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)
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 SEPTEMBER 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 SEPTEMBER 30, 2001, THE NUMBER OF SHARES OUTSTANDING OF THE
REGISTRANT'S COMMON STOCK WAS 28,231,931.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE FINANCIAL STATEMENTS, FOR THE NINE MONTHS ENDED SEPTEMBER 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 BELIEVES THAT THE DISCLOSURES ARE ADEQUATE TO MAKE THE
INFORMATION NOT MISLEADING.
1
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(unaudited)
September 30, 2001
- -----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents. . . . . . . . . . . 11,916
Receivable . . . . . . . . . . . . . . . . . . 1,343
Inventory. . . . . . . . . . . . . . . . . . . 2,979
Prepaid Expenses . . . . . . . . . . . . . . . 8,849
Deposits
TOTAL CURRENT ASSETS . . . . . . . . . . . . 25,087
PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . 63,323
OTHER ASSETS
Deposits . . . . . . . . . . . . . . . . . . . 7,637
Intangible Assets, net . . . . . . . . . . . . 63,463
TOTAL OTHER ASSETS . . . . . . . . . . . . . 71,100
TOTAL ASSETS . . . . . . . . . . . . . . . . 159,510
-------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable . . . . . . . . . . . . . . . 233,357
Contracts Payable. . . . . . . . . . . . . . . 214,033
Wages Payable. . . . . . . . . . . . . . . . . 581,720
Other Payables . . . . . . . . . . . . . . . . 8,700
TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,037,810
LONG-TERM LIABILITIES
Note Payable . . . . . . . . . . . . . . . . . 100,065
Other Liabilities. . . . . . . . . . . . . . . 3,608
Loans from Shareholders. . . . . . . . . . . . 116,657
TOTAL LONG-TERM LIABILITIES. . . . . . . . . 220,330
- --------------------------------------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . 1,258,140
STOCKHOLDER'S DEFICIT
Common Stock . . . . . . . . . . . . . . . . . 28,232
Additional Paid-in Capital . . . . . . . . . . 1,804,316
Unearned Compensation. . . . . . . . . . . . . (455,250)
Accumulated Deficit. . . . . . . . . . . . . . (2,475,929)
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . (1,098,630)
- --------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 159,510
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------- --------------------
Sales. . . . . . . . . . . . . . . . . . . . $ 81,292 $ 71,071
Cost of sales. . . . . . . . . . . . . . . . 358,097 180,921
-------------------- --------------------
Gross profit . . . . . . . . . . . . . . . . (276,805) (109,850)
Selling, general and administrative expenses 1,048,460 748,321
-------------------- --------------------
Loss before other income & provision
of taxes . . . . . . . . . . . . . . . . . (1,325,265) (858,171)
Interest expense . . . . . . . . . . . . . . - -
Interest income. . . . . . . . . . . . . . . 70 6,576
Other income . . . . . . . . . . . . . . . . - 14,210
-------------------- --------------------
Loss before provision for income taxes . . . (1,325,195) (837,385)
Provision for income taxes . . . . . . . . . - -
-------------------- --------------------
Net loss . . . . . . . . . . . . . . . . . . (1,325,195) (837,385)
==================== ====================
Weighted average shares outstanding. . . . . 20,757,930 19,555,556
==================== ====================
Loss per share, basic & diluted. . . . . . . (0.06) (0.04)
-------------------- --------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(continued)
(UNAUDITED)
QUARTER ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------- --------------------
Sales. . . . . . . . . . . . . . . . . . . . $ 19,129 $ 34,702
Cost of sales. . . . . . . . . . . . . . . . 219,191 104,627
-------------------- --------------------
Gross profit . . . . . . . . . . . . . . . . (200,062) (69,925)
Selling, general and administrative expenses 306,572 455,645
-------------------- --------------------
Loss before other income & provision
of taxes . . . . . . . . . . . . . . . . . (506,634) (525,570)
Interest expense . . . . . . . . . . . . . . - -
Interest income. . . . . . . . . . . . . . . 14 2,807
Other income . . . . . . . . . . . . . . . . - -
-------------------- --------------------
Loss before provision for income taxes . . . (506,620) (522,763)
Provision for income taxes . . . . . . . . . - -
-------------------- --------------------
Net loss . . . . . . . . . . . . . . . . . . (506,620) (522,763)
==================== ====================
Weighted average shares outstanding. . . . . 20,757,930 19,555,556
==================== ====================
Loss per share, basic & diluted. . . . . . . (0.02) (0.03)
==================== ====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
For Nine Months ended September 30, 2001 and 2000
(unaudited) (unaudited)
September 30, 2001 September 30, 2000
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . $ (1,325,195) $ (837,385)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization. . . . . . . . 37,907 6,702
Stock Compensation . . . . . . . . . . . . . - 234,167
Consulting Services for Stock. . . . . . . . 61,750 10,000
Receivables. . . . . . . . . . . . . . . . . 1,950 (42,694)
Inventory. . . . . . . . . . . . . . . . . . 3,659 6,600
Prepaid Expenses . . . . . . . . . . . . . . (5,099) (5,625)
Deposits . . . . . . . . . . . . . . . . . . - (10,806)
Accounts Payable . . . . . . . . . . . . . . 79,879 63,737
Wages Payable. . . . . . . . . . . . . . . . 581,720 -
Contracts Payable. . . . . . . . . . . . . . 121,035 31,366
Deposits Payable . . . . . . . . . . . . . . - (1,600)
Deferred Liab. . . . . . . . . . . . . . . . (1,908) -
Income Tax Payable . . . . . . . . . . . . . - (800)
NET CASH USED BY OPERATIONS. . . . . . . . (444,301) (546,338)
CASH FLOWS FROM INVESTING ACTIVITIES
Furniture and Equipment. . . . . . . . . . . (6,471) (78,867)
Intangible Assets. . . . . . . . . . . . . . 842 (25,000)
Cash acquired through acquisition. . . . . . - 500,000
NET CASH USED BY INVESTING . . . . . . . . (5,629) 396,133
- ------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable. . . . . . . . . . . . . . . . 24,070 (2,000)
Loans from Shareholders. . . . . . . . . . . 22,657 -
Sale of common stock and contributed capital 381,230 -
Consulting Services for Stock. . . . . . . . - 190,434
NET CASH PROVIDED BY FINANCING ACTIVITIES. 427,957 188,434
NET INCREASE IN CASH . . . . . . . . . . . . $ (21,973) $ 38,229
CASH BALANCE AT BEGINNING OF PERIOD. . . . . . 33,889 36
CASH BALANCE AT END OF PERIOD. . . . . . . . . 11,916 38,265
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
EKNOWLEDGE GROUP
STOCKHOLDER'S EQUITY
AS OF SEPTEMBER 30, 2001
ADDITIONAL
COMMON STOCK PAID-IN
DESCRIPTION SHARES AMOUNT CAPITAL
----------- ---------- -----------
BALANCE, 6/1/99 (INCEPTION) . . . . . . . . . . . . - $ - $ -
Issuance of common stock, 6/1/99. . . . . . . . . . 1,000,000 1,000 25,618
Net (loss) at 12/31/99. . . . . . . . . . . . . . . - - -
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
Shares transferred by shareholder for services. . . - - 190,434
Shares transferred by shareholder for compensation. - - 39,875
Shares transferred by shareholder for consulting. . - - 10,000
Acquisition of eKnowledge.com, 8/19/00. . . . . . . - - 64,675
Shares issued in European placement . . . . . . . . - - 102,716
Net (loss) for period ended 12/31/00. . . . . . . . - - -
Shares issued for services/consulting . . . . . . . 2,000,000 2,000 438,000
Shares issued in European placement, 6/30/01. . . . 2,809,496 2,809 233,486
Shares issued for compensation. . . . . . . . . . . 200,000 200 15,800
Shares issued for services/consulting . . . . . . . 750,000 750 44,250
Shares issued for services/consulting . . . . . . . 200,000 200 15,800
Shares issued in European placement, 9/30/01. . . . 2,716,879 2,717 142,218
Net (loss) for period ended 9/30/01 . . . . . . . . - - -
BALANCE, 9/30/01. . . . . . . . . . . . . . . . . . 28,231,931 $ 28,232 $1,804,316
=========== ========== ===========
0 461,801 1,027,279
ADJUSTMENTS . . . . . . . . . . . . . . . . . . . 0 (433,569) 777,037
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
EKNOWLEDGE GROUP
STOCKHOLDER'S EQUITY
AS OF SEPTEMBER 30, 2001
(continued)
TOTAL
UNEARNED ACCUMULATED STOCKHOLDERS'
DESCRIPTION COMPENSATION DEFICIT EQUITY
- ------------------------------------------------------------------------------------------------
BALANCE, 6/1/99 (INCEPTION) . . . . . . . . . . . . 0 $ - $ -
Issuance of common stock, 6/1/99. . . . . . . . . . 0 - 26,618
Net (loss) at 12/31/99. . . . . . . . . . . . . . . 0 (19,449) (19,449)
Stock Split, 3/31/00. . . . . . . . . . . . . . . . 0 - -
Acquisition of public shell corporation, 4/17/00. . 0 - 500,000
Shares transferred by shareholder for services. . . 0 - 190,434
Shares transferred by shareholder for compensation. 0 - 39,875
Shares transferred by shareholder for consulting. . 0 - 10,000
Acquisition of eKnowledge.com, 8/19/00. . . . . . . 0 - 64,675
Shares issued in European placement . . . . . . . . 0 - 102,716
Net (loss) for period ended 12/31/00. . . . . . . . 0 (1,131,285) (1,131,285)
Shares issued for services/consulting . . . . . . . (403,333) - 36,667
Shares issued in European placement, 6/30/01. . . . 0 - 236,295
Shares issued for compensation. . . . . . . . . . . (10,667) - 5,333
Shares issued for services/consulting . . . . . . . (41,250) - 3,750
Shares issued for services/consulting . . . . . . . 0 - 16,000
Shares issued in European placement, 9/30/01. . . . 0 - 144,935
Net (loss) for period ended 9/30/01 . . . . . . . . 0 (1,325,195) (1,325,195)
BALANCE, 9/30/01. . . . . . . . . . . . . . . . . . $ (455,250) $ (2,475,929) $(1,098,631)
============= ============== ============
1,349,066 (1,150,734) 56,546
ADJUSTMENTS . . . . . . . . . . . . . . . . . . . 1,460,848 - -
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
NOTES TO FINANCIAL STATEMENTS
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTERS ENDED SEPTEMBER 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 nine months ended September 30, 2001 are not necessarily indicative of
results of operations to be expected for the full year.
8
NOTE 2 - LOANS PAYABLE - SHAREHOLDER
The Company is obligated to a shareholder in the amount of $76,000 pursuant to a
loan agreement bearing interest at the current 5 year treasury bill rate plus
2%. 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.
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 5,500,000 shares
were distributed for cash investment through the quarter ended September 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 September 30, 2001, approximately 2,200,000 of the shares have
been distributed as payment for services.
NOTE 4 - NON-CASH FINANCIAL ACTIVITIES
During the nine months ended September 30, 2001, the Company had the
following non-cash activities:
- - On September 12, the Company entered into an agreement for consulting
services. The agreement entitles the consultant to 750,000 shares in lieu of
cash. The consulting services are to be rendered over twelve months, and call
for a prorata return of the shares in the event the services are stop before the
end of the twelve months. At the date of the agreement, the Company's stock was
trading at $.06 per share. At September 30, approximately 1/12 of the contract
was earned, or $3,750. This amount was charged to consulting expense.
- - On August 21, the Company entered into another agreement for consulting
services. The agreements entitle the consultants to 250,000 shares in lieu of
cash. The consulting services are to be rendered over three months, and call
for a prorata return of shares in the event the services stop before the end of
the three months. At the date of the agreement, the Company's stock was trading
at $.08 per share. At September 30, approximately 1/3 of each contract was
earned, or $5,333. This amount was charged to consulting expenses.
9
- - On August 29, the Company entered into an agreement with one of its
employees. The agreement entitles the employee to 200,000 shares of stock in
lieu of cash compensation. The stock is for services rendered and as such is
deemed to be salaries and wages to the employee. At the date of the agreement,
the Company's stock was trading at $.08 per share. An amount of $16,000 was
charged to salaries and wages expense during the quarter.
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.
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
10
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.
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
Launched October 17, 2001, PreventionPoint (www.preventionpoint.com) 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.
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.
CITY & COUNTY E-TRAINING
Launched in September, 2001, the City & County e-Training provides CD-Rom and
online training programs designed specifically for local government and other
public sector employees. The first programs launched are harassment training
programs authored by Fisher & Phillips. While Fisher & Phillips will be
providing content and instructors for all litigation prevention programs, there
are plans to develop programs well beyond this subject matter into any
appropriate topics for the public sector.
What make the City & County e-Training unique is the fact that the public sector
clients offer considerable input into the course content, design, and features.
This ensures that clients are receiving programs that deliver their desired
results. It also results in a product for which there is a strong market
demand, as it is designed in part by member s of the target market.
Existing clients of the City & County e-Training include in California: Anaheim,
Torrance, San Bernardino, Riverside, Fullerton, Buena Park, La Mirada, Corona,
Newport Beach, Temecula, Covina, Oceanside, National City, La Mesa, Moreno
Valley; as well as Henderson, Nevada, and Alpharetta, Rome, and East Point,
Georgia.
SAFE SCHOOLS SERIES
Launched in September, 2001, 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,
11
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" was first 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.
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 $1,325,195 in the nine
months ending September 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
12
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.
RESULTS OF OPERATIONS
Nine Months and Quarter Ended September 30, 2001 Compared to Nine Months and
Quarter Ended September 30, 2000.
REVENUE
TOTAL REVENUE increased from $71,071 in the nine months ended September 30, 2000
to $81,292 in the nine months ended September 30, 2001. This increase is
attributed to sales of services that did not exist in the prior year. Total
revenue decreased by nearly $15,000 during the three months ended September 30,
2001. This decrease is the result of one-time sales that occurred in the three
months ended September 30, 2000.
COST OF SALES
TOTAL COST OF SALES increased from $180,921 in the nine months ended September
30, 2000 to $358,097 in the nine months ended September 30, 2001. The increases
were attributable the increase in the number and types of products being
developed. The cost of sales increased from $104,627 in the quarter ended
September 30, 2000 to $219,191 in the quarter ended September 30, 2001. This
increase from the prior year is primarily due to the increase 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 $47,294 in the nine months ended
September 30, 2000 and $38,742 in the nine months ended September 30, 2001. The
decrease was due to the utilization of sales and marketing departments in-house
efforts based upon relationship marketing rather than attendance at trade shows/
lead generation campaigns, throughout the nine months ended September 30, 2001,
compared with greater spending in this area over the same time period in 2000.
Sales and marketing expenses are expected 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, including sales and marketing
increased from $748,321 for the nine months ended September 30, 2000 to
$1,048,460 in the nine months ended September 30, 2001 and decreased from
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$455,645 during the quarter ended September 30, 2000 to $306,572 during the
quarter ended September 30, 2001. The increase during the nine months is due to
the increased number of employees in the first two quarters of 2001, and
increased business activities from one year to the next. The decrease in the
quarter ended September 30, 2001, compared to the quarter ended September 30,
2000 is attributed to cost savings implemented. 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.
/s/Gary Saunders
Gary Saunders
President/Secretary/Treasurer/Director
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