<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 SEPTEMBER 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
September 30, 1996, the latest practicable date, was 8,908,870.
<PAGE> 2
KNOWLEDGEBROKER, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <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
September 30, 1996 and December 31, 1995
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,061 $ 131,653
Marketable securities available for sale 50,000 50,000
Trade accounts receivable, net of allowance for doubtful accounts 386,003 374,595
Receivables from affiliates 24,004 --
Note receivable in connection with exercised stock option -- 9,950
Prepaid expenses and other 59,439 77,341
Income tax receivable 168,046 168,046
Deferred income taxes 412,476 216,433
----------- -----------
Total current assets 1,105,029 1,028,018
----------- -----------
PROPERTY AND EQUIPMENT 254,282 231,360
Less accumulated depreciation and amortization (125,521) (92,149)
----------- -----------
Property and equipment, net 128,761 139,211
----------- -----------
INVESTMENT IN JOINT VENTURE 15,407 --
OTHER ASSETS
Deferred income taxes 22,182 119,413
Other 4,065 4,065
----------- -----------
Total other assets 26,247 123,478
----------- -----------
TOTAL ASSETS $ 1,275,444 $ 1,290,707
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
<PAGE> 4
KNOWLEDGEBROKER, INC.
BALANCE SHEETS - CONTINUED
September 30, 1996 and December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Note payable - line of credit $ 120,000 $ 30,000
Accounts payable 198,164 213,186
Accrued shareholder bonuses and salaries 267,765 442,073
Accrued payroll settlement 100,000 --
Deferred income 52,628 52,628
----------- -----------
Total liabilities 738,557 737,887
----------- -----------
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) (4,646) 82,235
----------- -----------
1,295,434 1,341,815
Less notes receivable in connection with exercised stock options (758,547) (788,995)
----------- -----------
Total shareholders' equity 536,887 552,820
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,275,444 $ 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 nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Support desk services $ 142,603 $ 307,439 $ 580,817 $ 786,803
Software sales 193,749 172,645 580,084 728,422
----------- ----------- ----------- -----------
Total revenues 336,352 480,084 1,160,901 1,515,225
----------- ----------- ----------- -----------
Direct cost of support desk
services and software sales 106,406 81,245 434,508 356,292
----------- ----------- ----------- -----------
229,946 398,839 726,393 1,158,933
----------- ----------- ----------- -----------
Expenses
Selling, general and administrative 110,421 313,416 800,418 962,082
Payroll tax settlement 100,000 -- 100,000 --
Depreciation and amortization 11,126 9,807 33,373 29,424
----------- ----------- ----------- -----------
Total expenses 221,547 323,223 933,791 991,506
----------- ----------- ----------- -----------
Operating profit (loss) 8,399 75,616 (207,398) 167,427
Equity in earnings 15,407 -- 15,407 --
Other income (expense)
Interest and other income (20,701) 2,009 9,150 13,728
Interest expense (1,928) (182) (2,852) (188)
----------- ----------- ----------- -----------
Income (loss) before income taxes 1,177 77,443 (185,693) 180,967
Income taxes 35,275 (26,331) 98,812 (61,529)
----------- ----------- ----------- -----------
Net income (loss) $ 36,452 $ 51,112 $ (86,881) $ 119,438
=========== =========== =========== ===========
Net income (loss) per common share $ 0.01 $ 0.01 $ (0.01) $ 0.01
=========== =========== =========== ===========
Weighted average common and
common equivalent shares
outstanding 9,308,447 8,860,864 9,306,230 8,000,501
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements. 5
<PAGE> 6
KNOWLEDGEBROKER, INC.
STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
Ended September 30, Ended September 30,
1996 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (86,881) $ 119,438
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities
Deferred income taxes (benefit) (98,812) (9,151)
Depreciation and amortization 33,373 29,424
Provision for doubtful accounts (134,709) --
Common stock issued for consulting expenses -- 125,000
Common stock issued for compensation -- 131,907
Merger expenses charged to additional paid in capital -- (82,500)
Changes in assets and liabilities
Trade accounts receivable 123,301 (82,081)
Prepaid expenses and other 17,902 (70,727)
Accounts receivable affiliates (24,004) --
Accounts payable (15,022) (194,947)
Accrued liabilities (174,308) --
Accrued payroll settlement 100,000 --
Income taxes payable -- (102,746)
Deferred income -- 53,525
--------- ---------
Net cash used by operating activities (259,160) (82,858)
--------- ---------
Cash flows from investing activities
Investment in Joint Venture (15,407) --
Purchase of property and equipment (22,922) (22,949)
--------- ---------
Net cash used in investing activities (38,329) (22,949)
--------- ---------
Cash flows from financing activities
Net change in borrowings under line of credit 90,000 --
Principal repayments on long-term debt -- (4,346)
Collections on notes receivable in connection with
exercised stock options 40,398 9,950
Issuance of common stock for warrants exercised 40,500 --
--------- ---------
Net cash provided (used) by financing activities 170,897 (129,948)
--------- ---------
Decrease in cash (126,592) (235,755)
Cash and cash equivalents at beginning of period 131,653 328,761
--------- ---------
Cash and cash equivalents at end of period $ 5,061 $ 93,006
========= =========
Supplemental disclosures:
Cash paid for:
Interest $ (2,852) $ --
========= =========
Income taxes $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements. 6
<PAGE> 7
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 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 present 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 58% of total revenue.
NOTE C - TAX YEAR END
The Company has a September 30 tax year end, which differs from the December 31
financial reporting year end.
7
<PAGE> 8
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUES
Total revenues for the three months ended September 30, 1996 were approximately
$336,000 (or approximately $558,000 excluding one-time credits issued for
evaluation software shipped in previous quarters) as compared to $480,000 for
the three months ended September 30, 1995. Before deductions for a one time
payroll tax settlement, EBITDA for the three month period ending September 30,
1996 was approximately $133,000 on quarterly revenues (as adjusted for credits
described above) of $558,000 for an adjusted margin of 24%.
Total revenues decreased from approximately $1,515,000 for the nine months
ended September 30, 1995 to approximately $1,161,000 ($1,382,000 before one
time adjustment) for the nine months ended September 30, 1996. The decrease in
revenue reflects the Company's transition in sales model from direct sales to
training and managing Value Added Resellers ("VAR"). The increase in software
sales is the result of management's aggressive expansion efforts in product
sales as a result of higher profit margins. The decrease in YTD support desk
services is largely the result of the loss of a significant client in early
1996.
The three months ended September 30, 1996 has continued to be a building and
investing period for KnowledgeBroker, Inc. with new sales models, increased
senior management, merger discussions and joint ventures, and two new product
releases. The additional revenues from these Reseller and Joint Venture
relationships, the first of which was announced in the third quarter, should
begin to be realized in the fourth quarter and should increase and stabilize
the Company's 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 included proposals to potential
customers and increased marketing efforts. These efforts resulted in landing a
large new OEM support customer.
In keeping with its strategy to develop longer term contracts, KBI signed a
multi-year Latin American distribution agreement with a division of Inacom. The
Company anticipates expanding in the near term into other international
markets. Efforts to expand the product sales portion of the business have
resulted in approximately 50% of revenues for YTD.
In the area of product development, Ask.Me Total, a complete suite of products
which is compatible with all Problem Management Vendors and released in the
last days of the second quarter, is anticipated to generate sizable revenues
from new VAR sales. Ask.Me Online, ("AMOL"), an Internet version of its
KnowledgeBase retrieval product and service is also slated for release in
fourth quarter. A new retail product, Esy Answers, rounds out the new 1996
offerings.
DIRECT COSTS AND OPERATING EXPENSES
Direct personnel costs of support services for the three months ended September
30, 1996 were approximately $106,000 as compared to $81,000 for the three
months ended September 30, 1995. Direct personnel cost of support desk services
as a percentage of support desk services revenue for the nine months ended
September 30, 1996 and 1995 were 75% and 45%, respectively. This increase in
costs as a percentage if 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 decreased $203,000 or 65% during
the three months ended September 30, 1996, as compared to the same period in
1995. Selling, general and administrative expenses decreased by approximately
17% for the nine months ended September 30, 1996 over the nine months ended
September 30, 1995, even though the Company brought on more senior VAR
managers. Salaries and related expenses continue to be the major component of
direct costs and selling, general, and administrative costs representing
approximately 54% and 42% of total costs and expenses during the nine months
ended September 30, 1996 and 1995, respectively. The overall decrease in
selling, general and administrative expenses resulted from operating
efficiencies in non-payroll related areas.
8
<PAGE> 9
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.
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 $259,160 and $82,858 during the nine months ended
September 30, 1996 and 1995, respectively. For the nine months ended September
30, 1996 the use of cash primarily resulted from net losses and payments of
accrued liabilities. For the nine months ended September 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. 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 September 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 nine months ended
September 30, 1996 and 1995 amounting to $38,329 and $22,949, 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 $170,897 during the
period ended September 30, 1996 from the issuance of stock through stock
options and warrants exercised and from additional borrowings on its line of
credit.
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 Date: , 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
- ------------------------------------------------- , 1996
Brad Stanley, President, Chief Financial Officer,
Secretary and Director
/s/ James T. Alexander
- ------------------------------------------------- , 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> SEP-30-1996
<CASH> 5,061
<SECURITIES> 50,000
<RECEIVABLES> 386,003
<ALLOWANCES> 108,301
<INVENTORY> 0
<CURRENT-ASSETS> 1,105,029
<PP&E> 254,282
<DEPRECIATION> 125,521
<TOTAL-ASSETS> 1,275,444
<CURRENT-LIABILITIES> 738,557
<BONDS> 0
93,085
0
<COMMON> 0
<OTHER-SE> 443,802
<TOTAL-LIABILITY-AND-EQUITY> 1,275,444
<SALES> 0
<TOTAL-REVENUES> 1,160,901
<CGS> 0
<TOTAL-COSTS> 726,393
<OTHER-EXPENSES> 933,791
<LOSS-PROVISION> 100,573
<INTEREST-EXPENSE> 2,852
<INCOME-PRETAX> (185,693)
<INCOME-TAX> 98,812
<INCOME-CONTINUING> (86,881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,881)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
