He may have been talking about this its from a post from another board.
IS SOMETHING FISHY AT GK INTELLIGENT?
The software maker has zero products-but sky-high salaries
Canion's Short-Lived Reign at GK
Even as recently as Aug. 3, Compaq Computer co-founder Joseph "Rod"
Canion couldn't say enough good things about GK Intelligent Systems
Inc., the Houston software developer he joined as chairman in April.
Canion had purchased 12% of the company and quickly began lining up a
team of top-notch managers. The goal: create Web-based training
systems with "artificial intelligence" that adapt training to the way
individuals learn. "This is change-the-world stuff," he told BUSINESS
WEEK back then.
Maybe not. Canion abruptly fled GK Intelligent on Aug. 12, leaving
behind unexercised options then valued at $10 million and a trail of
unanswered questions. The six execs Canion handpicked to manage the
growth he had predicted also bolted. What happened? BUSINESS WEEK has
learned Canion's resignation came shortly after J. David Cabello, who
joined the firm as general counsel on July 29, raised questions about
whether all of GK's stock sales complied with Securities & Exchange
Commission regulations governing such sales. A few days later, Cabello
also left the company. And on Sept. 1, GK disclosed it had hired an
outside law firm to investigate "possible securities law violations"
and delayed release of its financial statement for the fiscal year
ended May 31. GK Chief Executive Gary F. Kimmons declined to answer
written questions from BUSINESS WEEK about GK.
A BUSINESS WEEK review of public documents paints a picture of a
company that may have spent more time issuing and selling stock and
enriching its executives than it did developing new technology or even
doing research and development. Opening its doors four years ago, GK
made great promises of developing new technology for individually
customized training systems. But it shifted gears so often it never
finished any. First, GK started out to build a training system for the
energy industry but abandoned that project after a dispute over
payment with its partner, AT&T Global Information Systems, now NCR
Corp. NCR Director of Intelligent Systems Bob Simpson says the payment
dispute "was one of the problems" that led NCR to end its involvement.
HEFTY COMPENSATION. Next, GK planned a training system to teach IBM
programmers. That, too, was abandoned after IBM withdrew from the
project, says GK Vice-President Rodney L. Norville. IBM says it can
find no evidence that such a deal existed. And in February, GK
formally announced an Internet training program for businesses and
consumers. But release of that program is being delayed, GK now says.
What was GK doing? Through much of that time, the company was selling
millions of dollars in stock. In the fiscal year ended May 31, 1996,
sales of stock or warrants for shares raised $904,000. The following
fiscal year, GK raked in $1.8 million. In two separate sales since
Canion joined this year, the company raised $6.6 million. In total, GK
has sold about 21 million shares of stock, according to SEC documents,
raising roughly $13.4 million. In May, as the stock approached a
record price of 7 7/8, the company filed a registration statement
seeking to issue 250 million shares. This would increase the number of
outstanding shares tenfold. In the days since Canion's departure the
stock has plunged.
At least for the past two years, nearly as much money as was raised
from stock sales was paid out in hefty compensation to the CEO and
other top executives, according to government filings. In the fiscal
years ended May, 1996, and May, 1997, $2.9 million was raised in stock
sales and $2.8 million was paid to Kimmons, former vice-chairman
Joseph D. Ben-Dak, and others. During those same two years, the
company's annual reports say spending on R&D never reached $60,000.
CLOSE TIES. Some of GK's shares ended up in the hands of Graystone
Financial Services Inc., a company controlled by Thomas V. Ackerly, a
New Jersey resident who in 1990 was fined $1.3 million, censured, and
barred from associating with the National Association of Securities
Dealers for manipulating the shares of another company. Since 1997,
Graystone has sold 200,000 shares of GK, according to SEC filings. In
December, Graystone changed its name and moved to offices less than a
mile from GK, according to an SEC filing.
But even without the physical closeness, Graystone has ties to GK
through the tech company's former Vice-Chairman Ben-Dak, who--
according to SEC filings--was simultaneously a director of Graystone
and of GK. Ben-Dak disputes these filings. The 56-year-old Israeli
citizen, who describes himself as an expert in international
technology transfer, admits knowing and advising Ackerly but insists
he never was a director of Graystone. "I've never participated in any
board meetings," he says. "I've never signed anything [accepting a
seat]." Ackerly could not be reached for comment. Phone numbers listed
on SEC filings for Graystone and successor GS Financial Services Inc.
do not reach the company.
Was Canion bothered by GK's past and present? He declined repeated
requests for interviews. But it was clear that he was not happy with
at least some of what he saw when he first arrived. Both he and GK
director Jerry Allen, who joined in April, insisted on buying out Ben-
Dak's shares before making separate investments, says Allen. "We did
see a need to get him out," he says. "We wanted to know what he had
done for the company. In our view, it was not substantial." But
certainly, given his hasty retreat, Canion probably wishes now that he
had asked more questions.
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