<PAGE> 1
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 JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For this transition period from to
------------------- --------------------------
Commission file number: 0-26626
KNOWLEDGEBROKER, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 84-0856578
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13295 MIRA LOMA ROAD, RENO, NEVADA 89511
(Address of principal executive offices)
(702) 852-5711
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such report(s), and (2) had been subject to such filing requirements for the
past 90 days.
Yes [ ] No [ X ]
The number of shares outstanding of the common stock of the registrant
on June 30, 1996, the latest practicable date, was 8,908,870.
<PAGE> 2
KNOWLEDGEBROKER, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II - OTHER INFORMATION
SIGNATURES 10
</TABLE>
The accompanying notes are an integral part of these financial statements. 2
<PAGE> 3
KNOWLEDGEBROKER, INC.
BALANCE SHEETS
June 30, 1996 and December 31, 1995
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,052 $ 131,653
Marketable securities available for sale 50,000 50,000
Trade accounts receivable, net of allowance for doubtful accounts 375,148 374,595
Receivables from affiliates 9,004 -
Note receivable in connection with exercised stock option - 9,950
Prepaid expenses and other 63,946 77,341
Income tax receivable 168,046 168,046
Deferred income taxes 159,324 216,433
---------- ----------
Total current assets 830,520 1,028,018
---------- ----------
PROPERTY AND EQUIPMENT 257,927 231,360
Less accumulated depreciation and amortization (114,400) (92,149)
---------- ----------
Property and equipment, net 143,527 139,211
---------- ----------
OTHER ASSETS
Deferred income taxes 240,058 119,413
Other 4,065 4,065
---------- ----------
Total other assets 244,123 123,478
---------- ----------
TOTAL ASSETS $1,218,170 $1,290,707
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
<PAGE> 4
KNOWLEDGEBROKER, INC.
BALANCE SHEETS - CONTINUED
June 30, 1996 and December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Note payable - line of credit $ 43,000 $ 30,000
Accounts payable 223,231 213,186
Accrued shareholder bonuses and salaries 99,932 58,750
Other accrued expenses 298,945 383,323
Deferred income 52,628 52,628
---------- ----------
Total liabilities 717,736 737,887
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock; $0.01 par value; 5,000,000 shares authorized - -
Common stock; $0.01 par value; 25,000,000 shares
authorized; 9,308,447 and 9,267,947 shares issued 93,085 92,680
Additional paid-in capital 1,206,995 1,166,900
Retained earnings (accumulated deficit) (41,099) 82,235
---------- ----------
1,258,981 1,341,815
Less notes receivable in connection with exercised stock options (758,547) (788,995)
---------- ----------
Total shareholders' equity 500,434 552,820
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,218,170 $1,290,707
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements. 4
<PAGE> 5
KNOWLEDGEBROKER, INC.
STATEMENTS OF OPERATIONS
Three and six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended ended
------------------------ -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Support desk services $ 68,695 $ 201,612 $ 438,214 $ 661,723
Software sales 128,661 298,672 386,335 335,519
--------- --------- --------- ---------
Total revenues 197,356 500,284 824,549 997,242
--------- --------- --------- ---------
Direct cost of support desk
services and software sales 162,375 168,054 328,102 301,565
--------- --------- --------- ---------
34,981 332,230 496,447 695,677
--------- --------- --------- ---------
Expenses
Selling, general and administrative 348,800 293,183 689,997 566,183
Depreciation and amortization 11,122 10,105 22,247 19,913
--------- --------- --------- ---------
Total expenses 359,922 303,288 712,244 586,096
--------- --------- --------- ---------
Operating profit (loss) (324,941) 28,942 (215,797) 109,581
Other income (expense)
Interest and other income 145 9,446 29,851 11,718
Interest expense (42) (6) (924) (6)
--------- --------- --------- ---------
Income (loss) before income taxes (324,838) 38,382 (186,870) 121,293
Income taxes 110,445 (13,051) 63,536 41,240
--------- --------- --------- ---------
Net income (loss) $(214,393) $ 25,331 $(123,334) $ 80,053
========= ========= ========= =========
Net income (loss) per common share $(0.02) $ 0.00 $(0.01) $ 0.01
===== ===== ===== =====
Weighted average common and
common equivalent shares
outstanding 9,379,875 7,495,163 9,353,774 8,754,072
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements. 5
<PAGE> 6
KNOWLEDGEBROKER, INC.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six months Six months
Ended June 30, Ended June 30,
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (123,334) $ 80,053
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities
Deferred income taxes (benefit) (63,536) (9,151)
Depreciation and amortization 22,251 19,615
Provision for doubtful accounts 90,081 37,900
Changes in assets and liabilities
Trade accounts receivable (90,634) (82,154)
Prepaid expenses and other 13,395 (35,337)
Accounts receivable affiliates (9,004) -
Deposits - 4,907
Accounts payable 10,045 (101,749)
Accrued liabilities (43,196) 5,883
Income taxes payable - (176,000)
Deferred income - 25,000
---------- -----------
Net cash used by operating activities (193,932) (231,033)
---------- -----------
Cash flows from investing activities
Purchase of property and equipment (26,567) (24,952)
---------- -----------
Net cash used in investing activities (26,567) (24,952)
---------- -----------
Cash flows from financing activities
Net change in borrowings under line of credit 13,000 -
Principal repayments on long-term debt - (2,340)
Collections on notes receivable in connection with
exercised stock options 40,398 -
Issuance of common stock for warrants exercised 40,500 -
---------- -----------
Net cash provided (used) by financing activities 93,898 (2,340)
---------- -----------
Decrease in cash (126,601) (258,325)
Cash and cash equivalents at beginning of period 131,653 328,761
---------- -----------
Cash and cash equivalents at end of period $ 5,052 $ 70,436
========== ===========
Supplemental disclosures:
Cash paid for:
Interest $ 421 $ 6
========== ===========
Income taxes $ - $ 173,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements. 6
<PAGE> 7
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
Three months ended March 31, 1996 and 1995
(Unaudited)
NOTE A - GENERAL
KnowledgeBroker, Inc. (a California Corporation) ("KBI" or "Company") was
incorporated on March 27, 1992. The Company provides integrated information
system "help desk" functions for Fortune 1000 companies throughout the United
States and develops, sells and maintains informational databases to provide
on-line computer hardware and software applications support.
The interim financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes for the years ended December 31, 1995 and 1994.
In the opinion of management, the unaudited interim financial information of
the Company contains all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly the Company's financial position
and the results of its operations and cash flows for the periods presented.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for a full year.
NOTE B - ECONOMIC DEPENDENCE
During 1996, the Company had three customers which individually account for
greater than 10% of total revenue, and on a combined basis account for
approximately 80% of total revenue.
7
<PAGE> 8
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUES
Total revenues for the three months ended June 30, 1996 were $197,000 as
compared to $500,000 for the three months ended June 30, 1995, a decrease of
$303,000 or 61%.
Total revenues decreased from approximately $997,000 for the six months ended
June 30, 1995 to approximately $825,000 for the six months ended June 30, 1996,
representing a 17% decrease over 1995. The decrease in revenue reflects the
Company's change in sales model from direct sales to training and managing
Value Added Resellers ("VAR"). The Company's sales mainly consist of two
components, software sales and support desk services. Software sales is
increasing as a result of management's aggressive expansion efforts in product
sales due to higher profit margins. Support desk service revenue is
decreasing largely as a result of the loss of a significant client in early
1995. This client accounted for approximately 66% of revenue during the four
months ended April 30, 1995, and at that time made the decision to take the
support desk function in-house.
The three months ended June 30, 1996 has been a building and investing period
for KnowledgeBroker, Inc. with new sales models, increased senior management,
mergers and joint ventures, and two new product releases. The additional
revenues from these Reseller and joint venture relationships, which will be
announced in the third quarter, should begin to be realized in the third
quarter and should increase and stabilize the Company revenue flow into the
future. The Company also intends to continue to add clients, and diversify as
necessary to reduce the impact and importance of significant clients. This
process includes proposals to potential customers and increased marketing
efforts. Currently all of the Company's clients are serviced in the United
States. The Company anticipates expanding in the near term into international
markets. Management believes that support desk services will continue in the
medium term as the more significant portion of the business although management
intends to continue its efforts to expand the product sales portion of the
business as well.
In addition, in the area of product development, the Company will release two
new major products. The first is Ask.Me OnLine, AMOL, an internet version of
its KnowledgeBase retrieval product and service. The second is Ask.Me Total, a
complete suite of products which are compatible with all Problem Management
Vendors. Released in the last days of the second quarter, the Company
anticipates sizable revenues from both of these sources generated both from VAR
and direct sales.
DIRECT COSTS AND OPERATING EXPENSES
Direct personnel costs of support services for the three months ended June 30,
1996 were $162,000 as compared to $168,000 for the three months ended June 30,
1995, a decrease of $6,000 or 3%. Direct personnel cost of support desk
services as a percentage of support desk services revenue for the six months
ended June 30, 1996 and 1995 are 61% and 40%, respectively. This increase in
cost as a percentage of revenues results primarily from up front costs incurred
in connection with one significant account added in 1996. These costs are
expected to sustain a more constant rate as the level of service demand which
drives revenues also impacts the number of personnel and related hours and
compensation required to support the service provided.
Selling, general and administrative expenses increased $56,000 or 19% during
the three months ended June 30, 1996, as compared to the same period in 1995.
Selling, general, and administrative expenses increased by approximately 29%
for the six months ended June 30, 1996 over the six months ended June 30, 1995.
The Company brought on more senior VAR managers for the six months ended June
30, 1996 increasing selling, general and administrative expenses. Salaries and
related expenses continue to be the major component of direct costs and
selling, general, and administrative costs representing approximately 52% and
69% of total costs and expenses during the six months ended June 30, 1996 and
1995, respectively, and approximately 51% and 68% of total costs and expenses
during the three months ended June 30, 1996 and 1995, respectively.
PROVISION FOR INCOME TAXES
The income tax rate for each of the periods presented approximates 34% as there
are no significant permanent differences for financial income tax reporting
and Federal income tax reporting purposes.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
capital contributions and subsequently through cash generated from operating
activities and exercise of stock options and warrants granted. The Company
used cash in its operations of $194,000 and $231,000 during the six months
ended June 30, 1996 and 1995, respectively. For the six months ended June 30,
1996, the use of cash primarily resulted from net losses and payments of
accrued liabilities. For the six months ended June 30, 1995, the use of cash
resulted from net income generated offset primarily by increases in trade
accounts receivable and payments of accounts payable and income taxes. Days
sales in accounts receivable at June 30, 1996 and 1995 amounted to 83 and 85,
respectively. The Company does not currently anticipate that it will
experience significant problems in collecting substantially all of the accounts
receivable (net of the provision for doubtful accounts) outstanding at June 30,
1996. The Company believes that additional customers added in the future will
not significantly affect collections of accounts receivable.
The Company used cash for investing activities during the six months ended June
30, 1996 and 1995 amounting to $27,000 and $25,000, respectively, to acquire
equipment and software. The Company's principal commitments consist of its
operating facility lease and other office equipment leases.
The Company generated cash from financial activities of $94,000 during the
period ended June 30, 1996 from the issuance of stock through stock options and
warrants exercised. The Company used $13,000 and $2,000 for payments on
long-term debt and lines of credit during the six months ended June 30, 1996
and 1995, respectively.
GENERAL
At present, the Company's business is not seasonal. As the Company continues
to grow into retail software products, seasonality of business may begin to
impact the Company.
9
<PAGE> 10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
KNOWLEDGEBROKER, INC.
By: /s/ Brad Stanley
------------------------------------------------
Brad Stanley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date indicated.
/s/ Brad Stanley
- --------------------------------------------------- August 30, 1996
Brad Stanley, President, Chief Financial Officer,
Secretary and Director
/s/ James T. Alexander
- --------------------------------------------------- August 30, 1996
James T. Alexander, Executive Vice President,
Assistant Secretary and Director
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10QSB
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,052
<SECURITIES> 50,000
<RECEIVABLES> 708,239
<ALLOWANCES> 333,091
<INVENTORY> 0
<CURRENT-ASSETS> 830,520
<PP&E> 257,927
<DEPRECIATION> 114,400
<TOTAL-ASSETS> 1,218,170
<CURRENT-LIABILITIES> 717,736
<BONDS> 0
<COMMON> 93,085
0
0
<OTHER-SE> 407,349
<TOTAL-LIABILITY-AND-EQUITY> 1,218,170
<SALES> 0
<TOTAL-REVENUES> 824,549
<CGS> 0
<TOTAL-COSTS> 328,102
<OTHER-EXPENSES> 712,244
<LOSS-PROVISION> 100,573
<INTEREST-EXPENSE> 924
<INCOME-PRETAX> (186,870)
<INCOME-TAX> (63,536)
<INCOME-CONTINUING> (123,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,334)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
