SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
ADVANCED KNOWLEDGE, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 95-4675095
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
17337 Ventura Boulevard, Suite 224, Encino, California 91316
(Address of Principal Executive Offices)
(Zip Code)
(818) 784-0040
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered Each Class is to Registered
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None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
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CONTENTS
PART I. PAGE
Item 1. Description of Business
Background........................................................1
Narrative Description of Business.................................1
Business of the Company...........................................1
Workforce Training Overview.......................................2
Products and Services.............................................4
Sales.............................................................6
Marketing.........................................................6
Distribution......................................................8
Competition.......................................................9
Company History...................................................10
Item 2. Management's Discussion and
Plan of Operations................................................12
Results of Operations.............................................13
Year 200 Issue....................................................13
Item 3. Description of Property...........................................14
Item 4. Security Ownership of Certain Beneficial
Owners and Management.............................................14
Item 5. Directors, Executive Officers,
Promoters and Control Persons.....................................15
Item 6. Executive Compensation............................................17
Item 7. Certain Relationships and Related Transactions....................17
Item 8. Description of Securities.........................................17
Common Stock......................................................17
Transfer Agent....................................................17
PART II.
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Related Shareholder Matters...............18
Item 2. Legal Proceedings.................................................19
Item 3. Changes in and Disagreements with Independent
Accountants ......................................................19
Item 4 Recent Sales of Unregistered Securities ..........................19
Item 5. Indemnification of Certain Directors and Officers.................19
PART F/S. Financial Statements..............................................20
DMA-Radtech, Inc..................................................22
Advanced Knowledge, Inc...........................................27
DMA-Radtech and Advanced Knowledge Pro Forma......................35
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PART III Exhibits
Item 1. Exhibit Index.............................................40
Item 2. Description of Exhibits...................................40
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FORWARD LOOKING STATEMENTS
Advanced Knowledge, Inc. ("Advanced Knowledge," "AK" or the "Company") cautions
readers that certain important factors may affect the Company's actual results
and could cause such results to differ materially from any forward-looking
statements that may be deemed to have been made in this Form 10-SB or that are
otherwise made by or on behalf of the Company. For this purpose, any statements
contained in the Form 10-SB that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may," "expect," "believe," "anticipate," "intend,"
"could," "estimate," or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
Factors that may affect the Company's results include, but are not limited to,
the Company's limited operating history, its ability to produce additional
products and services, its dependence on a limited number of customers and key
personnel, its possible need for additional financing, its dependence on certain
industries, and competition from its competitors. The Company is also subject to
other risks detailed herein or set forth from time to time in the Company's
filings with the Securities and Exchange Commission.
PART I
Item 1. Description of Business
(a) Background
Advanced Knowledge, Inc. was originally incorporated under the laws of the State
of Delaware on January 2, 1987 under the name "EKS RN CON INC." For a discussion
of the Company's history and its recent reorganization, see "Company History."
(b) Narrative Description of Business
Business of the Company
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.
The Company initiated its first project in January 1998 when it entered into a
production agreement (the "Hathaway Agreement") with The Hathaway Group 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, and 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, "Workteams and The Wizard Of Oz."
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Under the terms of the Hathaway Agreement, the Company will finance fifty
percent 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, "12 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 Crises: A Case Study in Decision Making and its Consequences." This new
video is based on the decision making process of President Kennedy and his
Cabinet during the Cuban missile crisis.
In addition to the Hathaway Agreement with The Hathaway Group, the Company
recently entered into an agreement (the "AIMS Agreement") with AIMS Multimedia
("AIMS"), a recognized leader in the production and distribution of educational
and training films. Under the terms of the AIMS Agreement, the Company has
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 in the workplace. The Company 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
General
According to a report published in the October 1998 issue of the most respected
industry publication, Lakewood Publication's Training Magazine:
58.6 billion dollars was budgeted for formal training in 1997 by U.S.
organizations with 100 or more employees.
56.6 million people received some formal training in 1997 from employers
employing 100 or more people.
70 percent of U.S. organizations employing 100 or more employees offered some
training to their employees in 1997.
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,
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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 Lakewood Publication's October 1998 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 keep competitive and manage
for success, a continuous investment in the training of its employees is
required. 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.
As further reported by Training Magazine, there were over forty different
specific Soft-Skill training subjects utilized by organizations in 1997 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.
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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
Currently, and for at least the next twelve months, the Company anticipates
devoting its limited resources to the development, production and distribution
of workforce training videos. If the Company is successful in its efforts to
raise substantial additional capital, management will seek to develop, produce
and distribute other training products and services, such as publications, audio
cassettes and training packages. However, if the Company is not successful in
its efforts to raise substantial additional capital, the Company will be unable
to pursue the development, production and distribution of these other products
and services.
Videos
During the first year of operation, the Company intends to focus on building its
video library. To that end, Advanced Knowledge entered into the production
agreement with The Hathaway Group to produce a series of training videos. The
Company has completed production of its first video entitled, "12 Angry Men:
Teams That Don't Quit" ("12 Angry Men"). Production was also completed on the
second video in the series entitled "The Cuban Missile Crises: A Case Study in
Decision Making and Its Consequences." This new video is based on the decision
making process of President Kennedy, and his Cabinet during the Cuban missile
crisis. Other videos scheduled for production are tentatively entitled, "Getting
Things Done When No One Else Wants To, Total Quality 2001," and "Turning
Elephants On a Dime: Change In Large Organizations."
Accompanying each of the videos produced by the Company is a workbook that is
designed to be given to all employees participating in the training program.
These workbooks are written for the Company by training professionals and serve
to reinforce and enhance the lasting effectiveness of the video. In addition to
the workbook, the Company plans to offer an audio cassette that gives the
trainee a general orientation to the training material and serves to reinforce
the video's salient points. The Company believes 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, i.e. drive-time. Training
videos typically have a running time of 20 to 35 minutes. The price range for
training videos is between $250 to over $895 per video. The reason for the wide
variance in the pricing structure is due to the inherent elements of the
particular video. Among the factors determining price are 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, the Company's 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, 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
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Harassment" by Quality Media.
Sales
To date, the Company has released two videos, "12 Angry Men" and "The Cuban
Missile Crises." 12 Angry Men was made available for sale on August 17, 1998.
Through December 31, 1998 ninety-three units of this video have been sold,
representing gross income of approximately $45,000.
In most cases, the sale of management training products involve direct mail
solicitation, preview request fulfillment, and telemarketing. The Company begins
its sales effort by identifying prospective buyers, and soliciting them through
direct mail appeals that offer the recipient a free preview. In addition the
Company markets and distributes it work force training videos via its web site,
"Advanced Knowledge.com."
Preview request fulfillment represents a major part of the Company's 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, the Company plans to
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. The Company
anticipates that 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 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. Marketing
Understanding that the principal competitive factors in the training industry
are quality, effectiveness, client service, and price, Advanced Knowledge has
developed a marketing campaign that emphasizes the Company's commitment to these
key points, and in addition, serves to establish a positive image and brand
value for the Company's products. Advanced Knowledge utilizes the following
marketing methods to reach and motivate buyers of training products and
services.
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Branding
The reason Advanced Knowledge has made brand development a key strategy of its
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. The Company believes that Advanced
Knowledge's 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, the Company anticipates strengthening
its brand identity by expanding the scope of its products and services through
partnerships with highly regarded training institutions and professional
associations.
Direct Mail
The most cost efficient way of generating sales for the Company 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 the Company's
prime target. According to Dun & Bradstreet, there are over 135,000
organizations in the United States with at least 100 or more people. Management
believes that nearly all of these organizations have some sort of formal
training structure.
To reach the target buyer, the Company utilizes 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 the
Company 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.
Management's intention is to incorporate state-of-the-art design in the
production of Advanced Knowledge's catalogues that will not only serve to
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generate sales for specific products, but will also help in building the
Company's brand value. This will be accomplished by highlighting the quality and
effectiveness of its product line through the showcasing of customer
endorsements. Management believes that brand values have a strong tangible
effect on the results of any direct mail effort, and therefore will utilize all
of its marketing materials to enhance the Company's image as a reliable and
competitive provider of quality training products and services. Telemarketing
The Company anticipates launching its telemarketing efforts by the end of the
second quarter of 1999. The Company intends to manage its telemarketing efforts
by utilizing trained telephone representatives who will primarily focus on
following-up leads that have been generated through direct mail solicitation.
The Company's telemarketers will be provided with information on a customer's
buying history and past needs, which will be entered into the Company's
proprietary database.
Realizing that the buyers of training products and services are highly educated
executives who have multiple pressures and needs, the telemarketers that will be
employed by the Company will be trained in high-level, sophisticated selling
skills. Using a step-by-step telemarketing process, developed by Advanced
Knowledge's management, the representative will attempt to establish a
consultive relationship with potential customers. He or she then will be able to
use that relationship in conjunction with information provided by the Company's
database to help generate additional sales or preview requests. Distribution
Competition
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. The Company's competitors are primarily
the internal training departments of companies, and independent education and
training companies. Ranging in size, the independent training companies include
publishers of texts, training manuals, newsletters, as well as providers of
videos, software packages, training programs, and seminars. Many of these
companies have greater financial and managerial resources than the Company.
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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, the Company believes 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
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, CareerTrack, 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 the Company, have substantially greater
financial resources.
Company History
Pre-Reorganization
The Company was incorporated under the laws of the State of Delaware on January
2, 1987 under the name of EKS RN CON Inc., as a wholly owned subsidiary of
Electro-Kinetic Systems Inc., a Pennsylvania corporation ("EKSI"). In March of
1987 the Corporation's name was changed to EKS RADTECH, INC. In 1990 EKSI
acquired a 72% interest in Douglas Martin & Associates, and changed the name of
its subsidiary to DMA-Radtech ("DMAR"). In 1992 EKSI acquired the remaining
minority interest in Douglas Martin Associates for 140,000 shares of its common
stock. On July 22, 1998 DMAR's Board of Directors declared a stock split of
300:1.
From its inception through March 1995, DMAR operated as a producer and
distributor of radon testing devices. In addition, DMAR served as a consultant
and maintained a testing facility for matters relating to radon. In March of
1995, DMAR ceased its operations, and sold its radon testing facility, following
the bankruptcy of its major distributor.
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Upon suspending its operations in 1995, EKSI's management aggressively commenced
a search for other business opportunities for its subsidiary. In December of
1997, EKSI entered into negotiations for DMAR to acquire all the outstanding
shares and assets of Advanced Knowledge, Inc., a privately held Delaware
Corporation ("AKIP").
Reorganization
On August 26, 1998 (the "Closing Date"), pursuant to a Plan of Merger and
Reorganization Agreement, dated as of June 30, 1998, between EKSI and AKIP (the
"Reorganization Agreement") DMAR acquired all the outstanding shares and assets
of AKIP in exchange for 2,700,000 shares of DMAR's common stock ("the
Reorganization"). The transaction has been accounted for under the purchase
method of accounting. Concurrent with the Closing, DMAR's shareholders voted to
change the name of the corporation to Advanced Knowledge, Inc. The assets as of
June 30, 1998 acquired from AKIP in the transaction 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. In addition, pursuant to the Reorganization,
liabilities of $35,000 were assumed by the Company. These liabilities represent
loans payable to the Company's President and CEO, and principal shareholder. In
addition, pursuant to the Reorganization Agreement, AKIP paid $25,000 to EKSI
for certain proprietary know-how and work products, and EKSI contributed to
capital all the liabilities of DMAR, totaling $311,000, relating to its business
prior to the Closing Date.
The Reorganization Agreement provides for EKSI to indemnify the Company for any
liabilities resulting out of or relating to the operations of its business prior
to the Closing Date, and for the Company to indemnify EKSI for any liabilities
resulting out of or relating to the operations of AKIP's business prior to the
Closing Date.
Divestiture
Pursuant to the Reorganization Agreement, and following all applicable
regulatory approval, the common stock, par value $.001, of Advanced Knowledge
(the "Advanced Knowledge Stock") owned by EKSI will be distributed to the
stockholders of record of EKSI (the "EKSI Stockholders") as of October 1, 1998
(the "Record Date") (the "Divestiture").
A principal purpose of the Divestiture is to position the separate entities so
that they will be able to pursue the strategies best suited to their individual
markets, goals and needs. In addition, Advanced Knowledge may become an
independent, publicly-traded company by means of the Divestiture, and the
Divestiture will enable the Company to attempt to raise capital for its own
activities. Upon completion of the Divestiture, the Company may attempt to raise
funds through private placements of restricted stock. In addition, the Company
may consider a public offering of its common stock, although there are no such
plans currently.
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EKSI will distribute to the EKSI Stockholders, one (1) share of Advanced
Knowledge Stock for each one hundred (100) shares of EKSI's Common Stock held by
each EKSI Stockholder on the Record Date (the "Divestiture Record Date"). No
certificates or scrip representing fractional shares of Advanced Knowledge Stock
will be issued to the EKSI Stockholders. In lieu of receiving fractional shares,
each EKSI Stockholder that would otherwise be entitled to receive a fractional
share of Advanced Knowledge Stock will receive one whole share if the fraction
is equal to or greater than one-half. If such fraction is less than one-half,
the fractional shares shall be canceled. Any shares of Advanced Knowledge Stock
held by EKSI which are not distributed shall be canceled.
EKSI Stockholders receiving shares of Advanced Knowledge Stock will not be
required to pay any cash or consideration for the shares of Advanced Knowledge
Stock received in the Divestiture or to surrender or exchange any shares of
capital stock of EKSI ("EKSI Shares") in order to receive shares of Advanced
Knowledge Stock. The Divestiture will not affect the number of outstanding EKSI
Shares.
Listing and Trading of Advanced Knowledge Stock
There currently is no public market for Advanced Knowledge Stock. A
"when-issued" trading market may develop prior to the Divestiture Date and
continue until the certificates have been mailed by the Divestiture Agent. The
term "when-issued" means that shares can be traded prior to the time
certificates actually are available or issued. Prices at which Advanced
Knowledge Stock may trade cannot be predicted. Until Advanced Knowledge Stock is
fully distributed and an orderly market develops, the prices at which such Stock
trades may fluctuate significantly. The prices at which Advanced Knowledge Stock
trades will be determined by the marketplace and may be influenced by a number
of factors, including, among others, the depth and liquidity of the market for
Advanced Knowledge Stock, investor perceptions of Advanced Knowledge, Advanced
Knowledge's dividend policy and general economic and market conditions.
Following the effectiveness of this Registration Statement, Advanced Knowledge
will be required to file annual, quarterly and other reports under the Exchange
Act (which will include audited financial statements, as required) and comply
with the SEC's proxy rules thereunder. Assuming it can fulfill and complete any
prerequisites, Advanced Knowledge intends to apply to the NASD to have its stock
listed on the Electronic Bulletin Board under the symbol "ADKI". However, no
assurance can be given that Advanced Knowledge Stock will ever meet the
requirements for inclusion on the Electronic Bulletin Board. Based on the number
of EKSI Stockholders as of the Divestiture Record Date, Advanced Knowledge
initially will have approximately 963 holders of record of its Common Stock.
Subject to the foregoing, shares of Advanced Knowledge Stock distributed to the
EKSI Stockholders in the Divestiture will be freely transferable, except for
shares received by persons who may be deemed to be "affiliates" of Advanced
Knowledge under the 1933 Securities Act, as amended (the "Securities Act").
Persons who may be deemed to be affiliates of Advanced Knowledge after the
Divestiture generally include individuals or entities that control, are
controlled by, or are under common control with, Advanced Knowledge and may
include certain officers and directors of Advanced Knowledge as well as
principal stockholders of Advanced Knowledge. Persons who are affiliates of
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Advanced Knowledge will be permitted to sell their shares of Advanced Knowledge
Stock only pursuant to an effective registration statement under the Securities
Act or an exemption from registration thereunder, such as the exemption afforded
by Section 4(1) of the Securities Act and Rule 144 thereunder.
Pursuant to the Reorganization Agreement, Advanced Knowledge paid $25,000 to
EKSI to cover the cost of printing, legal, accounting, Divestiture Agent and
other fees and expenses incurred in connection with the transaction.
Item 2. Management's Discussion and Analysis or Plan of Operation Plan of
Operation
The Company will continue to devote its resources to marketing its workforce
training video and related training materials; at this time these efforts are
focused on three titles, "Twelve Angry Men: Teams That Don't Quit," "The Cuban
Missile Crises: A Case Study in Decision Making And Its Consequences," and "What
It Really Takes To Be A World Class Company." The Company anticipates devoting
some of its resources on the production of additional training videos. Marketing
expenses and production costs over the next year are estimated to approximate
$500,000. Management expects that cash from sales of its videos and training
materials, funds available under an agreement with its President and majority
shareholder, and funds from the sale of equity should satisfy its cash
requirements over the next year. See "Item 7. Certain Relationships and Related
Transactions." However, there can be no assurance that its President will
continue to supply funds pursuant to such agreement or that the Company will be
successful in raising capital through the sale of equity. If its President does
not continue to supply funds, or the Company is not successful in selling equity
the Company will require additional funding from alternative sources. The
Company may also seek loan financing to fund its operations, or to make
acquisitions or to acquire ownership of or distribution rights in additional
workforce training videos or materials. There can be no assurance that the
Company will be successful in securing such loan financing. If the Company does
not meet its sales expectations and additional funding is unavailable, the
Company will revise its marketing and production budgets below the estimated
$500,000. The Company has historically experienced significant operating losses
and its auditors have indicated in their report that such losses raise
substantial doubt about the Company's ability to continue as a going concern. No
compensation has been recommended through March 31, 1999 nor has any been
accrued. The Company is not liable for any compensation for prior services. The
Company plans to increase its employees to 4 during 1999 (2 administrative, 2
sales). As of March 31, 1999, the Company has two employees.
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Results of Operations
DMAR was effectively dormant during the year ended December 31, 1997,
expending only $758 in order to maintain its corporate status. During the period
January 1, 1998 through August 31, 1998, AKIP expended approximately
$42,000 in the production and development of its workforce training video and
materials and in general and administrative expenses in establishing its
corporate business. In addition, 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.
During the period September 1, 1998 through November 30, 1998, the Company had
revenues of $36,618 and expended $52,620 in the marketing of its workforce
training video and materials and in general and administrative expenses in
establishing its corporate business. These expenses included approxiamtely
$25,000 for legal and accounting fees.
The Company has an agreement with its President and majority shareholder 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. The Company has borrowed $110,212 through
November 30, 1998. See "Item 7. Certain Relationships and Related Transactions."
The Company has no material commitments for capital expenditures nor does it
foresee the need for such expenditures over the next year. In connection with
the production of its video and training materials, the Company has an agreement
with the co-producer of the videos, 12 Angry Men and The Cuban Missile Crisis,
to pay a royalty based on a specified formula, which has averaged approximately
35% of gross sales.
Year 2000 Issue
The Company's business does not currently utilize any electronic processing
systems and therefore is 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 the
Company will be able to avoid all Y2K problems, especially those that might
originate with third parties with whom the Company transacts business, such as
financial institutions, and the Company has not undertaken any investigation to
determine the Y2K readiness of such parties. If the Company, or any third party
with whom the Company does business were to have a Y2K problem, the business of
12
<PAGE>
the Company could be disrupted and the Company's financial condition and results
of operations could be materially adversely affected.
Item 3. Description of Property
During part of 1998, AKIP occupied leased office space at no cost. Since
September 1998, the Company has leased office space from an unaffiliated
third-party under a three year lease, for $1,605 per month, located at 17337
Ventura Boulevard, Suite 224, Encino, CA 91316. The Company anticipates that
this space, consisting of approximately 1,100 square feet, will be adequate for
its operations through the end of fiscal 1999. Such lease terminates February
28, 2000.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the beneficial
ownership of Advanced Knowledge's outstanding Common Stock as of August 31,
1998, by each person known by Advanced Knowledge to own beneficially more than
5% of the outstanding Common Stock, by each of Advanced Knowledge's directors
and by all directors and officers of Advanced Knowledge as a group. The table
assumes the completion of the Divestiture and is based upon a distribution of
300,000 shares in the Divestiture. The actual number of shares of Advanced
Knowledge Stock distributed could be greater due to rounding of fractional
shares. Unless otherwise indicated below, to the knowledge of Advanced Knowledge
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock except to the extent that authority is shared by
spouses under applicable law.
Name and Address Number of Shares Percentage of Class
Buddy Young and
Rebecca Young as Trustees
of the Young Family Trust
17337 Ventura Blvd.,
Suite 224, Encino,
California 91316 1,950,000 65%
Mr. Steve Albright
22508 Peale Drive
Calabasas, CA 91302 10,000 0.34%
Mr. Dennis Spiegelman
13614 Addison Street
Sherman Oaks, CA 91423 10,000 0.34%
Howard Young
17337 Ventura Blvd.
Suite 224
Encino, California 91316 250,000 8.34%
All Officers and Directors
as a Group (4 persons) 2,220,000 74.00%
13
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth the Directors and Officers of the Company:
Name Age Position
Buddy Young 63 President, Chief Executive Officer,
Chief Financial Officer, and Director
L. Stephen Albright 45 Secretary, and Director
Dennis Spiegelman 52 Director
Howard Young 40 Vice President
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. In addition to his duties at the Company,
Mr. Young currently serves as an officer and director of MGPX Ventures, Inc., a
publicly held company whose stock trades on the over-the-counter Bulletin Board
system. For the past twenty-five years Mr. Young has been an active member of
The Academy of Motion Picture Arts and Sciences, and has served on a number of
industry-wide committees. Mr. Young devotes 90% of his time to the Company's
business. The remaining ten percent (10%) of his time is allocated to MGPX
Ventures, Inc.
14
<PAGE>
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;
10-K's and 10-Q's, as well as 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 member of the Board of
Directors 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 the Company, he serves as a
consultant to a number of companies in the marketing of their products and
service, and is active as a graduate assistant in the Dale Carnegie Course
Program. Mr. Young is the son of the Company's President and principle
shareholder. Mr. Young devotes his full time to the Company's business.
15
<PAGE>
Directors are elected in accordance with the Company's bylaws to serve until the
next annual shareholders meeting. The Company does not currently pay
compensation to directors for services in that capacity.
Item 6. Executive Compensation.
As a result of the Company's current limited available cash, no Officer received
compensation through the period ending August 31, 1998. The Company will pay
salaries when cash flow permits. The Company has no employment agreements with
any of its employees. The Company does not maintain life insurance policies for
any of its officers or employees.
Item 7. Certain Relationships and Related Transactions
Through August 31, 1998 Buddy Young, an officer, director and principal
shareholder of the Company, advanced funds to the Company for operating expenses
and production of training videos. The advanced funds accrued interest at a rate
of 8% per annum and as of such date principal and interest due to Mr. Young on
account of such funds totaled $72,712. Such amount is represented by the
promissory note assumed by the Company in the Reorganization, and a security
interest in all the training videos produced by the Company. To date, these
include 12 Angry Men: Teams That Don't Quit, and Cuban Missile Crisis: Critical
Team Decision Making. The maturity date of the Promissory Note is December 31,
2001.
Item 8. Description of Securities.
Common Stock
The Company's certificate of incorporation has been amended to provide for the
authorization of 25,000,000 shares of common stock, $ .001 par value per share.
As of August 31, 1998, 3,000,000 shares of Advanced Knowledge were outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders.
Transfer Agent
The Company's transfer agent is U.S. Stock Transfer Company, 1745 Gardena Ave,
Glendale, CA, Telephone (818) 502-1404.
16
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market Information
This Registration Statement has been prepared in connection with the
distribution (the "Divestiture") by EKSI to its stockholders of 300,000 shares
of Common Stock, $.001 par value, of the Company owned by EKSI. Prior to the
Reorganization, the Company was a wholly-owned subsidiary of EKSI. Accordingly,
no public market for the Registrant's Common Stock has existed. Although the
Registrant intends to apply for listing on the over-the-counter Electronic
Bulletin Board system under the symbol "ADKI," no assurance can be given that
the Registrant's Common Stock will be listed and traded on the Electronic
Bulletin Board.
Shares of the Company's Common Stock distributed to EKSI stockholders in the
Divestiture, generally, will be freely transferable, except for shares received
by persons who may be deemed to be "affiliates" of the Company under the
Securities Act of 1933 (the "Securities Act"). Persons who may be deemed to be
affiliates of the Company after the Divestiture generally include individuals or
entities that control, are controlled by, or are under common control with, the
Company and may include certain officers and directors of the Company as well as
principal stockholders of the Company. Persons who are affiliates of the Company
will be permitted to sell their shares of the Company Common Stock only pursuant
to an effective registration statement under the Securities Act or an exemption
from registration thereunder, such as the exemption afforded by Section 4(1) of
the Securities Act and Rule 144 thereunder. As of August 31, 1998 all the
3,000,000 outstanding shares of Common Stock are subject to restrictions on
transferability pursuant to Rule 144.
(b) Holders
Based on the stockholders of record of EKSI, as of the Divestiture Record Date,
the Company initially will have approximately 963 holders of record of its
Common Stock as of the Divestiture Date.
(c) Dividends
The Company had not paid cash dividends on its Common Stock and does not intend
to pay cash dividends on its Common Stock in the foreseeable future.
17
<PAGE>
Item 2. Legal Proceedings.
None.
Item 3. Changes in and Disagreements with Accountants
None.
Item 4. Recent Sales of Unregistered Securities
Pursuant to the Merger and Reorganization Agreement, the Registrant issued
2,700,000 shares of its Common Stock to the sole shareholder of AKIP, in
exchange for all the outstanding shares of AKIP.
This transaction is exempt from the registration requirement of the Securities
Act of 1933, as amended, by virtue of Section 4(2) thereof covering transactions
not involving any public offering.
In addition, one million shares of common stock were issued in March 1999 to
five accredited investors in reliance upon Section 4(2) of the Securities Act of
1933, as amended, and Rule 504. The Company provided each such investor with a
copy of the Company's Form 10-SB in lieu of a separate provide private placement
memorandum, along with the Company's unaudited financial statements for the
period ended December 31, 1998.
Furthermore, the Company has adopted, and its stockholders have approved, the
Company's 1999 Stock Compensation Plan pursuant to which the Company may issue
up to 2,000,000 shares of Common Stock.
Item 5. Indemnification of Directors and Officers
The Company's Bylaws and the Delaware General Corporation Law provide for
indemnification of directors and officers against certain liabilities. Officers
and directors of the Company are indemnified generally against expenses,
actually and reasonably, incurred in connection with proceedings, whether civil
or criminal, provided that it is determined that they acted in good faith, were
not found guilty and, in any criminal matter, had reasonable cause to believe
that their conduct was not unlawful.
18
<PAGE>
PART F/S
DMA-RADTECH, INC.
Financial Statements
For the Six Months Ended
June 30, 1998 and
For the Years Ended
December 31, 1997 and 1996
19
<PAGE>
DMA-RADTECH, INC.
TABLE OF CONTENTS
Page
FINANCIAL STATEMENTS - Unaudited:
Balance Sheets, June 30, 1998, December 31, 1997 and 1996 ........ 23
Statements of Operations and Accumulated Deficit
for the Six Months Ended June 30, 1998 and
for the Years Ended December 31, 1997 and 1996 ................ 24
Statements of Cash Flows
for the Six Months Ended June 30, 1998 and
for the Years Ended December 31, 1997 and 1996 ............... 25
Notes to Financial Statements .................................... 26
- -------------------------------------------------------------------------------
20
<PAGE>
DMA-RADTECH, INC.
BALANCE SHEETS - Unaudited
JUNE 30, 1998 AND DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
ASSETS
EQUIPMENT HELD FOR SALE $ -0- $ -0- $ 9,000
-------- --------- ---------
TOTAL ASSETS $ -0- $ -0- $ 9,000
======== ========= =========
LIABILITIES AND SHAREHOLDERS'
DEFICIT
CURRENT LIABILITIES:
Amounts due to parent company $310,708 $ 310,708 $ 302,140
Accounts payable 12,163
Accrued expenses 4,647
-------- --------- ---------
Total current liabilities
310,708 310,708 318,950
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, $.001 par value,
25,000,000 shares
authorized, 300,000 shares
issued and outstanding 300 300 300
Additional paid-in capital 700 700 700
Accumulated deficit (311,708) (311,708) (310,950)
--------- --------- ---------
Total shareholders' deficit (310,708) (310,708) (309,950)
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ -0- $ -0- $ 9,000
========= ========= ==========
- -------------------------------------------------------------------------------
21
<PAGE>
DMA-RADTECH, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT - Unaudited
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1997
AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $ -0- $ 758 $ 12,960
-------- --------- ---------
LOSS FROM OPERATIONS -0- (758) (12,960)
OTHER INCOME -0- 2,119
-------- --------- ----------
NET LOSS -0- (758) (10,841)
ACCUMULATED DEFICIT,
BEGINNING OF YEAR (311,708) (310,950) (300,109)
-------- --------- ----------
ACCUMULATED DEFICIT,
END OF YEAR $(311,708) $(311,708) $(310,950)
========= ========= ==========
- --------------------------------------------------------------------------------
22
<PAGE>
DMA-RADTECH, INC.
STATEMENTS OF CASH FLOWS - Unaudited
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THE YEARS ENDED DECEMBER 31, 1997
AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss -0- $(758) $(10,841)
Adjustment to reconcile net loss to net
cash used by operating activities:
Write-down of fixed assets 8,000
Changes in operating assets and
liabilities:
Accounts receivable 3,321
Accounts payable and accrued expenses (4,188)
Amounts due to parent company -0- 758 (1,374)
----- ----- ---------
Net cash used by operating activities -0- -0- (5,082)
----- ----- ---------
NET DECREASE IN CASH -0- (5,082)
CASH, BEGINNING OF YEAR -0- -0- 5,082
CASH, END OF YEAR $ -0- $ -0- $ -0-
====== ====== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $-0- $-0- $ -0-
Income taxes $-0- $-0- $ -0-
During 1997, the Company transferred all accounts payable, accrued expenses and
equipment held for sale, to its parent company. The net liabilities transferred
totaled $7,810.
23
<PAGE>
DMA-RADTECH, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - DMA-Radtech, Inc. (the "Company") was engaged in the
design of radon detection. Since 1995, the Company has experienced minimal
operating activity. The Company is a wholly-owned subsidiary of Electro-Kenetic
Systems, Inc. ("EKSI").
Common Stock - In July 1998, the Board of Directors of the Company
declared a 300:1 stock split. The stock split has been retroactively
reflected in the 1998, 1997 and 1996 financial statements.
Income Taxes - Income taxes are provided based on earnings reported for
financial statement purposes. In accordance with FASB Statement No.
109, the asset and liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities. Deferred income taxes
consist primarily of a net operating loss carryforward of approximately
$475,000 which will expire in various periods through 2012. Due to the
uncertainty as to the realization of this asset, a valuation allowance
has been provided on the total amount.
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.
2. BUSINESS COMBINATION
In June 1998, EKSI entered into an agreement with Advanced Knowledge,
Inc. ("AKIP"), whereby the Company would acquire all of the outstanding
shares of AKIP in exchange for 2,700,000 shares of its common stock.
Concurrent with the agreement, the Company changed its name to Advanced
Knowledge, Inc.
In connection with the agreement, AKIP 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
the Company as of the date of the agreement. Such liabilities totaled
approximately $311,000. In addition, AKIP paid $25,000 to EKSI for
professional fees and other expenses related to the transaction.
24
<PAGE>
ADVANCED KNOWLEDGE, INC.
Financial Statements
For the Period September 1, 1997
to August 31, 1998
and Independent Auditors' Report
25
<PAGE>
ADVANCED KNOWLEDGE, INC.
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT ...................................... 29
FINANCIAL STATEMENTS:
Balance Sheet,
August 31, 1998 ............................................... 30
Statement of Operations and Accumulated Deficit
for the Period September 1, 1997
to August 31, 1998 ............................................ 31
Statement of Cash Flows
for the Period September 1, 1997
to August 31, 1998 ............................................ 32
Notes to Financial Statements ..................................... 33-38
- --------------------------------------------------------------------------------
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Advanced Knowledge, Inc.:
We have audited the accompanying balance sheet of Advanced Knowledge, Inc. (the
"Company") as of August 31, 1998 and the related statements of operations and
accumulated deficit and of cash flows for the period September 1, 1997 to August
31, 1998. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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, 1998, and the
results of its operations and its cash flows for the period ended August 31,
1998 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 14, 1998
27
<PAGE>
ADVANCED KNOWLEDGE, INC.
BALANCE SHEET
AUGUST 31, 1998
- --------------------------------------------------------------------------------
ASSETS
CASH $ 10,918
ACCOUNTS RECEIVABLE 6,836
VIDEO INVENTORY AND PRODUCTION COSTS 33,285
PREPAID EXPENSES 2,000
TOTAL ASSETS $ 53,039
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
Accounts payable $ 64,472
Note payable to shareholder 72,212
--------
Total liabilities 136,684
--------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, par value - $.001, 25,000,000 shares
authorized, 3,000,000 issued and outstanding 3,000
Accumulated deficit (86,645)
---------
Total shareholders' deficit (83,645)
---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 53,039
=========
See accompanying notes to financial statements.
28
<PAGE>
ADVANCED KNOWLEDGE, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD SEPTEMBER 1, 1997 TO AUGUST 31, 1998
- --------------------------------------------------------------------------------
REVENUES $ 6,836
COST OF SALES 7,825
---------
GROSS LOSS (989)
---------
EXPENSES:
Advertising 2,555
Research and development 25,000
General and administrative 11,569
Consulting fees 10,000
Professionalfees 9,994
Organization costs 25,738
---------
Total expenses 84,856
---------
BEFORE INCOME TAXES (85,845)
INCOME TAXES 800
---------
NET LOSS (86,645)
ACCUMULATED DEFICIT AT SEPTEMBER 1, 1997 -0-
----------
ACCUMULATED DEFICIT AT AUGUST 31, 1998 $ (86,645)
==========
BASIC LOSS PER SHARE $ (.03)
==========
COMMON SHARES OUTSTANDING 3,000,000
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
29
<PAGE>
ADVANCED KNOWLEDGE, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD SEPTEMBER 1, 1997 TO AUGUST 31, 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (86,645)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 417
Changes in operating assets and liabilities:
Accounts receivable (6,836)
Inventory (33,702)
Prepaid expenses (2,000)
Accounts payable 64,472
---------
Net cash used by operating activities (64,294)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital 3,000
Borrowings from shareholder 72,212
---------
Net cash provided by financing activities 75,212
---------
NET INCREASE IN CASH 10,918
CASH, BEGINNING OF PERIOD -0-
CASH, END OF PERIOD $ 10,918
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -0-
Cash paid for income taxes $ 800
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.
- --------------------------------------------------------------------------------
30
<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 AKIP. Concurrent with the
agreement, DMA changed its name to Advanced Knowledge, Inc. ("AK" or
the "Company"). AK, a Delaware corporation, was incorporated under the
laws of the State of Delaware in January 1987. The merger was
accounted for using the "revserse 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 operated as a producer and distributor of radon testing devices.
In addition, DMA maintained a testing facility for matters relating to
radon. DMA ceased operations in 1995.
The following unaudited data was prepared for analytical purposes
only. Pro-forma operating results give effect as if the acquisition
occurred September 1, 1996.
1998 1997
--------- --------
NET SALES $ 6,836 $ -0-
OPERATING EXPENSES $ 43,484 $ 50,758
NET LOSS $(36,648) $(50,758)
BASIC LOSS PER SHARE $ (.01) $ (.02)
The Company has changed its fiscal year-end from December 31 to August
31. The audited financial statements for the period September 1, 1997
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, AKIP 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 the Company as of the date of the agreement. Such
liabilities totaled approximately $311,000. Based on the forecasted
cash requirement to complete 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 addition, AKIP agreed to pay a maximum of
$25,000 to EKSI for its costs incurred in connection with review of
the Form 10-SB and Agreement and Plan of Merger, issuance of stock and
preparation and review of its financial statements. The amount paid
by AKIP has been expensed and is included in Organization Costs in the
Statement of Operations.
31
<PAGE>
The current core business of the Company is the production and
marketing of business training videos.
Going Concern - The Company experienced significant operating losses
for the period ended August 31, 1998. 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 video tapes, 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, 1998
totaled $417.
Video inventory and production costs consist of the following:
Production costs:
Twelve Angry Men $ 26,000
Cuban Missile Crisis $ 7,162
Video inventory $ 540
----------
Total inventory $ 33,702
Less accumulated amortization (417)
----------
Inventory, net $ 33, 285
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, 1998, the Company has available net operating loss
carryovers of approximately $86,000 that will expire in various
periods through 2013. 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.
32
<PAGE>
Fair Value of Financial Instruments - The carrying value of all
financial instruments potentially subject to valuation risk
(principally consisting of accounts receivable, accounts payable and
note payable) approximates fair value due to the short term maturities
of such instruments.
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. The Company
did not present Diluted EPS since it has a simple capital structure.
New Accounting Pronouncements - SFAS No. 130, "Reporting Comprehensive
Income", establishes standards for reporting and displaying
comprehensive income and its components in financial statements. For
the period ended August 31, 1998, SFAS No. 130 was not considered
applicable to the Company's operations. The Company does not expect
its impact on the financial statements to be significant in 1999. 2.
NOTE PAYABLE TO SHAREHOLDER
The Company entered into an agreement with its President and majority
shareholder to borrow 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% of gross sales.
4. MANAGEMENT PLANS
During the period ended August 31, 1998, the Company commenced
marketing and sales of its new training videos. Management is
considering various options related thereto, including, but not
limited to, merging with another company and obtaining additional
equity and financing sources. While exploratory discussions have been
held with various companies concerning the possibility of an
acquisition or merger, at this time there are no proposals, agreements
or understandings for the acquisition of, or merger with, any company.
However, the Company intends to continue to explore opportunities for
an acquisition or merger that the Company believes will increase
shareholder value.
- --------------------------------------------------------------------------------
33
<PAGE>
DMA-RADTECH, INC. AND ADVANCED KNOWLEDGE, INC.
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet and the
unaudited pro forma condensed consolidated statement of operations have been
prepared by Advanced Knowledge, Inc. ("AKIP") management and give effect to the
acquisition of certain AKIP assets and assumption of liabilities by DMA-Radtech,
Inc. ("DMA") in June 1998. The pro forma information is based on the historical
financial statements of AKIP and DMA giving effect to the transaction under the
"reverse purchase" method of accounting and the assumptions and adjustments in
the accompanying notes to the pro forma consolidated financial statements. These
pro forma consolidated statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future. The pro forma consolidated
financial statements should be read in conjunction with the historical financial
statements of AKIP and DMA.
- --------------------------------------------------------------------------------
34
<PAGE>
DMA-RADTECH, INC. AND ADVANCED KNOWLEDGE, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Balance Sheet Pro Forma
------------------------ ------------------------------
DMA AKIP Adjust Consolidated
--------- --------- ------------ -------------
ASSETS
CASH $ 2,155 $ 2,155
INVENTORIES 28,500 28,500
PREPAID EXPENSES
AND OTHER ASSETS _________ 6,500 6,500
-------- --------
TOTAL ASSETS $ -0- $ 37,155 $ 37,155
========= ========= ==========
LIABILITIES AND
STOCKHOLDERS'
DEFICIT
LIABILITIES:
Amounts due to officer 34,500 34,500
Amounts due to parent
company $ 310,708 _________ $ 310,708 b __________
--------- -----------
Total liabilities 310,708 34,500 34,500
--------- --------- ----------
STOCKHOLDERS'
DEFICIT:
Common stock 1,000 3,000 $(1,000)a,b 3,000
Accumulated deficit (311,708) (345) $(310,708) b (345)
--------- -------- ----------
Total stockholders'
deficit (310,708) (2,655) (2,655)
--------- -------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
DEFICIT $ -0- $ 37,155 $ 37,155
========= ============ ==========
- --------------------------------------------------------------------------------
35
<PAGE>
DMA-RADTECH, INC. AND ADVANCED KNOWLEDGE, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 1, 1997 TO JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Statement
of Operations Pro Forma
------------------------- -------------------------
DMA AKIP Adjust Consolidated
--------- --------- ---------- ------------
SALES $ -0- $ -0- $ -0-
--------- --------- ---------
COST AND EXPENSES:
Selling, general and
administrative 758 345 1,103
--------- --------- ---------
Total costs and
expenses 758 345 1,103
--------- --------- ---------
LOSS BEFORE INCOME
TAXES (758) (345) (1,103)
INCOME TAXES _________
--------- ---------
NET LOSS $ (758) $ (345) $ (1,103)
========== =========== =========
BASIC LOSS
PER SHARE $ N/A $ N/A
========== =========
COMMON SHARES
OUTSTANDING 3,000,000 3,000,000
========== =========
- --------------------------------------------------------------------------------
36
<PAGE>
DMA-RADTECH, INC. AND ADVANCED KNOWLEDGE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
a. The merger was accounted for using the "reverse purchase"
method of accouting, pursuant to which ADvanced Knowledge, Inc
("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 acquired in the transaciton.
b. Reduction of amounts due to parent company (Electro-Kinetic Systems,
Inc.) and increase of capital of DMA based on agreement by parent
company to contribute to capital all liabilities of DMA in connection
with acquisition of AKIP.
- --------------------------------------------------------------------------------
37
<PAGE>
ADVANCED KNOWLEDGE, INC.
Financial Statements for the Three Months
Ended November 30, 1998 (unaudited)
38
<PAGE>
ADVANCED KNOWLEDGE, INC.
BALANCE SHEETS
November 30 August 31
1998 1998
(Unaudited)
ASSETS
CASH $ 10,918
ACCOUNTS RECEIVABLE $ 23,519 6,836
VIDEO INVENTORY AND PRODUCTION COSTS 39,016 33,285
PREPAID EXPENSES 3,000 2,000
---------- ----------
TOTAL ASSETS $ 65,535 $ 53,039
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
Bank overdraft $ 17,229
Accrued expenses 53,758 $ 64,472
Note payable to shareholder 110,212 72,212
Accrued interest due to shareholder 1,454
---------- ---------
Total liabilities 182,653 136,684
========== =========
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, par value - $.001,
25,000,000 shares authorized,
3,000,000 issued and outstanding 3,000 3,000
Accumulated deficit (120,118) (86,645)
---------- ---------
Total shareholders' deficit (117,118) (83,645)
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 65,535 $ 53,039
========== ==========
See accompanying notes to financial statements.
39
<PAGE>
ADVANCED KNOWLEDGE, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDING NOVEMBER 30, 1998
- -------------------------------------------------------------------------------
REVENUES $ 38,618
COST OF SALES 18,571
-----------
GROSS PROFIT 20,047
-----------
EXPENSES:
Selling and marketing 10,534
General and administrative 15,242
Professional fees 25,390
Interest expenses 1,454
--------
Total expenses 52,620
--------
LOSS BEFORE INCOME TAXES (32,573)
INCOME TAXES 900
--------
NET LOSS (33,473)
ACCUMULATED DEFICIT AT SEPTEMBER 1, 1998 (86,645)
--------
ACCUMULATED DEFICIT AT NOVEMBER 30, 1998 $(120,118)
=========
BASIC LOSS PER SHARE $ (.01)
COMMON SHARES OUTSTANDING 3,000,000
==========
See accompanying notes to financial statements.
40
<PAGE>
ADVANCED KNOWLEDGE, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDING NOVEMBER 30 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(33,473)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 1,255
Changes in operating assets and liabilities:
Accounts receivable (16,683)
Inventory (6,986)
Prepaid expenses (1,000)
Accrued expenses (9,260)
---------
Net cash used by operating activities (66,147)
---------
CASH FLOWS FROM FINANCING ACTIVITIES -
Bank overdraft 17,229
Borrowings from shareholder 37,500
---------
55,229
---------
NET DECREASE IN CASH (10,918)
CASH, BEGINNING OF PERIOD 10,918
---------
CASH, END OF PERIOD $ -0-
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -0-
Cash paid for income taxes $ 900
See notes to financial statements.
41
<PAGE>
ADVANCED KNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended November
30, 1998, are not necessarily indicative of the results that may be
expected for the year ended August 31, 1999. For further information,
refer to the financial statements and footnotes thereto included in
the company's report on Form 10-SB for the year ended August 31, 1998.
The balance sheet at August 31, 1998, has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. 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 financial statements for the three-months ended November 30, 1997
have not been included herein as the Company was effectively dormant
during the period.
The current core business of Advanced Knowledge is the production and
marketing of business training videos.
Going Concern - The Company experienced significant operating losses
for the period ended August 31, 1998 and through November 30, 1998.
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 2, 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.
42
<PAGE>
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 video tapes, 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
November 30, 1998 totalled $1,672.
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. The Company
did not present Diluted EPS since it has a simple capital structure.
2. MANAGEMENT PLANS
During the three months ended November 30, 1998, the Company commenced
shipping of its new training videos. Management expects that the
forecasted higher sales and cash flow from operations will be adequate
to finance the 1999 cash flow requirements. Management is considering
various options related thereto, including, but not limited to,
merging with another company and obtaining additional equity and
financing sources. While exploratory discussions have been held with
various companies concerning the possibility of an acquisition or
merger, at this time there are no proposals, agreements or
understandings for the acquisition of, or merger with, any company.
However, the Company intends to continue to explore opportunities for
an acquisition or merger that the Company believes will increase
shareholder value.
43
<PAGE>
PART III
Item 1 and Item 2, Index to Exhibits and Description of Exhibits
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
Sequential
Exhibit No. Document Description Filed (F)
3.
3.1. Certificate of Incorporation *
3.2. Certificate of Amendment *
3.3. Certificate of Merger *
3.4. By-laws *
10. Material Contracts
10.1. Agreement and Plan of Merger and
Reorganization dated June 30, 1998 by
and between Advanced Knowledge , Inc
and DMA Radtech, Inc. *
10.2 Production Agreement dated January 5,
1998 by and between Advanced Knowledge, Inc.
and The Hathaway Group. *
10.3 Distribution Agreement dated February 1, 1998
By and between Advanced Knowledge, Inc. and
Aims Multimedia. *
10.4 Security Agreement, dated August 18, 1998
between the Company and Buddy Young.
10.5 Secured Promissory Note, dated August
18, 1998, given by the Company.
10.6 Agreement dated March 24, 1999, by and
between the Company and Buddy Young.
23. Consent of Experts
23.1 Consent of Independent Certified Public *
Accounts
27. 27.1 Financial Data Schedule
- ----------
* Previously Filed
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to Form 10SB to be signed on
its behalf by the undersigned duly authorized.
Date: April 12, 1999 ADVANCED KNOWLEDGE, INC.
By: /s/Buddy Young
---------------------------
Buddy Young
President
In accordance with the Exchange Act, this amendment has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
Dated April 12, 1999 /s/ Buddy Young
----------------------------------
Buddy Young, Director
Dated April 12, 1999 /s/ L. Stephen Albright
-----------------------------------
L. Stephan Albright, Director
Dated April 12, 1999 /s/ Dennis Spiegelman
-----------------------------------
Dennis Spiegelman, Director
45
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("SECURITY AGREEMENT") is made this 18th day of August,
1998, by, between and among, ADVANCED KNOWLEDGE, INC, a Delaware corporation
("DEBTOR"), on the one hand, and BUDDY YOUNG, an individual, ("SECURED PARTY"),
on the other hand, with respect to the following:
RECITALS
A. DEBTOR has borrowed the sum of up to Three Hundred Thousand ($300,000) from
Secured Party (the "DEBT");
B. DEBTOR and SECURED PARTY now mutually desire for DEBTOR to secure the Loan in
the principal sum of up to Three Hundred Thousand ($300,000) as evidenced by a
SECURED PROMISSORY NOTE, dated of even date herewith and signed by DEBTOR in
favor of SECURED PARTY (the "NOTE") in said amount (the "DEBT") and for DEBTOR
to pledge the personal property listed on attached Exhibit "A" as
security\collateral for the repayment of the DEBT (the "COLLATERAL") on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of and reliance on the mutual covenants,
conditions, promises, and representations contained herein, the parties hereto
agree as follows:
1. Recitals. The recitals stated above are incorporated herein by this reference
as if set forth in full at this point.
2. Definitions. As used in this SECURITY AGREEMENT, the following terms shall
have the following meanings:
a. "COLLATERAL" and "SECURITY" mean the personal property set forth and fully
described in attached Exhibit "A".
b. "DEBTOR" means ADVANCED KNOWLEDGE, INC., a Delaware corporation.
c. "DEBT", "INDEBTEDNESS" and "LOAN" mean DEBTOR'S obligations represented by
the NOTE executed by DEBTOR and payable to the SECURED PARTY as Holder.
d. "LIEN" means any security interest, mortgage, pledge, lien, attachment,
claim, charge, encumbrance, agreement retaining title, or other interests in, to
or covering the COLLATERAL.
46
<PAGE>
e. "OBLIGATIONS" mean any and all existing and future duties, obligations,
indebtedness and liabilities of DEBTOR to SECURED PARTY, including attorneys'
fees incurred in enforcing this SECURITY AGREEMENT or collecting payment due
under the NOTE.
f. "BREACH" and "DEFAULT" mean an event or omission that is or would be a breach
or default under this SECURITY AGREEMENT or any other document evidencing,
creating or relating to the security for and performance of the OBLIGATIONS.
g. "NOTE" means the SECURED PROMISSORY NOTE, of even date herewith executed by
DEBTOR for the benefit of SECURED PARTY, a true and correct copy of which is
attached hereto and marked as Exhibit "B".
h. Terms defined in the California Uniform Commercial Code not otherwise defined
in this Security Agreement are used in this Security Agreement as defined in
that Code on the date of this agreement.
i. "SECURED PARTY" and "HOLDER" mean BUDDY YOUNG, or his nominee or order.
3. Grant of Security Interest. For the purpose of providing SECURED PARTY with
security for the DEBTOR's payment of the NOTE, DEBTOR hereby grants SECURED
PARTY a security interest in and to the COLLATERAL, which is more specifically
described and set forth in attached Exhibit "A" and which is incorporated herein
by this reference. Further, DEBTOR shall execute any and all other documents
necessary to grant, perfect and otherwise effect notice that SECURED PARTY has a
first priority secured interest in the COLLATERAL. In this regard, DEBTOR grants
SECURED PARTY the limited power of attorney to sign such documents on behalf of
DEBTOR in the event DEBTOR is unable to or refuses to sign such documents. Said
documents include, without limitation, a UCC-1 Financing Statement to be filed
with the California Secretary of State.
47
<PAGE>
4. DEBTOR'S Covenants.
DEBTOR shall:
a. make all payments to the SECURED PARTY as set forth in the NOTE;
b. pay all expenses, including attorneys' fees, incurred by SECURED PARTY in the
perfection, preservation, realization, enforcement, and exercise of its rights
under this SECURITY AGREEMENT;
c. indemnify SECURED PARTY against loss of any kind, including reasonable
attorneys' fees, caused to SECURED PARTY by reason of its interest in the
COLLATERAL;
d. not sell, lease, transfer, or otherwise dispose of or hypothecate the
COLLATERAL, without the express prior written consent of the SECURED PARTY;
e. not permit liens on the COLLATERAL, except the lien created by this SECURITY
AGREEMENT;
f. not use the COLLATERAL for any unlawful purpose or in any way that would void
any effective insurance;
g. perform all acts necessary to maintain, preserve, and protect the COLLATERAL;
h. notify SECURED PARTY promptly in writing of any default, potential default,
or any development that might have a material adverse effect on the COLLATERAL;
5. Debtor's Representations and Warranties. DEBTOR covenants, warrants, and
represents as follows:
a. DEBTOR, has the full corporate capacity to understand and enter into this
SECURITY AGREEMENT and possesses all the necessary corporate authority to
conduct its businesses in the fashion now conducted and as contemplated herein,
wherever conducted;
b. The SECURITY AGREEMENT is a valid and binding obligation of DEBTOR. This
SECURITY AGREEMENT creates a perfected, first priority security interest
enforceable against the COLLATERAL in which DEBTOR'S rights will be effected as
this SECURITY AGREEMENT creates a perfected, first priority security interest
for the benefit of SECURED PARTY, which is enforceable against the COLLATERAL;
48
<PAGE>
c. Neither the execution and delivery of this SECURITY AGREEMENT, nor the taking
of any action in compliance with it, will (1) violate or breach any law,
regulation, rule, order, or judicial action binding on DEBTOR, any agreement to
which DEBTOR is a party, if such exist; or (2) result in the creation of a lien
against the COLLATERAL except that created by this SECURITY AGREEMENT;
d. No default or potential default exists; and,
e. DEBTOR owns the COLLATERAL, subject only to those liens and adverse claims
created by this SECURITY AGREEMENT.
6. Termination. This SECURITY AGREEMENT shall continue in effect even though
from time to time there may be no outstanding obligations or commitments under
this SECURITY AGREEMENT and/or the NOTE. This SECURITY AGREEMENT shall terminate
when (a) DEBTOR'S complete performance of all obligations to SECURED PARTY,
including without limitation the payment of all INDEBTEDNESS by DEBTOR to
SECURED PARTY; (b) SECURED PARTY has no commitment that could give rise to an
obligation; and (c) DEBTOR has notified SECURED PARTY in writing of the
termination.
7. Default. DEBTOR shall be in default under this SECURITY AGREEMENT if:
a. DEBTOR fails to make the payment, or any payment when due, or the entire
indebtedness to SECURED PARTY when due;
b. DEBTOR fails to make any remittances required by this SECURITY AGREEMENT;
c. DEBTOR commits any breach of this SECURITY AGREEMENT, or any present or
future rider or supplement to this SECURITY AGREEMENT, or any other agreement
between DEBTOR and SECURED PARTY evidencing the obligation or securing it;
d. Any warranty, representation, or statement, made by or on behalf of DEBTOR in
or with respect to the SECURITY AGREEMENT, is false;
e. The COLLATERAL is lost, stolen, or damaged; or,
f. There is a seizure or attachment of, or a levy on, the COLLATERAL.
8. Remedies.
8.1 Upon an event of default, SECURED PARTY may, at its option, to:
a. Declare the obligations immediately due and payable without demand,
presentment, protest, or notice to DEBTOR, all of which DEBTOR expressly waives;
b. Terminate any obligations or to make future advances, if any;
49
<PAGE>
c. Exercise all rights and remedies available to a secured creditor after
default, including but not limited to the rights and remedies of secured
creditors under the California Uniform Commercial Code;
d. Perform any of DEBTOR's obligations under this SECURITY AGREEMENT for
DEBTOR's account; and,
e. SECURED PARTY's notice of the time and place of public sale of the
COLLATERAL, or the time on or after which a private sale or other disposition of
the COLLATERAL will be made, is reasonable if sent to DEBTOR in the manner for
giving notice at least five days before the public or private sale.
Any money expended or obligations incurred in doing so, including reasonable
attorneys' fees and interest at the highest rate permitted by law, will be
charged to DEBTOR and added to the obligation secured by this SECURITY
AGREEMENT.
8.2 Upon an event of a notice of default by the SECURED PARTY, DEBTOR shall:
a. Assemble the COLLATERAL and make it and all records relating to it available
to SECURED PARTY as SECURED PARTY directs; and,
b. Allow SECURED PARTY, its representatives, and its agents to enter the
premises where all or any part of the COLLATERAL, the records, or both may be,
and remove any or all of it.
9. Attorney's Fees. In the event that SECURED PARTY is forced to engage
attorneys to enforce its rights under the SECURITY AGREEMENT and the NOTE,
including to collect payments due under the NOTE, DEBTOR shall be responsible
for the payment of his, her or its costs and expenses of collection, including
reasonable attorneys' fees.
10. Survival of DEBTOR's Representations and Warranties. DEBTOR's
representations and warranties made in this SECURITY AGREEMENT shall survive its
execution, delivery, and termination.
11. Assignment. This SECURITY AGREEMENT shall bind and enure to the benefit of
the parties successors, heirs and assigns. However, DEBTOR may not assign its
rights, duties and obligations under this SECURITY AGREEMENT or the NOTE without
SECURED PARTY's prior written consent.
50
<PAGE>
12. Notices. Any communication to be given to any party to this SECURITY
AGREEMENT shall be in writing and deemed delivered when delivered in person,
sent by fax, or five (5) days after such is deposited in the United States Mail,
postage prepaid, certified, return receipt requested and addressed to the party
at its address set forth below:
If to DEBTOR:
Advanced Knowledge
17337 Ventura Blvd. Suite 224
Encino, CA 91316
If to SECURED PARTY:
Buddy Young
17614 McCormick Street
Encino, CA 91316
13. Binding Effect. The parties hereto hereby represent and warrant, each for
themselves, that they have the capacity to and are authorized to enter into this
SECURITY AGREEMENT on behalf of their respective party and that this SECURITY
AGREEMENT, when duly executed, will constitute a legal, valid, and binding
agreement, enforceable against each of the parties in accordance with the terms
hereof.
14. Severability. In the event that any covenant, condition or other provision
herein contained is held to be invalid, void, or illegal by any court of
competent jurisdiction, the same shall be deemed severable from the remainder of
this SECURITY AGREEMENT and shall in no way affect, impair or invalidate any
other covenant, condition or other provision herein contained. If such
condition, covenant or other provision shall be deemed invalid due to its scope
or breadth, such covenant, condition, or other provision shall be deemed valid
to the extent of the scope or breadth permitted by law.
15. Waiver, Amendment and Modification. No breach of any provision hereof can be
waived unless in writing. Waiver of any one breach of any provision hereof shall
not be deemed to be a waiver of any other breach of the same or any other
provision hereof. This SECURITY AGREEMENT may only be amended or modified by an
instrument in writing executed by each of the parties hereto.
16. Construction. This SECURITY AGREEMENT shall not be construed against the
party preparing it, and shall be construed without regard to the identity of the
person who drafted it or the party who caused it to be drafted and shall be
construed as if all parties had jointly prepared this SECURITY AGREEMENT and it
shall be deemed their joint work product, and each and every provision of this
SECURITY AGREEMENT shall be construed as though all of the parties hereto
participated equally in the drafting hereof; and any uncertainty or ambiguity
shall not be interpreted against any one party. As a result of the foregoing,
any rule of construction that a document is to be construed against the drafting
party shall not be applicable.
51
<PAGE>
17. Governing Law. This SECURITY AGREEMENT shall be governed in all respects,
including validity, interpretation, effect and enforcement, by the laws of the
State of California.
18. Counterparts. This SECURITY AGREEMENT may be executed in counterparts, each
of which, when so executed and delivered, shall be an original; however, such
counterparts together shall constitute but one and the same SECURITY AGREEMENT.
19. Headings The headings used herein are for convenience of reference only and
do not constitute a part of this SECURITY AGREEMENT and shall not be deemed to
limit or effect any of the provisions hereof.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this SECURITY AGREEMENT
effective as of the day and year above first written.
DEBTOR:
ADVANCED KNOWLEDGE, INC., a Delaware corporation
By: /S/ L. STWPHEN ALBRIGHT
--------------------------------------
L. STWPHEN ALBRIGHT, Secretary and Director
SECURED PARTY:
/S/ BUDDY YOUNG
---------------------------------------
BUDDY YOUNG
53
<PAGE>
EXHIBIT "A"
1. All right tittle and interest in and to all the DEBTOR's video
productions/projects, regardless of the stage of production, including all
contracts, licenses, and accounts receivable from same.
SECURED PROMISSORY NOTE
(Secured by a Deed of Trust)
(hereinafter "NOTE")
Up To Three Hundred Thousand Dollars Encino, California
($300,000) August 18, 1998
For value received, the undersigned maker/borrower, namely ADVANCED KNOWLEDGE,
INC. (hereinafter "BORROWER") hereby promises to pay to BUDDY YOUNG (hereinafter
"HOLDER"), at 17337 Ventura Blvd., Suite 224 Encino, California 91316, or at
such other place as may be designated in writing by the HOLDER of this NOTE, the
principal sum of up to Three Hundred Thousand Dollars ($300,000), with interest
thereon from August 18, 1998 on the outstanding principal balance at a rate of
eight percent (8%) per annum, which principal and interest shall be payable on
December 1, 1999.
Principal and interest are payable in lawful money of the United States of
America.
Should BORROWER default on any payment due pursuant this NOTE or defaults or
breaches any of the agreements, promises, covenants, conditions, duties or
obligations under this Note or contained in the Security Agreement executed in
conjunction herewith, then the entire sum of unpaid principal and interest shall
become immediately due and payable to HOLDER, without any notice to BORROWER by
HOLDER. Any failure of HOLDER to exercise its right to accelerate repayment of
this NOTE shall not constitute a waiver of the right to exercise it in the
future or in the event of any subsequent default or breach.
Whether or not legal proceedings are instituted to enforce any of the HOLDER's
rights under this NOTE, BORROWER shall be responsible for and pay all reasonable
costs, including attorney's fees, incurred by HOLDER with regard to enforcement
of its rights under this NOTE or collection of the sums due HOLDER under the
NOTE.
This NOTE is secured by a Security Agreement, dated August 18, 1998, executed by
BORROWER in favor of HOLDER and is given as security for the repayment of the
loan represented by this Note.
Executed thi18tth day of August, 1998, in the city of Encino, County of Los
Angeles, State of California.
"MAKER":
/S/ L. STWPHEN ALBRIGHT
- -------------------------
Secretary and Director
54
<PAGE>
AGREEMENT
This AGREEMENT ("AGREEMENT") is made and entered into this 24th day of March,
1999, by, between and among BUDDY YOUNG, an individual, ("LENDER"), on the one
hand, and, ADVANCED KNOWLEDGE, INC. a Delaware corporation, ("DEBTOR"), on the
other hand, with respect to the following:
RECITALS
A. On August 18, 1998, DEBTOR executed a Secured Promissory Note (the "NOTE")
and a Security Agreement ("SECURITY AGREEMENT"), pursuant to which DEBTOR could
borrow up to Three Hundred Thousand Dollars ($300,000) from LENDER;
B. The maturity date of the NOTE is December 31, 1999, at which time an
outstanding and unpaid principal and interest is to be repaid;
C. DEBTOR now wishes to extend the due date of the NOTE from December 31, 1999
to December 31, 2001;
D. In order to assist DEBTOR with the implementation of its business plan and to
assist the DEBTOR during its renewed business efforts, LENDER also wishes to
extend the due date of the NOTE from December 31, 1999 to December 31, 2001.
E. LENDER and DEBTOR now mutually desire for LENDER to extend the due date of
the NOTE to December 31, 2001 in accordance with and upon the terms and
conditions stated herein;
NOW THEREFORE, in consideration of mutual promises and covenants, and conditions
herein contained, the parties agree as follows:
1. Recitals. The recitals stated above are incorporated herein by this reference
as if set forth in full at this point.
55
<PAGE>
2. Extension of the Due Date of the NOTE. Upon execution of this AGREEMENT, the
due date of the NOTE shall be extended from December 31, 1999 to December 31,
2001. The extension of the due date is and shall be the only change,
modification, amendment or alteration of the terms and conditions of the NOTE.
Except for the extension of the due date, all other terms and conditions of the
NOTE shall remain unchanged and in full force and effect.
3. SECURITY AGREEMENT. The SECURITY AGREEMENT is hereby amended so as to conform
with the modification of the NOTE which is set forth in paragraph 2 above. The
extension of the due date is and shall be the only change, modification,
amendment or alteration of the terms and conditions of the SECURITY AGREEMENT.
Except for the extension of the due date, all other terms and conditions of the
SECURITY AGREEMENT shall remain unchanged and in full force and effect.
4. Further Cooperation. To the extent reasonably necessary and requested, DEBTOR
shall execute and deliver such documents and instruments as may be necessary for
LENDER to continue to hold a perfected first position security lien in the
COLLATERAL, as that term is defined in the SECURITY AGREEMENT. . 5. Other Terms
Unchanged. Except as expressly modified herein, the balance of the terms of the
NOTE and the SECURITY AGREEMENT shall remain unchanged by this AGREEMENT and
shall be in full force and effect. . The parties hereto have executed this
AGREEMENT as set forth below, and the effective date of this AGREEMENT shall be
the latest date of execution.
"LENDER":
/S/ BUDDY YOUNG
- -----------------------------
BUDDY YOUNG
"DEBTOR":
ADVANCED KNOWLEDGE, INC.
A Delaware Corporation
By: /S/ L. STEPHEN ALBRIGHT
-------------------------
L. STEPHEN ALBRIGHT, Secretary
56
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS SET FORTH IN THE FORM 10-SB OF OF ADVANCED KNOWELDGE, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001071991
<NAME> Advanced Knowledge, Inc.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-1-1997
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