,500 $ 15,836
Receivables 11,651 6,087
Other current assets 9,000 9,000
-------- -------
Total Current Assets 29,151 30,923
Property, plant and equipment, net 34,578 43,963
-------- -------
Total Assets $ 63,729 $ 74,886
======== =======
-8-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C INVESTMENT IN E-DATA ALLIANCE CORP., (continued)
Current Liabilities $ 0 $ 0
Stockholders' Equity 63,729 74,886
-------- -------
Total Liabilities and
Stockholder's Equity $ 63,729 $ 74,886
======== =======
2nd QTR 2nd QTR 6 Months 6 Months
Statement of Operations 2001 2000 2001 2000
- -------------------------- -------- ------- ------- --------
Revenues $ 9,843 $ 7,599 $ 18,235 $ 32,090
Operating Expenses 14,888 39,813 29,392 116,400
------- ------- ------- -------
Net Loss $ (5,045) $(32,214) $(11,157) $(84,310)
======= ======= ======= =======
Management estimated e-Data's third quarter loss to be
approximately $5,200.
NOTE D- ADVANCES TO OPERATING AND START-UP ENTITIES
As a vital part of our operations 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.
Prior to filing our first quarter 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 wrote
off $986,300 at March 31, 2001. During the second quarter, we
further assessed our outstanding advances and determined that
additional impairment losses had occurred and we wrote off an
additional $9,539. No additional impairment losses were recorded
in the third quarter.
-9-
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:
9-30-2001 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. 29,103 19,793
Sarwin Family, LLC 142,309 138,164
R and R Foods, Inc. 0 6,000
Eyemakers, Inc. 189,473 182,211
-------- ---------
360,885 994,625
-------- ---------
Advances to start-up entities -
Emerging Pharmacy Solutions, Inc. 10,000 335,000
Legend Security, Inc. 16,614 16,130
Target Marketing International, Inc. 51,160 48,218
Historic Inns of America, Inc. 0 3,398
Canton Auction House, Inc. 39,757 38,628
Media Star Productions, Inc. 32,806 0
Swan River Corporation 210,782 50,000
Business Talk Radio Network, LLC 6,560 0
-------- ---------
367,679 491,374
-------- ---------
Total Advances $ 728,564 $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 $56,000 of accrued interest. Our general
policy is to require entities to which we advance funds to sign a
financing agreement.
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.
-10-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E- NOTES PAYABLE
9-30-2001 12-31-2000
--------- ----------
Note payable to Digital Information &
Virtual Access, Inc., 6% interest,
unsecured. Note is due on demand $ 990,754 $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 20,000 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 66,316 78,022
Note payable to Alcon Laboratories, Inc.,
interest at 8%, secured by laser machine,
due monthly over the next twelve months 79,942 0
Other 10,000 0
--------- ---------
Total Indebtedness $3,973,692 $3,939,590
========= =========
NOTE F - 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 September 30,2001, there were
4,052,599 shares outstanding. Our subsidiary, Eyesite.com, Inc. is
authorized to issue 5,000,000 shares of 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
-11-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F STOCKHOLDERS' DEFICIT, (continued)
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.
In July, we prepared a Regulation S Offering Memorandum for
5,000,000 shares of common stock at $0.50 per share. As of the
date of this filing, no shares have been purchased under this
memorandum. On July 20, we issued 100,000 shares to Donner Corp
International (See Note A above) as part of their compensation
associated with our agreement. We recognized a non-cash expense of
$13,000 as a result of this transaction. On September 28, we
issued 200,000 shares to faciltate an acquisition being negotiated
by one of our investees. The shares have been placed in escrow and
will be returned to the company if the acquisition is closed. If
the proposed transaction is not consummated, the shares will be
released from escrow and we will record an expense of $3,150. On
September 30, we issued 1,765,186 shares related to the conversion
of certain short-term debt. On various dates throughout the
quarter, 169,692 shares were issued upon the exercise of certain
options. We received cash proceeds of $80,735 in connection with
these transactions.
Subsequent to the end of the third quarter, we issued another
100,000 shares to Donner Corp International as per the terms of our
investment banking agreement. An additional 106,236 shares of
common stock have been issued upon the exercise of certain options
from October 1, 2001 through the date of this filing.
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.
Quarter Ended Sept. 30 9 Months Ended Sept. 30
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Loss $ 522,598 $ 372,260 $2,485,852 $1,512,116
Add - deemed preferred
stock dividend 14,616 0 43,848 0
--------- --------- --------- ---------
Loss applicable to
common stockholders $ 537,214 $ 372,260 $2,529,700 $1,512,116
========= ======== ========= =========
Weighted average number of
shares outstanding 2,074,274 1,636,955 1,801,182 1,614,977
========= ========= ========= =========
Loss per Share $ 0.26 $ 0.23 $ 1.41 $ 0.94
========= ========= ========= =========
-12-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - LEASE COMMITMENTS
Our corporate offices are located in sub-leased facilities under
the terms of a month-to-month rental agreement which expires
October 31, 2001. The primary tenant is one of our shareholders.
Among other things, our lease requires us to reimburse our landlord
for certain 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. Our Dallas Eyesite
Laser Center, which opened July 1, 2000, operates in facilities
leased for three (3) years from an unrelated third party.
Rent expense was $31,253 and $22,546 for the quarters ended
September 30, 2001 and 2000; while for the nine-month periods ended
September 30, 2001 and 2000, rent expense was $109,038 and $79,335,
respectively.
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
$3,400,000 which expire, if not used, starting in 2010. Deferred
tax assets of approximately $1,156,000 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 as each entity files separately.
-13-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 2001 and December
31, 2000 consisted of the following -
9-30-2001 12-31-2000
--------- ----------
Equipment $ 132,540 $ 133,549
Furniture and fixtures 66,371 63,871
Leasehold improvements 54,082 54,082
-------- -------
252,993 251,502
Less - accumulated depreciation (58,654) (28,705)
-------- -------
Net property, plant and equipment $ 194,339 $222,797
======== =======
Depreciation expense included in general and administrative
expenses was $1,509 and $1,567 for the quarters ended September 30,
2001 and 2000, respectively. For the nine-month periods ended
September 30, 2001 and 2000, depreciation expense, included in
general and administrative expenses was $3,987 and $5,441,
respectively.
In 2001, $9,305 and $25,357 of depreciation expense was included in
"cost of revenues" for the three and nine month periods ended
September 30, 2001.
NOTE K - LIQUIDITY AND CAPITAL RESOURCES
Since restarting operations in 1999, we have incurred losses and
accumulated a deficit of approximately $7,376,000. In addition, we
have approximately $5,697,000 of current liabilities against
approximately $71,813 of current assets.
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. See subsequent
events in Note O.
-14-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L -- RELATED PARTY TRANSACTIONS
The following summarizes the transactions with related parties
during the nine months ended September 30, 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 nine months ended
September 30, M&A received additional advances of $13,667 and
repaid $4,357 leaving an outstanding balance due us of $29,103.
Media Star Productions, Inc. ("MEDIA") is an entity whose former
chairman of the board is also the president 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 nine months ended September 30, 2001, we repaid MEDIA
$132,165 plus $2,010 of interest, and we recognized $56,000 of the
unearned income, leaving a liability of $38,000. In addition, we
advanced MEDIA $55,353 and collected back $22,547 leaving a balance
due us of $32,806.
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 nine months ended September 30, 2001,
Strateia advanced us an additional $40,688 and we repaid them
$20,525 leaving a balance owed to Strateia of $122,913.
Digital Information and Virtual Access, Inc. ("DIVA") is an entity
whose former CEO is also the president 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. During
the nine months ended September 30, 2001 we reduced the principal
by $39,135 along with $71,046 of interest owed. During this same
period of time, additional interest of $45,770 was accrued on our
outstanding note, resulting in a balance owed of $1,021,076 at
September 30, 2001.
-15-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M -- STOCK OPTIONS
The following table summarizes activity related to our outstanding
stock options:
Employees Non-employees
-------------- -------------
No. of options No. of options
-------------- --------------
Balance at December 31, 1999 952,500 0
Granted 175,000 0
Exercised ( 89,495) 0
Expired (373,332) 0
-------------- --------------
Balance at December 31, 2000 664,673 915,000
Granted 250,000 750,000
Exercised 0 (231,809)
Expired 0 0
-------------- --------------
Balance at September 30, 2001 914,673 1,433,191
============== ==============
At September 30, 2001, exercisable options outstanding are as follows:
Range of Exercise Prices Number Exercisable No. exercisable
------------------------ ------------------ ---------------
Granted at $0.25 per share 197,550 All
Granted at $0.375 per share 55,833 All
Granted at $0.50 per share 175,000 All
Granted at $1.30 per share 20,832 All
-------
449,215 (See below)
-------
The terms of options to purchase shares of our common stock are
summarized below:
Option Price
---------------------
Weighted
Average
Number Contractual Weighted
Range of Exercise Price FMV Granted Life Average Total
- ------------------------ ---- --------- ----------- ---------- ---------
To Employees
============
Granted at market value $0.500 433,840 5.0 years $0.250 $ 108,460
Granted at market value 0.375 55,833 5.0 years $0.375 20,937
Granted at market value 0.250 175,000 5.0 years $0.500 87,500
Granted at market value 1.300 250,000 3.0 years $1.300 325,000
--------- ------ ---------
914,673 $0.592 $ 541,897
--------- ----- ---------
-16-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M STOCK OPTIONS, continued
To Non-employees
================
Granted < market value $0.25 439,300 1.0 year $0.250 $ 109,825
Granted < market value 0.05 415,000 1.0 year $0.050 207,500
Granted < market value 0.80 13,800 1.0 year $0.800 11,040
Granted < market value 1.00 380,091 1.0 year $1.000 380,091
Granted < market value 1.25 185,000 1.0 year $1.250 231,250
--------- ------ ---------
1,433,191 $0.656 939,706
--------- ----- ---------
Grand Total All Options 2,347,864 $0.631 $1,481,603
========= ===== =========
Options granted to employees during 1999 had an exercise price
equal to the market value of the underlying common stock. Options
granted to employees 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.
Quarter Ended Sept 30 9 Months Ended Sept 30
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
Net loss reported, adjusted
for deemed dividend $537,214 $372,260 $2,529,700 $1,512,116
Pro forma amount assuming
SFAS No. 123 $543,252 $372,260 $2,545,314 $1,512,116
Loss per common share
as reported $ 0.26 $ 0.23 $ 1.41 0.94
Pro forma loss per share
assuming SFAS No. 123 $ 0.26 $ 0.23 $ 1.41 0.94
-17-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M STOCK OPTIONS, continued
The fair value of options granted to 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.
Effective July 1, 2001, we executed an employment contract with our
Vice President of Finance which provides, among other things,
250,000 options to purchase our common stock at $1.30 (the market
value of our stock on July 1, 2001) that vest over the next three
years.
The options granted to non-employees (See Note M) are part of the
compensation contained in the consulting contracts discussed in
Note A above. The options were vested upon date of grant and
expire, generally, within one year from the date of grant. The
compensation expense arising from the differential between the
strike price and the market value of the stock on the exercise date
was not material.
NOTE N - CONTINGENCIES
The notes comprising our obligation to Net.Return, Inc. are past
due. (See Note E - Notes Payable). 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.
We were 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. As of the date of
this filing, we have not received any further communications from
the Commission regarding this matter.
NOTE O - SUBSEQUENT EVENTS
On October 1, we acquired 698,426 shares of Swan River Corporation
(one of the start-ups to which we have made advances - See Note D),
representing 51.26 percent of their outstanding common stock in
exchange for the assumption of $663,505 in promissory notes. On
October 8, we acquired a collection of limited edition high-grade
sports memorabilia for a base purchase price of $1,167,000 in
exchange for 200,000 shares of restricted common stock and 200,000
shares of series B, $5.00 per share cumulative convertible
preferred stock.
-18-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - 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 three-month and nine-month periods ended September 30, 2001,
and 2000.
Asset Data September 30, 2001 Incubator Eye Care Eliminations
Consolidated
=============================== ------------ ------------ -------------- --------------
Current Assets $ 855,152 $ 42,895 $ (826,234) $ 71,813
Advances 539,091 189,473 0 728,564
Investment in equity method
investees 124,265 0 0 124,265
Other long-lived assets 884,345 256,804 (10,000) 1,131,149
------------ ------------ -------------- --------------
Total Assets $ 2,402,853 $ 489,172 $ (836,234) $ 2,055,791
============ ============ ============== ==============
Asset Data December 31, 2000 Incubator Eye Care Eliminations Consolidated
============================== ------------ ------------ -------------- --------------
Current Assets $ 777,003 $ 50,859 $ (736,885) $ 90,977
Advances 1,303,788 182,211 0 1,485,999
Investment in equity
method investees 132,443 0 0 132,443
Other long-lived assets 1,021,686 299,233 (10,000) 1,310,919
------------ ------------ -------------- --------------
Total Assets $ 3,234,920 $ 532,303 $ (746,885) $ 3,020,338
============ ============ ============== ==============
-19-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P OPERATING SEGMENT INFORMATION, continued
Profit and Loss Information Three Months Ended September 30, 2001
===================================================================
Incubator Eye Care Eliminations Consolidated
------------ ------------ -------------- --------------
Revenues - external sources $ 33,000 $ 131,706 $ 0 $ 164,706
Inter-segment revenues 0 0 0 0
Interest income 6 2,421 0 2,427
Other income 6,200 0 0 6,200
Cost of revenues 0 (245,903) 0 (245,903)
Operating expenses (244,445) (122,448) 0 (366,893)
Interest expense (38,319) (8,130) 0 (46,449)
Depreciation and amortization (15,198) (18,888) 0 (34,086)
Equity in losses of e-Data (2,600) 0 0 (2,600)
------------ ------------ -------------- --------------
Net Loss $ ( 261,356) $ (261,242) $ 0 $ ( 522,598)
============ ============ ============== ==============
Profit and Loss Information -- Three Months Ended September 30, 2000
====================================================================
Incubator Eye Care Eliminations Consolidated
------------ ------------ -------------- --------------
Revenues - external sources $ 107,180 $ 86,324 $ 0 $ 193,504
Inter-segment revenues 101,915 0 (101,915) 0
Interest income 35,003 4,068 0 39,071
Other income 0 (101,915) 101,915 0
Equity in losses of e-Data (15,900) 0 0 (15,900)
Operating expenses (179,007) (296,847) 0 (475,854)
Interest expense (80,851) (4,888) 0 (85,739)
Depreciation and amortization (14,690) (10,974) (1,678) (27,342)
------------ ------------ -------------- --------------
Net Loss $ (46,350) $ (324,232) $ (1,678) $ (372,260)
============ ============ ============= ==============
Profit and Loss Information Nine Months Ended September 30, 2001
==================================================================
Incubator Eye Care Eliminations Consolidated
------------ ------------ -------------- --------------
Revenues - external sources $ 81,000 $ 600,021 $ 0 $ 681,021
Inter-segment revenues 0 0 0 0
Interest income 9,051 7,262 0 16,313
Other income 10,354 0 0 10,354
Cost of revenues 0 (613,203) 0 (613,203)
Operating expenses (864,250) (388,187) 0 (1,252,437)
Interest expense (131,004) (22,356) 0 (153,360)
Depreciation and amortization (44,459) (31,692) 0 (76,151)
Equity in losses of e-Data (8,178) 0 0 (8,178)
Impairment-advances & goodwill (1,099,608) 0 9,397 (1,090,211)
------------ ------------ -------------- --------------
Net Loss $ (2,047,094) $ (448,155) $ 9,397 $ (2,485,852)
============ ============ ============== ==============
-20-
RHINO ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P OPERATING SEGMENT INFORMATION, continued
Profit and Loss Information -- Nine Months Ended September 30, 2000
===================================================================
Incubator Eye Care Eliminations Consolidated
------------ ------------ ------------- -------------
Revenues from external sources $ 108,680 $ 115,524 $ 0 $ 224,204
Inter-segment revenues 101,915 0 0 101,915
Interest income 105,801 11,632 0 117,433
Other income 2,715 (101,915) 0 (99,200)
Equity in losses of e-Data (60,648) 0 0 (60,648)
Operating expenses (744,193) (739,060) 0 (1,483,253)
Interest expense (255,906) (7,846) 0 (233,752)
Depreciation and amortization (45,308) (28,473) (5,034) (78,815)
------------ ------------ ------------- --------------
Net Loss $ (756,944) $ (750,138) $ (5,034) $ (1,512,116)
============ ============ ============= ==============
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 our prior quarterly filings on
Form 10-QSB and 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.
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.
-21-
Important factors that could cause actual results, performance or
achievement of to differ materially from our 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) our inability to obtain additional capital through borrowings
or the sale of securities
(4) non-acceptance of our 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 us, our subsidiaries or any of the entities to which we have
advanced funds
(7) loss of key personnel and the inability to hire and/or retain
competent personnel; and
(8) if our 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 are
expressly qualified in their entirety by such factors. We
undertake 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 employment agreements
with our President and our Vice President of Finance, which may be
terminated upon certain circumstances. Copies of these agreements
have been filed with the Securities and Exchange Commission.
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.
During the third quarter, we continued negotiations with several
investment groups who have indicated that they may be interested in
providing us with short-term debt financing or letter of credit
facilities. We have received $130,000 in short term debt
financing. We have also filed a second Form S-8 Registration
Statement for payments of fees to several consultants and financial
advisors. We also prepared a Regulation S Offering Memorandum for
5,000,000 shares at $0.50 per share. No proceeds have been
received as of September 30 from this memorandum. We converted
$882,993 of short-term debt and accrued interest into 1,765,186
shares of our common stock.
-22-
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. 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. Our expectation is
that these start-up and small operating companies may take 3 to 5
years before being in a position to repay our advances. If,
because of current economic conditions or the lack of availability
of capital to continue funding 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, then we would assess the carrying value of
these advances for impairment. We would consider adjusting the
carrying value to reflect anticipated recoverability; or,
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 into equity of the borrowing entity, there
exists a 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 potentially have working
capital
shortages.
Our eye-care business segment is operating in accordance with
current laws and regulations. If new health-care related
legislation is passed at a local, state or federal level, it could
adversely affect our operations. There are potential risks that we
may not be able to (1) continue our business as planned, (2) adjust
our business plan in accordance with any new requirements, or (3)
operate in a profitable manner.
If our growth plans come to fruition, we expect to hire additional
personnel. The current low unemployment rate might present a
challenge to locate and attract qualified individuals to fill new
positions. There are potential risks that we may not be able to
(1) fill every new position in a timely manner, (2) retain
current employees, or (3) offer compensation packages that would
attract top quality candidates.
-23-
- ------------------------------------------------------------------
Results of Operations - Quarters Ended September 30, 2001 and 2000
- ------------------------------------------------------------------
The Company posted revenues of $164,706 for the quarter ended
September 30, 2001, down from $193,504 for the same quarter in
2000. All of this decrease came from our incubator segment because
our billings and interest charges were lower since we have written
off several large advances. Cost of goods sold increased from
$110,773 to $245,903, all of which was associated with eye-care
operations. The third quarter of 2000 was a start-up period while
the current quarter reflects larger scale operations. Should
working capital become available to promote and advertise our
Eyesite Laser Center we expect that revenues will grow in the
ensuing quarters. However, if resources are not available we
anticipate that revenue growth will be negligible.
General and administrative expenses increased from $392,540 in the
third quarter of 2000 to $400,979, reflecting a $75,970 increase in
overhead; a $78,840 reduction in personnel costs; and a $4,565
increase in legal and professional fees.
Other Income/(Expense) decreased from $62,451 to $40,422 reflecting
a reduction in interest income of approximately $36,600 because
certain advances were written off in the first quarter.
Additionally, interest expense decreased by $39,290 over the same
period a year ago because interest is not being accrued on certain
loans. Finally, our share of the loss in our equity investee, e-
Data, declined by approximately $13,300 because e-Data reduced
their operating costs and have increased their sales volume.
Should sufficient resources become available, we would continue our
incubation segment strategies by advancing funds to start-up and
small operating companies in industries we have identified as
meeting our growth and investment criteria. If the resources are
in the form of debt, we would expect increases in interest expense.
It would also mean that interest income would possibly increase if
additional advances are made and financing agreements are obtained
from entities to which we advance funds.
- -------------------------------------------------------------------
Results of Operations - Nine Months Ended September 30, 2001 and
2000
- -------------------------------------------------------------------
Revenues increased over the same period from the prior year by
approximately $457,000 which is due to revenues generated by our
Eyesite Laser Center. The increase of approximately $439,000 in
cost of sales is attributable to our eye-care business segment.
General and administrative expenses increased by approximately
$1,031,000 reflecting a $24,000 reduction in overhead; a $156,000
decrease in personnel costs; a $123,000 increase in legal and
professional fees reflecting the costs associated with various SEC
filings; and impairment losses associated with advances ($986,000)
and goodwill ($103,000).
-24-
Other Income/(Expense) decreased by approximately a net $39,000.
Interest income decreased $101,000 reflecting the impairment losses
on advances referred to above. Interest expense decreased by
$80,000 over the same period a year ago because interest is not
being accrued on certain loans. Finally, our share of the loss in
our equity investee, e-Data, declined by approximately $52,000
because e-Data reduced their operating costs and increased their
sales volume.
- -------------------
Financial Condition
- -------------------
At September 30, cash had increased by approximately $15,600 since
the beginning of the year. Operating activities used approximately
$765,000 attributable to the payment of general and administrative
costs. Investing activities consumed approximately $225,000 of
cash during the first quarter primarily from net advances to start-
up and operating entities. Financing activities provided
approximately $1,005,000, all from borrowings except $93,235 raised
from the sale of stock.
Cash flow from anticipated repayments on advances, and revenues
from our eye care segment are not sufficient at this time to fund
current operations, provide capital for our business incubation
activities and provide growth capital for our eye care 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. We have significant debt
obligations which must be repaid or otherwise satisfied. It may be
difficult to repay the existing debt when due or to modify terms
such as extending due dates or converting the debt to equity. We
will attempt to negotiate satisfactory arrangements with our
lenders.
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.
-25-
Item 2. Changes in Securities.
- -------------------------------
The following changes in securities occurred during the quarter
ended September 30, 2001.
On July 20, 2001, we issued 100,000 shares of our restricted common
stock to Donner Corp International in connection with the execution
of the consulting agreement attached to our Form 8-K filed on May
7, 2001.
On August 30, 2001, we filed an S-8 Registration Statement under
The Securities Act of 1933 to register 700,000 shares of the our
$0.001 par value common stock.
On September 28, 2001, we issued 200,000 restricted common shares
which were placed in escrow to facilitate acquisition negotiations
of an operating company by one of the start-up entities to which we
have advanced funds.
On September 30, 2001, we issued 1,765,186 restricted common shares
to convert certain short-term promissory notes and accrued interest
in the amount of $882,593 to equity.
During the quarter, several of our financial consultants exercised
options to purchase our common stock. We issued 169,692 shares of
common stock as a result of the exercise of those options.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
Exhibits
On August 30, 2001, the Company filed a Form S-8 Registration
Statement under the Securities Act of 1933 reporting the
registration of 700,000 shares of the Company's $0.001 par value
common stock that will be offered for sale at $1.00 per share.
Incorporated by reference.
Reports on Form 8-K
On July 5, 2001, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting an employment
and stock option agreement with an officer of the Company.
On July 18, 2001, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting the reduction
of exercise price on certain options issued to a consultant to the
Company.
On August 14, 2001, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting the reduction
of exercise price on certain options issued to a consultant to the
company.
-26-
On October 15, 2001, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting on an asset
purchase agreement of sports memorabilia in exchange for common and
preferred stock.
Also on October 15, 2001, the Company filed a Current Report on
Form 8-K with the Securities and Exchange Commission reporting on
acquisition of a majority interest in Swan River Corporation in
exchange for the assumption of promissory note debt.
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: November 12, 2001 By:/S/ DANIEL H. WEAVER
--------------------------------
Daniel H. Weaver
Chief Financial Officer and duly
authorized officer
-27-