GARY S. SAUNDERS
CHAIRMAN & CEO
EKNOWLEDGE GROUP, INC. & SUBSIDIARY
1520 WEST 6TH STREET, SUITE 101
CORONA, CALIFORNIA 92882
(NAME AND ADDRESS OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
- --------------------------------------------------------------------------------
WITH A COPY TO:
KARL E. RODRIGUEZ, ESQ
34700 PACIFIC COAST HIGHWAY, SUITE 303
CAPISTRANO BEACH, CA 92624
(949) 248-9561
FAX (949) 248-1688
- --------------------------------------------------------------------------------
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 000-28881
EKNOWLEDGE GROUP, INC. & SUBSIDIARY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 76-0430898
(JURISDICTION OF INCORPORATION) (I.R.S.EMPLOYER IDENTIFICATION NO.)
1520 W. 6TH STREET, SUITE 101, CORONA, CALIFORNIA 92882
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (909) 372-2800
AS OF JUNE 30, 2001, THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S
COMMON STOCK WAS 24,365,052.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE FINANCIAL STATEMENTS, FOR THE SIX MONTHS ENDED JUNE 30, 2001, INCLUDED
HEREIN HAVE BEEN PREPARED BY THE COMPANY, WITHOUT AUDIT PURSUANT TO THE RULES
AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION. CERTAIN INFORMATION
AND FOOTNOTES DISCLOSURE NORMALLY INCLUDED IN FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES HAVE BEEN CONDENSED OR
OMITTED PURSUANT TO SUCH RULES AND REGULATIONS, ALTHOUGH THE COMPANY
BELIEVESTHAT THE DISCLOSURES ARE ADEQUATE TO MAKE THE INFORMATION NOT
MISLEADING.
2
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
BALANCE SHEET
AS OF JUNE 30, 2001 AND 2000 AND DECEMBER 31, 2000
(unaudited) (unaudited) (audited)
June 30, 2001 June 30, 2000 December 31, 2000
--------------- -------------- ------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents. . . . . . . . . . . 15,719 358,036 33,889
Receivable . . . . . . . . . . . . . . . . . . 1,343 30,084 3,293
Inventory. . . . . . . . . . . . . . . . . . . 4,218 10,708 6,638
Prepaid Expenses . . . . . . . . . . . . . . . 1,875 18,191 3,750
--------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . 23,155 417,019 47,570
PROPERTY AND EQUIPMENT
Furniture and Equipment. . . . . . . . . . . . 83,916 27,853 77,445
Less: Accumulated Depreciation . . . . . . . . (16,553) (1,907) (8,470)
--------------- -------------- ------------------
PROPERTY AND EQUIPMENT, NET. . . . . . . . . 67,363 25,946 68,975
OTHER ASSETS
Deposits - Rent. . . . . . . . . . . . . . . . 7,637 10,606 7,637
Intangible Assets. . . . . . . . . . . . . . . 105,663 16,829 106,505
Less: Accumulated Amortization . . . . . . . . (33,325) (1,683) (16,416)
TOTAL OTHER ASSETS . . . . . . . . . . . . . 79,975 25,752 97,726
--------------- -------------- ------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . 170,493 468,717 214,271
=============== ============== ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable . . . . . . . . . . . . . . . 427,950 3,611 153,478
Accrued Expenses . . . . . . . . . . . . . . . 229,594 92,998
Notes Payable. . . . . . . . . . . . . . . . . 7,500 - 7,500
Deposits Payable . . . . . . . . . . . . . . . 1,200 1,000 1,200
TOTAL CURRENT LIABILITIES. . . . . . . . . . 666,244 4,611 255,176
LONG-TERM LIABILITIES
Note Payable . . . . . . . . . . . . . . . . . 99,995 7,500 75,995
Other Liabilities. . . . . . . . . . . . . . . 4,214 - 5,516
Loans from Shareholders. . . . . . . . . . . . 132,222 - 94,000
--------------- -------------- ------------------
TOTAL LONG-TERM LIABILITIES. . . . . . . . . 236,432 7,500 175,511
--------------- -------------- ------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . 902,675 12,111 430,687
STOCKHOLDER'S EQUITY
Common Stock . . . . . . . . . . . . . . . . . 24,365 19,556 19,556
Additional Paid-in Capital . . . . . . . . . . 1,212,848 766,038 914,762
Accumulated Deficit. . . . . . . . . . . . . . (1,969,395) (328,988) (1,150,734)
--------------- -------------- ------------------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . (732,182) 456,606 (216,416)
-------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 170,493 468,717 214,271
=============== ============== ==================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS AND QUARTERS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
--------------- --------------- --------------- ---------------
Sales. . . . . . . . . . . . . . . . . . . . $ 62,163 $ 36,369 $ 40,460 $ 30,429
Cost of sales. . . . . . . . . . . . . . . . 138,906 76,294 43,916 76,294
--------------- --------------- --------------- ---------------
Gross profit . . . . . . . . . . . . . . . . (76,743) (39,925) (3,456) (45,865)
Selling, general and administrative expenses 741,888 292,676 437,722 245,042
--------------- --------------- --------------- ---------------
Loss before other income & provision
of taxes . . . . . . . . . . . . . . . . . (818,631) (332,601) (441,178) (290,907)
Interest expense . . . . . . . . . . . . . . (86) - - -
Interest income. . . . . . . . . . . . . . . 56 3,769 - 3,769
Other income . . . . . . . . . . . . . . . . - 19,293 - 19,293
--------------- --------------- --------------- ---------------
Loss before provision for income taxes . . . (818,661) (309,539) (441,178) (267,845)
Provision for income taxes . . . . . . . . . - - - -
--------------- --------------- --------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . (818,661) (309,539) (441,178) (267,845)
=============== =============== =============== ===============
Weighted average shares outstanding. . . . . 20,757,930 19,555,556 19,555,556 18,272,223
=============== =============== =============== ===============
Loss per share, basic & diluted. . . . . . . (0.04) (0.02) (0.02) (0.01)
=============== =============== =============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited) (unaudited) (audited)
June 30, 2001 June 30, 2000 December 31, 2000
--------------- --------------- -------------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . $ (818,661) $ (309,539) $ (1,131,285)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization. . . . . . . . . . 24,992 2,338 23,633
Stock Compensation . . . . . . . . . . . . . . . - 58,542 39,875
Consulting Services for Stock. . . . . . . . . . - 10,000 10,000
Receivables. . . . . . . . . . . . . . . . . . . 1,950 (30,084) (3,293)
Inventory. . . . . . . . . . . . . . . . . . . . 2,420 3,513 7,583
Prepaid Expenses . . . . . . . . . . . . . . . . 1,875 (18,191) (3,750)
Deposits - Rent. . . . . . . . . . . . . . . . . - (10,606) (7,637)
Accounts Payable . . . . . . . . . . . . . . . . 274,472 (8,411) 141,456
Accrued Expenses . . . . . . . . . . . . . . . . 136,595 - 92,198
Deposits Payable . . . . . . . . . . . . . . . . - (1,400) (1,200)
Deferred Liab. . . . . . . . . . . . . . . . . . (1,302) 5,516
Income Tax Payable . . . . . . . . . . . . . . . - (800)
---------------
NET CASH PROVIDED BY OPERATIONS. . . . . . . . (377,659) (304,638) (826,904)
--------------- --------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Furniture and Equipment. . . . . . . . . . . . . (6,471) (25,796) (75,388)
Intangible Assets. . . . . . . . . . . . . . . . 842 - (25,000)
Cash acquired through acquisition. . . . . . . . - 500,000 500,000
--------------- --------------- -------------------
NET CASH PROVIDED BY INVESTING . . . . . . . . (5,629) 474,204 399,612
--------------- --------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable. . . . . . . . . . . . . . . . . . 24,000 (2,000) 73,995
Loans from Shareholders. . . . . . . . . . . . . 38,222 - 94,000
Issuance of common stock and contributed capital 261,419 190,434 102,716
Common Stock - par value . . . . . . . . . . . . 4,809
Consulting Services for Stock. . . . . . . . . . 36,668 - 190,434
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . 365,118 188,434 461,145
--------------- --------------- -------------------
NET INCREASE IN CASH . . . . . . . . . . . . . . $ (18,170) $ 358,000 $ 33,853
=============== =============== ===================
CASH BALANCE AT BEGINNING OF PERIOD. . . . . . . . 33,889 36 36
--------------- --------------- -------------------
CASH BALANCE AT END OF PERIOD. . . . . . . . . . . 15,719 358,036 33,889
=============== =============== ===================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
DESCRIPTION
BALANCE, 6/1/99 (INCEPTION) . . . . . . . . . . . . - $ - $ - $ - $ -
Issuance of common stock, 6/1/99. . . . . . . . . . 1,000,000 1,000 25,618 26,618
Net (loss) at 12/31/99. . . . . . . . . . . . . . . (19,449) (19,449)
Stock Split, 3/31/00. . . . . . . . . . . . . . . . 14,155,556 14,156 (14,156) -
Acquisition of public shell corporation, 4/17/00. . 4,400,000 4,400 495,600 500,000
Shares transferred by shareholder for services. . . 190,434 190,434
Shares transferred by shareholder for compensation. 39,875 39,875
Shares transferred by shareholder for consulting. . 10,000 10,000
Acquisition of eKnowledge.com, 8/19/00. . . . . . . 64,675 64,675
Shares issued in European placement . . . . . . . . 102,716 102,716
Net (loss) for period ended 12/31/00. . . . . . . . (1,131,285) (1,131,285)
Shares issued in European placement, 3/31/01. . . . 102,716 102,716
Shares issued for services/consulting . . . . . . . 2,000,000 2,000 34,668 36,668
Shares issued in European placement, 6/30/01. . . . 2,809,496 2,809 160,702 163,512
Net (loss) for period ended 6/30/01 . . . . . . . . (818,661) (818,661)
BALANCE, 6/30/01. . . . . . . . . . . . . . . . . . 24,365,052 $ 24,365 $1,212,848 $(1,969,395) $(732,182)
============ ============ =========== ============ ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
NOTES TO FINANCIAL STATEMENTS
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTERS ENDED JUNE 30, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- ----------------------
eKnowledge Group, Inc. (the "Company") provides educational training courses
over the internet and through other media sources. The Company was incorporated
in the State of Nevada on June 1, 1999 and conducts its operations from
facilities located in Corona, California.
The consolidated financial statements include the accounts of eKnowledge Group,
Inc. and its wholly owned subsidiary eKnowledge Research. All significant
intercompany balances and transactions have been eliminated in consolidation.
Revenue and Expense Recognition
- ----------------------------------
Revenues are recognized from the sale of course publications as products are
shipped. Other revenues are recognized as earned. Cost of sales includes the
cost of production and development of related course materials. Such costs
include professional consultation, printing, copying, and related promotional
materials and costs.
Interim Financial Information
- -------------------------------
The accompanying unaudited interim financial statements have been prepared by
the Company in accordance with generally accepted accounting principles pursuant
to Regulation S-B of the Securities and Exchanges Commission. Certain
information and footnote disclosures normally included in audited financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Accordingly, these interim financial statements
should be read in conjunction with the Company's financial statements and
related notes as contained in Form 10-KSB for the year ended December 31, 2000.
In the opinion of management, the interim financial statements reflect all
adjustments, including normal recurring adjustments, necessary for fair
presentation of the interim periods presented. The results of operations for
the six months ended June 30, 2001 are not necessarily indicative of results of
operations to be expected for the full year.
NOTE 2 - LOANS PAYABLE - SHAREHOLDER
The Company is obligated to a shareholder pursuant to a loan agreement bearing
interest at the current 5 year treasury bill rate plus 2% (6.75% of December 31,
2000). Terms of the loan provide for no payments until January 2002. The loan
will then be repaid monthly over 5 years, with annual principal payments of
$15,200.
Additionally, the Company is further obligated to other shareholders who have
advanced amounts to the Company. The terms of these loans are payable upon
demand and provide no stated interest rate.
7
NOTE 3 - CAPITAL STOCK
The Company has entered into various agreements with third parties to market
shares of its common stock and to obtain financing. In connection with these
agreements, the Company issued a total of over 13,800,000 shares in the names of
itself and its investment bankers. Of the total, approximately 2,800,000 shares
were distributed for cash investment during the quarter ended June 30, 2001.
In June of 2001, the Board of Directors authorized the issuance of up to
3,138,000 shares of the Common stock pursuant to the Company's 2001 STOCK
COMPENSATION PLAN (Compensation Plan). The Compensation Plan awards stock
options in an effort to further compensate its existing employees and officers
and non-employee directors and consultants, secure their continued employment
effort, and attract highly qualified employees and consultants, as they are
needed. As of June 30, 2001, approximately 2,000,000 of the shares have been
distributed as payment for services.
NOTE 4 - NON-CASH FINANCIAL ACTIVITIES
During the six months ended June 30, 2001, the Company had the following
non-cash activities:
- - The Company's principal shareholder returned 80,000 of his shares, valued
at $87,400 to the Company, for no consideration, to be held as treasury stock
for future resale. These shares were sold for net proceeds of $75,475.
- - On June 4, the Company entered into two separate agreements for consulting
services. The agreements entitle the consultants to 1,000,000 shares each in
lieu of cash. The consulting services are to be rendered over twelve months,
and call for a prorata return of shares in the event the services stopped before
the end of the twelve months. At the date of the agreements, the Company's
stock was trading at $.22 per share. At June 30, approximately 1/12 of each
contract was earned, or $18,334 per contract. A total of $36,668 was charged to
consulting expenses.
UNAUDITED INFORMATION
THE INFORMATION FURNISHED HEREIN WAS TAKEN FROM THE BOOKS AND RECORDS OF THE
COMPANY WITHOUT AUDIT. HOWEVER, SUCH INFORMATION REFLECTS ALL ADJUSTMENTS WHICH
ARE, IN THE OPINION OF MANAGEMENT, NECESSARY TO PROPERLY REFLECT THE RESULTS OF
THE PERIOD PRESENTED. THE INFORMATION PRESENTED IS NOT NECESSARILY INDICATIVE
OF THE RESULTS FROM OPERATIONS EXPECTED FOR THE FULL FISCAL YEAR.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our Condensed Consolidated Financial
Statements and related Notes thereto included elsewhere in this Report. The
discussion in this report contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements.
OVERVIEW
EKNOWLEDGE IS A LEADING PROVIDER OF E-LEARNING SERVICES AND PRODUCTS, delivering
interactive multimedia training and education programs over the Internet or on
CD-ROM. The company sits on the cutting edge of technology by incorporating
streaming video into many eKnowledge designed programs.
THE EKNOWLEDGE SERVICES consist of taking other organizations' training,
education, marketing, and other programs and custom building them for delivery
over the Internet or on CD-ROM. By determining the organization's objectives
and how the program will be accessed, eKnowledge custom designs the program to
include the features which will achieve the program objectives while providing
the users with the best available method of delivery.
As one of the few providers of custom designed programs featuring
video-streaming, eKnowledge handles all aspects of development which the client
requires, from video production through hosting of the final product.
eKnowledge is renowned for delivering effective video based solutions to all
users, regardless of their Internet connection speed. eKnowledge programs
effectively supplement or replace existing live training, while offering the
organization with the ability to track user participation and performance.
eKnowledge offers services to corporations in the areas of employee training,
product training, computer applications training, customer service, and
marketing and sales. In addition, eKnowledge develops the programs of
consultants, publishers, universities, and professional and trade associations.
THE EKNOWLEDGE PRODUCTS consist of e-learning programs which are available for
purchase by organizations or individuals. Products are created by either the
eKnowledge content development department, or in a joint venture with other
organizations that have subject matter experts. Joint venture products are
resold by organizations on a revenue share basis. The eKnowledge products are
in the areas of Corporate and Professional Training, Academic Programs, and
Standardized Test Preparations.
9
The services and products of eKnowledge are supported by a professional team of
experts in technical course design, custom content development, strategic
consulting, and systems integration.
Our work product introduced us to Fisher & Phillips, and the founding of
Prevention Point below
PREVENTIONPOINT
PreventionPoint is an online Human Resources community that provides training
and services geared toward litigation prevention and risk limitation, including:
- - Online compliance training for managers and employees.
- - Referrals to Preferred HR Service Providers. These are vendors that
provide preventative services, like screening, drug testing, etc.
- - Customizable employee handbooks, as well as HR forms and compliance kits.
Prevention Point is a Joint Venture between eKnowledge and Fisher & Phillips, a
prestigious labor law firm established in 1943. $500,000 dollars in funding and
$500,000 in intellectual property has been committed to Prevention Point.
Additionally, Prevention Point will be marketed to the thousands of clients of
Fisher & Phillips, such as Hyatt, Miller Brewing Company, Wells Fargo Bank,
Airborne Express, etc
In addition to the revenues that will be derived from the Company's ownership of
Prevention Point - the Company will derive the benefits of the relationships the
Fisher & Phillips attorneys have with their clients in acquiring more and
substantial e-learning work for eKnowledge.
Safe Schools Series
eKnowledge owns the intellectual property to a series of products entitled, "The
Safe School Series." This series is being developed to include 4 - 6 titles.
The Safe School Series teaches students appropriate conduct, involves parents in
the process to increase accountability, and shields schools from legal liability
by documenting student participation. Organizations such as the National
Educators Association and the Red Cross are also involved in this project.
The first in the series, "Acceptable Use Policy" (AUP) or "The Internet Driver's
License" will be marketed by our distribution partners in September, 2001.
The series is being marketed and distributed through an agreement we have
entered into with Education World and Edmin. These organizations currently
provide products and services to thousands of school districts nationwide.
Test Preparation
eKnowledge owns the intellectual property to 6 full service test preparation
courses and 30+ supplemental test preparation courses: SAT (2,000,000 annual
takers), ACT (1,000,000) , LSAT (100,000), GMAT (270,000), GRE (400,000), TOEIC
(2,000,000). These courses are high quality programs similar to a "live
seminar" yet intended to be delivered over the Internet via video streaming or
upon CD-ROM. To replicate the hundreds of hours of lectures and workshops, the
thousands of practice questions & explanatory answers, and the practice tests
would be in excess of $3 million dollars.
10
On August 3, 2001 eKnowledge Group, Inc. signed an exclusive distribution
contract for our LSAT (Law School Admissions Test) Program with the law
fraternity, Phi Alpha Delta. The Phi Alpha Delta pre-law organization is the
largest pre-law organization in the U.S.
Our distribution partners in K - 12, Education World and Edmin will also
leverage their contacts in Fall 2001 for SAT & ACT at the high school level.
e-Learning Joint Ventures
eKnowledge will enter into Joint Venture relationships where we feel eKnowledge
can enhance a product and service offering. eKnowledge will make an investment
of time and material for an equity position in the venture. Ventures considered
typically have the following traits: A Strong Distribution Channel; Unique
Offering; Market Demand; Favorable Gross Margins; Barriers to Entry; Quality
Management; Well Funded, etc.
REVENUES are derived from contracts for services and product sales. FEES ON
CONTRACTS FOR SERVICES are determined by the length of the program being
developed, the complexity of the program features, the level of participation in
the design and content development, and any continuing service or support to be
provided. Revenues on contracts for services are generally recognized as they
are earned. REVENUES FROM PRODUCT SALES are currently recognized in their
entirety upon the sale for all products developed by the eKnowledge content
development team. Joint venture product sales where e-commerce is managed by
eKnowledge, revenues are recognized immediately. For joint venture product
sales where commerce is managed by the other organization, eKnowledge revenue
will be recognized upon a scheduled accounting of sales.
eKnowledge incurred net losses of $1,131,285 in 2000, and $818,661 in the six
months ending June 30, 2001, and has yet to achieve operating income or net
income. In the fourth quarter of 2000, eKnowledge shifted the business model to
the current model of services and products. Limited operating history under the
services and products business model, combined with the emerging nature of the
e-learning market, among other factors, make the prediction of our future
operating results relatively difficult.
Until the second quarter of 2000, eKnowledge was engaged in a business plan
geared at providing an array of e-learning products to six target markets, four
of which were academic in nature. Starting the third quarter of 2000, drawn by
market demands, the focus began to shift toward providing corporate e-learning
solutions as a primary objective, with the education market as a secondary point
of focus. In the forth quarter of 2000, the business model was formally shifted
to the current model of services and products. While current business and
prospects under this model are demonstrating great promise, there is little
operating history on which to evaluate our performance.
eKnowledge has experienced growth in its client base, in the amount of
intellectual property owned by the company, and in the number of joint venture
products expected to produce significant revenues. However, the company must
invest in infrastructure growth, intellectual property development, and
continued marketing, among other things. As a result, the company expects to
continue to incur annual operating losses through 2001. Profitability is
projected for August 2002, but there can be no assurance that eKnowledge will
achieve profitability or, if profitability is achieved, that it will be
sustained.
11
RESULTS OF OPERATIONS
Six Months and Quarter Ended June 30, 2001 Compared to Six Months and Quarter
Ended June 30, 2000.
REVENUE
TOTAL REVENUE increased from $36,369 in the six months ended June 30, 2000 to
$62,163 in the six months ended June 30, 2001. This increase is attributed to
sales of services that did not exist in the prior year. Total revenue increased
by over approximately $22,000 during the three months ended June 30, 2001.
This increase resulted from additional sales of services by the Company during
the quarter.
COST OF SALES
TOTAL COST OF SALES increased from $76,294 in the six months ended June 30, 2000
to $138,906 in the six months ended June 30, 2001. The increases were
attributable the increase in the number and types of products being developed.
The cost of sales dropped from $76,294 in the quarter ended June 30, 2000 to
$43,916 in the quarter ended June 30, 2001. This drop from the prior year is
primarily due to the decrease of development on products during the quarter.
SALES AND MARKETING
SALES AND MARKETING EXPENSES consist of sales and marketing personnel costs, as
well as travel, trade shows, public relations, and other marketing literature
and overhead. Sales and marketing expenses were $47,206 in the six months ended
June 30, 2000 and $51,517 in the six months ended June 30, 2001. The increase
was due to the development of sales and marketing departments in-house and the
launch of an aggressive trade show / lead generation campaign, both in January
2001, compared with relatively little spending in this area over the same time
period in 2000. Sales and marketing expenses are expected to continue to
increase in absolute dollars in the future as we continue to increase our sales
and marketing efforts in both services and products.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries and other
personnel-related expenses for our administrative, executive and other
personnel. General and administrative expenses increased from $292,676 for the
six months ended June 30, 2000 to $741,888 in the six months ended June 30, 2001
and from $245,042 during the quarter ended June 30, 2000 to $437,722 during the
quarter ended June 30, 2001. The increase during both the six months and
quarter ended is due to the increased number of employees and increased business
activities from one year to the next. General and administrative expenses are
expected to increase in absolute dollars in the future.
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION. OUR REGISTRATION STATEMENT WAS VOLUNTARILY FILED
PURSUANT TO SECTION 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934, IN ORDER TO
COMPLY WITH THE REQUIREMENTS OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS
FOR QUOTATION ON THE OVER-THE-COUNTER BULLETIN BOARD, OFTEN CALLED ?OTCBB?. THIS
REGISTRANT'S COMMON STOCK IS NOT PRESENTLY QUOTED ON ANY EXCHANGE AT THE PRESENT
TIME. THE REQUIREMENTS OF THE OTCBB ARE THAT THE FINANCIAL STATEMENTS AND
INFORMATION ABOUT THE REGISTRANT BE REPORTED PERIODICALLY TO THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") AND BE AND BECOME INFORMATION THAT THE PUBLIC CAN
ACCESS EASILY. THIS REGISTRANT WISHES TO REPORT AND PROVIDE DISCLOSURE
VOLUNTARILY, AND WILL FILE PERIODIC REPORTS IN THE EVENT THAT ITS OBLIGATION TO
FILE SUCH REPORTS IS SUSPENDED UNDER THE EXCHANGE ACT. OUR 1934 ACT REGISTRATION
BECAME EFFECTIVE AND CLEAR OF COMMENTS BY THE STAFF OF THE SEC ON JANUARY 31,
2001. NOW THAT WE ARE ELIGIBLE FOR CONSIDERATION FOR QUOTATION ON THE OTCBB,
MANAGEMENT HAS SUBMITTED DOCUMENTATION TO ONE OR MORE NASD MEMBERS FOR
PERMISSION TO PUBLISH QUOTES FOR THE PURCHASE AND SALE OF THE SHARES OF THE
COMMON STOCK OF THE REGISTRANT ON THE OTCBB.
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SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
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