UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period ended September 30, 2002
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
KNOWLEDGEMAX, INC.
(Exact name of Registrant as specified in its charter)
Delaware, USA 52-2151837
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Commission File No. 0-29974
7900 Westpark Drive, Suite T-300, McLean, Virginia 22102-4233
(Address of Principal Executive offices)
Issuer's Telephone Number: (703) 893-1800
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Shares with $0.001 par value
(Title of Class)
Check whether the registrant (1) has 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) has been
subject to such filing requirements for the past 90 days.
Yes /x/ No / /
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
180,483,066 common shares with $0.001 par value as of September 30,
2002.
Index to Exhibits on Page 18
KNOWLEDGEMAX, INC.
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended September 30, 2002
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................1
Condensed consolidated balance sheets as of
September 30, 2002 and December 31, 2001
Condensed consolidated statements of operations for the
three and nine months ended September 30, 2002 and 2001
Condensed consolidated statements of cash flows for the
nine months ended September 30, 2002 and 2001
Notes to condensed consolidated financial statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............10
Item 3. Qualitative and Quantitative
Disclosure about Market Risk...............................16
Item 4. Controls and Procedures....................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................17
Item 2. Changes in Securities and Use of Proceeds..................17
Item 3. Defaults upon Senior Securities............................18
Item 4. Submission of Matters to a Vote of
Securities Holders.........................................18
Item 5. Other Information..........................................18
Item 6. Exhibits and Reports on Form 8-K...........................18
ii
Forward-Looking Statements Disclosure
This document, including information incorporated by reference, and
future filings by Knowledgemax, Inc. (the "Company") on Form 10-K,
Form 10-Q and Form 8-K and future oral and written statements by the
Company and its management, may contain forward-looking statements
about the Company and its subsidiary which we believe are within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, without limitation,
statements with respect to anticipated future operating and
financial performance, and funding and growth opportunities expected
or anticipated to be realized by management. Words such as "may,"
"could," "should," "would," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended to
identify these forward-looking statements. The important factors we
discuss below and elsewhere in this document, as well as other
factors discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this
document and identified in our filings with the SEC, and those
presented elsewhere by our management from time to time, could cause
actual results to differ materially from those indicated by the
forward-looking statements made in this document:
- - our reliance on a limited number of clients;
- - our ability to raise sufficient funds to meet our operating
requirements;
- - the timely development of and acceptance of our new products
and services and the perceived overall value of these products
and services by users, including the features, pricing and
quality compared to competitors' products and services;
- - our ability to repay the debt and obligations incurred;
- - complexities involved in implementing and integrating our
services;
- - fluctuations in revenues and operating results;
- - the impact of technological changes;
- - dependence on a small number of vendors and service providers;
- - our ability to retain employees;
- - litigation;
- - our success at managing the risks involved in our business;
and
- - the strength of the United States economy in general and the
strength of the local economies in which we conduct our
operations.
Forward-looking statements by the Company and its management are
based on beliefs, plans, objectives, goals, expectations,
anticipations, estimates and intentions of management and are not
guarantees of future performance. The Company disclaims any
obligation to update or revise any forward-looking statements based
on the occurrence of future events, the receipt of new information,
or otherwise.
The Company has changed its independent certified public
accountants. On September 27, 2002 the Company filed a Form 8-K,
Current Report, indicating changes in the Company's certifying
accountant. The review required by independent auditors under
Regulation S-X of the Securities Exchange Act of the financial
information contained in the quarterly reports on Form 10-Q for the
quarters ended June 30, 2002 and September 30, 2002 have not been
completed as of the date hereof. Upon completion of our independent
auditor's review, we will promptly file an amendment indicating the
results thereof.
iii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements
KNOWLEDGEMAX, INC.
Nine month periods ended September 30, 2002 and 2001
(Unaudited)
1
Knowledgemax, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
=============================================================================
September 30, December 31,
2002 2001
- -----------------------------------------------------------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 26,620 $ 80,633
Accounts receivable 182,078 149,011
Prepaid expenses and other current assets 117,533 53,222
- -----------------------------------------------------------------------------
Total current assets 326,231 282,866
Property and equipment, net 134,763 165,309
Other assets, net 150 600
- ----------------------------------------------------------------------------
Total assets $ 461,144 448,775
=============================================================================
Liabilities and Stockholders' Deficit
Current liabilities
Bank line of credit $ 59,601 72,970
Line of credit - related party - 200,000
Accounts payable 1,211,972 535,260
Accounts payable - related party 58,920 46,901
Accrued expenses 386,389 208,997
Salaries payable 269,761 122,570
Current installments of obligations
under capital leases 44,512 41,347
Notes payable 880,468 94,716
Notes payable - related party 300,423 159,909
- -----------------------------------------------------------------------------
Total current liabilities 3,212,046 1,482,670
Notes payable - related party - 573,511
Notes payable 10,441 18,667
Obligations under capital leases,
excluding current portion 43,500 77,145
- -----------------------------------------------------------------------------
Total liabilities 3,265,987 2,151,993
Commitments and contingencies
Stockholders' deficit:
Preferred stock, par value $.01,
5,000,000 shares authorized
Series A convertible preferred stock
(voting), $.01 par value,
330,000 shares designated, -0- and 328,610
shares issued and outstanding, respectively
(liquidation preference of $603,151) - 3,286
Series B convertible preferred stock
(voting), $.01 par value, 775,000 shares
designated, -0- and 928,3988 shares
issued and outstanding respectively
(liquidation preference of $1,484,373) - 9,284
Common stock, $.001 par value, 300,000,000
shares authorized, 180,483,066 and
2,011,315 shares issued and
outstanding, respectively 180,483 20,113
Additional paid-in capital 7,535,227 5,836,416
Accumulated deficit (10,520,553) (7,572,317)
- -----------------------------------------------------------------------------
Total stockholders' deficit (2,804,843) (1,703,218)
- -----------------------------------------------------------------------------
Total liabilities and stockholders' deficit $ 461,144 $ 448,775
=============================================================================
See accompanying notes to condensed consolidated interim financial statements.
2
Knowledgemax, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
=======================================================================================================
Three months ended Six months ended
September 30, September 30,
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------
Revenue $ 275,615 $ 209,048 $ 900,314 $ 355,983
Costs of revenue - related party 91,241 177,245 303,712 177,470
Costs of revenue 164,029 13,162 529,294 137,906
- -------------------------------------------------------------------------------------------------------
Gross profit 20,345 18,641 67,308 40,607
Operating expenses:
Research and development 213,575 102,301 687,906 239,474
General and administrative 688,459 375,204 2,137,932 787,238
- -------------------------------------------------------------------------------------------------------
Total operating expenses 902,034 477,505 2,825,838 1,026,712
- -------------------------------------------------------------------------------------------------------
Loss from operations (881,689) (458,864) (2,758,530) (986,105)
Interest income 803 - 803 -
Interest expense (59,508) (38,345) (190,509) (86,898)
- -------------------------------------------------------------------------------------------------------
Loss before income taxes (940,394) (497,209) (2,948,236) (1,073,003)
Income taxes - - - -
- -------------------------------------------------------------------------------------------------------
Net loss $ (940,394) $ (497,209) (2,948,236) (1,073,003)
=======================================================================================================
Basic and diluted net loss per share $ (0.01) $ (0.01) $ (0.03) $ (0.03)
Weighted average shares
Basic and diluted 180,483,066 41,803,389 114,166,542 39,969,515
See accompanying notes to condensed consolidated interim financial statements.
3
Knowledgemax, Inc.
Condensed Statements of Cash Flows
(Unaudited)
=================================================================================
Nine months ended
September 30,
2002 2001
- ---------------------------------------------------------------------------------
Cash flows used in operating
activities:
Net loss $ (2,948,236) $ (1,073,003)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 52,229 41,075
Isssuance of common stock
for services 209,200 328,033
Warrant expense 102,372 21,460
Non-cash stock compensation
expense 48,269 7,755
Other - 6,286
Non-cash conversion of accrued
interest into Series B
convertible preferred stock 21,168 -
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (30,824) (151,800)
(Increase) decrease in prepaid
expenses and other assets 7,598 (5,000)
Increase (decrease) in accounts
payable and accrued expenses 668,011 92,263
- ---------------------------------------------------------------------------------
Net cash used in operating
activities (1,870,213) (731,931)
Cash flows from investing
activities:
Purchases of property and equipment (16,671) (2,015)
- ---------------------------------------------------------------------------------
Net cash used in investing
activities (16,671) (2,015)
Cash flows from financing
activities:
(Repayments on) proceeds from
line of credit (13,369) (16,117)
Repayments on capital leases (30,480) (7,601)
Repayments on notes payable (7,348) -
Proceeds from issuance of
notes payable related party 50,000 -
Repayment in notes payable related party (136,813) -
Proceeds received from merger 1,170,881 -
Proceeds from issuance of notes payable (800,000) 70,000
Proceeds from issuance of Series B
convertible preferred stock - 602,500
Proceeds fomr issuance of Series B
convertible notes - 125,000
- ---------------------------------------------------------------------------------
Net cash provided by financing
activities 1,832,871 773,782
- ---------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (54,013) 39,836
Cash and cash equivalents,
beginning of period 80,633 11,188
- ---------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 26,620 $ 51,024
=================================================================================
Supplemental disclosure of
cash flow information:
Interest paid $ 30,293 $ 16,754
=================================================================================
Supplemental disclosure of
noncash activities:
Assets acquired under capital lease - 78,034
Conversion of accounts payable
to notes payable - 132,818
Exercise of warrant in exchange for
line or credit related party 200,000 -
Conversion of accrued salaries into
common and Series B convertible
preferred stock 177,920 50,000
Conversion of notes payable related
party and accrued interest to Series B
convertible preferred stock 219,670 -
See accompanying notes to condensed consolidated interim financial statements.
4
Knowledgemax, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2002 and 2001
(1) Description of Operations
Knowledgemax, Inc. (the "Company") has developed an eBusiness supply
chain and delivery system for commercially available learning and
knowledge products and customer proprietary information. The Company
generates revenue from the sales of 3rd party materials including books,
learning materials, videos and CDs, to its customers. The Company develops
and maintains the customer tailored eSourcing infrastructure through a
co-branded eBusiness model.
The Company began generating revenues in May 2001, with a contract
to provide the bookstore and knowledge and learning resource center
to a Fortune 100 Corporation.
In May 2002, the Company completed the planned merger with Sideware
Systems, Inc. as more fully described in the Form 10-Q for the
period ended June 30, 2002 and in the Form 8-K and Form 8-K/A filed
with the Securities and Exchange Commission on May 21, 2002 and
September 23, 2002, respectively.
(2) Basis of Presentation
The condensed consolidated financial statements have been prepared
by the Company in accordance with accounting principles generally
accepted in the United States of America and reflect all adjustments
(all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for fair presentation of the
interim financial information.
The condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to those rules and
regulations, but the Company believes that the disclosures are
adequate to make the information presented not misleading. These
unaudited condensed consolidated financial statements and notes
included herein should be read in conjunction with the audited
financial statements and notes for the year ended December 31, 2001
in Form 8-K/A for Knowledgemax and Form 10-K for Sideware and Forms
10-Q for Sideware and Knowledgemax as filed with the Securities and
Exchange Commission.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for any subsequent
quarter or for the entire year ending December 31, 2002.
(3) Risks and Uncertainties - Liquidity and Capital Resources and
Competitive Environment
The Company's growth has required, and will continue to require,
substantial capital to fund expanding working capital needs, new
business initiatives and capital expenditures. To date, the funding
of these requirements has come primarily from investors.
While investors have historically provided the required funding,
they have no obligation to continue to do so. The Company intends
to seek additional financing from investors, which funding may be in
the form of debt, equity, or some combination thereof. There can be
no assurance of continued funding by investors or other sources or
that such funding will be on terms favorable to the Company.
5
The Company expects to continue to focus on developing and enhancing
its software and website applications as well as expanding its
service offerings and revenues; however, the Company anticipates
generating operating losses and negative cash flows from operations
for the foreseeable future. The markets the Company are pursuing
are highly competitive and there can be no assurance that the
Company's service offerings will be successful, or that the Company
will ever generate operating profits or positive cash flows.
The Company has a limited operating history and its prospects are
subject to the risks, expenses, and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for
Internet products and services. These risks include the failure to
develop a viable online delivery service, inability to maintain and
increase its customer base and interruptions of service from the
Internet service provider that hosts the Company's web site, as well
as other risks and uncertainties.
The Company has experienced operating losses and negative cash flows
from operations since its inception, has working capital and
stockholders' deficiencies and has been unable to repay certain
obligations when due. These factors described above, either
individually or in the aggregate, could have an adverse effect on
the Company's financial condition and future operating results and
create an uncertainty as to the Company's ability to continue as a
going concern. The unaudited condensed interim financial statements
do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
(4) Merger of the Company
Sideware Systems Inc., a Yukon Territory, Canada corporation
("Sideware") completed its merger with Knowledgemax, Inc., a
Delaware corporation ("Old Knowledgemax") whereby Sideware
reincorporated into the State of Delaware, becoming a Delaware
corporation, KM Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Sideware merged into Old Knowledgemax,
whereby Old Knowledgemax was the surviving corporation, and Old
Knowledgemax changed its name to "Knowledgemax Learning, Inc."
Immediately following this transaction, the Company changed its
corporate name from Sideware to "Knowledgemax, Inc."
On December 7, 2001, Sideware entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") with Old
Knowledgemax and KM Acquisition Corp. On May 20, 2002, the merger
was consummated by KM Acquisition Corp. merging with and into Old
Knowledgemax, with Old Knowledgemax the surviving corporation,
resulting in Old Knowledgemax becoming a wholly owned subsidiary of
the Company. In the merger, Old Knowledgemax stockholders
received 24.82 shares of the Company common stock for each share of
Old Knowledgemax common stock that they held, and the Company
assumed the obligations of Old Knowledgemax under its outstanding
stock options (with each former Old Knowledgemax option converting
into an option to purchase 24.82 shares of the Company common stock.
An aggregate of 94,427,331 shares of the Company common stock were
issued to former Old Knowledgemax stockholders in the merger and
options to purchase Old Knowledgemax shares converted into options
to purchase 16,660,251 shares of the Company common stock in
connection with the assumption of the Old Knowledgemax options.
The shares issued to the former Old Knowledgemax stockholders in the
merger represent approximately 52.48% of the registrant's issued and
outstanding common stock immediately following the merger.
Immediately following the closing of the merger, including the Old
Knowledgemax options assumed by the Company, former Old Knowledgemax
stockholders and option holders owned or had the right to acquire
55% of the fully diluted common shares of the Company. Accordingly,
the merger constitutes a change of control of the Company.
As the merger resulted in the stockholders of Old Knowledgemax
owning greater than 50% of the merged entity, the merger is treated
as an acquisition of the net assets of Sideware by Old Knowledgemax.
This means that the assets of Sideware are valued at their fair
market value and that value is assigned to the equity instruments
deemed issued by Old Knowledgemax. In addition, as Old Knowledgemax is
6
considered to have acquired Sideware's net assets, the historical
financial statements of the Company will reflect Old Knowledge Max's
operations to the date of the merger and combined with Sideware's thereafter.
Additionally, as a prerequisite to the merger, immediately prior to
completing the merger, Sideware changed its corporate jurisdiction
from the Yukon Territory of Canada to the State of Delaware, by
reincorporating under the General Corporation Law of Delaware.
(5) Summary of Significant Accounting Policies - Revenue Recognition
The Company recognizes revenue from the sale of 3rd party materials
such as books, learning materials, videos and CDs, net of any
discounts or promotions, when the materials are received and
accepted by the customer. The Company takes title to the materials
upon transfer from the shipper and assumes risks and rewards of
ownership including risk of loss while the products are in transit
to the customer and for collection of billings to the customer. The
Company does not act as an agent or broker for the supplier.
Shipping charges assessed to the customer are included in net sales,
and the associated expenses are included in cost of revenue. There
were no material discounts or promotions during the three-month and
nine-month periods ended September 30, 2002.
(6) Equity Transactions
Effective with the merger, each Old Knowledgemax share was converted
into 24.8163 shares of the combined Company. The Company issued
94,427,331 shares to the Old Knowledgemax shareholders in connection
with the merger.
Also, effective upon the merger, 328,610 shares of Series A
Convertible Preferred Stock and 1,006,266 shares of Series B
Convertible Preferred Stock were converted into 1,334,876 shares of
common stock and subsequently exchanged for 33,126,683 shares in the
combined Company.
The following equity transactions, which occurred prior to the
merger date, are stated at the post-merger share quantity.
Prior to the merger for the nine months ended September 30, 2002,
Old Knowledgemax granted 2,593,390 options to purchase common stock
at exercise prices between $0.12 and $0.13 per share. After the
merger, the Company granted 250,000 options at a price of $0.065 per
share.
For the three months ended March 31, 2002, the Company issued
584,895 shares of common stock to a third party developer to settle
a related party note payable and accrued interest totaling $70,000.
The Company also issued 1,488,978 shares of common stock for
services rendered to the Company for $178,200.
During the nine months ended September 30, 2002, the Company issued
1,250,593 shares of common stock to a law firm to settle a related-
party note payable and accrued interest totaling $149,670.
The Company also issued 77,104 shares of Series B convertible
preferred stock for interest totaling $9,228.
In connection with the merger, the Company issued 8,331,576 shares
to the related party book distributor pursuant to the exercise of
the warrant for $200,000, which was exchanged for a line of credit
balance due from the Company.
Subsequent to the merger, the Company issued 240,000 shares of
common stock in the combined Company to consultants for services
totaling $31,000.
7
(7) Notes Payable
In April 2001, the Company received a $70,000 loan from Montgomery
County, Maryland, the county in which the Company was previously
located. The loan bears interest at 10% and is due 5 years from the
date of issuance provided that the Company meets certain
requirements such as maintaining a presence in the county. The
Company's decision to terminate its office lease effective February
2002 and its relocation outside of the county violates the
provisions of the agreement. The county has requested repayment of
the note and accrued interest of approximately $80,000 by October
31, 2002. The Company has requested a waiver of the default and an
extension of the loan.
In July 2002, the Company executed a loan and security agreement
with an investment bank and received $800,000 provided under this
revolving line of credit arrangement. The line of credit is for a
maximum of $800,000 with interest at 10%, for a period of six
months. The line of credit was fully used at September 30, 2002.
The line of credit is secured under a junior security agreement with
all of the assets of the Company. The agreement also calls for the
issuance of up to 2,050,000 warrants to purchase the Company's
common stock at $0.10 per share, for a period of three months, and
an additional 2,050,000 warrants to purchase the Company's common
stock at $0.10 per share, if the line of credit is extended for an
additional three months. On November 1, 2002, the Company extended
the line of credit for an additional three months.
The fair value of the warrant on the date of grant of $45,377, was
recorded as a deferred financing fee, posted as a contra liability
account, reducing the carrying amount of the loan balance and increasing
additional paid in capital. This deferred financing fee is being
charged to interest expense from July 29, 2002 through November 1, 2002,
the period of the note. The amortized portion of the deferred financing
fee charged to operations in the three-month period ended
September 30, 2002 was $30,251. The fair value was estimated using the
Black-Scholes option pricing model with the following assumptions:
expected life of 5 years, expected volatility of 70%, expected dividend
yield of 0%, and risk free interest rate of 3.75%.
The Company was in technical default of the loan agreement as of
December 24, 2002.
On December 11, 2002, the Company executed an amendment to the agreement
with the investment bank to increase its line of credit from $800,000
to $1,000,000 (at the same interest rate of 10%) and to extend the credit
line due date from January 31, 2003 until June 30, 2003. The Company used
an additional $100,000 of funds available under the line bringing the
outstanding principal balance to $900,000. The Company is required to
raise additional capital in order to extend the credit line further. The
line was previously secured under a junior security agreement by all of
the assets of the Company.
The agreement also calls for the issuance of up to 15,000,000 warrants
to purchase the Company's common stock at $0.01 (one cent) per share that
will replace the previous warrant amounts, terms and conditions. In the
event the line is not repaid on the due date of June 30, 2003, an
additional 500,000 warrants per month (a reduction of 200,000 warrants
from the previous agreement) are due at the average of the previous
5 days trading price.
The fair value of the new warrant on the date of grant was $81,580. The
fair value was estimated using the Black-Scholes option pricing model
with the following assumptions: expected life of 5 years, expected
volatility of 70%, expected dividend yield of 0%, and risk free interest
rate of 3.75%. This amount will be recorded as a deferred financing fee,
and charged to operations.
(8) Earnings Per Share
Weighted average number of shares outstanding have been determined
based upon the equivalent number of shares that would have been
outstanding as contemplated by the merger in Note 4.
8
Loss per share is computed by dividing the net loss by the weighted
average number of shares outstanding. Potential common shares have
not been included in the earnings per share calculation as their
inclusion would be anti-dilutive.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Condensed Financial Statements and the related notes
that appear elsewhere in this document.
OvERVIEW
The Company has developed an eBusiness supply chain and delivery
system for commercially available learning and knowledge products
and customer proprietary information. The Company's main activity
consists of developing the Knowledgemax.com website, third party
content selling, eCommerce and eLearning database platform for
companies to select, purchase and deliver knowledge resources and
education to their employees.
The Company began generating revenues in May 2001, with a
contract to provide the bookstore and knowledge and learning
resource center to IBM.
On May 1, 1998, Knowledgemax, Inc. was incorporated in the State
of Maryland. On September 17, 1998, Leadership Library Limited
Partnership was merged into Knowledgemax, Inc. On September 8,
2000, the Leadership Library, Inc., the former general partner of
Leadership Library, Limited Partnership, was merged into
Knowledgemax, Inc. On August 17, 2000, the Company reincorporated
in the State of Delaware.
The company formerly known as Sideware Systems Inc., a Yukon
Territory, Canada corporation ("Sideware"), completed its merger
with Knowledgemax, Inc., a Delaware corporation ("Old
Knowledgemax"), whereby Sideware reincorporated into the State of
Delaware, becoming a Delaware corporation, in turn, KM
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Sideware merged into Old Knowledgemax whereby Old
Knowledgemax was the surviving corporation, and Old Knowledgemax
changed its name to "Knowledgemax Learning, Inc." Immediately
following this transaction, the Company changed its corporate
name from Sideware to Knowledgemax, Inc.
On December 7, 2001, Sideware entered into an Agreement and Plan
of Merger and Reorganization (the "Merger Agreement") with Old
Knowledgemax and KM Acquisition Corp. On May 20, 2002, the merger
was consummated by KM Acquisition Corp. merging with and into Old
Knowledgemax, with Old Knowledgemax the surviving corporation,
resulting in Old Knowledgemax becoming a wholly owned subsidiary
of the Company. In the merger, Old Knowledgemax stockholders
received 24.82 shares of the Company common stock for each share
of Old Knowledgemax common stock that they held, and the Company
assumed the obligations of Old Knowledgemax under its
outstanding stock options (with each former Old Knowledgemax
option converting into an option to purchase 24.82 shares of the
Company common stock. An aggregate of 94,427,331 shares of the
Company common stock were issued to former Old Knowledgemax
stockholders in the merger and options to purchase Old
Knowledgemax shares converted into options to purchase 16,660,251
shares of the Company common stock in connection with the
assumption of the Old Knowledgemax options.
The commons stock issued to the Old Knowledgemax stockholders in
the merger represented approximately 52.48% of the Company's
issued and outstanding common stock immediately following the
merger. Immediately following the closing of the merger,
including the Old Knowledgemax options assumed by New
Knowledgemax, former Old Knowledgemax stockholders and option
10
holders owned or had the right to acquire 55% of the fully
diluted common shares of New Knowledgemax. Accordingly the merger
constitutes a change of control of Sideware.
These unaudited consolidated financial statements have been
prepared on the going concern basis under which an entity is
considered to be able to realize its assets and satisfy its
liabilities and commitments in the ordinary course of business.
Through the date of these consolidated financial statements the
Company has incurred operating losses and negative cash flow from
operating activities. Operations to date have been financed
primarily by debt and equity transactions. These factors could
have an adverse effect on the Company's financial condition and
future operating results and create an uncertainty as to the
Company's ability to continue as a going concern. The following
discussion does not reflect any adjustments that might be
necessary should the Company be unable to continue as a going
concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has identified the policies below as critical to its
business operations and the understanding of its results of
operations. For a detailed discussion on the application of these
and other accounting policies, see Note 1 of the consolidated
financial statements included in the Company's Annual Financial
Statements as filed on Form 8-K/A dated May 20, 2002, filed on
September 23, 2002. The preparation of this Quarterly Report on
Form 10-Q requires the Company to make estimates and assumptions
that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. There can be no
assurance that actual results will not differ from those
estimates.
Options and warrants: The Company values non-employee option grants
and warrants in accordance with the appropriate accounting guidelines,
using the Black Sholes option pricing model and charges operations
for the expense associates with these grants, for the periods in which
the options are vested and the warrants are granted.
The Company applied APB No. 25 and related interpretations in accounting
for its employee stock options and, accordingly, no compensation cost
has been recognized for its stock options as the exercise price of the
stock options granted is equal to the estimated fair value of the common
stock on the date of grant.
Revenue recognition. The Company's revenue recognition is
significant because revenue is a key component of the Company's
results of operations. In addition, revenue recognition
determines the timing of certain expenses, such as commissions
and royalties. Revenue results are difficult to predict, and any
shortfall in revenue or delay in recognizing revenue could cause
operating
results to vary significantly from quarter to quarter.
Impairment of intangible assets. The Company periodically
evaluates its intangible assets for potential impairment
indicators. Judgments regarding the existence of impairment
indicators are based on legal factors, market condition and
operational performance. Future events could cause the Company to
conclude that impairment factors exist and that certain
intangible assets are impaired. Any resulting impairment loss
could have a material adverse impact on results of operations.
RESULTS OF OPERATIONS
11
The following discussion compares the results of operations for
the three and nine-month periods ended September 30, 2002.
As discussed above, the merger of Sideware and Old Knowledgemax
resulted in the stockholders of Old Knowledgemax owning in excess
of 50% of the Company, requiring the merger be accounted for as
if Old Knowledgemax acquired Sideware. Accordingly, the
historical financial statements of the Company will reflect Old
Knowledgemax's operations to the date of the merger and combined
with Sideware's after the merger. Therefore, these results
include Sideware's results of operations from May 20, 2002 (the
merger date) through September 30, 2002 in accordance with the
purchase method of accounting for the merger. Sideware ceased
operations after the merger and had approximately $8,198 of
trailing income in the period from May 20, 2002 to September 30,
2002, primarily currency translation gains, which are included in
general and administrative expenses.
REVENUES
Three Month Period Ended September 30, 2002 Compared to Three
Month Period Ended September 30, 2001.
Revenues increased 32% in the three-month period ended September
30, 2002 to $275,615 from $209,048 compared to the corresponding
period of the prior year. The Company began generating revenues
in May 2001 and, as such, the September 30, 2002 quarter as well
as the prior year quarter reflects a full quarter of revenue
activity. Most of the increase in revenue was due to increased
volume from the primary customer, IBM. Revenue from non-IBM
customers was $12,639 for the three-month period ending September
30, 2002 and was zero for the prior year period.
The revenue from the primary customer, IBM, has been generated
from a limited number of users of the customer user population,
as the system has not been fully deployed to the full user
community.
The Company's revenue is primarily generated and due from IBM.
During the three-month period ended September 30, 2002, 95% of
revenue was generated from IBM compared to 100% in the
corresponding prior year period.
The Company executed contracts with three new customers during the
quarter ended September 30, 2002, including KPMG International Inc.,
the Newspaper Association of America and Junior Achievement National
Capital Area. None of these clients produced revenue for the quarter
ended September 30, 2002.
Nine Month Period Ended September 30, 2002 Compared to Nine Month
Period Ended September 30, 2001.
Revenue increased 153% in the nine-month period ended September
30, 2002 to $900,314 from $355,983 compared to the corresponding
period of the prior year. As noted above, the Company began
generating revenue in May 2001 and, as such, the nine-month
period ended September 30, 2002 reflects a full nine months of
revenue activity compared just over four months for the prior
year. In the first quarter of 2001, the Company had no revenue.
During the nine-month period ended September 30, 2002, 97% of
revenue was generated from one customer, IBM, compared to 100% in
the corresponding prior year period.
12
COST OF REVENUE
Three Month Period Ended September 30, 2002 Compared to Three
Month Period Ended September 30, 2001.
Cost of revenue for the three-month period ended September 30,
2002 was $255,270, resulting in a gross margin (defined as
revenue less cost of products) of 7%, compared to a cost of
revenue of $190,407 and a gross margin of 9% in the corresponding
period of the prior year. The decrease in margins is due to a
higher proportion of bulk orders in the three month period ended
September 30, 2001, which carry higher margins, compared with a
higher portion of individual orders in the quarter ended
September 30, 2002, which carry lower margins, from the primary
customer. New contracts being negotiated or signed are expected
to contain higher gross margins for individual orders than the
contract with the Company's primary customer.
Nine Month Period Ended September 30, 2002 Compared to Nine Month
Period Ended September 30, 2001.
Cost of revenue for the nine-month period ended September 30,
2002 was $833,006, resulting in a gross margin (defined as
revenue less cost of products) of 7%, compared to a cost of
revenue of $315,376 and a gross margin of 11% in the
corresponding period of the prior year. As noted above, the
margins decreased due a decrease in the proportion of higher
margin bulk orders to lower margin individual orders for the
Company's primary customer.
OPERATING EXPENSES
Three Month Period Ended September 30, 2002 Compared to Three
Month Period Ended September 30, 2001.
Total operating expenses for the three-month period ended
September 30, 2002 were $902,034 compared to $477,505 for the
corresponding period of the prior year. Research and development
expenses increased from $102,301 to $213,575 due to additional
resources hired or contracted by the Company to develop
enhancements to or provide maintenance of its supply chain,
delivery and billing systems. General and administrative
expenses increased from $375,204 to $688,459 due to expenses
related to the securing of additional financing and the office
space leased in January 2002, an increased number of employees
and increased expenses for legal, accounting, and public company
compliance.
Nine Month Period Ended September 30, 2002 Compared to Nine Month
Period Ended September 30, 2001.
Total operating expenses for the nine-month period ended
September 30, 2002 were $2,825,838 compared to $1,026,712 for the
corresponding period of the prior year. Research and development
expenses increased from $239,474 to $687,906 due to the increased
research and development activities mentioned above. Similarly,
general and administrative expenses increased from $787,238 to
$2,137,932 due to the activities noted above.
As of September 30, 2002, the Company had 16 employees.
INTEREST EXPENSE
13
Three Month Period Ended September 30, 2002 Compared to Three
Month Period Ended September 30, 2001.
Interest expense for the three-month period ended September 30,
2002 was $59,508 compared to $38,345 for the corresponding prior
year period. This change was due to the amortization of the
warrant expense incurred with the line of credit agreement in
July 2002. During the second quarter of 2002, certain notes
payable, and associated accrued interest, were converted to
equity.
Nine Month Period Ended September 30, 2002 Compared to Nine Month
Period Ended September 30, 2001.
Interest expense for the nine-month period ended September 30,
2002 was $190,509 compared to $86,898 for the corresponding prior
year period. This increase was due to the average increased debt
incurred during the period compared to the prior year.
NET LOSS
Three Month Period Ended September 30, 2002 Compared to Three
Month Period Ended September 30, 2001.
For the three-month period ended September 30, 2002, the net loss
was $940,394 compared to a net loss of $497,209 for the
corresponding prior period. The combination of decreased gross
margin percentage and increased operating expenses for research
and development and general and administrative purposes resulted
in the increased net loss.
Nine Month Period Ended September 30, 2002 Compared to Nine Month
Period Ended September 30, 2001.
For the nine-month period ended September 30, 2002, the net loss
was $2,948,236 compared to a net loss of $1,073,003 for the
corresponding prior period. The increase in net loss was due to
lower gross margins combined with higher operating expenses
including research and development and general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced continuing operating losses and
negative cash flows from operations since its inception, has
working capital and stockholders' deficiencies and has been
unable to repay certain obligations when due.
The Company is currently in default of some of its debt agreements and
does not have sufficient liquidity to pay its current debts.
While the debt holders have not initiated default proceedings as
of the date of this filing, they have the right and ability to
proceed with all rights and remedies available under the debt
agreements including, but not limited to, attachment of Company
assets, such as cash balances, accounts receivable and fixed
assets.
The Company is negotiating with its debt holders and vendors, and
is working with employees to pay past salaries with any available
funds.
14
The Company is negotiating and working with current funding sources and
potential new investors as well as actively pursuing strategies to sell or
merge the Company.
As of September 30, 2002, the Company held $26,620 in cash and
cash equivalents compared to $80,633 at December 31, 2001.
Working capital (defined as current assets less current
liabilities) at September 30, 2002 was a deficit of $2,885,815
compared to a deficit of $1,199,804 at December 31, 2001. The
decrease in working capital is attributable to the Company's
substantial debt, including increased balances due to vendors and
employees.
Net cash used in operating activities for the nine months ended
September 30, 2002 was $1,870,213, compared to $731,211 for the
nine months ended September 30, 2001. The net cash used in both
periods was primarily the result of funding the Company's net
losses.
Net cash used in investing activities for the nine months ended
September 30, 2002 was $16,671. This was used to purchase
computer equipment, primarily for network security. For the nine
months ended September 30, 2001, net cash used in investing
activities was $2,015 for the purchase of computer hardware.
Net cash provided by financing activities for the nine months
ended September 30, 2002 was $1,832,871, primarily due to $1,170,
881 obtained as part of the merger with Sideware and $800,000
provided by a line of credit arrangement with an investment bank
executed on July 29, 2002. The line of credit is for $800,000
with interest at 10%, for a period of six months. The line was
fully used at September 30, 2002. The line is secured under a
junior security agreement with all of the assets of the Company.
The agreement also calls for the issuance of up to 2,050,000
warrants to purchase the Company's common stock at $0.10 per
share, for a period of three months, and an additional 2,050,000
warrants to purchase the Company's common stock at $0.10 per
share, if the line is extended for an additional three months.
On November 1, 2002, the Company extended the line of credit for
an additional three months.
On December 11, 2002, the Company executed an amendment to the
agreement with Crosshill Georgetown Capital Partners to increase
its line of credit from $800,000 to $1,000,000 (at the same
interest rate of 10%) and to extend the credit line due date from
January 31, 2003 until June 30, 2003. The Company used an
additional $100,000 of funds available under the line bringing
the outstanding principal balance to $900,000. The Company is
required to raise additional capital in order to extend the
credit line further. The line was previously secured under a
junior security agreement by all of the assets of the Company.
The agreement also calls for the issuance of 15,000,000 warrants
to purchase the Company's common stock at $0.01 (one cent) per share
for the period from July 2002 to June 30, 2003, that will replace the
previous warrant amounts, terms and conditions. The term of the
warrants is five years. In the event the line is not repaid on the
due date of June 30, 2003, an additional 500,000 warrants per month
(a reduction of 200,000 warrants from the previous agreement) are due
at the average of the previous 5 days trading price.
For the nine months ended September 30, 2001, net cash provided
by financing activities totaled $773,782, primarily due to
$727,500 in proceeds from the issuance of Series B convertible
preferred stock and Series B convertible notes.
The Company's growth has required, and will continue to require,
substantial capital to fund expanding working capital needs, new
business initiatives and capital expenditures. To date, the
funding of these requirements has come primarily from investors,
15
debt instruments and vendor and employee payables. While
investors have historically provided the required funding, they
have no obligation to continue to do so. The Company intends to
seek additional funding from investors, funding may be in the
form of debt, equity or some combination. There can be no
assurance of continued funding by investors or other sources or
that such funding will be on terms favorable to the Company.
The Company is focusing efforts to raise capital through debt
instruments or equity funding to continue to fund its operations
and satisfy its obligations, however there can be no assurances
that these efforts will be successful.
In the event sufficient additional funding is not received, the
Company may cease operations immediately and/or be forced to
pursue other alternatives, which could include the sale of
assets, bankruptcy or liquidation.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET
RISK
As at September 30, 2002 the Company has not entered into or
acquired financial instruments that have a material market risk.
The Company has no financial instruments for trading or other
purposes and no derivative or other financial instruments with
off balance sheet risk. All financial assets and liabilities
that are due within the next twelve months and are classified as
current assets or liabilities in the consolidated balance sheet
provided with this report. The fair value of all financial
instruments at September 30, 2002 is not materially different
from their carrying value.
16
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in
the Company's filings under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the
periods specified in the rules and forms of the Securities and
Exchange Commission. Such information is accumulated and
communicated to the Company's management, including its Chief
Executive Officer and Acting Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure. The Company's management, including the Chief
Executive Officer and the Acting Chief Financial Officer,
recognizes that any set of controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives.
Within 90 days prior to the filing date of this quarterly report
on Form 10-Q, the Company has carried out an evaluation, under
the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and
the Company's Acting Chief Financial Officer, of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures
are effective.
In the quarter ended September 30, 2002, the Company did not make
any significant changes in, nor take any corrective actions
regarding, our internal controls or other factors that could
significantly affect these controls. Management periodically
reviews the Company's internal controls for effectiveness and
plans to conduct an evaluation of our disclosure controls and
procedures each quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As at the date of this Form 10-Q, we are not involved in any
material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent sales of unregistered securities
In June 2002, the Board of Directors of the Company approved the
granting of 240,000 common shares issued in lieu of consulting
services.
(a) In July 2002, the Company authorized the issuance of up to
2,050,000 warrants to purchase the Company's common stock at
$0.10 per share, for a period of three months, and an additional
2,050,000 warrants to purchase the Company's common stock at
$0.10 per share, if the line is extended for an additional three
months. The warrant agreement was amended in December 2002 to
reflect the issuance of 15,000,000 warrants for a term of 5 years,
priced at $.01/ share, to replace the 2,050,000 warrants and warrant
extension that reflect the total warrants issued from July, 2002
until June, 2003 per the Crosshill agreement.
(b) Not applicable
17
(c) Consideration: The Company executed a line of credit
agreement with an investment bank. The line of credit is for
$800,000 with interest at 10%, for a period of six months. The
line was fully used at September 30, 2002. The line is secured
under a junior security agreement with all of the assets of the
Company. The warrants were additional consideration for the line
of credit agreement.
(d) The warrants were issued pursuant to a Regulation D
exemption, to a qualified accredited investor.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
99.2 Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
B. Reports on Form 8-K
On December 20, 2002, the Company filed a current report on Form
8-K to report the sale and disposition of assets, the preliminary
results of operations for the quarter ended September 30, 2002,
the increase in the Company's line of credit and the change in its
status of its attorney.
On September 23, 2002, the Company filed a current report on Form
8-K/A which amended, under Items 2 and 7, its Form 8-K filed May
21, 2002, to include the financial statements for the Company, pro
forma financial statements relating to the change in control of
the Company, the completion of the merger and related transactions
and it's the Company's name change from Sideware to Knowledgemax,
Inc.
On September 27, 2002, the Company filed a current report on Form
8-K which reported, under Items 4 and 7, a change in the Company's
certifying accountant.
INDEX TO EXHIBITS
Number Exhibit
2.1(7) Agreement and Plan of Merger and Reorganization
(included as Appendix A to the joint proxy statement -
prospectus)
18
2.2(8) Special Warrant Exercise Form dated March 27, 2002 to
Chalk.Com Network (Holding) Corp.
2.3(8) Share Purchase Agreement dated March 27, 2002 between
Sideware Systems Inc. and SYD Enterprises Ltd.
2.4(8) Purchase and Sale Agreement dated March 27, 2002
between Sideware Systems Inc., SYD Enterprises Ltd.,
and Chalk Media Corp.
2.5(8) Share Repurchase Agreement dated March 27, 2002
between Sideware Systems Inc., SYD Enterprises Ltd.,
and Chalk Media Corp.
2.6(8) Irrevocable Direction to Pay dated March 27, 2002 to
Chalk Media Corp. from SYD Enterprises Ltd.
2.7(8) Waiver Agreement dated May 8, 2002 between Sideware
Systems Inc., KM Acquisition Corp., KnowledgeMax,
Inc., SYD Enterprises Ltd., Chalk Media Corp., Grant
Sutherland and James L. Speros
3.1(8) Articles of Incorporation dated May 20, 2002
3.3(8) By-Laws of Knowledgemax, Inc.
10.1(1) Assignment of Lease and Modification of Lease
Agreement dated August 17, 1998 between HOOPP Realty
Inc., Techwest Management Inc., Sideware Systems Inc.,
and BrainTech, Inc.
10.2(2) Lease effective as of July 1, 1999 between the
Company, Techwest Management Ltd., BrainTech, Inc. and
Pacific Centre Leaseholds Ltd.
10.3(2) Assignment Agreement effective as of July 1, 1999
between the Company, Techwest Management Ltd.,
BrainTech, Inc., and SJM Management Ltd.
10.4(6) Change of Control Severance Agreement with Rahul
Bardhan
10.5(7) Change of Control Severance Agreement with James
Speros
10.6(7) Amendment agreement between James Speros and Sideware
10.7(7) Amendment agreement between Rahul Bardhan and Sideware
10.8(6) Assignment of Lease
10.9(3) 2000 Stock Option Plan
10.10(4) Amended 2000 Stock Option Plan
10.11(6) Stock Option Plan (2001)
10.12(7) Sideware 2002 Equity Incentive Plan (included as
Appendix G to the joint proxy statement - prospectus)
10.13(7) Form of stock option agreement under Sideware 2002
Incentive Equity Plan
11.1 Computation of net loss per share
(1) Incorporated by reference to exhibit to Sideware's
Registration Statement on Form 20-F filed in May 1999 (file no.
000-29974)
(2) Incorporated by reference to exhibit to Sideware's
Registration Statement on Form F-1 filed on November 12, 1999
(file no. 333 90893)
(3) Incorporated by reference to exhibit to Sideware's
Registration Statement on Form F-3 filed on April 18, 2000 (file
no. 333 34984)
(4) Incorporated by reference to exhibit to Amendment No. 1 to
Sideware's Registration Statement on Form F-3/A filed on
September 8, 2000 (file no. 333-34984)
(5) Incorporated by reference to exhibit to Sideware's Form 10-
Q for the quarter ended September 30, 2000 filed on November 15,
2000 (file no. 000-29974)
(6) Incorporated by reference to exhibit to Sideware's Form 10-
K for the year ended December 31, 2000 filed on March 23 (file
no. 000-29974)
(7) Incorporated by reference to exhibit to Sideware's
Registration Statement on Form S-4 filed on January 11, 2002
(registration no. 333-76648)
19
(8) Incorporated by reference to exhibit to Knowledgemax,
Inc.'s Form 8-K filed on May 21, 2002 (File number 0-29974)
20
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of
1934, the Registrant has caused this Quarterly Report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: December 26, 2002 Knowledgemax, Inc.
/s/ E. Linwood Pearce
---------------------------------
E. Linwood Pearce
Chief Executive Officer,
Chairman of the Board
(Principal Executive Officer)
/s/ Charles P. Abod II, CPA
---------------------------------
Charles P. Abod II, CPA
Acting Chief Financial Officer,
(Principal Finance and Accounting Officer)
21
CERTIFICATION
I, E. Linwood Pearce, in my capacity to the Company denoted
below, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
KnowledgeMax, Inc.,
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report, and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors:
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
December 26, 2002 /s/ E. Linwood Pearce
-------------------------------
E. Linwood Pearce
Chief Executive Officer,
Chairman of the Board
22
CERTIFICATION
I, Charles P. Abod II, CPA, in my capacity to the Company denoted
below, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
KnowledgeMax, Inc.,
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report, and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors:
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
December 26, 2002 /s/ Charles P. Abod II, CPA
--------------------------------
Charles P. Abod II, CPA
Acting Chief Financial Officer,
23
99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
CERTIFICATION
In connection with the Knowledgemax, Inc. (the "Company") on Form
10-Q for the period ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
"Report"), I, E. Linwood Pearce, Chief Executive Officer and
Chairman of the Board of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
December 26, 2002 /s/ E. Linwood Pearce
-------------------------------
E. Linwood Pearce
Chief Executive Officer and
Chairman of the Board
24
99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
CERTIFICATION
In connection with the Knowledgemax, Inc. (the "Company") on Form
10-Q for the period ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
"Report"), I, Charles P. Abod II, CPA, Acting Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
December 26, 2002 /s/ Charles P. Abod II, CPA
-------------------------------
Charles P. Abod II, CPA
Acting Chief Financial Officer
25
Exhibit 11.1 Computation of net loss per share
Calculation of weighted average common shares outstanding for the
three and nine-month periods ended September 30, 2002.
Three months ended Nine months ended
September 30, September 30,
------------------------ --------------------------
2002 2001 2002 2001
------------------------ --------------------------
Weighted average shares,
Basic and diluted 180,483,066 41,803,389 114,788,494 39,969,515
Net loss $ ( 940,394) $ (497,209) $(2,948,236) $(1,073,003)
Basic and diluted net loss
Per share $ (0.01) $ (0.01) $ (0.03) $ (0.03)
26