<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 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 MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the 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 reports), and (2) had been subject to such filing requirements for the
past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding of the common stock of the registrant on
March 31, 1996, the latest practicable date, was 8,908,870.
<PAGE> 2
KNOWLEDGEBROKER, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II - OTHER INFORMATION
SIGNATURES
The accompanying notes are an integral part of these financial statements. 2
<PAGE> 3
KNOWLEDGEBROKER, INC.
BALANCE SHEETS
March 31, 1996 and December 31, 1995
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 60,687 $ 131,653
Marketable securities available for sale 50,000 50,000
Trade accounts receivable, net of allowance for doubtful accounts 513,389 374,595
Note receivable in connection with exercised stock option - 9,950
Prepaid expenses and other 75,796 77,341
Income tax receivable 168,046 168,046
Deferred income taxes 159,324 216,433
--------- ---------
Total current assets 1,027,242 1,028,018
--------- ---------
PROPERTY AND EQUIPMENT 247,582 231,360
Less accumulated depreciation and amortization (103,273) (92,149)
--------- ---------
Property and equipment, net 144,309 139,211
--------- ---------
OTHER ASSETS
Deferred income taxes 119,413 119,413
Other 4,065 4,065
--------- ---------
Total other assets 123,478 123,478
--------- ---------
TOTAL ASSETS $1,295,029 $1,290,707
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
<PAGE> 4
KNOWLEDGEBROKER, INC.
BALANCE SHEETS - CONTINUED
March 31, 1996 and December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Note payable - line of credit $ - $ 30,000
Accounts payable 78,290 213,186
Accrued shareholder bonuses and salaries 58,750 58,750
Other accrued expenses 377,842 383,323
Deferred income 52,628 52,628
--------- ---------
Total liabilities 567,510 737,887
--------- --------
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 193,094 82,235
---------- -----------
1,493,174 1,341,815
Less notes receivable in connection with exercised stock options (765,655) (788,995)
--------- ---------
Total shareholders' equity 727,519 552,820
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,295,029 $1,290,707
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements. 4
<PAGE> 5
KNOWLEDGEBROKER, INC.
STATEMENTS OF OPERATIONS
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended March 31, Ended March 31,
1996 1995
--------------- ----------------
<S> <C> <C>
Revenues
Support desk services $369,519 $ 460,111
Software sales 257,674 36,847
------- -------
Total revenues 627,193 496,958
------- -------
Direct personnel cost of support desk services
and software sales 165,727 133,511
------- -------
Revenues, net of direct costs 461,466 363,447
------- -------
Expenses
Selling, general and administrative 311,197 273,000
Depreciation and amortization 11,125 9,808
------- -------
Total expenses 322,322 282,808
------- -------
Operating profit 139,144 80,639
Other income (expense)
Interest and other income 29,706 2,272
Interest expense (882) -
------- -------
Income before income taxes 167,968 82,911
Income taxes (57,109 ) (28,189)
------- -------
Net income $110,859 $ 54,722
======= ========
Weighted average number of common
shares outstanding 9,301,771 6,179,054
========= =========
Net income per common share $.01 $.01
=== ===
</TABLE>
The accompanying notes are an integral part of these financial statements. 5
<PAGE> 6
KNOWLEDGEBROKER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-In Retained Notes
Shares Amount Capital Earnings Receivable Total
------ ------ --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 4,797,193 $47,971 $ 153,904 $152,$90 - $353,965
Issuance of common stock for
compensation and expense
reimbursement 3,886,565 38,867 93,040 - - 131,907
Net income for three months - - - 54,722 - 54,722
--------- ------ --------- ------- ------- -------
Balances at March 31, 1995 8,683,758 $86,838 $ 246,944 $206,812 $ - $540,594
========= ====== ========= ======= ======= =======
Balances at December 31, 1995 9,267,947 $92,680 $1,166,900 $ 82,235 $(788,995) $552,820
Warrants exercised 40,500 405 40,095 - - 40,500
Cash received on notes recievable - - - - 23,340 23,340
Net income for three months - - - 110,859 - 110,859
--------- ------ --------- ------- -------- -------
Balances at March 31, 1996 9,308,447 $93,085 $1,206,995 $193,094 $(765,655) $727,519
========= ====== ========= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements. 6
<PAGE> 7
KNOWLEDGEBROKER, INC.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended March 31, Ended March 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 110,859 $ 54,722
Adjustments to reconcile net income
to net cash provided (used) by operating activities
Deferred income taxes (benefit) 57,109 (9,151)
Depreciation and amortization 11,124 9,808
Common stock issued for compensation
and expense reimbursement - (10,000)
Changes in assets and liabilities
Trade accounts receivable (138,794) 21,909
Prepaid expenses and other 1,545 (917)
Accounts payable and accrued liabilities (140,377) (11,679)
Income taxes payable - (144,811)
Deferred income - 9,151
-------- ---------
Net cash used by operating activities (98,534) (80,968)
-------- ---------
Cash flows from investing activities
Purchase of property and equipment (16,222) (5,753)
Purchase of marketable securities - -
-------- ---------
Net cash used in investing activities (16,222) (5,753)
-------- ---------
Cash flows from financing activities
Net change in borrowings under line of credit (30,000) -
Principal repayments on long-term debt - (960)
Collections on notes receivable in connection with
exercised stock options 33,290 -
Issuance of common stock upon exercise of warrants 40,500 -
Decrease in cash overdraft - (156,977)
-------- ---------
Net cash provided (used) by financing activities 43,790 (157,937)
-------- ---------
Decrease in cash (70,966) (244,658)
Cash and cash equivalents at beginning of period 131,653 328,761
-------- ---------
Cash and cash equivalents at end of period $ 60,687 $ 84,103
======== =========
Supplemental Disclosures:
Cash paid for interest $ 882 $ -
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements. 7
<PAGE> 8
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.
8
<PAGE> 9
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUES
Total revenues increased from approximately $497,000 for the three months ended
March 31, 1995 to approximately $627,000 for the three months ended March 31,
1996, representing a 26% increase over 1995. This increase in revenue reflects
the Company's rising software sales, offset by the decrease in support desk
services revenues. The increase in software sales is the result of
management's aggressive expansion efforts in product sales. The decrease in
support desk services is largely the 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 Company 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.
DIRECT COSTS AND OPERATING EXPENSES
Direct personnel cost of support desk services as a percentage of support desk
services revenue for the three months ended March 31, 1996 and 1995 are 45% and
29%, 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 by
approximately 14% for the quarter ended March 31, 1996 over the quarter ended
March 31, 1995. Salaries and related expenses continue to be the major
component of direct costs and selling, general, and administrative costs
representing approximately 48% and 62% of total costs and expenses during the
three months ended March 31, 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. For the quarter ended March 31, 1996,
the Company utilized the benefit of net operating losses previously generated.
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 $99,000 and $81,000 during the three months
ended March 31, 1996 and 1995, respectively. The use of cash resulted from net
income generated offset primarily by increases in trade accounts receivable and
payments of accounts payable and accrued liabilities for the three months ended
March 31, 1996, and payment of income taxes for the three months ended March
31, 1995. Accounts receivable increased significantly from December 31, 1995
to March 31, 1996, corresponding to increases in sales to a significant
customer. Accounts payable declined significantly from December 31, 1995 to
March 31, 1996 due primarily to payment of up front costs incurred for a
significant new customer. Days sales in accounts receivable at March 31, 1996
and 1995 amounted to 74 and 68, respectively. The Company does not currently
anticipate that it will experience significant problems in collecting
substantially all of the accounts receivable outstanding at March 31, 1996.
The Company believes that additional customers added in the future will not
significantly affect collections of accounts receivable.
9
<PAGE> 10
The Company used cash for investing activities during the three months ended
March 31, 1996 and 1995 amounting to $16,222 and $5,753, 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 financing activities of $43,790 during the
quarter ended March 31, 1996 from the issuance of stock through stock options
and warrants exercised. The Company used cash of $156,977 during the quarter
ended March 31, 1995 to reduce the cash overdraft. The Company used $30,000
and $960 for payments on long-term debt and lines of credit during the three
months ended March 31, 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.
10
<PAGE> 11
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
----------------------------------- Date: May 13, 1996
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
- ----------------------------------- May 13, 1996
Brad Stanley, President,
Chief Financial Officer,
Secretary and Director
/s/ James T. Alexander
- ----------------------------------- May 13, 1996
James T. Alexander,
Executive Vice President,
Assistant Secretary and Director
11
<PAGE> 12
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 THREE MONTHS ENDED MARCH 31, 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> MAR-31-1996
<CASH> 60,687
<SECURITIES> 50,000
<RECEIVABLES> 756,389
<ALLOWANCES> 243,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,027,242
<PP&E> 247,582
<DEPRECIATION> 103,273
<TOTAL-ASSETS> 1,295,029
<CURRENT-LIABILITIES> 567,510
<BONDS> 0
<COMMON> 93,085
0
0
<OTHER-SE> 634,434
<TOTAL-LIABILITY-AND-EQUITY> 1,295,029
<SALES> 0
<TOTAL-REVENUES> 627,193
<CGS> 0
<TOTAL-COSTS> 461,466
<OTHER-EXPENSES> 322,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 882
<INCOME-PRETAX> 167,968
<INCOME-TAX> 57,109
<INCOME-CONTINUING> 110,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,859
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
