U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended August 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to ___________
Commission file number: 0-25247
ADVANCED KNOWLEDGE, INC.
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(Name of small business issuer in its charter)
Delaware 95-4067606
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
17337 Ventura Boulevard, Suite 224, Encino, California 91316
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(Address of principal executive offices) (Zip Code)
(818) 784-0040
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class registered: None Name of each exchange on which
registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer had revenues from operations during the fiscal year ended August
31, 1999 of $174,268.
Based on the average if the closing bid and asked prices of the issuer's
common stock on October 5, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant on that date was $556,250.
As of October 6, 1999, the issuer had 4,000,000 shares of common stock
outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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CONTENTS
PAGE
PART I
Item 1. Description of Business...........................................3
Item 2. Description of Property..........................................10
Item 3. Legal Proceedings................................................10
Item 4. Submission of Matters to a Vote of Security Holders..............10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.........11
Item 6. Management's Discussion and Analysis or Plan of Operation........12
Item 7. Financial Statements.............................................14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................24
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act..................................................24
Item 10. Executive Compensation...........................................26
Item 11. Security Ownership of Certain Beneficial Owners and
Management......26
Item 12. Certain Relationships and Related Transactions...................27
Item 13. Exhibits and Reports on Form 8-K.................................27
SIGNATURES .................................................................30
Forward-Looking Statements
This report contains forward-looking statements. The forward-looking statements
include all statements that are not statements of historical fact. The
forward-looking statements are often identifiable by their use of words such as
"may," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue," or the negative or other variations of those or comparable terms.
Our actual results could differ materially from the anticipated results
described in the forward-looking statements. Factors that could affect our
results include, but are not limited to, those discussed in Item 6,
"Management's Discussion and Analysis or Plan of Operation" and included
elsewhere in this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT
Pre-Reorganization
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On January 2, 1987, we were incorporated in Delaware as a wholly-owned
subsidiary of Electro-Kinetic Systems Inc. ("EKSI") under the name "EKS RN CON
INC." Our name was changed to EKS Radtech, Inc. on March 11, 1987 and again
changed to DMA-Radtech, Inc. ("DMAR") on September 18, 1990.
From our inception through March 1995, we operated as a producer and distributor
of radon testing devices. In addition, we served as a consultant and maintained
a testing facility for matters relating to radon. In March 1995, following the
bankruptcy of our major distributor, we ceased operations and sold our radon
testing facility.
Reorganization
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During 1998, EKSI and DMAR completed a reorganization and merger with Advanced
Knowledge, Inc., a privately held Delaware corporation ("AKIP"), pursuant to a
Plan of Merger and Reorganization Agreement (the "Reorganization Agreement").
Pursuant to the Reorganization Agreement:
o On August 5, 1998, DMAR increased the number of its authorized shares of
common stock to 25,000,000 and split its outstanding shares 300:1. DMAR
also amended its Certificate of Incorporation to eliminate the liability of
its directors to the fullest extent permitted by Delaware law and to
require that the company indemnify its directors, officers, employees and
agents to the fullest extent permitted by Section 145 of the Delaware
Corporation Law.
o On August 26, 1998 (the "Closing Date"), AKIP was merged into DMAR, with
DMAR being the surviving corporation, and DMAR issued 2,700,000 shares of
its common stock in exchange for all of the outstanding shares of AKIP (the
"Reorganization"). The transaction was accounted for using the "reverse
purchase" method of accounting.
o Concurrent with the closing of the Reorganization, DMAR's stockholders
voted to change the name of the combined corporation to Advanced Knowledge,
Inc. ("Advanced Knowledge").
The assets as of June 30, 1998 that AKIP contributed to the combined corporation
include: workforce training video inventory of $29,000, cash of $2,000 and other
assets of $6,000, for a total of approximately $37,000. AKIP contributed
liabilities to the combined corporation of $35,000. These liabilities represent
loans payable Advanced Knowledge's president and principal stockholder. In
addition, pursuant to the Reorganization Agreement, AKIP paid
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$50,000 to EKSI for certain proprietary know-how and work product and to cover
certain administrative and professional fees associated with the transaction,
and EKSI contributed to capital all liabilities of DMAR, totaling $311,000.
(b) BUSINESS OF THE ISSUER
The core business of Advanced Knowledge is the development, production and
distribution of creatively unique management and general workforce training
videos for use by corporations throughout the world.
We initiated our first project in January 1998 when AKIP entered into a
production agreement with The Hathaway Group (the "Hathaway Agreement") for the
production of a series of six corporate training videos based on either classic
Hollywood motion pictures or historical world events. The Hathaway Group is an
award-winning, leading supplier of corporate training videos for such clients as
IBM, Polaroid, 3M, Digital Equipment Corp., Du Pont, ITT/Hartford Insurance and
various divisions of Citicorp. Among the many videos produced by The Hathaway
Group is the best selling and critically acclaimed training video entitled,
"Work Teams and The Wizard of Oz."
Under the terms of the Hathaway Agreement, we will finance 50% of the production
cost of the six videos and will provide a royalty to The Hathaway Group based on
a specified percentage of revenues derived from their sale. Production was
completed in April 1998 on the first video in the series entitled "Twelve Angry
Men: Teams That Don't Quit." The video, based on the classic film starring Henry
Fonda, utilizes 12 minutes of clips from the film, licensed under an agreement
with MGM/UA, and features Dr. Margaret J. Wheatley as the on-camera personality.
Dr. Wheatley, formerly an Associate Professor of Management at the Marriott
School of Management, Brigham Young University, is a respected author whose work
includes the best selling "Leadership and the New Sciences." Dr. Wheatley also
serves as a management consultant to major corporations.
In conjunction with The Hathaway Group, the Company has completed production of
and is distributing the second training video in the series entitled "The Cuban
Missile Crisis: A Case Study in Decision Making and Its Consequences." This
video is based on the decision making process of President Kennedy and his
Cabinet during the Cuban missile crisis.
The third video in the series, entitled "It's A Wonderful Life: Leading Through
Service," has completed production and is scheduled for distribution in October
1999. The video features film clips from the classic motion picture "It's A
Wonderful Life," starring Jimmy Stewart, along with on-camera commentary by Dr.
Wheatley.
In addition to the agreement with The Hathaway Group, AKIP entered into an
agreement with AIMS Multimedia ("AIMS"), a recognized leader in the production
and distribution of educational and training films, on February 1, 1998. Under
the terms of the AIMS Agreement, we have acquired the non-exclusive distribution
rights to their Business and Industry library. The film library contains more
than 200 titles, many of which have won awards. The programs cover a broad
spectrum of topics, ranging from management training and development to safety
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in the workplace. We will pay AIMS a 45% royalty on all revenues derived from
the sale of titles in the Business and Industry library.
Workforce Training Industry Overview
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General
According to a report published by Lakewood Publications in the October 1998
issue of its respected industry publication, Training Magazine:
o $58.6 billion was budgeted for formal training in 1997 by U.S.
organizations with 100 or more employees.
o 56.6 million people received some formal training in 1997 from employers
employing 100 or more people.
o Approximately 70 percent of U.S. organizations employing 100 or more
employees offered some training to their employees in 1998.
During the past several years, large and small corporations throughout the world
have sought to remain competitive and to prosper in today's information age and
knowledge-orientated economy by allocating an increasing amount of resources to
the training of their employees. No longer is workplace training restricted to
senior managers. Among other categories of employees who now receive training
paid for by their employers are middle managers, salespeople, first line
supervisors, production workers, administrative employees, customer service
representatives, and information technology personnel. "Soft-Skill" training and
Information Technology ("IT") training represent the industry's two major,
distinct sources of revenue. Soft-Skill training includes management
skills/development, supervisory skills, communication skills, new methods and
procedures, customer relations/services, clerical/secretarial skills, personal
growth, employee/labor relations, and sales. Information Technology training
includes client/server systems, internet/intranet technologies, computer
networks, operating systems, databases, programming languages, graphical user
interfaces, object-oriented technology and IT management.
The Soft Skill Training Market
As reported in the October 1998 issue of Training Magazine, Soft Skill training
represents 71 percent of the $58.6 billion spent by U.S. companies in the
training of their employees. Management believes that the Soft-Skill training
market is rapidly expanding mainly as a result of realization by organizations
throughout the world that in order to remain competitive and manage for success,
they must continuously invest in the training of their employees. Demand for
quality training products and services is not only stemming from organizations,
but from millions of workers who are seeking advanced training to keep up with
the job skills required by today's more competitive global economy.
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As further reported by Training Magazine, there were over forty different
specific Soft-Skill training subjects utilized by organizations in 1998 to
increase employee productivity. The top ten subjects were: new employee
orientation, performance appraisals, personal computer use, team-building,
leadership, sexual harassment, hiring/selection process, train-the-trainer, new
equipment operation and safety.
Although many organizations continue to maintain in-house training departments,
more and more of the Soft-Skill training function is being filled by outside
suppliers and contractors. Training Magazine reported in its October 1998 issue
that since 1995, expenditures for outside training products and services have
increased 32 percent. The trend for organizations to increasingly outsource the
training function is expected to continue as a result of the broad range of
subjects that must be part of an effective employee training program and the
cost of developing and maintaining internal training courses in the rapidly
changing workplace.
The Information Technology Market
Representing approximately 30 percent of the total dollars spent on training,
the market for Information Technology training is driven by technological
change. As the rate of this change accelerates, organizations find themselves
increasingly hampered in their ability to take advantage of the latest
information technologies because their IT professionals lack up-to-date
knowledge and skills. Industry experts believe that the increasing demand for
training IT professionals is a result of several key factors, including: (i) the
proliferation of computers and networks throughout all levels of organizations;
(ii) the shift from mainframe systems to new client/server technologies; (iii)
the continuous introduction and evolution of new client/server hardware and
software technologies; (iv) the proliferation of internet and intranet
applications; and (v) corporate downsizing, resulting in increased training
requirements for employees who must perform new job functions or multiple job
tasks that require knowledge of varied software applications and technologies.
Furthermore, since many businesses use hardware and software products provided
by a variety of vendors, their IT professionals require training on an
increasing number of products and technologies which apply across vendors,
platforms and operating systems. While approximately 55 percent of the training
for IT professionals continues to be provided by internal training departments,
many organizations are expanding their use of external training providers due to
corporate downsizing, the lack of internal trainers experienced in the latest
technologies, and, as in the Soft-Skill sector, the cost of developing and
maintaining internal training courses in rapidly evolving technologies.
Products and Services
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Currently, and for at least the next twelve months, we anticipate devoting our
limited resources to the development, production and distribution of workforce
training videos. We will continue such efforts under our agreement with The
Hathaway Group, and we are also exploring possibilities for producing and
distributing videos financed solely by us. If we are successful in our efforts
to raise substantial additional capital, management will seek to develop,
produce and distribute other training products and services, such as
publications, audiocassettes and training
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packages. However, if we are not successful in raising substantial additional
capital, we will be unable to pursue the development, production and
distribution of these other products and services.
Accompanying each of the videos produced by us is a workbook that is designed to
be given to all employees participating in the training program. These workbooks
are written for us by training professionals and serve to reinforce and enhance
the lasting effectiveness of the video. In addition to the workbook, we plan to
offer an audiocassette that gives the trainee a general orientation to the
training material and serves to reinforce the video's salient points. We believe
that the trainees will significantly benefit by being able to use the audio
cassette to strengthen and review their comprehension of the information covered
in the video during periods when it would be impossible to view a video, such as
drive-time.
Training videos typically have a running time of 20 to 35 minutes. The price
range for training videos is between $250 and over $895 per video. The wide
variance in the pricing structure is due to such factors as quality of
production, on-camera personality, source of material, sophistication of
graphics, and accompanying reference materials. The market continues to
demonstrate its willingness to purchase high-end videos. Therefore, our strategy
is to concentrate on producing high caliber videos utilizing elements and
production values that will generate sales at the higher end of the price range,
where profit margins are greater.
The price differential between a corporate training video and a standard
consumer video is justified by the fact that an organization will purchase a
video and utilize it to train hundreds of employees over many years. A
successful video may generate revenues of as much as $1 million a year. There
are numerous examples of this in the industry, including: "Paradigm Shift," by
Charthouse Learning; "Remember Me and Abilene Paradox," by CRM Films; "More Than
a Gut Feeling," by American Media; "The Guest," by Media Partners; and "Subtle
Sexual Harassment," by Quality Media.
Sales and Marketing
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In most cases, the sale of management training products involves direct mail
solicitation, preview request fulfillment, and telemarketing. We begin our sales
effort by identifying prospective buyers and soliciting them through direct mail
appeals that offer the recipient a free preview. In addition, we market and
distribute our work force training videos via our web site at
"advancedknowledge.com."
Preview request fulfillment represents a major part of our sales plan. Most
professional trainers will not purchase a training video until they have
previewed it in its entirety, affording them an opportunity to evaluate the
video's applicability to their specific objective and to judge its effectiveness
as a training tool. When requests are received, a preview copy is immediately
sent to the prospective buyer. To enhance sales potential, we send preview
copies in the form of video catalogues. Each video catalogue will include
several titles in the same general subject area, as the prospect may be
interested in acquiring other videos that deal with similar issues. Within a
short period of time following the shipment of the preview copy, a telemarketing
representative will call the prospective buyer to get their comments and to
ascertain their level of
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interest. As a result of having to send preview copies to potential customers,
the sales cycle may take as little as a week or as long as several months.
Understanding that the principal competitive factors in the training industry
are quality, effectiveness, client service, and price, we have developed a
marketing campaign that emphasizes our commitment to these key points, and in
addition, serves to establish a positive image and brand value for our products.
We utilize the following marketing methods to reach and motivate buyers of
training products and services.
Branding
The reason management has made brand development a key strategy of our business
plan is that a brand is the intentional declaration of "who we are," "what we
believe" and "why you should put your faith in our products and services." Above
all, corporate branding is a promise a company can keep to its customers, the
trade and its own employees.
To be effective, a corporate brand should be understood by key audiences:
customers, vendors, analysts, the media, employees and all other groups that
determine the viability of a business. We anticipate that our corporate brand
will grow to be our most valuable business asset. Familiarity leads to
favorability. People who know the Company are likely to feel more positive
toward it than a lesser-known company.
In order to build brand name recognition, management will strive to ensure that
all corporate, brand, and trade advertising carrying the corporate name and
other company-wide communications have a demonstrably positive impact on
familiarity and favorability. In addition, we anticipate strengthening our brand
identity by expanding the scope of our products and services through
partnerships with highly regarded training institutions and professional
associations.
Direct Mail
We believe the most cost efficient way of generating sales is through the direct
mailing of product catalogues to the purchaser of training products and
materials at organizations having 100 or more employees. This is our prime
target. According to Dun & Bradstreet, there are over 135,000 organizations in
the United States with at least 100 or more people.
To reach the target buyer, we utilize mailing lists purchased from, among
others, the industry's most prestigious trade association, the American Society
of Training and Development. Other sources of mailing lists include various
trade associations and companies that sell mailing lists, such as Hugo Dunhill
Mailing Lists, Inc.
In addition to being cost effective, direct mail represents the most accurate
way of measuring sales and marketing efforts. Each response received by us is
tracked through a database for the purpose of determining the highest "pulling"
list and to measure the effectiveness of a specific marketing campaign. In
addition, by evaluating response rates, management is also in a position to
determine what level of direct mail is needed to reach sales goals, and to alter
its product line in accordance with marketplace feedback. Our intention is to
incorporate state-of-the-art design
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in the production of our catalogues that will not only serve to generate sales
for specific products, but will also help in building our brand value. This will
be accomplished by highlighting the quality and effectiveness of our product
line through the showcasing of customer endorsements. We believe that brand
values have a strong tangible effect on the results of any direct mail effort,
and therefore we will utilize all of our marketing materials to enhance our
image as a reliable and competitive provider of quality training products and
services.
Telemarketing
We manage our telemarketing efforts by utilizing trained telephone
representatives who focus primarily on following up leads that have been
generated through direct mail solicitation.
Our telemarketers are provided with information on a customer's buying history
and past needs, which are entered into our proprietary database.
Realizing that the buyers of training products and services are highly educated
executives who have multiple pressures and needs, the telemarketers that we
employ are trained in high-level, sophisticated selling skills. Using a
step-by-step telemarketing process, developed by us, the representative attempts
to establish a consultative relationship with potential customers. He or she
then will be able to use that relationship in conjunction with information
provided by our database to help generate additional sales or preview requests.
Competition
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Both the Soft-Skills and Information Technology sectors of the training market
are highly fragmented, with low barriers to entry and no single competitor
accounting for a dominant market share. Our competitors are primarily the
internal training departments of companies and independent education and
training companies.
Internal Training Departments
Internal training departments generally provide companies with the most control
over the method and content of training, enabling them to tailor the training to
their specific needs. However, we believe that industry trends toward downsizing
and outsourcing continue to reduce the size of internal training departments and
increase the percentage of training delivered by external providers. Because
internal trainers find it increasingly difficult to keep pace with new training
concepts and technologies, and lack the capacity to meet demand, organizations
increasingly supplement their internal training resources with externally
supplied training in order to meet their requirements.
Independent Training Providers
Ranging in size, independent training providers include publishers of texts,
training manuals and newsletters, as well as providers of videos, software
packages, training programs and seminars.
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Independent training providers are the main beneficiaries of the organizational
outsourcing trend. As a result of the increased demand for external training
products and services, many large corporations have entered the field by
establishing corporate training divisions. Among the larger competitors are:
Times Mirror Corporation, Sylvan Learning Systems, Inc, Berkshire Hathaway, and
Harcourt General. Additional competitors currently producing training products
include: Blanchard Training & Development, Career Track, American Media,
Pfeiffer & Company, CRM Films, and AIMS Multimedia.
In all cases, the companies listed above have established credibility within the
training industry, and compared to us, have substantially greater financial and
managerial resources.
Employees
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Our employee staffing levels are consistent with existing workload and business
opportunities. Currently, we have three full-time and two part-time employees.
We anticipate hiring up to three additional full-time employees, (of whom it is
anticipated that two would be sales and one would be clerical) during our next
fiscal year. We regularly utilize the services of independent consultants for
our business affairs and marketing activities.
ITEM 2. DESCRIPTION OF PROPERTY.
We lease office space from an unaffiliated third party for $1,605 per month,
located at 17337 Ventura Boulevard, Suite 224, Encino, California 91316. The
lease terminates February 28, 2000. We anticipate that we will be able to renew
the lease, and that this space, consisting of approximately 1,100 square feet,
will be adequate for our operations through the end of fiscal 2000. In addition,
we rent a satellite sales office on a month-to-month basis from an unaffiliated
third party for $795 per month. The office is located at 530 Miller Avenue, Mill
Valley, California 94941.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, Advanced Knowledge is not a party to any material legal
proceedings, and none are known to be contemplated against Advanced Knowledge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended August 31, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
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Until August 20, 1999, there was no public trading market for our stock. On that
day our common stock was cleared for trading on the OTC Bulletin Board system
under the symbol AVKN. A very limited market exists for the trading of our
common stock.
The table below sets forth the high and low bid prices of our common stock for
each quarter shown, as provided by the Nasdaq Trading and Market Services
Research Unit. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL 1999
Quarter Ended November 30, 1998 N/A N/A
Quarter Ended February 28, 1999 N/A N/A
Quarter Ended March 31, 1999 N/A N/A
Quarter ended August 31, 1999 $0.25 $0.25
</TABLE>
Holders
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The approximate number of holders of record of common stock as of August 31,
1999 was 963.
Dividends
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Holders of common stock are entitled to receive such dividends as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. No dividends have been paid on our common stock, and we do
not anticipate paying any dividends on our common stock in the foreseeable
future.
Recent Sales of Unregistered Securities
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Pursuant to the Merger and Reorganization Agreement, we issued 2,700,000 shares
of our common stock to the sole shareholder of AKIP, in exchange for all the
outstanding shares of AKIP. This transaction was exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof covering transactions not involving any public offering. Only one
investor acquired shares, the investor was accredited or otherwise qualified and
had access to material information about the DMAR, AKIP and the proposed
business combination, and restrictions were placed on the resale of the shares
sold.
We sold an additional 1,000,000 shares of common stock in December 1998 and
January 1999 to five accredited investors in reliance upon the exemption from
registration provided by Rule 504
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of Regulation D, promulgated under Section 3(b) of the Securities Act of 1933,
as amended. The aggregate purchase price for these shares was $100,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
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We will continue to devote the major portion of our resources to the marketing
of our workforce training video library. At this time, these efforts are focused
on three titles: "Twelve Angry Men: Teams That Don't Quit," "The Cuban Missile
Crisis: A Case Study in Decision Making and Its Consequences," and "It's A
Wonderful Life: Leading Through Service." We anticipate devoting some of our
resources to the production of additional training videos. Marketing expenses
and production costs over the next year are estimated to approximate $300,000.
In addition, we plan to increase the number of our full-time employees from
three to six during fiscal 2000 (two administrative, three sales and one
clerical).
Management expects that cash from sales of our videos and training materials,
credit available from our president and principal stockholder (see Item 12,
"Certain Relationships and Related Transactions"), and funds from the sale of
equity should satisfy our cash requirements over the next year. However, there
can be no assurance that our president will continue to advance funds for our
operations or that we will be successful in raising capital through the sale of
equity. If not, we will require additional funding from other sources. We may,
for example, find it necessary to seek third-party loan financing to fund our
operations or make acquisitions, or to acquire ownership of or distribution
rights in additional workforce training videos or materials. There can be no
assurance that we will be successful in securing such loan financing on
favorable terms, or at all. If we do not meet our sales expectations and
additional funding is unavailable, we will revise our marketing and production
budgets below the estimated $300,000.
We have historically experienced significant operating losses, and our auditors
have indicated in their report that such losses raise substantial doubt about
our ability to continue as a going concern.
DMAR was effectively dormant during the year ended December 31, 1997, expending
only $758 in order to maintain its corporate status. In connection with the
acquisition of AKIP by DMAR, AKIP paid a total of $50,000 to EKSI (parent of
DMAR) for certain proprietary know-how and work products and to cover certain
administrative and professional fees associated with the transaction.
Results of Operations
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Our revenues for fiscal 1999 totaled approximately $174,000, an increase of
$167,000 over fiscal 1998. This increase reflects our implementation of
marketing the video "Twelve Angry Men" and completion of the new video, "Cuban
Missile Crisis." In addition, we realized revenues from training and consulting
to end users of the videos totaling $39,000. Cost of goods sold totaled
approximately $54,000, an increase of $53,000 over fiscal 1998. The majority of
this increase represents royalty costs on sales, which average 35% of gross
sales.
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Our selling and marketing costs increased from approximately $12,000 in 1998 to
$45,000 in 1999. The majority of these costs represent distribution costs of the
videos and advertising. Our general and administrative costs increased from
approximately $29,000 in 1998 to $179,000 in 1999. The majority of the increase
was attributable to professional fees associated with the preparation and filing
of our Form 10-SB registration statement with the Securities and Exchange
Commission, together with normal operating costs incurred for a full year once
the development of the videos was completed and the resulting infrastructure to
support operations was in place.
During fiscal 1999, we financed our operations with borrowings from our
president and principal stockholder and from the private sale of common stock.
We have an agreement with our president and principal stockholder to provide, at
the president's discretion, up to $300,000 at 8% interest. Repayment is to be
made when funds are available, with the balance of principal and interest due
December 31, 2001. Borrowings totaled $127,962 through August 31, 1999, and
accrued interest on such borrowings totaled $9,682 as of August 31, 1999. See
Item 12, "Certain Relationships and Related Transactions." During December 1998
and January 1999, we sold, in exempt, private transactions, a total of 1,000,000
shares of our common stock at $0.10 per share, for total proceeds of $100,000.
We have no material commitments for capital expenditures, nor do we foresee the
need for such expenditures over the next year. We have an agreement with the
co-producer of "Twelve Angry Men," "The Cuban Missile Crisis" and "It's a
Wonderful Life," to pay one-half of the production and distribution expenses for
these training videos in return for a royalty based on a specified formula,
which has averaged approximately 35% of gross sales.
Year 2000 Issue
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We are not currently utilizing any electronic processing systems and therefore
we are not directly at risk for having systems that will not recognize the Year
2000 ("Y2K") or treat any date after December 31, 1999 as a date during the
twentieth century. However, no assurances can be given that we will be able to
avoid all Y2K problems, especially those that might originate with third parties
with whom we transact business, such as financial institutions, and we have not
undertaken any investigation to determine the Y2K readiness of such parties. If
we or any third party with whom we do business were to have a Y2K problem, our
business could be disrupted and our financial condition and results of
operations could be materially adversely affected.
13
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Statements
Pages
Independent Auditors' Report ........................................... 15
Financial Statements:
Balance Sheets as of August 31, 1999 and 1998 ....................... 16
Statements of Operations for the Years Ended
August 31, 1999 and 1998 ......................................... 17
Statements of Shareholders' Deficit
for the Years Ended August 31, 1999 and 1998 ..................... 18
Statements of Cash Flows for the Years Ended
August 31, 1999 and 1998 ......................................... 19
Notes to Financial Statements ........................................ 20-23
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
ADVANCED KNOWLEDGE, INC.:
We have audited the accompanying balance sheets of Advanced Knowledge, Inc. (the
"Company") as of August 31, 1999 and 1998 and the related statements of
operations, shareholders' deficit and cash flows for the two years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at August 31, 1999 and 1998, and
the results of its operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered significant losses from
operations that raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 4. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Farber & Hass LLP
Oxnard, California
October 11, 1999
15
<PAGE>
<TABLE>
ADVANCED KNOWLEDGE, INC.
BALANCE SHEETS
AUGUST 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CASH ............................................. $ 10,859 $ 10,918
ACCOUNTS RECEIVABLE .............................. 28,568 6,836
VIDEO INVENTORY AND PRODUCTION COSTS ............. 49,444 33,285
PREPAID EXPENSES ................................. 1,050 2,000
--------- ---------
TOTAL ASSETS ..................................... $ 89,921 $ 53,039
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
ACCRUED ROYALTIES ................................ $ 27,874
ACCRUED EXPENSES ................................. 22,061 $ 64,472
ACCRUED INTEREST TO SHAREHOLDER .................. 9,682
NOTE PAYABLE TO SHAREHOLDER ...................... 127,962 72,212
--------- ---------
TOTAL LIABILITIES ................................ 187,579 136,684
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, par value - $.001,
25,000,000 shares authorized;
4,000,000 and 3,000,000 shares
issued and outstanding at
August 31, 1999 and 1998,
respectively ................................. 4,000 3,000
Additional paid-in capital ....................... 99,000
Accumulated deficit .............................. (200,658) (86,645)
--------- ---------
Total shareholders' deficit ...................... (97,658) (83,645)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT ...... $ 89,921 $ 53,039
========= =========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
ADVANCED KNOWLEDGE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Rental income .......................... $ 3,311 $ 292
Sales .................................. 116,581 6,151
Other revenues ......................... 54,377 393
----------- -----------
Total revenues ......................... 174,269 6,836
----------- -----------
COST OF GOODS SOLD ..................... 53,731 904
----------- -----------
GROSS MARGIN ........................... 120,537 5,932
----------- -----------
OPERATING EXPENSES:
Selling and marketing .................. 44,821 11,818
General and administrative ............. 179,247 29,221
Research and development ............... 25,000
Organization costs ..................... 25,738
----------- -----------
Total operating expenses ............... 224,068 91,777
----------- -----------
LOSS FROM OPERATIONS ................... (103,531) (85,845)
INTEREST EXPENSE ....................... 9,682
----------- -----------
LOSS BEFORE INCOME TAXES ............... (113,213) (85,845)
INCOME TAXES ........................... 800 800
----------- -----------
NET LOSS ............................... $ (114,013) $ (86,645)
=========== ===========
BASIC LOSS PER SHARE ................... $ (.03) $ (.03)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING .................. 3,602,740 3,000,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
ADVANCED KNOWLEDGE, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<CAPTION>
Additional
Common Stock Paid-in Shareholders'
Shares Amount Capital Deficit
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 1, 1997 -0- $ -0- $ -0- $ -0-
CONTRIBUTION
OF CAPITAL 3,000,000 3,000
NET LOSS (86,645)
--------- ------- -------- ---------
BALANCE,
AUGUST 31, 1998 3,000,000 3,000 (86,645)
SALE OF COMMON STOCK 1,000,000 1,000 99,000
NET LOSS (114,013)
--------- ------- -------- ---------
BALANCE,
AUGUST 31, 1999 4,000,000 $ 4,000 $ 99,000 $(200,658)
========= ======= ======== =========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
<TABLE>
ADVANCED KNOWLEDGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $(114,013) $ (86,645)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization ................................... 7,867 417
Changes in operating assets and liabilities:
Accounts receivable ............................ (21,732) (6,836)
Inventories .................................... (24,026) (33,702)
Prepaid expenses ............................... 950 (2,000)
Accrued expenses ............................... (4,855) 64,472
--------- ---------
Net cash used by operating activities .............. (155,809) (64,294)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock ............................... 100,000
Contributed capital ................................ 3,000
Borrowings from shareholder ........................ 55,750 72,212
--------- ---------
Net cash provided by financing activities .......... 155,750 75,212
--------- ---------
NET INCREASE (DECREASE) IN CASH .................... (59) 10,918
CASH, BEGINNING OF YEAR ............................ 10,918 -0-
CASH, END OF YEAR .................................. $ 10,859 $ 10,918
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for income taxes ....... $ 800 $ 800
</TABLE>
Effective June 30, 1998, DMA-Radtech, Inc. issued 2,700,000 shares of its common
stock in exchange for all outstanding shares of Advanced Knowledge, Inc.
See accompanying notes to financial statements.
19
<PAGE>
ADVANCED KNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION - At a special meeting held on June 30, 1998, the
shareholders of DMA-Radtech, Inc. ("DMA"), a wholly-owned subsidiary of
Electro-Kinetic Systems, Inc. ("EKSI"), approved a plan of merger and
reorganization, as set forth in an Agreement and Plan of Merger and
Reorganization dated as of June 30, 1998, with Advanced Knowledge, Inc.
("AKIP"). DMA issued 2,700,000 shares of its common stock in exchange for
all outstanding shares of Advanced Knowledge, Inc. Concurrent with the
agreement, DMA changed its name to Advanced Knowledge, Inc. ("AK"). DMA, a
Delaware corporation, was incorporated under the laws of the State of
Delaware in January 1987.
The merger was accounted for using the "reverse purchase" method of
accounting, pursuant to which AKIP was treated as the acquiring entity for
accounting purposes. The assets, liabilities and shareholders' deficit of
AKIP were recorded at their historical values. DMA had no assets or
liabilities.
DMA previously operated as a producer and distributor of radon testing
devices. In addition, DMA had maintained a testing facility for matters
related to radon. DMA ceased operations in 1995.
The Company has changed its fiscal year-end from December 31 to August 31.
The audited financial statements for the period January 1 through August
31, 1998 reflect primarily the operations of the predecessor company (AKIP)
since DMA was effectively dormant during the period January 1 through June
30, 1998.
In connection with the agreement, AK paid $25,000 to EKSI for certain
proprietary technology and work-products related to the Company's core
business and EKSI agreed to contribute to capital all liabilities of DMA as
of the date of the agreement. Such liabilities totaled approximately
$311,000. Based on the forecasted cash requirement to compete and market
the radon detection equipment, management has elected not to pursue the
technology acquired in the transaction and thus, the amount has been
expensed as research and development costs in 1998. In addition, AK paid
$25,000 to EKSI for professional fees and other expenses related to the
transaction. The amount paid by AK has been expensed as incurred and is
included in Organization Costs in the Statement of Operations for 1998.
The current core business of Advanced Knowledge, Inc. is the production and
marketing of business training videos.
20
<PAGE>
GOING CONCERN - The Company has experienced significant operating losses
since inception. The financial statements have been prepared assuming the
Company will continue to operate as a going concern which contemplates the
realization of assets and the settlement of liabilities in the normal
course of business. No adjustment has been made to the recorded amount of
assets or the recorded amount or classification of liabilities which would
be required if the Company were unable to continue its operations. As
discussed in Note 4, management has developed an operating plan, which they
believe will generate sufficient cash to meet its obligations in the normal
course of business. In addition, the Company has an agreement with its
President and majority shareholder, which provides for borrowings up to
$300,000 (see Note 2).
UNCLASSIFIED BALANCE SHEET - In accordance with the provisions of SFAS No.
53, the Company has elected to present an unclassified balance sheet.
VIDEO INVENTORY - Video inventory consists of videotapes, demos, training
manuals and film production costs. Inventory is stated at the lower of cost
or estimated net realizable value and is amortized in the ratio of the
current year's gross revenues to management's estimate of remaining gross
revenues. Accumulated amortization at August 31, 1999 totaled $8,284.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Income taxes are provided based on earnings reported for financial
statement purposes. Deferred taxes are provided on the temporary
differences between income for financial statement and tax purposes.
At August 31, 1999, the Company has available net operating loss carryovers
of approximately $200,000 that will expire in various periods through 2014.
The Company has established a valuation allowance for the full tax benefit
of the operating loss carryovers due to the uncertainty regarding
realization of the asset. The valuation allowance increased from
approximately $17,000 to $39,000, representing additional net operating
loss carryforwards generated in 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of all financial
instruments potentially subject to valuation risk (principally consisting
of accounts receivable, accrued expenses and note payable) approximates
fair value due to the short term maturities of such instruments.
21
<PAGE>
LOSS PER SHARE - The Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" that
established standards for the computation, presentation and disclosure of
earnings per share ("EPS"), replacing the presentation of Primary EPS with
a presentation of Basic EPS. It also requires dual presentation of Basic
EPS and Diluted EPS on the face of the income statement for entities with
complex capital structures. In accordance with Staff Accounting Bulletin
Topic 4, basic EPS is based on the number of common shares outstanding as
if such shares were outstanding at the beginning of the period, which
totaled 3,000,000 for 1998. The Company did not present Diluted EPS since
the result was anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENTS - The Company adopted SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting
and displaying comprehensive income and its components in financial
statements; however, the adoption of this statement had no impact on the
Company's net loss on shareholders' deficit.
RECLASSIFICATION - Certain 1998 amounts have been reclassified in order to
conform with 1999 classifications.
2. NOTE PAYABLE TO SHAREHOLDER
The Company entered into an agreement with its President and majority
shareholder to borrow up to $300,000 (at the discretion of the President)
with interest at 8.0%. Repayment shall be made when funds are available and
the balance of principal and accrued interest is due December 31, 2001.
3. COMMITMENTS AND CONTINGENCIES
The Company has agreements with companies to pay a royalty on sales of
certain videos. The royalty is based on a specified formula, which averages
to approximately 35% to 45% of gross sales.
The Company leases its operating facility for $1,605 per month in Encino,
California under a non-cancelable operating lease, which expires in
February 2000. The Company expects to renew the lease under similar terms.
In addition, the Company leases a sales office in Mill Valley, California
on a month-to-month lease for $795 per month. Lease expense totaled $21,210
in 1999 (none in 1998).
4. MANAGEMENT PLANS
During 1999 and 1998, the Company commenced marketing and sales of its new
training videos. Management expects that the forecasted higher sales and
cash flow from operations will be adequate to finance the 2000 cash flow
requirements. Management has developed plans that include but are not
limited to, merging with another company and obtaining additional financing
sources.
22
<PAGE>
5. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company has evaluated the impact of the Year 2000 date change on its
computer systems and has concluded that this change will not have a
material impact on its systems.
- --------------------------------------------------------------------------------
23
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the current officers and directors of Advanced
Knowledge:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Buddy Young 64 President, Chief Executive
Officer, Chief Financial
Officer and Director
L. Stephen Albright 46 Secretary and Director
Dennis Spiegelman 53 Director
Howard Young 41 Vice President
</TABLE>
BUDDY YOUNG has served as President, Chief Executive Officer, Chief Financial
Officer and a Director of the Company since August 26, 1998. Immediately prior
thereto, Mr. Young served as President of AKIP, the privately held company he
founded in 1997. During Mr. Young's career he has served in various executive
capacities in the entertainment industry. From 1992 until July 1996, Mr. Young
served as President and Chief Executive Officer of Bexy Communications, Inc.
("Bexy"), a publicly held company whose stock traded on the over-the-counter
Bulletin Board system. Bexy's core business was the production, financing and
distribution of television programming. During his tenure at Bexy, Bexy produced
and distributed a number of television programs, including a two-hour special,
"Heartstoppers . . . Horror at the Movies," hosted by George Hamilton, and a 26
episode half-hour television series entitled, "Feelin' Great," hosted by
Dynasty's John James. From June 1983 until December 1991, Mr. Young was
President, Chief Executive Officer and a Director of Color Systems Technology,
Inc., a publicly held company whose stock traded on The American Stock Exchange.
Color Systems' major line of business is the use of its patented computer
process for the conversion of black and white motion pictures to color. Prior to
joining Color Systems, Mr. Young served from 1965 to 1975 as Director of West
Coast Advertising and Publicity for United Artists Corporation, from 1975 to
1976 as Director of Worldwide Advertising and Publicity for Columbia Pictures
Corp., from 1976 to 1979 as Vice President of Worldwide Advertising and
Publicity for MCA/Universal Pictures, Inc., and from 1981 to 1982 as a principal
in the motion picture consulting firm of Powell & Young, which represented some
of the industry's leading film makers. For the past twenty-five years, Mr. Young
has been an active member of The
24
<PAGE>
Academy of Motion Picture Arts and Sciences and has served on a number of
industry-wide committees.
L. STEPHEN ALBRIGHT has served as a Director of the Company since September 15,
1998. Mr. Albright received his undergraduate degree in Business Administration
and Marketing, from West Virginia University in 1975. Following careers in sales
and new home construction, Mr. Albright entered Whittier College School of Law
in 1980. Mr. Albright was admitted to practice law in the State of California in
1983. Mr. Albright spent approximately half of his legal career in private
practice where he has been primarily engaged in transactional work, business
litigation, and providing general legal business advice to clients. Mr. Albright
also spent seven years as in-house counsel, Vice President, General Counsel and
Secretary to CST Entertainment Imaging, Inc., a publicly-held company. While
with CST, Mr. Albright was responsible for all aspects of the company's annual
shareholder's meetings; preparation and filing of the company's proxy materials,
annual reports on Form 10-K, and quarterly reports on Form 10-Q; and drafting
and negotiating lease agreements, distribution and licensing agreements and debt
and equity funding arrangements.
DENNIS SPIEGELMAN has served as a Director of the Company since September 15,
1998. Mr. Spiegelman is an experienced sales and marketing executive with a
successful track record in many aspects of the entertainment industry. He is
currently Senior Vice President, Sales and Marketing at Axium Entertainment, a
company specializing in providing payroll services to the entertainment
industry. Prior to joining Axium, he held similar positions with AP Services,
Inc., and IDC Entertainment Services. During his career of more than 25 years,
Mr. Spiegelman has held various other senior positions, including Director of
Operations at Heritage Entertainment, and President and Director of All American
Group, Inc. While at these companies, Mr. Spiegelman was mainly responsible for
the sale of feature films to foreign theatrical, video, and television markets.
In addition, Mr. Spiegelman has served as Executive Producer of the theatrical
motion picture entitled, "Nobody's Perfect," and is a past president of
Financial, Administrative, and Management Executives in Entertainment, a
50-year-old networking organization for entertainment industry executives.
HOWARD YOUNG has served as a Vice President of the Company since September 14,
1998. Prior thereto, Mr. Young served as the Director of Marketing for AKIP. Mr.
Young started his business career at Columbia Pictures in 1983 as a motion
picture sales trainee. Shortly thereafter he was promoted to salesman, and was
responsible for sales and exhibitor relations in the Seattle-Portland territory.
In 1985 Mr. Young joined one of Hollywood's leading advertising agencies, JP
Advertising. While there he served in a number of positions relating to the
marketing of motion pictures. In 1992 he was named a Senior Vice President of
the agency, and was responsible for supervising client accounts. Among others,
the agency's accounts included: The Walt Disney Company, 20th Century Fox,
Columbia Pictures and Paramount Pictures. Along with his client responsibilities
Mr. Young supervised the administrative operations of the agency. During his
tenure at JP Advertising, Mr. Young worked on the marketing campaigns of such
films as Titanic, Speed, 101 Dalmatians, Men in Black, and True Lies. A graduate
of Redlands University, Mr. Young joined AKIP in June of this year. In addition
to his responsibilities at Advanced Knowledge, he serves as a consultant to a
number of companies in the marketing of
25
<PAGE>
their products and services and is active as a graduate assistant in the Dale
Carnegie Course Program. Mr. Young is the son of the Company's president and
principal stockholder.
Directors are elected in accordance with our bylaws to serve until the next
annual stockholders meeting. Advanced Knowledge does not currently pay
compensation to directors for services in that capacity.
Officers are elected by the board of directors and hold office until their
successors are chosen and qualified, until their death or until they resign or
have been removed from office. All corporate officers serve at the discretion of
the board of directors. Except as disclosed above with respect to Howard Young
and Buddy Young, there are no family relationships between any director or
executive officer and any other director or executive officer of Advanced
Knowledge.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of our equity securities (referred to as "reporting persons"),
to file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of common stock and other Advanced Knowledge
equity securities. Reporting persons are required by Commission regulations to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of reports and
amendments thereto on Forms 3, 4 and 5 furnished to us by reporting persons
during, and with respect to, our fiscal year ended August 31, 1999, and on a
review of written representations from reporting persons that no other reports
were required to be filed for that fiscal year, all Section 16(a) filing
requirements applicable to our directors, executive officers and greater than
ten percent beneficial owners during such period were satisfied in a timely
manner, except that the Form 3 reports filed for Buddy Young, Stephen Albright,
Dennis Spiegelman and Howard Young were inadvertently filed late.
ITEM 10. EXECUTIVE COMPENSATION.
As a result of our current limited available cash, no officer or director
received compensation during the fiscal year ended August 31, 1999. Advanced
Knowledge intends to pay salaries when cash flow permits. No officer of director
received stock options or other non-cash compensation during the fiscal year
ended August 31, 1999. Advanced Knowledge currently has no employment agreement
with any officer of the company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial
ownership of our outstanding common stock as of October 15, 1999, by each person
known by Advanced Knowledge to own beneficially more than 5% of the outstanding
common stock, by each of our directors and officer and by all of our directors
and officers as a group. Unless otherwise indicated below, to our knowledge all
persons listed below have sole voting and investment
26
<PAGE>
power with respect to their shares of common stock except to the extent that
authority is shared by spouses under applicable law. Unless otherwise indicated,
the address of each person listed in the table is 17337 Ventura Boulevard, Suite
224, Encino, California 91316.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF SHARES OF CLASS
- ---------------- ---------------- ----------
<S> <C> <C>
Buddy Young ................................. 1,950,000 48.75%
Steve Albright .............................. 10,000 0.25%
Dennis Spiegelman ........................... 10,000 0.25%
Howard Young ................................ 250,000 6.25%
All officers and directors
as a group (4 persons) ...................... 2,220,000 55.50%
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 18, 1998, Advanced Knowledge entered into a lending arrangement with
Buddy Young, pursuant to which Mr. Young may, at his discretion, advance up to
$300,000 to the company for operating expenses and production of training
videos. Advanced Knowledge has agreed to repay such funds, together with
interest thereon accruing at a rate of 8% per annum, in accordance with the
terms of a secured promissory note (the "Note"). Obligations under the Note are
collateralized under a related Security Agreement by all of Advanced Knowledge's
right, title and interest in and to its video productions and projects,
regardless of their stage of production, including all related contracts,
licenses, and accounts receivable. See Item 1, Description of Business. On March
24, 1999, the term of the Note was extended from December 31, 1999 to December
31, 2001. On that date, Advanced Knowledge must pay Mr. Young any unpaid
principal and accrued interest. As of August 31, 1999, the total amounts of
principal and interest owed to Mr. Young under the Note and Security Agreement
were $127,962 and $9,682, respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following documents are included or incorporated by reference as exhibits to
this report:
27
<PAGE>
EXHIBIT
NO. DOCUMENT DESCRIPTION
- ------- -----------------------------------------------------------------------
(2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
2.1 Agreement and Plan of Merger and Reorganization between DMAR and AKIP,
dated as of June 10, 1998(1)
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Certificate of Incorporation(1)
3.2 Certificate of Amendment dated March 11, 1987
3.3 Certificate of Amendment dated September 18, 1990
3.4 Certificate of Amendment dated August 5, 1998(1)
3.5 Certificate of Merger of AKIP into DMAR(1)
3.6 By-laws(1)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Facsimile of specimen common stock certificate
(10) MATERIAL CONTRACTS
10.1 Production Agreement, dated January 5, 1998, between AKIP and The
Hathaway Group(1)
10.2 Distribution Agreement, dated February 1, 1998, between AKIP and AIMS
Multimedia, dated February 1, 1998(1)
10.3 Secured Promissory Note, dated August 18, 1998, made by Advanced
Knowledge in favor of Buddy Young(2)
10.4 Security Agreement, dated August 18, 1998, between Advanced Knowledge
and Buddy Young(2)
10.5 Extension of the Note, dated March 24, 1999, between Advanced Knowledge
and Buddy Young(2)
28
<PAGE>
(27) FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
- ----------
(1) Previously filed as an exhibit to our registration statement on Form 10-SB
(the "Registration Statement"), which was filed on January 7, 1999, and
incorporated herein by reference.
(2) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement, which was filed on April 14, 1999, and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
Advanced Knowledge did not file any reports on Form 8-K during the fiscal year
ended August 31, 1999.
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: October 18, 1999 ADVANCED KNOWLEDGE, INC.
By: /s/ Buddy Young
-----------------------
Buddy Young
President, Chief Executive Officer and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the date indicated.
Date: October 18, 1999 /s/ Buddy Young
-----------------------
Buddy Young
President, Chief Executive Officer,
Chief Financial Officer and Director
(Principal Executive, Financial and
Accounting Officer)
Date: October 18, 1999 /s/ L. Stephen Albright
-----------------------
L. Stephen Albright
Director
Date: October 18, 1999 /s/ Dennis Spiegelman
-----------------------
Dennis Spiegelman
Director
30
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
********
EKS RN CON Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of EKS RN CON Inc.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered "one" so that,
as amended said Article shall be and read as follows:
"The name of this corporation shall be EKS RadTech, Inc."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment [w]as duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said EKS RN CON Inc. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by John T. Hoback its
President and John E. Rooks its Secretary this 27th day of February, 1987.
/s/ John E. Rooks /s/ John T. Hoback
- --------------------------------- ----------------------------------
Secretary President
31
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
- --------------------------------------------------------------------------------
EKS RADTECH, INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of EKS Radtech, Inc.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered "one" so that,
as amended, said Article shall be and read as follows:
"The name of this corporation shall be DMA-RADTECH, INC."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said EKS RADTECH INC. has caused this certificate to be
signed by John E. Rooks, its President, and John E. Rooks, its Secretary, this
17th day of September, 1990.
BY: /s/ John E. Rooks
--------------------------------------------
President
ATTEST: /s/ John E. Rooks
--------------------------------------------
Secretary
32
EXHIBIT 4.1
[Front of Certificate]
[LOGO]
NUMBER ADVANCED SHARES
AK_____ KNOWLEDGE ______
ADVANCED KNOWLEDGE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
Cusip 00757U 10 8
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK PAR VALUE $.001 PER SHARE OF
Advanced Knowledge, Inc., transferable on the books of the Corporation by _____
hereof in person or by duly authorized Attorney upon the surrender of this
Certificate properly indorsed. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
CERTIFICATE OF STOCK
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
L. Stephen Albright Buddy Young
Secretary President and Chief Executive Officer
ADVANCED KNOWLEDGE, INC.
CORPORATE
SEAL
1967
DELAWARE
33
<PAGE>
[Reverse of Certificate]
ADVANCED KNOWLEDGE, INC.
The Corporation will, upon request and without charge, furnish any
stockholder information as to the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _________Custodian__________
(Cust.) (Minor)
under Uniform Gifts to Minors Act_______________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, ___________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------/--------------------------------------------
- --------------------------------------------------------------------------------
(NAME AND ADDRESS OF ASSIGNEE SHOULD BE PRINTED OR TYPEWRITTEN)
- --------------------------------------------------------------------------------
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated___________________
------------------------------------------------------------
------------------------------------------------------------
ABOVE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION SUCH AS A SECURITIES BROKER-DEALER, COMMERCIAL
BANK, TRUST COMPANY, SAVINGS ASSOCIATION OR A CREDIT UNION
PARTICIPATING IN A MEDALLION PROGRAM APPROVED BY THE
SECURITIES TRANSFER ASSOCIATION, INC.
34
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 10,859
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0
0
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<SALES> 116,581
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<INCOME-PRETAX> (113,213)
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<EPS-BASIC> (0.03)
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