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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transitional Period from to
Commission File Number 0-29379
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LEARNCOM, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 87-0622927
(State or other (I.R.S. Employer
Jurisdiction Identification No.)
of Incorporation or
Organization)
720 Industrial Drive
BENSENVILLE, ILLINOIS, 60106
(Address of Principal
Executive Offices)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 227-1080
---------------
Indicate by check mark whether the issuer (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 / /
The number of shares of the registrant's common stock outstanding as of
November 14, 2000 was approximately 753,125,000.
Transitional Small Business Disclosure Format (check one): Yes / / No/x/
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Disclosure Page 1
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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LearnCom, Inc.
Form 10-QSB
For the Quarterly Period Ended September 30, 2000
Index
PAGE
NO.
-----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Balance Sheets as of 3
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of 4
Operations for the three and nine months ended
September 30, 2000 and 1999.
Condensed Consolidated Statements of Cash 5
Flows for the nine months ended September 30,
2000 and 1999.
Notes to Condensed Consolidated Financial 6-8
Statements
Item 2. Management's Discussion and Analysis of 9-12
Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about 12
Market Risk.
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities and Use of Proceeds. 13
Item 3. Defaults and Senior Securities. 13
Item 4. Submission of Matters To a Vote of Security Holders. 13
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURE 14
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
LearnCom, Inc. and Subsidiary
Condensed Consolidated Balance Sheets - Unaudited
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
-------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 475 $ 79,167
Accounts receivable, net 540,229 653,743
Inventory 328,067 404,152
Prepaid expenses and other current assets 262,895 82,909
-------------------------
Total current assets 1,131,666 1,219,971
Furniture, fixtures and office equipment, net 392,664 354,791
Publishing rights and masters, net 2,280,489 2,280,848
Other non-current assets 154,509 12,914
-------------------------
Total assets $ 3,959,328 $ 3,868,524
=========================
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued expenses $ 725,987 $ 549,824
Bank line of credit 450,000 375,000
Note payable--employee 120,000 --
Note payable--related party 50,000 50,000
Note payable--distribution rights 120,000 --
Current portion of purchase consideration payable 179,695 275,000
Current portion of note payable 867,500 1,000,000
-------------------------
Total current liabilities 2,513,182 2,249,824
-------------------------
Long-term liabilities:
Purchase consideration payable, net of current portion 875,000 875,000
-------------------------
Shareholders' equity:
Common stock 757,625 500,000
Additional paid in capital 226,875 359,500
Accumulated deficit (413,354) (115,800)
-------------------------
Total shareholders' equity 571,146 743,700
-------------------------
Total liabilities and shareholders' equity $ 3,959,328 $ 3,868,524
=========================
</TABLE>
See accompanying notes.
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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LearnCom, Inc. and Subsidiary
Condensed Consolidated Statements of Operations - Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,090,651 $ 519,603 $ 3,477,840 $ 1,266,616
Cost of sales 417,984 169,512 1,393,644 355,377
----------------------------------------------------------------
Gross profit 672,667 350,091 2,084,196 911,239
Selling, marketing, general and
administrative expenses 929,366 340,115 2,296,082 845,781
----------------------------------------------------------------
Operating income (256,699) 9,976 (211,886) 65,458
----------------------------------------------------------------
Other income (expenses):
Interest expense (45,859) (18,326) (127,497) (71,338)
Other income (expense), net 41,608 5,975 41,829 14,411
----------------------------------------------------------------
Total other (expenses) (4,251) (12,351) (85,668) (56,927)
----------------------------------------------------------------
Income (loss) before taxes (260,950) (2,375) (297,554) 8,531
Income tax provision -- (988) -- 3,412
----------------------------------------------------------------
Net income (loss) $ (260,950) $ (1,387) $ (297,554) $ 5,119
================================================================
Basic and diluted loss per share -- -- -- --
================================================================
Weighted-average shares outstanding 751,042,000 347,086,000 611,458,000 296,115,000
================================================================
</TABLE>
See accompanying notes.
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LearnCom, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows - Unaudited
Nine Months Ended
September 30
2000 1999
----------------------
Operating activities
Net (loss) income $(297,554) $ 5,119
----------------------
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation expense 50,083 6,098
Amortization expense 258,854 70,133
Changes in operating assets and liabilities
Accounts receivable 113,514 83,434
Inventory 2,520 (20,953)
Prepaid expenses and other assets (201,581) (11,275)
Accounts payable and accrued expenses 176,163 244,911
Income taxes payable -- 3,412
----------------------
Total adjustments 399,553 375,760
----------------------
Net cash provided (used) by operating activities 101,999 380,879
----------------------
Investing activities
Purchases of property and equipment (87,956) (91,123)
Payments for publishing rights and masters (184,930) --
Business acquisitions, net of cash acquired -- (382,884)
----------------------
Net cash (used) provided by investing activities (272,886) (474,007)
----------------------
Financing activities:
Issuance of common stock 125,000 759,500
Proceeds from revolving line of credit 75,000 150,000
Proceeds from notes payable - employee 120,000 --
Proceeds from notes payable - related party -- 350,000
Principal payment on notes payable (227,805) (300,000)
Principal payment on notes payable - related party -- (480,000)
----------------------
Net cash provided by financing activities 92,195 479,500
----------------------
Net increase (decrease) in cash and cash equivalents (78,692) 386,372
Cash at beginning of period 79,167 --
----------------------
Cash at end of period $ 475 $ 386,372
======================
See accompanying notes.
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Disclosure Page 5
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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1. Organization and Nature of Business
LearnCom, Inc. (A Nevada Corporation), (f/k/a Smokey Hill Services, Inc.),
(LearnCom) in May 2000 acquired 100% of the issued and outstanding stock of
LearnCom, Inc. (An Illinois Corporation) (LearnCom-Illinois) (see Note 5 -
Reverse Acquisition). Prior to the reverse acquisition, Smokey Hill Services,
Inc., whose name was changed to LearnCom, Inc. on May 11, 2000, was inactive and
had nominal assets and liabilities. As a reverse acquisition that resulted in a
recapitalization of LearnCom-Illinois, as that corporation was deemed to be the
acquiring entity for accounting purposes, the historical financial statements
and financial information of LearnCom have been restated to be those of
LearnCom-Illinois.
LearnCom operates in a single business segment producing and distributing
proprietary video programs and courses, and related consulting services for use
in human resource and safety compliance training, and management development.
The programs and consulting contracts are sold to corporations, professional
organizations, government agencies, and financial institutions primarily in
North America.
2. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in LearnCom's consolidated financial statement
included in Form 8K/A filed on August 2, 2000.
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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3. Income (Loss) Per Share
Basic and diluted income (loss) per common share amounted to less than $0.01 for
all periods presented and are based upon the weighted average number of shares
of common stock outstanding, giving retroactive effect of the reverse
acquisition discussed in Note 5. LearnCom has excluded all outstanding stock
options from the calculation of diluted income (loss) per share because they
would have an anti-dilutive effect.
4. Acquisitions
WingsNet, Inc.
On January 19, 1999, LearnCom-Illinois purchased certain operating assets of
WingsNet, Inc. for $530,000 in notes payable to related parties, $300,000 in a
note payable to a bank and the assumption of approximately $243,900 of
liabilities. WingsNet, Inc. produced and distributed video-based training
programs and content for executive and management development courses and
seminars.
BNA Communications, Inc.
On August 30, 1999, LearnCom-Illinois purchased 100% of the outstanding common
stock of BNA Communications, Inc. (BNAC) for $341,756 in cash, a note payable to
a bank amounting to $1,000,000 and purchase consideration payable to seller of
$1,150,000. BNAC was a wholly owned subsidiary of the Bureau of National Affairs
and performed human resources consulting and training services and safety
training services. The human resources operations consisted of sexual
harassment, diversity and employment law video-based courseware, and the safety
training operations consisted of video-based courseware in the area of business
and governmental safety and environmental health, primarily for regulatory
compliance under the Federal Occupational Safety and Health Act.
The acquisitions described above were accounted for as purchases. The
consolidated statements of operations of LearnCom and LearnCom-Illinois include
the results of operations of the acquired businesses for the periods subsequent
to the effective date of those acquisitions.
The pro forma unaudited consolidated results of operations for the year ended
December 31, 1999 assuming the consummation of the acquisitions as of January 1,
1999 would have been as follows:
Total revenue $4,553,304
Net loss (443,800)
Basic and diluted net loss per share --
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Disclosure Page 7
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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5. Reverse Acquisition
In May 2000, LearnCom-Illinois entered into an Agreement and Plan of
Reorganization with Smokey Hill Services, Inc., a Nevada corporation
incorporated in 1986, whereby Smokey Hill acquired 100% of the issued and
outstanding stock of LearnCom-Illinois in exchange for approximately 66%
interest in its common stock. In contemplation of the reorganization Smokey
Hill: 1) increased its authorized common shares from 50,000,000 shares to
2,000,000,000 shares; 2) received 14,000,000 shares that were returned and
cancelled from its parent company, VIP Worldnet, Inc.; and 3) completed a
125-for-1 split of its common stock, increasing its outstanding common stock
from 2,060,000 shares to 257,500,000 shares.
6. Financing Arrangements
On August 25, 2000, LearnCom restated and replaced its note payable to American
National Bank, which was due on August 31, 2000. The restated note payable has
comparable terms with the August 31, 2000 note payable and is due on November
30, 2000. LearnCom is currently negotiating an additional three-month extension
on the note payable to be due February 28, 2001. The total amount due of
$867,500 of this note payable has been classified as a current liability as of
September 30, 2000. LearnCom also restated and replaced its $500,000 line of
credit promissory note with American National Bank, which was due on August 31,
2000. The restated line of credit promissory note has comparable terms with the
August 31, 2000 line of credit promissory note and is due on November 30, 2000.
LearnCom is currently negotiating an additional three-month extension on the
line of credit promissory note to be due February 28, 2001.
7. Common Stock
On September 7, 2000, LearnCom received a subscription agreement and cash for
the purchase of 3,125,000 shares of common stock in a private placement at $0.04
per share (which approximated the market value of LearnCom's common stock on
September 7, 2000).
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Disclosure Page 8
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LEARNCOM INC - 10-QSB Filing Date: 11/14/00
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following information should be read in conjunction with the
financial statements and the notes thereto.
In order to keep LearnCom's stockholders informed of its future plans
and objectives, this Quarterly Report on Form 10-QSB and other reports and
statements issued by LearnCom from time-to-time contain, among other things,
certain statements concerning LearnCom's future plans, objectives, performance,
intentions and expectations that are or may be deemed to be "forward-looking
statements". For example, the words "believe," "expect," "anticipate," "project"
and similar expressions, should alert you that this is a forward-looking
statement. Forward-looking statements speak only as of the date the statement is
made. LearnCom's ability to do this has been fostered by the Private Securities
Litigation Reform Act of 1995, which provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement.
Although LearnCom believes that its expectations are based on
reasonable assumptions, these forward-looking statements are subject to a number
of known and unknown risks and uncertainties that could cause LearnCom's actual
results, performance and achievements to differ materially from those described
or implied in the forward-looking statements. These factors include among
others, LearnCom's ability to complete new products at planned costs and on
planned schedules, LearnCom's ability to attract and retain strategic partners
and consummate acquisitions, LearnCom's ability to leverage intangible assets in
its technology, and LearnCom's ability to maintain a sufficient level of
financing for its business strategy. Additional factors that are beyond
LearnCom's control and could influence results include market acceptance of
LearnCom's products and services and adoption of the Internet as a medium of
commerce and communication.
OVERVIEW
LearnCom, Inc. is a leading provider of human resource, management and
safety training courseware and consulting services to large and small businesses
and organizations. LearnCom offers over 500 programs and courses that encompass
a wide array of management skills and business topics typically characterized as
"soft skills." LearnCom's courseware and consulting services have traditionally
been delivered over a variety of channels, including film, videotape, compact
disk, textbooks and workbooks, and internal customer workshops. However,
LearnCom's strategy is focused on delivering its existing and all newly-produced
or acquired training content via a variety of electronic media, including the
Internet, organizational intranets, satellites, digital video disk (DVD) and
CD-ROM. In April 2000, LearnCom announced the launch of its "e-learning" sales
unit and its first e-learning product, a four-course series titled "Jack Cade's
Compliance Toolbox," The first of the Jack Cade e-learning courses is scheduled
for completion in the first quarter of 2001.
LearnCom currently provides its courseware and consulting services
through the following product lines:
Human Resources Consulting and Training. The Human Resources product
line consists of the sexual harassment, diversity and employment law courseware
and consulting business of BNAC. BNAC has been the leading provider of
modularized, video-supported workshops in the areas of sexual harassment
prevention, diversity management and employment law of for over 50 years. BNAC
also operates a growing consulting business to provide custom, enterprise-wide
solutions for major corporations and organizations in these areas. The Human
Resources product line provides courseware and consulting for over 90% of the
Fortune 1000 organizations. During the quarter ended September 30, 2000 LearnCom
entered into a licensing agreement for the repurposing of one LearnCom's best
selling sexual harassment prevention courses for e-learning delivery throughout
a major corporation's intranet. Part of the licensing agreement permits LearnCom
to market the repurposed e-learning program to other customers royalty-free.
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Disclosure Page 9
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Safety Training. The Safety Training product line provides courseware
and consulting in the area of business and government safety and environmental
health, primarily regulatory compliance under the Federal Occupational Safety
and Health Act (OSHA). The safety training market is growing rapidly to meet the
needs of large and small businesses that continue to have compliance issues in
meeting an expanding health and safety regulatory environment. The Safety
Training product line offers over 100 titles to a broad spectrum of customers.
During the quarter ended September 30, 2000, LearnCom announced a partnership to
market a comprehensive library of 27 safety compliance courses in e-learning
format for delivery over the internet or on corporate intranets. Prior to the
end of the quarter LearnCom had written proposals for over $1 million for the
Safety e-learning titles.
Management Development Resources. The Management Development Resources
product line distributes a broad line of video-based training and development
content for executive and management development that includes well-known
business authors, consultants and educators, including Tom Peters, Ken
Blanchard, Stephen Covey, Jim Belasco, Warren Bennis, John Kotter and Morris
Massey.
LearnCom believes it is in a unique position to become a significant
participant in the e-learning revolution that is currently taking place in the
$70 billion training industry. LearnCom believes its extensive content library,
large customer base and trained sales force, will provide it with significant
strategic advantages as it seeks to compete in the emerging e-learning market.
In addition, unlike most of its competitors that have adopted a strategy of
initially building extensive e-commerce and e-learning platforms but have little
and, in many cases, only the most basic content to offer their customers,
LearnCom has followed a strategy of acquiring a large and valuable library of
human resource and management compliance training solutions that it believes can
quickly be converted to an interactive, feature-rich e-learning format on a
cost-effective basis. As LearnCom's more than 30,000 customers develop the
technical and broadband capability necessary to purchase e-learning courseware,
LearnCom expects to be in a position to meet the e-learning needs of its
customers.
Reported results of operations for all periods prior to August 31, 1999
do not reflect the results of BNAC. Consequently, the results prior to these
dates are not reflective of our operations and financial position as presently
constituted.
REVENUES
Revenues increased for the three and nine months ended September 30,
2000, compared to the three and nine months ended September 30, 1999 due to the
inclusion of BNAC in the 2000 periods.
COST OF SALES
The total cost of sales as a percentage of revenues fluctuated from
year to year for both the three and nine month periods as a result of
significant differences in the product composition of sales prior to the BNAC
acquisition in August 1999.
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SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries,
commissions, advertising, trade show expenses and costs of marketing materials.
The amounts include the sales and marketing expenses of the combined companies
for the entire three-and nine-month periods presented, whereas the 1999 amounts
include BNAC for the month of September only. As a result, the overall increase
is attributable primarily to increased sales and marketing personnel, the launch
of new product, costs for print media and other product related advertising. At
September 30, 2000 LearnCom had expanded its Human Resources product line sales
staff to seven people, from two people at December 31, 1999. The learning curves
of the new hires negatively affected revenues. LearnCom expects its sales and
marketing expenses as a percentage of revenues will remain high in its
continuing effort to achieve growth in sales.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel
related costs, occupancy costs and professional service fees. The amounts for
the 2000 periods include the general and administrative expenses of the combined
companies for the entire three- and nine-month periods presented, whereas the
1999 amounts include BNAC for the month of September only.
INTEREST EXPENSE
Interest expense increased from period to period for both the three and
nine months ended September 30, 2000 primarily due to the acquisition debt
related to the purchase of BNAC.
NET LOSS
The net loss for the three month period ended September 30, 2000
compared to September 30, 1999 is attributable to a significant increase in
operating expenses, particularly from sales and marketing expenses, audit fees
and interest expense in comparison to prior periods. In addition, sales for the
quarter ended September 30, 2000 have declined when compared to the quarter
ended June 30, 2000.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception LearnCom's operations have been financed primarily
through private placements of equity and debt instruments.
Net cash provided by operating activities was $101,999 for the
nine-month period ended September 30, 2000.
Net cash used in investing activities for the nine-month period was
$272,886. This represented cash used to purchase computers and office equipment
in the amount of $87,956, and the expenditures for the development of publishing
rights and masters in the amount of $184,930.
Net cash provided by financing activities for the nine-month period was
$92,195 consisting of additional borrowings on LearnCom's operating line of
credit in the amount of $75,000; the short-term loan by a shareholder of the
company in the amount of $120,000 issuance of common stock in the amount of
$125,000 and the reduction of the company's term debt used in the acquisition of
BNAC in the amount of $227,805.
LearnCom is currently in negotiations with a principle shareholder of
LearnCom to secure a $1 million bridge loan to accelerate development of new
products, including e-learning, and for working capital purposes. In addition,
LearnCom is currently seeking to raise up to $3 million in equity through a
private placement for future business acquisitions. There can be no assurance
that LearnCom will be able to successfully negotiate and obtain the proposed
bridge loan or raise capital through the sale of its equity securities. The
failure of LearnCom to obtain additional capital through either of such proposed
financings or through other means will have an adverse effect on LearnCom's
financial condition and results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition/" SAB No. 101 provides
guidance on numerous revenue recognition issues and is effective for LearnCom in
the fourth quarter of calendar 2000. LearnCom has not yet determined the effect,
if any, of adopting SAB No. 101 on its operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Disclosure Page 12
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On September 7, 2000, LearnCom issued 3,125,000 shares of common stock
in exchange for cash in the amount of $125,000. Such transaction was effective
pursuant to Section 4(2) of the Securities Act of 1933, amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters To a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter.
A Current Report on Form 8-K/A dated May 19, 2000 was filed with the
Securities and Exchange Commission by LearnCom, Inc. on August 2, 2000
following the reverse acquisition of LearnCom-Illinois to report the
Agreement and Plan of Reorganization, the audited financial statements
of LearnComas of and for the year December 31, 1999 and the unaudited
financial statements of LearnCom as of and for the six months ended of
June 30, 2000.
A report on Form 8-K was filed with the Securities and Exchange
Commission by LearnCom, Inc. on August 1, 2000 to report the change in
certifying accountants.
A Current Report on Form 8-K/A dated June 26, 2000 was filed with the
Securities and Exchange Commission by LearnCom, Inc. on August 3, 2000
to report the change in certifying accountants.
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LEARNCOM, INC.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LEARNCOM, INC.
Date: November 14, 2000 By: /s/ Lloyd W. Singer
--------------------------------
Lloyd W. Singer
Chief Executive Officer
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Disclosure Page 14
