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 JUNE 30, 2002
[ ] 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, 2002, THE NUMBER OF SHARES OUTSTANDING OF THE
REGISTRANT'S COMMON STOCK WAS 37,271,887.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements, for the six months ended June 30, 2002,
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
CONSOLIDATED BALANCE SHEETS
(unaudited) (audited)
June 30, 2002 December 31, 2001
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents . . . . . . . . . . . 17,974 22,744
Accounts Receivable . . . . . . . . . . . . . . - 1,950
Prepaid Expenses. . . . . . . . . . . . . . . . - 2,962
TOTAL CURRENT ASSETS. . . . . . . . . . . . . 17,974 27,656
PROPERTY AND EQUIPMENT
Furniture and Equipment . . . . . . . . . . . . 82,994 79,655
Less: Accumulated Depreciation. . . . . . . . . (28,810) (20,593)
--------------- ------------------
PROPERTY AND EQUIPMENT, NET . . . . . . . . . 54,184 59,062
OTHER ASSETS
Deposits - Rent . . . . . . . . . . . . . . . . 7,637 7,637
Intangible Assets . . . . . . . . . . . . . . . 106,505 106,505
Less: Accumulated Amortization. . . . . . . . . (70,511) (52,760)
TOTAL OTHER ASSETS. . . . . . . . . . . . . . 43,631 61,382
--------------- ------------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . 115,790 148,100
=============== ==================
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts Payable. . . . . . . . . . . . . . . . 176,482 264,171
Accrued Expenses. . . . . . . . . . . . . . . . 427,057 738,351
Notes Payable . . . . . . . . . . . . . . . . . 480,478 52,500
Advances from Shareholders. . . . . . . . . . . 517,162 517,162
Deposits Payable. . . . . . . . . . . . . . . . 1,200 1,200
TOTAL CURRENT LIABILITIES . . . . . . . . . . 1,602,380 1,573,384
LONG-TERM LIABILITIES
Note Payable. . . . . . . . . . . . . . . . . . - -
Other Liabilities . . . . . . . . . . . . . . . 2,701 2,701
Loans from Shareholders . . . . . . . . . . . . 13,000 13,000
--------------- ------------------
TOTAL LONG-TERM LIABILITIES . . . . . . . . . 15,701 15,701
--------------- ------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . 1,618,081 1,589,085
STOCKHOLDER'S DEFICIT
Common Stock. . . . . . . . . . . . . . . . . . 37,272 31,361
Additional Paid-in Capital. . . . . . . . . . . 2,389,539 2,056,357
Accumulated Deficit . . . . . . . . . . . . . . (3,929,102) (3,528,703)
--------------- ------------------
TOTAL STOCKHOLDER'S DEFICIT . . . . . . . . . (1,502,290) (1,440,985)
------------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT 115,790 148,100
=============== ==================
The accompanying notes are an integral part of these financial statements.
2
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR SIX MONTHS AND QUARTERS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
Sales. . . . . . . . . . . . . . . . . . . . $ 221,171 $ 62,163 $ 101,840 $ 40,460
Cost of sales. . . . . . . . . . . . . . . . 129,411 138,906 80,803 43,916
--------------- --------------- --------------- ---------------
Gross profit . . . . . . . . . . . . . . . . 91,760 (76,743) 21,037 (3,456)
Selling, general and administrative expenses 477,999 741,888 282,159 437,722
--------------- --------------- --------------- ---------------
Loss before other income & provision
of taxes . . . . . . . . . . . . . . . . . (386,239) (818,631) (261,121) (441,178)
Interest expense . . . . . . . . . . . . . . (14,263) (86) 14,263 -
Interest income. . . . . . . . . . . . . . . 95 56 51 -
Other income . . . . . . . . . . . . . . . . 8 - - -
--------------- --------------- --------------- ---------------
Loss before provision for income taxes . . . (400,399) (818,661) (275,334) (441,178)
Provision for income taxes . . . . . . . . . - - - -
--------------- --------------- --------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . (400,399) (818,661) (275,334) (441,178)
=============== =============== =============== ===============
Weighted average shares outstanding. . . . . 35,981,659 20,757,930 35,981,659 19,555,556
=============== =============== =============== ===============
Loss per share, basic & diluted. . . . . . . (0.01) (0.04) (0.01) (0.02)
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
3
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(unaudited) (unaudited)
June 30, 2002 June 30, 2001
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . $ (400,399) $ (818,661)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization . . . . . . . 25,968 24,992
Stock Compensation. . . . . . . . . . . . . 118,045 -
Finance Costs of Stock Sales. . . . . . . . 61,853 -
Accounts Receivable . . . . . . . . . . . . 1,950 1,950
Employee Receivable . . . . . . . . . . . . - 2,420
Inventory . . . . . . . . . . . . . . . . . - 1,875
Prepaid Expenses. . . . . . . . . . . . . . 2,962 -
Deposits - Rent . . . . . . . . . . . . . . - 274,472
Accounts Payable. . . . . . . . . . . . . . (87,689) 136,595
Accrued Expenses. . . . . . . . . . . . . . 116,684 -
Deposits Payable. . . . . . . . . . . . . . - (1,302)
NET CASH PROVIDED BY OPERATIONS . . . . . (160,626) (377,659)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Furniture and Equipment . . . . . . . . . . (3,339) (6,471)
Intangible Assets . . . . . . . . . . . . . - 842
NET CASH PROVIDED BY INVESTING. . . . . . (3,339) (5,629)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable . . . . . . . . . . . . . . . - 24,000
Advances from Shareholders. . . . . . . . . - 38,223
Net Proceeds from Sale of Common Stock. . . 159,195 261,419
Common Stock - par value. . . . . . . . . . - 4,809
Additional Paid-in Capital. . . . . . . . . - 36,667
NET CASH PROVIDED BY FINANCING ACTIVITIES 159,195 365,117
--------------- ---------------
NET INCREASE IN CASH. . . . . . . . . . . . $ (4,770) $ (18,171)
=============== ===============
CASH BALANCE AT BEGINNING OF PERIOD . . . . . 22,744 33,889
--------------- ---------------
CASH BALANCE AT END OF PERIOD . . . . . . . . 17,974 15,719
=============== ===============
The accompanying notes are an integral part of these financial statements.
4
EKNOWLEDGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
AS OF JUNE 30, 2002
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
DESCRIPTION SHARES AMOUNT CAPITAL DEFICIT EQUITY
BALANCE, DECEMBER 31, 2001. . . . . . . 31,361,430 31,361 2,056,357 (3,528,703) (1,440,985)
-
Shares issued for cash. . . . . . . . . 1,890,356 1,890 112,208 - 114,098
Finance costs attributed to shares sold 35,217 - 35,217
Shares issued for services. . . . . . . 1,439,644 1,440 57,734 - 59,174
Shares issued for cash. . . . . . . . . 1,519,416 1,519 43,578 - 45,097
Finance costs attributed to shares sold 26,636 - 26,636
Shares issued for services. . . . . . . 1,061,041 1,061 57,810 - 58,871
NET LOSS, JUNE 30, 2002 . . . . . . . . - - - (400,399) (400,399)
BALANCE, JUNE 30, 2002. . . . . . . . . 37,271,887 $37,272 $2,389,539 $(3,929,102) $(1,502,290)
=========== ======= ========== ============ ============
The accompanying notes are an integral part of these financial statements.
5
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.
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 Exchange 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, 2001.
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, 2002 are not necessarily indicative of results of
operations to be expected for the full year.
NOTE 2 - NOTES PAYABLE
CONVERTIBLE PROMISSORY NOTES
The Company entered into a convertible promissory note agreement with Margie
Whistler for $20,000 for consulting services. The note bears interest at 5
percent per annum. Principle and any accrued interest shall be due and payable
upon the closing of a subsequent equity financing undertaken for the purpose of
raising proceeds, if no subsequent financing takes place. The provisions for
conversion are available upon the closing of a subsequent financing prior to
October 12, 2001, and provide that the holder may choose to have the balance
due of this note plus all accrued and unpaid interest thereon automatically
converted into shares of the Company's stock at a price of $1.50 per share.
As of December 31, 1999, the Company had incurred expenses on the contract in
the amount of $10,000 and paid $500. During the year ended December 31, 2000,
the Company paid $2,000 towards the note. Additionally, during the same
period, the Company incurred expenses for the contract balance of $10,000. On
March 31, 2000, the holder of the note accepted 6,667 shares of common stock as
payment of the additional $10,000. These shares were transferred by the
majority shareholder of the Company.
6
NOTE PAYABLE
The Company is obligated pursuant to a promissory note in the amount of $45,000.
The note bears interest at prime plus 2% and is due on October 12, 2002. The
Company also issued 180,000 shares of stock, valued at $14,400, in connection
with obtaining this loan. This amount has been charged to interest expense.
The Company entered into loan agreements with several individuals with whom the
Company had either employed or contracted for services. The notes total
$438,725 and bear interest at prime plus 2%. The notes are due upon demand.
Interest of $14,263 was accrued and charged to interest expense during the
period. The notes are a conversion of accounts payable and accrued expenses
owed to the employee/contractors as of December 31, 2001, and as such a
corresponding adjustment was made to accounts payable and accrued expenses.
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 has issued a total of 7,894,283 shares in the names of
itself and the investment bankers. The shares are either to be held as
collateral or sold to investors. As of June 30, 2002, none of these shares are
reflected as issued and outstanding in the financial statements.
On February 1, 2002, the Company registered 3,500,000 shares in a Form S-8
registration statement. The stock will be used to provide compensation to
consultants, contractors, and directors of the Company for services rendered or
to be rendered for the benefit of the Company. The common stock is not subject
to any restriction on transferability. As of June 30, 2002, 2,167,769 of these
shares had been distributed.
On June 3, 2002, the Company registered 7,750,000 shares in a Form S-8
registration statement. The stock will be used to provide compensation to
employees, consultants, contractors, and directors of the Company for services
rendered or to be rendered for the benefit of the Company. Employees are
compensated with stock through an Employee Stock Incentive Plan incorporated
into the Form S-8 registration statement. The common stock is not subject to
any restrictions on transferability. As of June 30, 2002, 332,916 of these
shares had been distributed.
During the quarter, the Company held a special shareholders meeting at which the
shareholders approved two separate measures. The first was the authorization of
an additional 500,000,000 common shares of the Company Stock. The Company had
50,000,000 shares previously authorized. The second was the approval of
a second class of stock - preferred shares. Shareholders approved the
authorization of 50,000,000 preffered shares. The additional common stock
and 2nd class of stock are to be used by management for acquisitions
and future business development. None of these additional shares have been
issued.
7
NOTE 4 - NON-CASH FINANCIAL ACTIVITIES
During the six months ended June 30, 2002, the Company had the following
non-cash activities:
The Company issued 2,500,685 shares of common stock, valued at $118,045,
for services.
The Company converted Accounts Payables and Accrued Expenses in the amount of
$438,725 to notes bearing interest at prime plus 2%. Interest of $14,263 was
accrued to interest expense and added to the Notes Payable balance.
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has experienced net operating
losses of $3,929,102 since inception and has a working capital deficit of
$1,584,405. These factors raise substantial doubt about the Company's ability
to continue as a going concern.
Management is continuing to pursue financial investments through private
placement equity offerings. Currently, the Company has signed agreements for
various private placements. Additionally, the Company has reached agreements
with other companies for distribution of Company material through these
companies' existing distribution channels. Finally, the Company is entering
into strategic joint venture agreements to create and distribute content,
sharing costs of development.
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 PRODUCTS, SERVICES, AND JOINT
VENTURES 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 PRODUCTS consist of e-learning programs that 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 Government, Corporate and Professional Training, Academic
Programs, and Standardized Test Preparations.
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
8
and how the program will be accessed, eKnowledge custom designs the program to
include the features that will achieve the program objectives while providing
the users with the best available method of delivery.
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 has developed programs for
consultants, publishers, universities, and professional and trade associations.
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 delivers effective video or audio 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.
THE EKNOWLEDGE JOINT VENTURES consist of eKnowledge's participation of an
investment of time and material for an equity position in an e-learning 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.
EKNOWLEDGE PRODUCTS:
GOVERNMENT ESSENTIALS TRAINING
- --------------------------------
Launched in September, 2001, the Government Essentials Training provides CD-Rom
and online training programs designed specifically for local government and
other public sector employees. The first 9 programs being developed and
marketed are Employee Harassment Prevention, Manager Harassment Prevention,
Employee Workplace Violence Prevention, Manager Workplace Violence Prevention,
Acceptable Use of the Internet, Driver Safety, Bloodborne Pathogens, Customer
Service and Computer Skills.
The company has seen tremendous growth in the Government Essentials offering.
During the first four months, September - December 2001, 12 cities purchased the
program. From January, 2001 through July 31, 2002, more than 300 Cities,
Counties, and Transit Authorities purchased the programs.
What makes the Government Essentials Training program 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 members of the target
market.
Existing public entities and government organizations of the Government
Essentials Training:
Arizona
Avondale - Chino Valley - Glendale - Litchfield Park - Prescott - Prescott
Valley - Yavapai County
California
Alameda - Anaheim - Bellflower - Belmont - Brisbane - Buena Park - Burbank -
Burlingame - Carlsbad - Cathedral City - Chino - Chino Hills - Chula Vista -
Corona - Coronado - Covina - Culver City - El Cajon - Fullerton - Galt - Garden
Grove - Half Moon Bay - Hermosa Beach - Imperial Beach - Kings County - La Mesa
- - La Mirada - La Verne - Lakewood - Milbrae - Monrovia - Moreno Valley -
National City - Newport Beach - Norwalk Oakland - Redwood City - Riverside -
Roseville - San Bernardino - San Dimas - Santa Fe Springs - Santa Rosa - Sonoma
County - South San Francisco - Stockton - Temecula - Temple City - Torrance -
Vallecitos Water District Visalia - West Sacramento - Whittier
9
Colorado
Englewood - Lakewood
Georgia
Alpharetta - Fayette County - Fayetteville - Gainesville - Rome
Missouri
Bolivar - Clay County - Lenexa - Liberty - Mid-America Regional - Overland Park
- - Shawnee
Nevada
Clark County - Henderson - Las Vegas - Nevada League of Cities
Oregon
Clackamas County - Gresham - Oregon League of Cities - Metro District -
Milwaukee - Multnomah County -
Texas
Bastrop - Dallas - Grapevine - Highland Village - Lake Worth - Lewisville -
Pflugerville - University Health System
Utah
Bluffdale - Brigham - Cache County - Cedar - Cedar Hills - Centerville -
Clearfield City - Clinton City - Davis County - Draper - Enterprise - Escalante
- - Farmington - Glenwood - Kanab - Layton - Lindon - Mapleton - Midway - Mt.
Pleasant - Murray - Ogden - Orem - Payson - Plain City - Provo - Riverdale - Roy
- - Salt Lake County Sheriffs - Sandy City - South Jordan - Spanish Fork -
Springville - Utah Retirement System - Utah Risk Management Mutual - Unitah -
Washington Terrace - Weber County - West Bountiful - West Jordan - West Valley
Washington
Association of Washington Cities - Airway Heights - Algona - Asotin - Battle
Ground - Benton City - Black Diamond - Blaine - Bonney Lake - Brewster -
Bridgeport - Brier - Buckley - Burien - Burlington - Carnation - Cashmere -
Castle Rock - Chehalis - Chelan - Cheney - Chewelah - Clarkston - Cle Elum -
Clyde Hill - Colfax - College Place - Colville - Concrete - Connell - Cosmopolis
- - Coulee Dam - Coupeville - Covington - Davenport - Dayton - Deer Park - DuPont
- - Duvall - East Wenatchee - Eatonville - Edgewood - Elma - Entiat - Ephrata -
Everson - Ferndale - Fife - Fircrest - Forks - Friday Harbor - Gig Harbor - Gold
Bar - Goldendale - Grand Coulee Grandview - Granger - Granite Falls - Ilwaco -
Kalama - Kelso - Kenmore - Kettle Falls - King County - La Center - La Conner -
Lake Forest Park - Lake Stevens - Lakewood - Langley - Leavenworth - Long Beach
- - Lynden - Mabton - Maple Valley - Mattawa - McCleary - Medical Lake - Medina -
Mill Creek - Millwood - Milton - Monroe - Montesano - Morton - Mossyrock - Moxee
- - Mukilteo - Napavine - Newcastle - Newport - Nooksack - Normandy Park - North
Bend - North Bonneville - Oakville - Ocean Shores - Odessa - Okanogan - Omak -
Oroville - Orting - Othello - Pacific - Palouse - Pe Ell - Pomeroy - Port
Orchard - Port Townsend - Poulsbo - Prosser - Quincy - Rainier - Raymond -
Reardan - Republic - Ridgefield - Ritzville - Roslyn - Roy - Royal City - Ruston
- - Sammamish - Sedro Woolley - Selah - Sequim - Snohomish - Snoqualmie - Soap
Lake - South Bend - Stanwood - Steilacoom - Stevenson - Sultan - Sumas - Tekoa -
Tenino - Tieton - Toledo - Tonasket - Toppenish Union Gap - University Place -
Vader - Vancouver - Waitsburg Wapato - Warden - Washougal - Waterville - West
Richland - Westport - White Salmon - Wilbur - Winlock - Winthrop - Woodinville -
Woodland - Yelm - Zillah - Washington State Transit Insurance Pool - Ben
Franklin Transit - Clallam Transit - Community Transit - Grays Harbor Transit -
Intercity Transit - Island Transit - Jefferson Transit - Kitsap Transit - LINK -
Pacific Transit Mason Transit - SKAT - Whatcom Transit - Grays Harbor Transit -
Pierce Transit - CTRAN
10
The Government Essentials training programs are scheduled to expand to include
Fire Departments, Water Districts, Parks & Recreation Departments, Transit
Authorities, and Hospital Training. Content is currently being arranged to be
produced in the eKnowledge studio for delivery upon the Internet and CD-ROM's.
Sales and Marketing expansion has begun in the Third Quarter 2002 by additional
sales personnel and efforts dedicated solely to Government Essentials.
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,
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 a distribution agreement
the company has entered into with Education World. Education World currently
provides products and services to thousands of school districts nationwide.
Their website is www.educationworld.com
----------------------
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 the eKnowledge HOME 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, will also leverage their
contacts for SAT & ACT at the high school level.
EKNOWLEDGE SERVICES:
In June, 2002, eKnowledge entered into an agreement with Cybertel Communications
Corporation (OTC BB: CYTP) to produce marketing CD-ROM's for $500,000 over a
12-month period. Cybertel is expected to have sufficient funding where
eKnowledge can begin to fulfill on this agreement by Quarter 4, 2002.
STRATEGIC ALLIANCE AGREEMENT WITH INTELLIGENT DECISIONS, INC.
- -------------------------------------------------------------------
On November 20, 2001 eKnowledge Group, Inc. entered into a Strategic Alliance
Agreement with Intelligent Decisions, Inc. The agreement appoints Intelligent
Decisions (ID) as a non-exclusive value-added reseller of e-learning software
and services (ESS) to Government Entities and other customers of ID.
ID is headquartered in Chantilly, Virginia, and is one of the fastest growing
systems integrators located in the Washington, DC metropolitan area. ID also
offers comprehensive consulting service capabilities including E-business
11
applications, network development and management, business intelligence and
advanced systems integration. ID has assumed a major role as a supplier to the
Federal Government and other customers for a variety of Information Technology
products and consulting solutions. To facilitate this capability, ID manages a
robust GSA Schedule contract and a number of Blanket Purchase Agreements with
Government Agencies as well as some Government Wide Acquisition Contracts.
A sample of U.S. agency customers include the Department of Defense, the
National Security Administration, Department of Labor, Department of Energy,
Marine Corps, Army, Department of Justice, Department of State and the Federal
Aviation Administration. Commercial customers include IBM, Remax, SRA, DynCorp,
and more. The ID website is www.intelligent.net
EKNOWLEDGE JOINT VENTURES:
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
large and 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.
Prevention Point sales projections for year one of Prevention Point (2002),
would have made eKnowledge Group, Inc. cash-flow positive by the end of Quarter
2, 2002. While Prevention Point missed these projections, the entity is gaining
in sales and Prevention Point management has stated to eKnowledge management
that they believe Prevention Point will achieve their sales projections, albeit
behind schedule.
In addition to the revenues that will be derived from the Company's ownership
interest 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.
FOUNDATION E-LEARNING
The company entered into a joint venture agreement with the We The People
organization to produce a website and a pay-per-view webcast for February 27 -
28, 2002. Additionally, the Company secured the rights to fulfill and receive a
commission upon orders of the webcast for future delivery and sales upon
electronic transcript, CD-ROM, DVD, and video. Sales of the webcast may be
purchased from www.givemeliberty.org or www.bostonteapartyii.com
E-BOOK
The company entered into a 50/50 joint venture with The Free and Clear
Foundation of America, Inc. to build an e-commerce site that markets and sells
an e-book on how to get out of debt. The company has agreed to provide a
minimum of $25,000 in programming. The final draft of the e-book has not been
delivered to the company.
REGISTERED MANAGER TRAINING (UNITED KINGDOM)
This program equips nursing home managers in the UK with the tools to prepare
and document compliance with new government regulations. This product far
surpasses anything currently available in the UK. It was developed with a
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consortium of 3 of the UK's most reputable healthcare organizations: Pavilion
Publishing, a leading UK publishing company which offers publications, training,
conference; ARC, a healthcare associations, which offers education, training,
conference, networking and other services to its members; and City and Guilds
Affinity, the UK's largest healthcare accrediting organization. The company owns
30% of this joint venture. Currently in beta testing and scheduled to be
launched in the Fall of 2002.
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 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. Based upon Prevention
Point projections, profitability was projected for August 2002. Prevention
Point projected to have eKnowledge realize $400,000 in revenue by the end of
Quarter 3, 2002. However, Prevention Point has taken longer than
anticipated to realize significant sales and hit their projections. We
anticipate strong sales in the future from assurances we have received from
Prevention Point management to eKnowledge management.
Due to the rapid sales success in Government Essentials the company has decided
to allocate the necessary resources to grow this offering as quickly as prudence
allows. Based upon sales and financing the company has expanded the Government
Essentials offering and sales personnel and efforts beginning in Third Quarter
2002.
To grow revenue and shareholder value, 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 much or all of 2002.
RESULTS OF OPERATIONS
Six Months and Quarter Ended June 30, 2002 Compared to Six Months and Quarter
Ended June 30, 2001.
eKnowledge incurred net losses of $400,399 in the six months ending June
30,2002, compared to net losses of $818,631 in the six months ending June 30,
2001. The company has yet to achieve operating income or net income.
REVENUE
TOTAL REVENUE increased from $62,163 in the six months ended June 30, 2001 to
$221,171 in the six months ended June 30, 2002, and from $40,460 in the
quarter ended June 30, 2001 to $101,840 in the quarter ended June 30, 2002. The
increases in revenue are attributable to Government Essentials sales and paid
e-Learning work. Neither the Government Essentials program nor this e-learning
work was in existence for the company in the Six Months or 2nd Quarter Ended
June 30, 2001.
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COST OF SALES
TOTAL COST OF SALES decreased from $138,906 in the six months ended June 30,
2001 to $129,411 in the six months ended June 30, 2002. The decrease is due
primarily to the decrease in personnel and improved development efficiencies
gained by management from the previous year. The cost of sales increased from
$43,916 in the quarter ended June 30, 2001 to $80,803 in the quarter ended June
30, 2002. This increase is due to the increase in sales and development
activities and production from the previous period.
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 $51,517 in the six months
ended June 30, 2001 and $12,819 in the six months ended June 30, 2002. The
decrease is attributable to a decrease in sales personnel, sales travel and the
attendance at fewer trade shows. The company has determined that marketing
eKnowledge products and services is better served through the current in-house
marketing strategy rather than attendance at expensive trade shows.
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
products and services.
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 decreased from $690,371 for
the six months ended June 30, 2001 to $465,180 in the six months ended June
30, 2002 and from $437,722 in the quarter ended June 30, 2001 to $282,159 in
the quarter ended June 30, 2002. The decreases are due to the decreased
number of employees and budget trimming brought about due to the Pester $5
million dollar commitment not being realized. General and administrative
expenses are expected to increase in absolute dollars in the future.
We also note that On June 30, 2002 Christopher DeSantis resigned from the
eKnowledge Board of Directors. Mr. DeSantis found that he did not have the
necessary amount of time to properly discharge his obligations and
responsibilities as a Board member. Mr. DeSantis has been an asset to the
company and will be missed.
FUNDING ANALYSIS
On April 22, 2001, eKnowledge entered into an executed agreement with H. Pester
of German concern ICCF, whereby an equity investment of $5,000,000.00 US was to
be infused in June of 2001. An extension was requested by Pester and granted
by eKnowledge. To date Pester has not fulfilled his equity investment
commitment but maintains he will honor his contract.
The company has made contact with a European agency that may be able to assist
in enforcing the Pester investment agreement. Additionally, in April 2001, the
company secured an additional commitment of a timed investment of
$1,000,000 through TMG of Switzerland. This commitment has not been
fulfilled and very likely will not be fulfilled.
The company has been funded through sales of product and services and outside
equity investments.
In March of 2002 the company entered into a consulting agreement with A. G.
Spencer Corporation for global strategy consulting services. A. G. Spencer has
brought both funding opportunities and a potential merger for the company to
consider.
In May, 2002 we received a non-binding letter of intent to a merger with
International SynerG Communications USA Corporation, a wholly owned subsidiary
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of SynerG Communications, Ltd. In the letter SynerG offered to pay a total
consideration composed of a stock exchange for eKnowledge based on a valuation
of $0.25 per share. EKnowledge management has been in ongoing due diligence and
negotiations with SynerG. On July 11, a majority of shareholders voted to
increase the authorized shares of eKnowledge to 550,000,000 and to allow for the
creation of preferred shares to facilitate the SynerG merger or, in the event of
no completed merger, to facilitate the necessary operational funding for
eKnowledge. The eKnowledge Board of Directors has presented SynerG with a
budget and capital requirements necessary to go forward with a merger,
agreements for management and staff for a smooth transition, and breakup fees.
To further facilitate the growth of the company, on June 3, 2002, and August 12,
2002, the company established and registered Employee and Non-Employee Directors
and Consultants Retainer Stock Plans.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-Q Report for the Quarter ended June, 2002, has been signed below by
the following person on behalf of the Registrant and in the capacity and on the
date indicated.
/s/ Gary S. Saunders /s/Scott Hildebrandt
Gary S. Saunders Scott Hildebrandt
/s/Wayne Saunders
Wayne Saunders
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