UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 50549
Form 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER 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.
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(Name of small business issuer in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
84-0856578
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(I.R.S. Employer identification No.)
13295 Mira Loma Road, Reno, NV 89511
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (775) 852-5711
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Title of each class
Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports. Yes No X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by referenced in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year: $1,944,778
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of
January 14, 2000. $300,571
State the number shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,624,690
<PAGE>
Item 1. Business
Background
KnowledgeBroker, Inc., or KBI, was originally formed as a California corporation
in March 1992 to provide help desk functions relating to personal computers for
Fortune 1000 companies. KBI develops, sells and maintains informational
databases to provide on-line computer hardware and software applications
support.
On April 28, 1995, the registrant, then named Overthrust Oil Royalty
Corporation, entered into an agreement to acquire all of the issued and
outstanding stock of the California corporation. At the time registrant was
public but was not reporting. In connection with this transaction, Overthrust
Oil Royalty Corporation, the registrant, was reincorporated in Nevada by means
of a merger with and into a newly-formed Nevada corporation which was
accomplished by a merger with the California corporation, KBI. Simultaneously
with this reorganization, which was effected on May 23, 1995, the registrant's
name was changed to KnowledgeBroker, Inc. Approximately 96% of the registrant's
issued and outstanding shares were issued to stockholders of the California
corporation.
The registrant was formed in 1981 and engaged in the oil and gas business. In
1982 the registrant completed a public offering but in 1986 the Company filed
for protection pursuant to Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the District of Utah. On February 15, 1995, the
Bankruptcy Court entered its final order discharging the registrant and,
immediately prior to the completion of the merger of the registrant with the
California corporation described above, the registrant had no assets or
liabilities.
KnowledgeBroker, Inc.
KnowledgeBroker, Inc. ("KBI" or the "Company") is a supplier of knowledge
distribution services and technology and provides a full range of technical
computer support products and services to large corporate workplaces, small
businesses and individual users. KBI operates HelpNET 800 Service, a live,
24-hour multi-vendor, technical computer support outsourcing bureau for major
hardware and software OEMs, computer retailers and corporations. E-Commerce and
the Internet have provided substantial new opportunities for the Company to
expand its services and products. E-Commerce services include external customer
assistance for the thousands of new businesses that are learning to conduct
business on the Internet, and that have a critical need for the technical
expertise that the Company has developed over the years.
Many of the Company's programs and products can now be sold over the Internet.
The World Wide Web provides substantial exposure for many of the Company's
services directed at businesses. The Company has also received requests from
major warranty providers to chain stores such as CompUSA, and from sellers of
hardware and software on the Internet such as MicroLeague, to supply technical
advice to assist in the sales process; to provide critical information needed to
finalize a sale, which will be delivered via e-mail, phone and also by net chat
online. CommerceNet says online shopping (E-commerce) is up over 80% in just the
last 9 months. KnowledgeBroker continues to receive inquiries from the
information technology industry about its products and services, clearly
reflecting the growing need for reliable expertise in technical support areas.
The Company has developed a database of more than 55,000 frequently asked
questions regarding hardware and software problems, which have been developed
over the past 8 years as a result of more than 1,500,000 phone calls to its call
center. As new hardware and software products come into the marketplace, the
database constantly grows and evolves to more accurately deliver a correct and
rapid response to the customer. Through a multi-level technical writing and
verification process using its own software tools, the database of the Company
continues to grow, fueled by each customer inquiry that requires a new entry and
response. The Company therefore has a substantial amount of available data,
which grows and adds value daily making it an emerging leader in the Help
Desk/Support Industry.
THE INDUSTRY
Every computer user has had a computer problem. The Help Desk industry, defined
as internal and external computer support services and necessary software tools,
is regarded as one of the fastest growing segments in the information technology
field by Wall Street. According to International Data Corporation (IDC), the
information technology industry's most comprehensive resource on worldwide IT
markets,
o 20 billion dollars was spent in 1998 on software customer and technical
support.
o Sales of problem resolution technology, a KBI niche market, were $139
million in 1997.
o These are projected to increase to $657 million by 2001 -- a nearly 500%
increase.
o Revenues are projected to rise into the billions of dollars within the
next few years.
Companies in this sector are already receiving higher than market average
valuations in the stock market. KnowledgeBroker, Inc. is becoming recognized as
a leader in the technical support field and, the company believes, a leading
supplier of technology and services.
<PAGE>
The Company develops and markets Internet software and solutions, technical
support information used as Internet content, Knowledge Management Software and
operates a 24-hour phone and Internet technical support Help Desk worldwide.
Customers expect to be able to chose their medium for tech support: telephone,
fax, e-mail or the Internet. The Aberdeen Group estimates that, by 2002,
companies will receive over 50% of all general customer support contacts and
inquiries over the Web and through e-mail messages and other Web-based forms.
According to Nielsen Media, the number of Internet users in the US and Canada is
up to 92 million.
The Help Desk industry is undergoing considerable consolidation. In this market
environment KBI is a likely target for acquisition. Conversely KBI's complete
Help Desk and Knowledge Management software line provide the technical
infrastructure needed to bring other small, complementary companies into the KBI
organization. This can be via joint venture, merger or acquisition. Small
software or service providers in specialized business areas are likely
candidates. Examples might be training companies for specialized enterprise
software and support bureaus which specialize in medical software or legal
software. Value would be added by the use of KBI software tools, a new revenue
stream from the resale of the new knowledge after it had been `productized' and
the value of public market multiples for these typically private firms.
MAJOR CONTRACT BREAKTHROUGHS
Recently the Company has been recognized for its ability to deliver swift and
accurate customer help and support with major contracts to supply services or
products to companies such as Intel, Philips Electronics/Origin in the
Netherlands, EarthWeb and others. KnowledgeBroker, Inc. now supplies support
software content to Intel's retail support product offering as well as their
worldwide staff of 60,000 persons. The Company's customer list includes AST,
ATT-UK, Compaq Computers, CompUSA, Weyerhauser Corp., Ziff-Davis, GTE, IBM,
Oracle UK and many others.
NEW PRODUCTS
ASK.ME Pro 3.0, the Company's professional stand alone help desk software, is a
robust Knowledge Management tool that makes it easy for companies to capture
important information about any aspect of their business, format this
information into a professional KnowledgeBase, and then access this information
using a powerful search engine. ASK.ME Pro can be used by virtually any
industry. Company information can be exported to a wide variety of formats and
used for Internet and telephone support. In addition, the Company has a database
with more than 55,000 prepackaged solutions to problems with software, hardware,
systems and the Internet that can be licensed to run in this product.
The Company is also poised to launch HelpHunter, its first solutions program
aimed at the general public. Combining a simple and fun CD-based software
program with Internet and telephone back-up, this new and creative solutions
program tailors the capability of the Company's database to the level of
understanding of the average computer user. HelpHunter has aroused serious
interest on the part of several OEMs and major Information Technology companies
because of its potential to lower support costs by providing end users with
just-in-time answers to key questions.
INTERNET BASED SOLUTIONS
The Company has now integrated all of its solutions and database response
systems into a seamless and automatically coordinated network that works online
- - ASK.ME OnLine (AMOL). The customer, whether in a high-tech corporate setting
or a consumer at home using HelpHunter, has the ability to type in a brief
description of the problem at hand. Using the resources of its database, the
Company's automated system provides an immediate set of possible solutions
directly to the user's computer screen. If the problem remains unsolved, the
user can use e-mail, Internet chat or telephone options. The Company's Call
Center in Dallas has a full staff of technical experts available at any time,
day or night. When a new problem is addressed and solved, it automatically
becomes part of the database, which will send back the solution online the next
time another customer experiences the same problem. The Company is now in the
process of adding additional services and solutions geared specifically to the
E-Commerce sector of the Internet. This will allow most of the Company's
products priced under $10,000 to be purchased directly over the Internet. This
will increase customer satisfaction and decrease the cost of KBI product sales.
Item 2. Description of Property.
The Company's main operating facility is located in Carrollton, Texas.
The Carrollton facility covers approximately 3,500 square feet and the monthly
rent is $3,580. The lease commenced October 16, 1995 and is for a term of five
years. The Company's principal executive offices are located in Reno, Nevada and
it also has operations in Irvine and South Pasadena, California.
Item 3. Legal Proceedings.
In February 1996 the Company settled litigation in which the total amount was
$349,998 of which the Company paid $100,000 in cash and issued 71,428 shares of
stock valued at $3.50. The Company is required to buy back the shares if the
Company fails to offer the opportunity to sell the stock on the open market. The
buy back price is between $3.50 and $5.00 per share.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock is listed over the counter and is traded under the
symbol KBIZ.
The following table set forth the high and low bid and cash prices of the
Company's Common Stock for each calendar quarter in 1997 and 1996 as reported by
NASDAQ:
1997 Ask Bid
High Low High Low
First Quarter 1.250 0.906 0.906 0.6875
Second Quarter 1.875 1.125 1.00 0.6875
Third Quarter 1.250 1.00 0.8125 0.750
Fourth Quarter 1.250 0.6875 0.8125 0.500
1996 Ask Bid
High Low High Low
First Quarter 5.125 2.9358 4.750 2.250
Second Quarter 3.500 2.500 3.00 2.000
Third Quarter 2.750 1.500 2.375 1.000
Fourth Quarter 1.250 0.750 0.750 0.625
As of January 14, 2000, there were approximately 640 holders of record
of the Company's common stock, according to the records provided by the transfer
agent.
Item 6. Management's Discussion and Analysis or Plan of Operation
General
The Company's results of operations are strongly affected by the size and timing
of contracts for support desk services and software sales. Contracts for the
Company's Support desk services are often tied to the introduction of a new
computer product for which support will be required as the new product is
introduced and for a period of time thereafter. In other instances the Company
will have agreements for Support desk services that are not so much based on a
particular product but require more general support for personal computers and
that rely upon the Company's data base. Revenues for Support desk services,
accordingly, often fluctuate significantly. The direct personnel costs for
Support desk services also have to be managed carefully and fluctuate
significantly, depending upon the volume of calls generated by the Support desk
services.
Software sales, which include sales and licensing of the Company's AskMe Pro and
KnowledgeBases, also fluctuate significantly. However, the gross margins for
software sales and licensing are significantly larger than for Support desk
services.
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
Revenues for the year ended December 31, 1997, increased more than $250,000, to
$1,944,778 from $1,688,032 for 1996. The increase in overall revenues reflects
the addition of two large clients for Support desk services in the first quarter
of 1997 but masked the significant drop in sales and licensing of the Company's
software.
Although these trends reflect the twelve month period, the last half of 1997 saw
a marked decline in revenues for Support desk services as the Company completed
the work for two clients that initiated contracts in the first part of 1997. The
second half of the year, nonetheless, saw a recovery in software sales and
licensing, particularly with smaller clients.
Gross profit increased in the later period to $1,144,124 from $875,187. However,
the Company was unable to reduce in the second half of 1997 the number of people
staffing the Support desk services as rapidly as the declining revenues from
Support desk services required.
<PAGE>
The increased operating profit was not sufficient to cover operating expenses,
particularly since the Company had begun to increase its selling and marketing
efforts in the second half of 1997 as well as cover the expenses of being a
public company. For 1997, the Company wrote off a significant amount of accounts
receivable in the fourth quarter. Accordingly, the Company incurred an operating
loss of $439,428 for 1997. In 1996 the Company's operating loss was $682,147,
the loss being affected by $188,653 of litigation expenses.
For 1997 the Company's loss was $789,877. Despite having a loss for the year,
the Company incurred a tax liability of $335,486, writing off a deferred tax
assets that the Company did not believe would be available.
Liquidity and Capital Resources
The Company's operating capital has been provided by operations, the issuance of
stock and bank lines of credit. The Company's long-term continuation depends
upon its ability to generate profits. Because the Company's losses have largely
been funded with debt, its ongoing ability to survive will depend upon its
ability to increase revenues.
Item 7. Financial Statements.
The response to this item is submitted as a separate section of this
Form 10-K. See "Item 13. Exhibits, Financial Statements and Reports on Form
8-K."
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following tables sets forth certain information about the directors
and executive officers of the Company. All directors of the Company hold office
until the next annual meeting of shareholders or until their successors have
been elected and qualified. Executive officers of the Company are elected by the
Board of Directors to hold office until their respective successors are elected
and qualified.
Name Age Positions(s)
---- --- ------------
Brad Stanley 50 President, Treasurer and Director
James T. Alexander 45 Executive Vice President, and
Director
Sharon Stanley 60 Finance Director, Secretary and
Director
Gail Wetmore 53 Vice President and Director
Set forth below is a description of the backgrounds of the executive
officers and directors of the Company.
Brad Stanley has served as the President, Chief Financial Officer,
Secretary and director of the Company since the transaction with KBI in April
1995. Prior to such transaction, Mr. Stanley had served as the President, Chief
Executive Officer and director of KBI since May 1992, and as Chairman of the
Board since October 1992. Mr. Stanley was also involved in the development of
the predecessor business of KBI before its incorporation. Prior to founding KBI,
Mr. Stanley was involved in building knowledge distribution technologies while
employed in several positions by GTE for over ten years, where he worked closely
with support desks and expert systems to continually refine support technology.
Mr. Stanley was selected to head the GTE TELOPS National Advanced Technology
Group. Before his involvement with the National Advanced Technology Group, Mr.
Stanley was employed by GTE in various other capacities, including computer
programming and systems analysis, where his responsibilities included developing
organizational structures, products and services for start-up and other
organizations. Brad Stanley and Sharon Stanley are husband and wife.
James T. Alexander has served as the Executive Vice President,
Assistant Secretary and director of the Company since the transaction with KBI
in April 1995. Prior to such transaction, Mr. Alexander had served as the
Executive Vice President and director of KBI since May 1992. Prior to the
incorporation of KBI, Mr. Alexander was involved in the development of the
predecessor business of KBI. Mr. Alexander also served as West Coast Manager of
Sales for Softool Corporation from 1989 to 1990, as Southwest Regional Sales
Manager for Inference Corporation from 1986 to 1989 and as Account Manager for
Candle Corporation from 1982 to 1986.
<PAGE>
Sharon Stanley has been Finance Director of the Company since 1995 and
became a director and Secretary of the Company in April 1999. Prior to joining
the Company in 1995, Ms. Stanley was Senior Vice President of Human Resources of
Chiat/Day Advertising, an international advertising agency. Ms. Stanley joined
Chiat/Day in 1975. Sharon Stanley and Brad Stanley are husband and wife.
Gail Wetmore has served as Marketing Director of the Company since
February of 1995. She became a director of the Company in April 1999.
The Company's Bylaws provide that directors may be receive compensation
for their services and reimbursement for their expenses as the Board of
Directors may establish by resolution.
Item 10. Executive Compensation.
The following table sets forth the cash and non-cash compensation paid
by KBI to its President and Executive Vice President for the fiscal years ended
December 31, 1997, 1996 and 1995. No other officers or directors received cash
or non-cash compensation in excess of $100,000 for the fiscal years ended
December, 1997, 1996 and 1995.
Name and Principal Position Year Annual Compensation
Brad Stanley, President 1997 $125,000(1)
1996 $135,000(2)
1995 $108,333(3)
(1) Includes $60,000 in cash and 84,416 shares of the Company's stock with
each share valued at $1.25 per share.
(2) Includes $60,000 in cash and 53,333 shares of the Company's stock with
each share valued at $1.25 per share.
(3) Includes $60,000 in cash and 38,666 shares of the Company's stock with
each share valued at $1.25 per share.
The Company has entered into an employment letter with Mr. Stanley which
provides for an annual salary commencing on April 28, 1995 of $125,000 for the
first year, $140,000 for the second year, $150,000 for the third year and
thereafter as may be agreed by the Company and Mr. Stanley. The employment
letter also provides that Mr. Stanley will be entitled to receive a cash bonus
in accordance with a specified formula and to receive options to purchase shares
of Common Stock as the Board of Directors may determine from time to time. The
employment letter also provides that the Company will furnish Mr. Stanley with
an automobile and pay all gas and maintenance on such automobile. The employment
letter may be terminated at any time for any reason by the Company or Mr.
Stanley by giving 14 days advance notice. The employment letter will terminate
upon Mr. Stanley's death or disability, or if the Company terminates Mr. Stanley
for just cause.
Because results of operations were not strong in 1997, Mr. Stanley reduced
his compensation to $125,000 in 1997. The contract has been extended through the
year 2000.
1995 Stock Compensation Plan
As a performance incentive and in order to encourage ownership of
Common Stock, the Company has adopted its 1995 Stock Compensation Plan (the
"Plan"). 900,000 shares of Common Stock have been reserved for issuance under
the Plan pursuant to the exercise of options or the grant of restricted stock
awards. As of August 7, 1995, the Company had granted options to acquire an
aggregate of 607,750 shares of Common Stock, none of which had been exercised.
Unless extended or earlier terminated, the Plan will terminate on the day prior
to the tenth anniversary of its effective date. The Plan is intended to qualify
for favorable treatment under Section 16 of the Securities Exchange Act of 1934,
as amended, pursuant to Rule 16b-3 promulgated thereunder ("Rule 16b-3").
The Plan provides for the grant of "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options and restricted stock awards (collectively
referred to as "Awards"). The Plan will be administered by a committee of the
Board of Directors (see "Committee"), which will consist of two or more
directors of the Company who are deemed "disinterested" within the meaning of
Rule 16b-3. The Committee has, subject to the terms of the Plan, the sole
authority to grant Awards under the Plan (other than to members of the
Committee), to construe and interpret the Plan and to make all other
determinations and take any and all actions necessary or advisable for the
administration of the Plan. All of the Company's employees, the members of the
Committee and advisors are eligible to receive Awards under the Plan, but only
employees of the Company are eligible to receive incentive stock options.
Options will be exercisable during the period specified in each option
agreement and will be exercisable in accordance with a vesting schedule to be
designated by the Committee. Restricted stock awards will give the recipient the
<PAGE>
right to receive a specified number of shares of Common Stock contingent upon
remaining a Company employee for a specified period, as determined by the
Committee. Notwithstanding the provisions of any option agreement or restricted
stock agreement, options will become immediately exercisable and all
restrictions will immediately lapse with respect to any award of restricted
stock in the event of a change or threatened change in control of the Company
and in the event of certain mergers and reorganizations of the Company. No
option will remain exercisable later than ten years after the date of grant. In
addition, options may be subject to early termination within a designated period
following the optionee's cessation of service with the Company.
The aggregate fair market value of Common Stock with respect to which
incentive stock options are exercisable for the first time by any individual
during any calendar year may not exceed $100,000. The exercise price for
incentive stock options granted under the Plan may be no less than the fair
market value of the Common Stock on the date of grant (or 110% in the case of
incentive stock options granted to employees owning more than 10% of the Common
Stock). The exercise price for nonqualified stock options granted under the Plan
will be in the discretion of the Committee.
The exercise price for any option may be paid (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, in shares of
Common Stock valued at the then fair market value thereof, (iv) if permitted by
the Committee, by cash or certified or cashier's check for the par value of the
shares plus a promissory note for the balance of the purchase price, which note
must provide for full personal liability of the maker and will contain such
terms and provisions as the Committee may approve, including without limitation
the right to repay the note partially or wholly with Common Stock, (v) by
delivery of a copy of irrevocable instructions from the participant to a broker
or dealer, reasonably acceptable to the Company, to sell certain of the shares
purchased upon exercise of the option or to pledge them as collateral for a loan
and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price or (vi) in any other form of valid
consideration, as permitted by the Committee in its discretion.
The Plan provides that, immediately and automatically upon his initial
election or appointment to the Board of Directors, each non-employee director
will receive a nonqualified stock option to purchase 5,000 shares of Common
Stock. In addition, each non-employee director will receive a nonqualified stock
option to purchase 1,000 shares of Common Stock on the date of each annual
meeting of stockholders of the Company subsequent to his initial election as a
director by the stockholders of the Company. Each such option (i) entitles the
non-employee director to purchase shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant, (ii) is
immediately exercisable and (iii) will have a term of ten years. Except for such
automatic grants, non-employee directors will not be eligible to receive Awards
under the Plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of January 14,
2000 with regard to the beneficial ownership of Common Stock by (i) each person
known to the Company to be the beneficial owner of 5% or more of its outstanding
Common Stock, (ii) by the officers, directors and key employees of the Company
individually, and (iii) by the officers and directors as a group.
Name Number of shares Owned Percent
Brad Stanley 7,133,618(1) 74.1%
13295 Mira Loma Road
Reno, Nevada, 89511
James Alexander 1,310,596(2) 13.6%
31922 Paseo Cielo
San Juan Capistrano, CA 92675
Sharon Stanley 134,813(3) 1.4%
13295 Mira Loam Road
Reno, Nevada, 89511
Gail Wetmore 84,600(4) 0.9%
1003 Diamond, Suite 206
South Pasadena, CA 91030
All directors and executive officers
as a group (4) people 8,996,957 90.0%
(1) Excludes 119,813 shares owned by an affiliate of Sharon Stanley of which
Brad Stanley is an officer and excludes 15,000 shares owned by Sharon Stanley
and 10,000 shares owned by a child of Brad Stanley. Mr. Stanley disclaims
beneficial ownership in these shares.
<PAGE>
(2) Excludes 40,000 shares owned by each of Mr. Alexander's children as to which
Mr. Alexander disclaims beneficial ownership.
(3) Excludes 7,133,618 shares owned by Brad Stanley as to which Sharon Stanley
disclaims beneficial ownership.
(4) Excludes 17,940 shares owned by husband and 2,000 shares owned by daughter
as to which Ms. Wetmore disclaims beneficial ownership.
Item 12. Certain Relationships and Related Transactions.
The Company has a $250,000 line of Credit with Union Planter Bank. This
line is secured by the Company's Accounts Receivable and assets. In addition,
Brad Stanley and Sharon Stanley have personally guaranteed this line of credit
and have additionally secured the line of credit with a $50,000 certificate of
deposit. Neither of the Stanley's have been compensated for guaranteeing or
securing this line of credit.
Item 13. Exhibits and Reports on Form 8-K.
(a) Financial Statements
The following financial statements are included herewith:
Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
(b) Reports on Form 8-K
None
<PAGE>
KNOWLEDGEBROKER, INC.
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 1997 and 1996 F-3
Statements of Operations for the years ended
December 31, 1997 and 1996 F-5
Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 1997 and 1996 F-6
Statements of Cash Flows for the years ended
December 31, 1997 and 1996 F-7
Notes to Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
KnowledgeBroker, Inc.
We have audited the accompanying balance sheets of KnowledgeBroker, Inc., (a
Nevada corporation) as of December 31, 1997 and 1996, and the related statements
of operations, stockholders' (deficit) equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KnowledgeBroker, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Killman, Murrell & Company, P.C.
Dallas, Texas
December 22, 1999
F-2
<PAGE>
KNOWLEDGEBROKER, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $199,171 $ -
Marketable Securities 51,000 50,000
Accounts Receivable - Trade, net of allowance
for doubtful accounts of $5,000 and $69,098, respectively 106,255 677,744
Prepaid Expenses 40,201 -
Income Tax Receivable 55,772 184,845
Deferred Income Taxes-Note 7 - 216,433
------------ ----------
TOTAL CURRENT ASSETS 452,399 1,129,022
-------- ---------
PROPERTY AND EQUIPMENT-Note 2 295,165 278,548
Less Accumulated Depreciation and Amortization (193,222) (141,700)
-------- ----------
NET PROPERTY AND EQUIPMENT 101,943 136,848
--------- ----------
OTHER ASSETS
Deferred Income Taxes-Note 7 - 119,413
Other 3,089 3,376
--------- ------------
TOTAL OTHER ASSETS 3,089 122,789
---------- -----------
TOTAL ASSETS $557,431 $1,388,659
======== ==========
</TABLE>
(Continued)
The accompanying notes are an
integral part of these financial statements
F-3
<PAGE>
KNOWLEDGEBROKER, INC.
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Cash Overdraft $ - $ 2,508
Note Payable, line of credit-Note 3 134,787 150,000
Accounts Payable 150,874 237,871
Accrued Expenses-Notes 5 and 11 519,304 544,802
Deferred Income 262,079 383,739
----------- ------------
TOTAL CURRENT LIABILITIES 1,067,044 1,318,920
----------- -----------
COMMITMENTS AND CONTINGENCIES - Notes 5 and 10 - -
STOCKHOLDERS' ( DEFICIT) EQUITY
Preferred Stock, $0.01 par value, 5,000,000 shares authorized - -
Common Stock, $0.01 par value, 25,000,000 shares authorized,
9,297,024 and 9,375,091 shares issued 92,970 93,751
Additional Paid-In Capital 1,020,687 1,364,008
Retained Deficit (1,620,199) (830,322)
Treasury Stock-3,000 shares, at cost (3,071) -
-------------- ----------------
(509,613) 627,437
Less Notes Receivable in connection with exercised stock options - (557,698)
---------------- ------------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (509,613) 69,739
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY $ 557,431 $ 1,388,659
============ ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-4
<PAGE>
KNOWLEDGEBROKER, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES
Support desk services $1,349,444 $ 807,074
Software sales 595,334 880,958
------------ ------------
TOTAL REVENUES 1,944,778 1,688,032
DIRECT PERSONNEL COST OF SUPPORT DESK
SERVICES AND SOFTWARE SALES 800,654 812,845
------------ ------------
REVENUES, NET OF DIRECT COSTS 1,144,124 875,187
----------- ------------
EXPENSES
Selling, general and administrative 1,532,030 1,318,441
Litigation settlement and related legal expenses - 188,653
Depreciation and amortization 51,522 50,240
------------ ------------
TOTAL EXPENSES 1,583,552 1,557,334
----------- -----------
OPERATING (LOSS) (439,428) (682,147)
OTHER INCOME (EXPENSE)
Interest and other income 41,491 14,192
Interest expense (56,094) (5,157)
------------- -------------
(LOSS) BEFORE INCOME TAXES (454,031) (673,112)
INCOME TAX EXPENSE-Note 7 (335,846) -
------------ ----------------
NET (LOSS) $ (789,877) $ (673,112)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,321,045 9,265,754
=========== ===========
NET (LOSS) PER COMMON SHARE $ (.08) $ (.07)
============= ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-5
<PAGE>
KNOWLEDGEBROKER, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
Paid-In Retained Notes Treasury
Shares Amount Capital Deficit Receivable Stock Total
--------- -------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1995 9,267,947 $92,680 $1,406,345 $ (157,210) $(788,995) $ - $ 552,820
Payments received - - - - 30,307 - 30,307
Retirement of stock
due to non-payment
of notes (102,000) (1,020) (202,980) - 200,990 - (3,010)
Warrants issued 40,500 405 40,095 - - - 40,500
Issuance of common
stock for wages and
services 97,216 972 120,548 - - - 121,520
Issuance of common stock
for litigation settlement 71,428 714 - - - - 714
Net loss - 1996 - - - (673,112) - - (673,112)
------------------------------------------ -------------------------------------- ----------
BALANCE,
DECEMBER 31, 1996 9,375,091 93,751 1,364,008 (830,322) (557,698) - 69,739
Issuance of common
stock for compensation 126,183 1,262 156,468 - - - 157,730
Issuance of common
stock in exchange for
services 75,000 750 55,116 - - - 55,866
Retirement of stock due
to nonpayment of notes (279,250) (2,793) (554,905) - 557,698 - -
Purchase of 3,000 shares
of Treasury Stock - - - - - (3,071) (3,071)
Net loss - 1997 - - - (789,877) - - (789,877)
------------------------------------------ ----------- ------------------------- ---------
BALANCE,
DECEMBER 31, 1997 9,297,024 $92,970 $1,020,687 $(1,620,199)$ - $(3,071) $(509,613)
========== ======= ========== =========== ============== ======= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-6
<PAGE>
KNOWLEDGEBROKER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(789,877) $(673,112)
Adjustments to Reconcile Net (Loss) to Net
Cash Provided (Used) by Operating Activities
Depreciation and Amortization 51,522 50,240
Provision for Doubtful Accounts (64,098) 87,733
Stock Issued For Compensation and Services 213,596 122,234
Deferred Income Taxes 335,846 -
Changes in Assets and Liabilities
Trade Accounts Receivable 635,587 (390,882)
Prepaid Expenses (40,201) 77,341
Income Tax Receivable 129,073 (16,799)
Accounts Payable (86,997) 127,414
Accrued Liabilities (25,498) -
Deferred Income (121,660) 331,111
Other Assets 287 -
Marketable Securities Purchased (1,000) -
Cash Overdraft (2,508) 2,508
----------- -------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 234,072 (282,212)
--------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (16,617) (47,188)
Purchase of Treasury Stock (3,071) -
----------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (19,688) (47,188)
---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Repayments on Line of Credit (15,213) -
Payment on Shareholder Loans - 37,247
Net Increase in Borrowings Under Line of Credit - 120,000
Issuance of Warrants for Cash - 40,500
------------- -------------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES (15,213) 197,747
--------- ------------
INCREASE (DECREASE) IN CASH 199,171 (131,653)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR - 131,653
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 199,171 $ -
========= ================
SUPPLEMENTAL DISCLOSURE OF INTEREST AND
INCOME TAXES PAID DURING THE YEAR
Interest $ 56,094 $ 5,517
========== =============
Income Taxes $ - $ -
============= ===============
</TABLE>
(continued)
The accompanying notes are an
integral part of these financial statements
F-7
<PAGE>
KNOWLEDGEBROKER, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Cancellation of Notes Receivable-
Common Stock for Nonpayment $ 557,698 $ -
Cancellation of Common Stock (2,793) -
Decrease in Additional Paid-In -
Capital (554,905) -
----------- --------------
$ - $ -
============== ==============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-8
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
KnowledgeBroker, Inc. (a Nevada 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.
On April 28, 1995, the Company and certain shareholders of the Company
entered into a stock exchange agreement with Overthrust Oil Royalty
Corporation ("Overthrust") (a non-reporting public company which had no
operations) whereby Overthrust acquired 100% of the issued and outstanding
common stock of the Company in exchange for an aggregate of approximately
95.84% of its common stock. In connection with this transaction, Overthrust
was simultaneously reincorporated in Nevada by means of a merger with and
into a newly-formed Nevada corporation, KBI Acquisition, Inc. The
reincorporation had the effect of a one for two reverse split of the common
stock. On May 23, 1995, the Company was merged with and into KBI Acquisition,
Inc. and the name of KBI Acquisition, Inc. was changed to KnowledgeBroker,
Inc.
For accounting purposes, the merger between KBI and the public company is
regarded as an acquisition by the public company of substantially all of the
outstanding stock of KBI and is accounted for as a recapitalization of KBI
with KBI as the acquirer (a reverse acquisition). Accordingly, the historical
financial statements included herein are those of KBI.
Revenue Recognition
The Company recognizes revenue related to "help desk" support functions in
accordance with its "standard take or pay" contract with its client companies
whereby each client company contracts on a "per support call" basis with a
specified minimum per month. These contracts are billed monthly for the
duration of the contract. Customer payments made in advance are recorded as
deferred revenue until earned.
The Company recognizes revenue related to software sales, royalties, and
licensing at the point of shipment/billing to the customer other than for
software sales for which the Company extends a limited evaluation period. For
these sales, the Company records revenue after the evaluation period has
expired, based on a historical "actual" acceptance rate.
(Continued)
F-9
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Product Development Costs and Expenses
The Company follows the guidelines of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", whereby all costs and expenses related to research and
development, prior to the determination of technological feasibility, as
defined, are charged to expense. All significant costs incurred for product
design and development from the point that technological feasibility is
determined up to the point that the product is available to be sold, leased
or otherwise marketed are capitalized and are amortized on a straight line
basis over the estimated useful life of the technology. To date, product
design and development costs after establishing technological feasibility
have not been significant to the Company's financial statements and have been
expensed. Costs for product maintenance, including conversions to different
operating systems and customer support are charged to expense as incurred.
Financial Instruments and Concentrations of Credit Risk
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers. Management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which will eventually
become uncollectible. In the event of complete non-performance of accounts
receivable, the maximum exposure to the Company is the recorded amount on the
books.
Cash and cash equivalents are at risk to the extent it exceeds Federal
Deposit Insurance Corporation insured amounts ($111,577 at December 31, 1997,
and zero at December 31, 1996.) To minimize the risk, the Company places its
cash and cash equivalents with high credit quality financial institutions.
The carrying amounts of accounts receivable, accounts payable, and notes
payable approximate their fair values.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, certificates of deposits
and other highly-liquid investments with original maturities of three months
or less to be cash and cash equivalents.
Marketable Securities
Marketable securities consist of preferred stock issued by a large financial
institution. The equity securities are classified as "available for sale" and
are stated at amortized cost which approximates fair market value.
Significant unrealized gains and losses resulting from changes in fair market
value are reflected as a separate component of shareholders' equity and
charged or credited to the statement of operations when realized.
Property and Equipment
Property and equipment other than software costs are recorded at the lower of
cost or estimated fair market value (which is less than founders' cost) at
the date of acquisition. Depreciation expense is computed using the
straight-line method over the estimated useful lives (generally 5 to 7 years)
of the related assets. Software purchased for internal use is recorded at
cost and is amortized on a straight-line basis over a five year period.
(Continued)
F-10
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company provides for income taxes by utilizing the asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average number of
common shares outstanding during each respective year. Common stock
equivalents that would have had an anti-dilutive effect were excluded from
the calculation.
Advertising Costs
The Company has the policy of expensing advertising costs as incurred. Total
advertising costs charged to expense was $26,947 and $29,209, for the years
ended December 31, 1997 and 1996, respectivley.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
Impact of Year 2000 (Unaudited)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will not be
required to modify or replace significant portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. The Company believes the Year 2000 Issue will not pose
significant operational problems for its computer systems.
(Continued)
F-11
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impact of Year 2000 (Unaudited) (Continued)
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. However, there can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems. The total cost
of the Year 2000 project is not expected to be significant.
NOTE 2: PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
1997 1996
----------- -----------
Furniture and fixtures $ 33,845 $ 33,845
Computer equipment 166,288 156,694
Office equipment 20,520 17,645
Automobiles 15,303 15,303
Software costs 59,209 55,061
--------- ----------
$ 295,165 $278,548
========= ========
NOTE 3: NOTE PAYABLE
The Company has a line of credit note payable to a bank with a maximum
facility of $150,000. The note payable bears interest due monthly at the
bank's prime lending rate plus one percent(9.5% at December 31, 1997) and
matures in April, 1998. The note payable is collateralized by the marketable
securities and all equipment, accounts receivable, and intangibles of the
Company. The note has subsequently been renewed and matures in May 2001.
NOTE 4: MERGER COSTS AND PREPAID EXPENSES
During February 1995, the Company entered into a consulting agreement with
Halter Capital Corporation ("HCC"), whereby HCC would provide expertise
relating to publicly-held companies, securities, and general corporate law,
in exchange for 98,439 shares of the Company's common stock. The portion of
the consulting agreement related to merger and fund raising expenses,
$62,500, and $20,000 for other merger and fund raising expenses has been
charged to additional paid-in capital. The balance of the value assigned to
the consulting agreement, $62,500, is being amortized on a straight-line
basis over eighteen months, the period of the agreement.
F-12
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 5: LITIGATION SETTLEMENT AND ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1996, include the balance of a
litigation settlement finalized in February 1996 in the amount of $209,047
and $320,202 respectively. The total settlement amount was $349,998 of which
the Company paid $100,000 in cash and issued 71,428 shares of stock valued at
$3.50 in 1996. According to the settlement agreement, the Company is required
to buy back the shares if the Company fails to offer the opportunity to sell
the stock on the open market. The buy back price is between $3.50 and $5.00
per share.
In 1996, in a separate action, the Company accrued $70,000 for the settlement
of additional litigation.
The Company also settled a dispute in 1996 with the Internal Revenue Service
questioning the status of workers treated as contractors. At December 31,1997
and 1996, the amounts included in accrued liabilities related to that
settlement were $129,974 and $118,653 respectively.
NOTE 6: STOCK OPTIONS AND WARRANTS
As a performance incentive and in order to encourage ownership of common
stock, the Company has adopted its 1995 Stock Compensation Plan (the "Plan").
Accordingly, 900,000 shares of common stock have been reserved for issuance
under the Plan pursuant to the exercise of options or the grant of restricted
stock awards. As of December 31, 1995, the Company had granted options to
acquire an aggregate of 607,750 shares of common stock. No additional options
have been granted since December 31, 1995. Unless extended or earlier
terminated, the Plan will terminate on the day prior to the tenth anniversary
of its effective date.
The Plan provides for the grant of "incentive stock options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonqualified stock options and restricted stock awards (collectively referred
to as "Awards"). Options are exercisable during the period specified in each
option agreement and will be exercisable in accordance with a vesting
schedule to be designated by the Committee. The options granted have an
exercise price of $2.00.
Following is a summary of option activity under the Plan:
<TABLE>
<CAPTION>
Option Price
----------------------------
Shares Per Share Total
-------- ------------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1994 - $ - $ -
Granted 607,750 2.00 871,000
Exercised (431,250) 2.00 (862,500)
Canceled (176,500) 2.00 (8,500)
-------- ---------
Outstanding at December 31, 1995 - $ -
============ =========
</TABLE>
On July 24, 1995, the Company issued 9,500 units to one individual at a
subscription price of $2.25 per unit. Each unit consisted of (i) one share of
Common Stock, (ii) nine class A warrants which enable the holder to purchase
one share of Common Stock for each such warrant at a price of $2.00 per share
for a period of three months after July 24, 1995 unless extended, and (iii)
ten class B warrants which enable the holder to purchase one share of Common
Stock for each such warrant at a price of $3.00 per share for a period of
three months after its issuance unless extended. By corporate resolution, the
warrant exercise prices for class A and B warrants were reduced to $2.00 and
$1.00, respectively. As of December 31, 1997, the individual had exercised an
additional 40,500 class A warrants for an aggregate price of $40,500 and had
an aggregate of 95,000 class B warrants still available to be exercised. The
95,000 Class B warrants have been extended through December 31,1999.
F-13
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 7: INCOME TAXES
Deferred income tax assets and liabilities at December 31, 1997 and 1996
consist of the following:
1997 1996
Current deferred tax asset $101,818 $262,832
Current deferred tax liability - -
Less valuation allowance (101,818) (46,399)
-------- --------
Net current deferred tax asset $ - $216,433
======== ========
Non-current deferred tax asset $ - $190,488
Non-current deferred tax liability (14,932) (43,459)
Less valuation allowance 14,932 (27,616)
--------- --------
Net non-current deferred tax asset $ - $119,413
======== ========
The current deferred tax asset results primarily from the deduction of
allowances for doubtful accounts for financial reporting purposes to be
deducted for Federal income tax purposes once written off and revenue
deferred for financial reporting purposes. The non-current deferred tax asset
results from the benefit of net operating loss carryforwards. The non-current
deferred tax liability results from the use of statutory accelerated tax
depreciation and amortization methods for Federal income tax reporting
purposes.
The components of federal income tax expense are as follows:
1997 1996
----------- --------
Current $ - $ -
Deferred 335,846 -
-------- --------
Total federal income tax expense $335,846 $ -
======== ========
(Continued)
F-14
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 7: INCOME TAXES (CONTINUED)
The Company's income tax expense differed from the statutory Federal rate of
34% in 1997 and 1996 as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Statutory rate applied to (loss)
before income tax expense $(154,370) $(228,858)
Change in income taxes resulting from:
Nondeductible Expenses 398,179 (69,354)
State income taxes - (32,800)
Income reported for tax purposes
not for book and other 92,037 331,012
---------- ---------
Total income tax expense $ 335,846 $ -
========= =============
</TABLE>
Net operating loss carryforwards totaling approximately $1,591,000 which
begin to expire in 2010 are available to offset the Company's future income
tax liability.
NOTE 8: COMMON STOCK AND RELATED PARTY TRANSACTIONS
Shareholder loans arise in the normal course of business, are non-interest
bearing, and are due on demand. Amounts due to shareholders include amounts
due for compensation, contribution of assets at fair market value (which is
less than founders' cost), and expenses reimbursable to the shareholders.
Issuances of shares for compensation during 1997 and 1996 were valued at the
fair market value of the stock at the respective dates of issuance.
At December 31, 1996, notes receivable in connection with stock issued
pursuant to stock options exercised amounted to $557,698. The notes
receivable bear interest at 8.75% and were due at various dates in 1997.
Those notes receivable were canceled in late 1997 due to non-payment and the
corresponding stocks canceled.
NOTE 9: ECONOMIC DEPENDENCE
In 1997, the Company derived approximately 57% of its revenue from six (6)
customers. In 1996, the Company had no one customer which accounted for
greater than 10% of its total revenue.
The following customers exceeded 10% of total revenues for their respective
years:
1997 1996
-------- --------
Toshiba 45.6% -
CompUSA 16.2% -
F-15
<PAGE>
KNOWLEDGEBROKER, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997 AND 1996
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities and certain office equipment under a
long-term operating lease agreement. The office lease commenced on October 1,
1995 and expires on September 30, 2000 and requires monthly rental payments
ranging from approximately $1,400 to $1,900 over the life of the lease. Rent
expense for the years ended December 31, 1997 and 1996 amounted to $42,520
and $36,409, respectively. Future minimum lease payments at December 31, 1997
are as follows:
Year ending December 31, Amount
1998 $ 19,752
1999 21,480
2000 19,340
Total $ 60,572
========
In the course of conducting its business, the Company is involved in various
lawsuits and related proceedings, the outcome of which is not anticipated to
be material to the Company's financial position.
NOTE 11: ACCRUED LIABILITIES
At December 31, 1997 and 1996, accrued liabilities consisted of the
following:
1997 1996
----------- -----------
Accrued Commission $ 38,977 $ 2,556
Accrued Salaries 100,234 89,802
Payroll Taxes Payable 41,072 1,615
Other Taxes Payable - 11,230
Accrued Lawsuit Liabilities 209,047 320,202
IRS Settlement 129,974 118,653
Other Accrued Liabilities - 744
------------- -----------
$519,304 $544,802
======== ========
F-16
<PAGE>
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.
/s/ Brad Stanley
- ------------------------------------
Brad Stanley, President
/s/ Sharon Stanley
- ------------------------------------
Sharon Stanley, Principal Accounting and Financial Officer
Date: January 18, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Brad Stanley Director January 18, 2000
- ------------------------------------
Brad Stanley
/s/ Sharon Stanley Director January 18, 2000
- ------------------------------------
Sharon Stanley
/s/ James Alexander Director January 18, 2000
- ------------------------------------
James Alexander
/s/ Gail Wetmore Director January 18, 2000
- ------------------------------------
Gail Wetmore
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 199,171
<SECURITIES> 51,000
<RECEIVABLES> 106,255
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 452,399
<PP&E> 295,165
<DEPRECIATION> 193,222
<TOTAL-ASSETS> 557,431
<CURRENT-LIABILITIES> 1,067,044
<BONDS> 0
0
0
<COMMON> 92,970
<OTHER-SE> 1,017,616
<TOTAL-LIABILITY-AND-EQUITY> 557,431
<SALES> 1,944,778
<TOTAL-REVENUES> 1,944,778
<CGS> 800,654
<TOTAL-COSTS> 2,384,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 65,427
<INTEREST-EXPENSE> 56,094
<INCOME-PRETAX> (454,031)
<INCOME-TAX> 335,846
<INCOME-CONTINUING> (789,877)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789,877)
<EPS-BASIC> (0.08)
<EPS-DILUTED> 0
</TABLE>
