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Subsidiary Sale?

Oct 21. I have been reading some quotes of late the spin doctors from KHI are planting in the media stories. I keep hearing quotes like " The subsidiary was bleeding red ink and needed to be spun off to ensure that KHI survived" . The subsidiary that was Given away for a song and a dance is doing well with 40 employess while the parent is belly up. Way way way too suspicious. Open the books to be and let me take a look at the creative cost allocations and I will guarentee I will find that indeed the subsiiary was made to look bad so it could be sold to freinds and then the parent company as simply left to wither away. This sale looks like blatant fraudulent activity to defaud shareholders.

I still dont think this subisiary os free and clear of KHI. I think we find that this back room deal will be reversed and this company is still part of KHI.

Sept 29th update: I decided to re-read all Nrs ever issued. On May 15th, 2001 the company issued their Q2 NR. IN that NR they state the following ""The strong financial performance of our technology solutions division contributed towards the significant investment required to develop and commercialize our innovative e-learning programs and services. " also of note is this which is the subsidiary that was sold "Approximately 55 per cent of total first quarter 2001 revenue came from the company's technology solutions division, compared with 94 per cent of total revenues in 2000. "

SEPT 17th Update - after searching the KHI website up and down I found a link to a circular likely sent to all shareholders that vaguely indicated that the bulk of the revenue was from installations but no public NR ever implied that.

KHI was sailing along growing revenues substantially. They were still losing money on a net revenue basis but certainly the revenues indicated that profitability was not far off. I will not go through every quartely but use the June 30th one as an example. The subsidiary accounted for over 90% of the revenue of the company ( I have updated this number to 50%)??????. I can only assume this sale was not completed as this is way too odd to sell this to insiders for next to nothing and then the selling company go under a few months later. This entire sale stunk. I assume the shareholders and the regulatory boards never approved this as there is no news to support this. The subsidiary sale did not have a single cent change hands. The proud new owners did not have to pay a rotton stinking penny.

This is the News release that discloses the sale of the subsidiary:. Knowledge House Inc. Sells Technology Infrastructure and Services Business to Focus on Core Education and E-learning Markets. What I found remarkable was that the NR was dated June 7th and the disposal required regulatory approval but the deal was done and was effective June 1st. The deal was done as goes as follows. KHI will sell KHTSL. KHI gets $700,000 in redeeemable preeferred shares of the subsidiary KHTSL and KHTSL gets all the assets and $200,000 in warrants for KHI. I have never read a more convoluted NR. The text is at the bttom of this page. This NR never states the revenue impact but rather says no impact on EPS will occur?????????????? That is cute accounting at best. internal companies can be made to dance or fall flat on their faces depending on the ever wonderful tool of cost allocations. and they never say what % of the company $700k is?????

So lets talk about the revenue History and how that reveue all dissappeared. Look at this NR from one year ago. They had $15 MM in revenue in the quarter. Their website has adobe files filled with all the income statements you wanted - a very promising company with great revenue growth and even showing earnings

Now lets look at this years Q2 with the retated Q2 revenue. Now some revenue was rsteated for - an accounting change called non-poolong of resources but still look at this and YOU DO THE MATH. Knowledge House Inc. announces second quarter and six month results.

let me cut a piece of the text of the NR out from the Aug 24, 2001 Nwe release linked above

According to financial results released by KHI today, consolidated revenue for the first six months ending June 30, 2001, was $3,040,601, which compares with $357,836 reported for the same period of 2000 (following a pooling of interests accounting adjustment explained in KHI's 2000 annual report

I think the non pooling accounted for 10-15% impact to revenue but where did the money go??????????/ $357,000 in revenue for 6 months versus $22 Million. I had to read the NR about 5 times and go back many times to determine what the HEY happened.

SO they sold the business for a song and a dance. and who did they sell the business to?????????/ Great question. They sold it to among others, Cathy MacNutt who is still listed as a Sr VP of KHI.????????. One only has to go here to find out info on who is who.Service Nova Scotia and Municipal Relations and click on the registry of Joint Stocks. One can search ITI and a number or numbered compaanies linked on the insider trading pages and the companies all called Knowledge somnething or other and the same names keep popping up.

Attention Business Editors:

Knowledge House Inc. Sells Technology Infrastructure and Services Business to Focus on Core Education and E-learning Markets

    HALIFAX, NS, June 7 /CNW/ - Knowledge House Inc. (TSE:KHI) today
announced that it has signed a letter of intent to sell certain of the
business operating assets of Knowledge House Technology Solutions Limited
(KHTSL), its technology subsidiary, to a company to be named Knowledge
Solutions Inc., led by experienced technology entrepreneurs.
    "This divestiture is strategic to Knowledge House Inc.'s positioning as a
"pure" education and e-learning company and it also enables the expansion of
the KHTSL business beyond education, as a multi-sector provider of
professional services and technology products," said Dan Potter, Chair & CEO
of Knowledge House Inc. "Knowledge House Inc. has successfully brought a
number of innovative web-based learning programs and technologies to market in
the last several months and it is now timely to sharpen our focus and
concentrate our efforts and resources on the national and international
distribution and sale of these high value products."
    Operations under the new management and ownership team were effective
June 1, 2001. The transaction, which is subject to regulatory approval and
settlement of final agreements, is expected to close during June. The assets
being divested will be transferred to Knowledge Solutions Inc., together with
200,000 warrants to acquire common shares of Knowledge House Inc., at their
current carrying value in exchange for $700,000 in redeemable preferred shares
of Knowledge Solutions Inc.
    The divestiture will not negatively impact Knowledge House Inc.'s
earnings per share. Knowledge House Inc. will retain the KHTSL corporate
entity and certain contractual relationships. Knowledge House Inc. will also
have the right to acquire up to 20% of the new business.
    Knowledge Solutions Inc. will continue KHTSL's activities in providing
consulting, support services and technology infrastructure deployment to
education, corporate and government organizations within the Atlantic region.
Knowledge House Inc. and Knowledge Solutions Inc. will operate as business
partners through negotiated distribution and preferred supplier arrangements.