<PAGE> 1
THIS DOCUMENT IS A COPY OF THE FORM 10-KSB FILED ON JULY 15, 1997 PURSUANT TO
A RULE 202(d) CONTINUING HARDSHIP EXEMPTION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number: 2-85175W
ELECTRO-KINETIC SYSTEMS, INC.
-----------------------------
(Name of small business issuer in its charter)
PENNSYLVANIA 22-1954716
------------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
332 C Haddon Avenue, Westmount New Jersey 08108
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 609-858-4665
------------
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Class A Common Stock
--------------------
(Title of class)
Check whether issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
----- -----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year......($33,165)
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of 12/31/96 was approximately $1,500,000.
Number of shares of Class A Common Stock, no par value, outstanding as
of December 31, 1996: 30,166,069 (Common Stock outstanding 20,431,069 and to be
issued 9,735,000)
Transitional Small Business Disclosure Format
Yes No X
----- -----
<PAGE> 2
Table of Contents
ITEM 1: Description of Business
ITEM 2: Description of Property
ITEM 3: Legal Proceedings
ITEM 4: Submission of Matters to a Vote of Security Holders
ITEM 5: Market of the Registrants Common Stock and Related Stockholders Matters
ITEM 6: Management Discussion and Analysis of Results of Operations and
Financial Condition
ITEM 7: Financial Statements
ITEM 8: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
ITEM 9: Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act
ITEM 10: Executive Compensation
ITEM 11: Security Ownership of Certain Beneficial Owners and Management
ITEM 12: Certain Relationships and Related Transactions
ITEM 13: Exhibits & Reports on Form 8-K
<PAGE> 3
ITEM 1. Description of Business
History
In February, 1990, Electro Kinetic Systems, Inc. (EKS or the Company)
successfully concluded a rights offering which provided it with approximately
$700,000, net of issue expenses. The proceeds were used primarily to fund new
operations, to repay notes, to implement marketing programs, and for working
capital Also, in 1990, EKS acquired 72% of the assets of Douglas Martin &
Associates, an independent radiation testing and consulting facility. EKS
subsequently changed the name of its wholly owned subsidiary, EKS-RadTech, Inc.
to DMA RadTech., Inc. In 1992, EKS acquired the remaining minority interest in
DMA RadTech for 140,000 shares of its common stock.
In December, 1992, a significant change in management of EKS occurred as a
result of investment by private investors, principally Charles Cascio and
members of his family.
In March of 1995, the Company suspended operations in radon testing and
analysis following the bankruptcy of its principal distributor .Accordingly, all
operations relative to radon testing have been classified as discontinued. The
Company sold its building in June of 1995 and reflected net income from this
transaction in the amount of $315,919, which includes principal debt reduction
of $356,460. This nonrecurring item of income is included in "Other Income Net."
The Company acquired Israel Imaging Technology, Inc. and its two
affiliates on September 18, 1995 and agreed to issue 4,100,000 shares of common
stock in exchange for their shares. The acquisition was accounted for as a
purchase. The difference between the fair market value of the stock issued over
the book value of assets acquired has been allocated to investments in a 50%
owned affiliated company in the amount of $84,503 and the balance to excess, in
the amount of $18,656. Operations were accounted for beginning October 1, 1995,
as equity in earnings of unconsolidated affiliate.
The 1995 acquisition of Israel Imaging Technologies, Inc. gave the Company
a 50% interest in Printone Media (PM). PM is a computer imaging and preprint
company offering scanning, colour separation and other graphic arts services in
a state of the art plant in Jerusalem, Israel. The Company has made unsuccessful
efforts to enter into the publishing field and related endeavors.
During the year 1995, the Company also reduced other indebtedness in the
amount of $91,041 by the issuance of 1,972,139 shares of its common stock;
issued additional shares of the Company's common stock to fund its' operations;
acquired companies in the field of publishing and rescinded such transaction;
and continued to negotiate for the acquisition of assets and joint ventures in
the field of publishing. During 1996, the Company abandoned its efforts in the
publishing field.
On July 12, 1996, Charles D. Cascio resigned as President, Chief
<PAGE> 4
Executive Officer and Chairman of the Board and as a director. Mr. Albert
Gardner also resigned from the Board of Directors. On July 12, 1996, Dr. Julius
Cherny was selected to replace Mr. Cascio. Also selected for the Board of
Directors were Mr. Daniel Herzka and Mr. Richard J. L. Herson. Carryover members
include Gary Dornhoefer and Ralph Lanciano III. The resignations were not caused
by or related to any disagreements "on any matter relating to the registrant's
operating policies or practices".
Business
The current business of the Company is the development of concepts and
their conversions to revenue producing activities.
The Company is developing four systems which will be marketed directly
and/or to exploit with strategic partners:
(1) Information action models, or decision models, particularly for
stock traders -- referred herein as Short Term Security Trading or
"(ST)
(2) Visual communication technology (Vizcom)
(3) Security basket index ("SBI")
(4) Integrated translations, prepress, desk top publishing and printing.
(1) INFORMATION AND ACTION DECISION MODELS
The Company is developing and integrating various discrete systems that
involve the manipulation of symbols and images. The applications are systems
that are on the cutting edge of modern technology, involving different aspects
of electronic communications. The systems are logically related and outputs can
include dynamic representations in pictures, phonetics as well as image shapes
and colors that change with changing conditions. The systems are logically
related "top-down"; the products are "bottom-up" applications to stock trading,
etal.
(2) "VIZCOM"
The visual communications technology concerns application of visual
graphics to new applications. (It is thus directly related to stock traders and
also potential applications to business, medicine and general communications).
The systems include words, images, pictures, phonetics, ideographs -- from the
print word to the sound tape. After capture, the manipulation of images requires
standard symbolic language that is computerized.
(3) STOCK BASKET INDEX
There are 18,000 public companies of which approximately 10,000 report to
the SEC. Some stock prices are quoted on the various stock exchanges, some
prices are generated over the counter, quoted by brokers. Relative to the latter
group, for many companies there are insufficient shares for trading that limits
liquidity of the market. With this limitation the potential advantages of small
companies going public evaporate: incentives for management and employees,
liquidity for major shareholders etc.
Proposed Solution: Increase the number of tradable shares without the
issuance of additional shares by the company. This can be
<PAGE> 5
accomplished by combining various small companies into a "basket" of larger
units. The basket or index is thus more readily tradable. Companies can be
combined by geographical area, industry, markets, approximate size (volume,
capital), etc. -- or a combination of these characteristics.
The Company has been examining this approach on a geographic area, one
that can readily be followed by local companies, local stock brokers and local
investors:
(1) We have been reviewing this approach with Dr. Joshua Ronen of the
NYU Tisch School of Accounting to:
(a) design with Dr. Cherny an appropriate index *(see discussion
below)
(b) review companies for inclusion
(c) test going on-line for continual updating of their operations
(d) test a dynamic computer model of combining, weighting and
reporting to market such baskets of companies.
(2) Discussing possible joint ventures with potential market makers
including the marketing of the underlying shares
(3) Investigating whether the software can be given patent protection.
* Index:
The task of establishing an index for trading requires a continuous
computer updating of the weighted average of the individual share prices of the
component companies -- no different from the Standard and Poor Index. However,
the "straw index" will also incorporate other adjustments based on mathematical
modeling to reflect volatility, trends and variables within trends such as risk
factors relative to liquidity, competition and industry conditions.
(4) INTEGRATED TRANSLATIONS, DESK TOP PUBLISHING AND PREPRESS PRINTING THE
Company already has its own prepress facilities in Jerusalem, Israel
(through its 50% ownership of Printone Media, Inc. (PM)) The Company has access
to a half dozen of Israel's largest printers, for whom PM has performed
services. There are some two dozen companies in Israel translating English to
Hebrew(H), Arabic(A), Russian(R) and other languages. The Company is
investigating operating combinations of translating, prepress and printing into
finished products, particularly in HAR
Competition
In the event the Company is successful in exploiting the above
applications by marketing the various developments, the Company will compete
with a large number of other companies that have greater financial resources,
more extensive experience and better established development, marketing and
service capabilities than the Company.
Supplies and Materials
The computers, materials and supplies used to produce the Company's
<PAGE> 6
products are obtainable from a wide variety of suppliers. There is not
currently, nor has there been in the recent past, a shortage of any of these.
The Company believes that its current sources will be adequate to meet its
future needs.
Employees
The Company has three part-time employees, consisting of one office and
two executives.
Research & Development
The Company's research and developments have been the results of the
efforts of its officers and directors. The Company anticipates investing
increased amounts on research and development in the foreseeable future if
funding becomes available.
Tax Carryforward Loss
The Company has tax carryforward losses of approximately $3,300,000. Under
Section 382 of the Internal Revenue Code of 1986, as amended, the utilization of
prior net operating loss carryforwards may be limited as a result of ownership
changes.
ITEM 2. DESCRIPTION OF PROPERTY
In November 1984, the Company purchased a building located at 701 Chestnut
Street, Trainer, Pennsylvania, which housed its corporate headquarters occupying
2,500 square feet, laboratory facilities occupying 5,000 square feet and
production facilities occupying 7,000 square feet.
The Company sold its building in June of 1995 and reflected net income
from this transaction, in the amount of $315,919 reduced principal debt.
ITEM 3. LEGAL PROCEEDINGS
The Company is defendant in suits for unpaid services, the estimated
liabilities for which are included in the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. MARKET OF THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDERS' MATTERS
The price of common shares of the Company is quoted on the NASDAQ
over-the-counter-market. A small number of broker-dealers make a market. The
price has varied during the year from $.01 bid to $.05 asked.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITIONS
<PAGE> 7
The following should be read in conjunction with the financial statements
appearing elsewhere in this report.
MANAGEMENT REPORT
GENERAL
Following the bankruptcy of its principal distributor in March 1995, the
Company suspended all operations related to testing of radon and analysis of
environmental hazards. During 1996, the Company abandoned its efforts to develop
popular consumer magazines and provided for losses in the amount of $44,000
(included in Discontinued Operations).
RESULTS OF OPERATIONS
In 1996, the Company's only recurring source of income is its equity in
its 50% owned subsidiary, Printone Media, a loss of $33,165. Include in
discontinued operations were additional losses in connection with radon testing
in the amount of $8,000 and provisions for losses on its publishing efforts in
the amount of $44,000.
The net loss for the year of $129,916 compares to a profit for the prior
year of $8,099. The latter included income from the gain on sale of the
Company's building of $315,919 and an income tax recovery of $30,000, net of a
write down of assets of the testing business of $125,802, (included in
Discontinued Operations).
The following is a summary comparison of Income Statements for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equity (loss)in Earnings of
Unconsolidated Subsidiary $ (33,165) $ (4,500) $ 0
Selling, General and
Administrative 60,740 150,392 112,266
--------- --------- ---------
Loss before Other Income (93,905) (154,892) (112,266)
Other Income (Expense)
Gain on Sale of Building
& Forgiveness of Debt 0 315,919 0
Writedown of Assets 0 (125,802)* 0
Interest Expense (5,939) (23,006) (45,145)
Other 17,119 7,559 92,223
--------- --------- ---------
Total Other Income/Expenses 11,180 174,670 47,078
Income/Loss Before
Discontinued Operations (82,725) 19,778 (65,188)
Discontinued Operations (42,191) (41,679) (19,624)
--------- --------- ---------
Loss Before Income Taxes $(124,916) $ (21,901) $ (84,812)
========= ========= =========
</TABLE>
<PAGE> 8
* Transferred to Discontinued Operations on the Statement of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital declined from ($47,297) as of December 31, 1995 to
($113,768) as of December 31, 1996 and shareholders' equity declined from
$113,309 to $9,193.
The following is a summary comparison of Balance Sheets as of December 31,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Current Assets $ 9,000 $ 74,053 $ 106,996
Current Liabilities 122,768 121,350 810,404
----------- ----------- ----------
Working Capital (113,768) (47,297) (703,408)
Property, Plant & 0 0 291,980
Equipment
Other Assets
Investments 160,939 194,104 0
Excess 18,036 18,656 89,853
Other 300 300 42,500
----------- ----------- ----------
Total Other Assets 179,275 213,060 132,353
Total Assets, Net of
Current Liabilities 65,507 165,763 (279,075)
Other Liabilities
Long Term Liabilities 0 0 8,150
Due to Officers 56,314 52,454 0
----------- ----------- ----------
Total Other Liabilities 56,314 52,454 8,150
Shareholders' Equity
Capital Stock and Paid-
In-Capital 3,498,601 3,472,801 3,080,367
Retained Earnings (3,489,408) (3,359,492) 3,367,591
Shareholders' Equity $ 9,193 $ 113,309 (287,224)
</TABLE>
The Company previously acquired certain preliminary designs for potential
developments of computer decision models for trading securities and in the
fields of medical compliance and book publishing. It is currently seeking
financing to continue the developments as well as to enter into strategic
partnerships with other companies in these and related fields. There is no
assurance of success in these endeavors.
In 1995, the Company reduced mortgage indebtedness and related interest
and taxes in the total amount of $570,787 in connection with the sale of its
building. In regard to ventures in the publishing field, the Company advanced
$40,000 loaned by its' shareholders to such joint
<PAGE> 9
ventures in the process of formation. As a result of operations during the year,
principally the sale of the building and the issuance of common stock for debt
reduction and funding operations, working capital increased from a working
capital deficit of $703,408 to a working capital deficit of $47,297.
The Company's operating losses during the past years have been funded by
the sale of its common stock and by loans from shareholders. During 1995, the
Company issued 1,155,000 shares of common stock for $44,000 and received
advances from its shareholders in the amount of $40,000. Loans due to
shareholders in the amount of $42,293 were contributed to the Company and
reflected in the Additional Paid-In-Capital and $12,454 was reclassified from
current to long term.
For the Company to become a viable entity, it must operate profitably and
raise sufficient capital to fund its operations. The Company is making
continuing efforts in this regard but there is no assurance of success in these
endeavors.
<PAGE> 10
ITEM 7. Financial Statements Pages
-------------------- -----
Consolidated Balance Sheets as of December 31, 1996 F 1-2
and 1995
Consolidated Statements of Operation for the Years F 3
Ended December 31, 1996 and 1995
Consolidated Statement of Cash Flows for the F 4-5
Years Ended December 31, 1996 and 1995
Consolidated Statement of Changes in Stockholders' F 6
Deficiency (Equity) For The Years Ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements F 9-11
<PAGE> 11
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current Assets:
Cash $ 0 $ 13,147
Other Receivables 0 43,906
Equipment Held for Sale 9,000 17,000
-------- --------
Total Current Assets $ 9,000 $ 74,053
Other Assets
Excess of Cost over Net Assets Acquired,
Less Accumulated Amortization 18,036 18,656
Investment and Advances to 50% Owned
Affiliate 160,939 194,104
Organization Costs 300 300
-------- --------
Total Other Assets $179,275 $213,060
-------- --------
Total Assets $188,275 $287,113
======== ========
</TABLE>
F-1
<PAGE> 12
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current Liabilities
Accounts Payable $ 59,968 $ 51,529
Accrued Exp and other Current 17,920 25,114
Notes Payable 44,881 44,707
----------- -----------
Total Current Liabilties $ 122,768 $ 121,350
Long-Term Liabilities
Due to Officers $ 56,314 $ 52,454
----------- -----------
Total Liabilities $ 179,082 $ 173,804
Stockholders' Equity
Class "A" Common Shares, No Par Value; $ 3,446,308 $ 3,420,508
Authorized - 90,000,000 shares; Issued
and to be issued - 30,166,069 in 1996,
28,086,069 in 1995
Additional Paid-In-Capital 52,293 52,293
Accumulated Deficit (3,489,408) (3,359,492)
----------- -----------
Total Stockholders' Equity $ 9,193 $ 113,309
Total Liabilities & Stockholders' Equity $ 188,275 $ 287,113
=========== ===========
</TABLE>
F-2
<PAGE> 13
ELECTRO-KINETIC SYSTEMS INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Equity in Earnings of
Unconsolidated Affiliate ($ 33,165) ($ 4,500)
------------ ------------
($ 33,165) ($ 4,500)
Selling, General & Admin.
Expenses $ 60,120 $ 141,805
Depreciation/Amortization 620 8,587
------------ ------------
$ 60,740 $ 150,392
Net Loss From ------------ ------------
Continuing Operations ($ 93,905) ($ 154,892)
------------ ------------
Other income (expense)
Interest Expense (5,939) (23,006)
Reduction of Previously
Recorded Liabilities 15,000
Forgiveness of Debt 2,119
Gain on Sale of Building 315,919
Miscellaneous 7,559
------------ ------------
$ 11,180 $ 300,472
------------ ------------
Operating Loss/Profit Before
Discontinued Operations ($ 82,725) $ 145,580
Discontinued Operations (42,191) (167,481)
------------ ------------
Net Loss Before Income Tax ($ 124,916) ($ 21,901)
Income Tax Recovery 30,000
------------ ------------
Net Loss / Profit ($ 124,916) $ 8,099
Loss Per Class A Common
Share
Net Loss / Profit ($ 0.004) $ 0.000
============ ============
Weighted Average Number
of Common Shares
Outstanding 29,126,069 23,748,212
============ ============
</TABLE>
F-3
<PAGE> 14
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income ($124,916) $ 8,099
Adjustments to Reconcile Net Loss
to Net Cash Used in Operating Activities
Equity in Earnings of Unconsolidated
Subsidiary 33,165 4,500
Depreciation and Amortization 620 11,379
Provision for Uncollectible Advances 40,000
Value Assigned To Stock Options 10,000
Write-Off of Assets 8,000 125,802
Deferred Income Tax Credit 30,000)
(Increase) Decrease in Assets
Accounts Receivable - Trade 3,949
Other Receivables 3,906
Inventory 13,218
Prepaid Expenses and Other Current Assets 3,183
Deposits and Other Assets 1,063
Increase (Decrease) in Liabilities
Accounts Payable - Trade 8,439 (6,644)
Accrued Expenses and Other Current
Liabilities (7,195) (11,435)
Notes Payable 174 665
--------- ---------
Total Adjustments $ 87,109 $ 125,680
--------- ---------
Net Cash Provided/Used in Operating
Activities ($ 37,807) $ 133,779
Cash Flows From Investing Activities
Forgiveness of Debt (315,919)
Building Disposal 57,196
Note Payable , Net 7,038
--------- ---------
Net Cash Provided from Investing
Activities $ 0 ($251,685)
</TABLE>
F-4
<PAGE> 15
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
Cash Flows From Financing Activities
Loans - Officers $ 3,860 $ 52,454
Proceeds from Sale of Common Stock 24,000
Cash Received From Acquisitions 2,334
Common Stock Issued For Liabilities 20,000
Common Stock Issued For Fees 20,800 20,000
-------- --------
Net Cash Provided by Financing Activities $ 24,660 $118,788
-------- --------
Net Increase (Decrease) in Cash ($13,147) $ 882
Cash - Beginning of Year $ 13,147 $ 12,265
-------- --------
Cash - End of Year $ 0 $ 13,147
======== ========
</TABLE>
F-5
<PAGE> 16
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (EQUITY)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Shares Common Shares
Class A Class A Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at
December 31, 1994 18,108,930 $ 3,080,367 ($3,367,591) ($ 287,224)
Sale of Common Stock 1,150,000 57,500 57,500
Conversion of Debt to
Common Stock 1,172,139 91,041 91,041
Additional Paid In
Capital 52,293 52,293
Common Stock To Be
Issued 7,655,000 191,600 191,600
Net Profit 8,099 8,099
----------- ----------- ----------- -----------
Balance at
December 31, 1995 28,086,069 $ 3,472,801 ($3,359,492) $ 113,309
Common Stock To Be
Issued 2,080,000 20,800 20,800
Paid-in-Capital 0
Net Profit (124,916) (124,916)
----------- ----------- ----------- -----------
Balance at
December 31, 1996 30,166,069 $ 3,493,601 ($3,484,408) $ 9,193
</TABLE>
F-6
<PAGE> 17
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A: THE COMPANY
Electro-Kinetic Systems, Inc. (EKS) was formed on April 24, 1972 under the
laws of the State of Pennsylvania. It's corporate office is now located at 332 C
Haddon Avenue, Westmount, New Jersey 08108; its telephone number is (609)
858-4662
NOTE B: ACCOUNTING POLICIES
The Company suspended operations in radon testing and analysis following
the bankruptcy of its principal distributor in March of 1995. Accordingly, all
operations have been classified as discontinued. The company sold its building
in June of 1995 and reflected net income from this transaction in the amount of
$315,919. This nonrecurring item of income is included in "Other Income Net."
The Company acquired Israel Imaging Technology, Inc. and its two
affiliates on September 18, 1995 and agreed to issue 4,100,000 shares of its
common stock in exchange for their shares. The acquisition was accounted for as
a purchase. The difference between the fair market value of the stock issued
over the book value of assets acquired has been allocated to investments in a
50% owned affiliated company in the amount of $18,656. Operations were accounted
for beginning October 1, 1995, as equity in earnings of unconsolidated
affiliate.
The Company has tax carryforward losses of approximately $3,300,000. Under
Section 382 of the Internal Revenue Code of 1986, as amended; the utilization of
prior net operating loss carry forward may be limited as a result of ownership
changes.
NOTE C: STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "Option Plan") on May 3,1993.
Under the Option Plan, shares of the Company's Common Stock(subject to certain
adjustments) are reserved for issuance upon the exercise of options. Options
granted under the Option Plan are intended to constitute incentive stock options
under Section 422A of the Internal Revenue Code of 1986, as amended, or any
corresponding provisions of succeeding law ( the "Code"). Stock appreciation
rights may be granted in association with options. Incentive stock options may
be granted under the Option Plan to employees (including officers and directors
who are employees of the Company) or subsidiary corporation on the date of
grant.
By its terms, the Option Plan is to be administered by a committee(the
"Committee") appointed by the Board of Directors which shall consist of either
the entire Board of Directors, all of whom must be disinterested
<PAGE> 18
persons, or by a committee of two or more directors. Subject to the provisions
of the Option Plan, the Committee has the authority to determine the persons to
whom options will be granted, the exercise price, the term during which options
may be exercised and such other terms and conditions as it deems appropriate. As
of the date hereof, options to purchase 1,000,000 shares of Common Stock have
been granted under the Option Plan at $0.01 per share.
The aggregate fair market value of shares issuable pursuant to incentive
stock options granted in any calendar year to an employee or officer may not
exceed $100,000 subject to certain carryovers from previous years. Incentive
stock options granted under the Option Plan may not have an exercise price less
than the fair market value of the Common Stock on the date of the grant (or 110%
of the fair market value in the case of employees holding ten percent or more of
the voting stock of the Company.). Options granted under the Option Plan will
expire not more than ten years from the date of the grant subject to earlier
termination under the Option Plan. The term of an incentive stock option granted
to a 10% holder shall be no more than 5 years from the date of the grant.
Under the Option Plan, participants may be granted stock appreciation
rights in connection with, or separately from, options. Each stock appreciation
right consists of a right to receive, upon exercise, either cash or shares of
Common Stock, as determined in the discretion of the Committee, equal to the
amount by which the shares of Common Stock on the date the stock appreciation
right are exercised. Only the number of shares actually delivered upon the
exercise of such stock appreciation rights will be charged against the maximum
number of shares which may be issued under the Option Plan.
NOTE D: GOING CONCERN
The Company's financial position continues to reflect a significant
shortage of working capital. The Company believes that current funds maybe
insufficient to continue to meet its obligations. While the Company continues to
pursue alternate means of raising capital, there can be no assurance that it
will be successful in raising sufficient capital to meet its needs. The Company
has a history of continuing net losses, and a significant working capital
deficit. There has been doubt about The company's ability to continue as a going
concern.
<PAGE> 19
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no audited reports for the years 1994, 1995 and 1996. In their
report from 1993, the Company's independent public accountants included an
explanatory paragraph stating there is substantial doubt about EKS's ability to
continue as a going concern. The accountants formally resigned in 1995 because
of unpaid fees. (reference is made to Forms 8-K filed)
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
Set forth below is certain information regarding the executive officers
and directors of the Company:
Name Age Position Since
---- --- -------- -----
Julius Cherny 60 Director, President and Chief 1996
Executive Officer
Richard J. L. Herson 78 Director, Treasure, Secretary 1996
Chief Accounting Officer
Daniel Herzka 46 Director 1996
Ralph Lanciano III 32 Director 1993
Gary Dornhoefer 51 Director 1993
Julius Cherny, Ph. D. has been a Director since May 10, 1996. Dr. Cherny
is a founder and partner of Mottola, Cherny and Associates, a consulting firm
specializing in providing financial, organizational and systems consulting
services. Dr. Cherny holds a Ph.D. in accounting and is currently on staff at
the NYU Graduate School of Business and previously at the Hagen School of
Business at Iona College. Dr. Cherny has held positions as Director, Senior Vice
President, and Chief Financial Officer with firms in the securities industry.
Dr. Cherny has published numerous papers and authored several books dealing with
Finance, Accounting and Advanced Mathematical Theory.
Richard J. L. Herson was Secretary, Treasure and a Director of The
Translation Group, Ltd. since inception until February 1, 1996, when here signed
as Secretary and Treasurer and was appointed Chief Accounting Officer, the
position he currently holds. Mr. Herson was previously a General Partner in the
firm of Hertz, Herson and Company, CPA's with offices in New York, Boston and
Charlotte. He is currently Secretary of the Bruner Foundation, where he is
responsible for its investments and accounting operations. He holds a Bachelor
Degree from the City College of New York and an M.S. in Accounting from Columbia
University. He has also authored numerous articles and a book on accounting.
Daniel Herzka became a director in July 1996. He is the Vice President
Marketing and Product Management of Linotype-Hell Company. In this position he
is responsible for the introduction of new products and solutions to the
graphic-arts market. Daniel Herzka has more than 20 years experience applying
innovative computerized imaging solutions in abroad range of industries
including printing and publishing, textile, CAD/CAM, PCB, mapping, medical
imaging and scientific visualization. Mr. Herzka
<PAGE> 20
came to Linotype-Hell from Ultimate Technolographics Inc., the inventors of
Impostrip the professional electronic imposition software where he served as
Senior Vice President Sales and Marketing. Previously he held a senior worldwide
business management position with DuPont De Nemours. Prior to DuPont, he was an
employee of Scitex for thirteen years in a variety of management positions in
sales and marketing involving business activities in the United States, Europe,
Japan and South America. Daniel studied for an MBA at Hebrew University in
Jerusalem and for a BSC in Electrical and Industrial Engineering from the
Technion in Haifa.
Gary Dornhoefer became a Director in October 1993. A National Hockey
League "Hall of Famer", he played professional hockey for the Philadelphia
Flyers for eleven years, during which time the team won two Stanley Cups. Mr.
Dornhoefer is currently with Prism Cable Network as a Color Analyst/Commentator
for the Philadelphia Flyers, and has various other business interests. He is
Co-Administrator of the EKS 1993 Stock Option Plan.
Ralph C. Lanciano, III became a Director in October 1993. A licensed
optician, Mr. Lanciano has owned and operated CEE Optical Center since 1989, and
has participated in various real estate development and other business ventures.
He is Co-Administrator of the EKS 1993 Stock Option Plan.
BOARD OF DIRECTORS
Each director and holds office until the next annual meeting of
stockholders, or until his successor is elected and qualified. At present, the
Company's bylaws require no fewer than one director. Currently, there are five
directors of the Company. The bylaws permit the Board of Directors to fill any
vacancy and the new director may serve until the next annual meeting of
stockholders or until his successor is elected and qualified. Officers are
elected by the Board of Directors and their terms of office are, except to the
extent governed by employment contracts, at the discretion of the Board. Other
than as indicated above, there are no family relations among any officers or
directors of the Company. The officers of the Company devote part time to the
business of the Company. See "Certain Transactions." The Company has established
separate Audit and Compensation Committees. The Audit Committee consists of Mr.
Herson and Dr. Cherny. The Audit Committee will make recommendations to the
Board of Directors regarding the selection of independent auditors, reviews the
results and scope of the audit and of the services provided by the Company's
independent auditors, and review and evaluate the Company's internal control
functions. The Compensation Committee consists of Dr. Lanciano and Mr. Herzka.
The Compensation Committee will make recommendations to the Board of Directors
concerning compensation for executive officers and consultants of the Company.
The Option Committee will continue to consist of Dr. Lanciano and Mr.
Dornhoefer.
ITEM 10: EXECUTIVE COMPENSATION
The Company has part time executive officers. The following is the annual
compensation paid to them in 1996:
<PAGE> 21
Julius Cherny President $10,400
Richard J. L. Herson Secretary and 10,400
-------
Treasurer
Total $20,800
=======
COMPENSATION OF DERECTORS
of the Company are not compensated for their services, in that capacity.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of Common Stock owned by (i)
each person who is known by the Company to own beneficially more than 5% of the
shares of any class of Common Stock, (ii) each director of The company who owns
shares, and (iii) the executive officers and directors of the Company as a
group. Unless otherwise indicated, all shares of Common Stock are owned by the
individual named as sole record and beneficial owner with exclusive power to
vote and dispose of such shares.
<TABLE>
<CAPTION>
Common Shares Issued and to
Name Position Share Owned be Issued Percentage
---- -------- ----------- --------------------
<S> <C> <C> <C>
Julius Cherny President 2,590,000 8.6
Charles Cascio ---- 2,735,000 9.0
Richard J.L. Herson Secretary/Treasurer 4,483,000 14.8
Gary Dornhoefer Director 240,000 .8
Ralph Lanciano Director 800,000 2.6
Daniel Herzka Director 600,000 2.0
All Executive Officers ---- 8,713,000 28.8
and Directors as a Group
</TABLE>
The capitalization of EKS, as of December 31, 1996 was as follows:
Amount Currently
Title of Class Authorized Outstanding
- -------------- ---------- -----------
Common Stock 90,000,000 30,166.069*
$.001 Par Value Shares Shares
Per Share
Preferred Stock 10,000,000 None
$.001 Par Value Shares
Per Share
* Shares Issued 20,431,069; to be issued 9,735,000
STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "Option Plan") on May 3, 1993.
Under the Option Plan, shares of the Company's Common Stock
<PAGE> 22
(subject to certain adjustments) are reserved for issuance upon the exercise of
options. Options granted under the Option Plan are intended to constitute
incentive stock options under Section 422A of the Internal Revenue Code of 1986,
as amended, or any corresponding provisions of succeeding law ( the "Code").
Stock appreciation rights may be granted in association with options. Incentive
stock options may be granted under the Option Plan to employees (including
officers and directors who are employees of the Company or a subsidiary
corporation on the date of grant.)
By its terms, the Option Plan is administered by a committee
(the"Committee") appointed by the Board of Directors which consists of persons,
or by a committee of two or more directors, all of whom must be disinterested
persons and who serve at the discretion of the Board of Directors. Subject to
the provisions of the Option Plan, the Committee has the authority to determine
the persons to whom options will be granted, the exercise price, the term during
which options may be exercised and such other terms and conditions as it deems
appropriate.
The aggregate fair market value of shares issuable pursuant to incentive
stock options granted in any calendar year to an employee or officer may not
exceed $100,000 subject to certain carryovers from previous years. Incentive
stock options granted under the Option Plan may not have an exercise price less
than the fair market value of the Common Stock on the date of the grant (or 110%
of the fair market value in the case of employees holding ten percent or more of
the voting stock of The company.). Options granted under the Option Plan will
expire not more than ten years from the date of the grant subject to earlier
termination under the Option Plan. The term of an incentive stock option granted
to a 10% holder shall be no more than 5 years from the date of the grant.
Under the Option Plan, participants may be granted stock appreciation
rights in connection with, or separately from, options. Each stock appreciation
right consists of a right to receive, upon exercise, either cash or shares of
Common Stock, as determined in the discretion of the Committee, equal to the
amount by which the shares of Common Stock on the date the stock appreciation
right are exercised, only the number of shares actually delivered upon the
exercise of such stock appreciation rights will be charged against the maximum
number of shares which may be issued under the Option Plan.
As of the date hereof, options to purchase 1,000,000 shares of Common Stock
have been granted under the Option Plan.
DIVIDENDS
It is currently anticipated by management that, for the foreseeable future,
the Company will not be in a position to pay cash dividends on the Common Stock
and that all earnings, if any, of the Company will be retained for investment in
the Company's business.
TRANSFER AGENT
The American Stock Transfer & Trust Company acts as Transfer Agent for its
Common Stock.
<PAGE> 23
LIMITATION UPON DIRECTOR'S LIABILITY
The Certificate of Incorporation of the Company provides that members of
its Board of Directors shall not be subject to personal liability to the Company
or any of its stockholders for any monetary damages for breach of fiduciary
duty, except liability for (i) any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) paying
a dividend or approving a stock repurchasor redemption which was illegal under
Pennsylvania General Corporation Law; (iv) any transaction from which the
director derived an improper personal benefit, or (v) any act or omission
occurring prior to the adoption by the Company of the provisions eliminating
director's personal liability.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The grant of options include shares granted to Michael Cascio and Christine
Cascio, both attorneys for continuous services to the Company. They are the
children of Charles D. Cascio, former President and CEO of the Company.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
References made to reports filed on 01/03/96 and 01/11/96 on Form 8-K.
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized:
ELECTRO-KINETIC SYSTEMS, INC.
Dated: 7/15/97 By: JULIUS CHERNY
------------------ --------------------------------
Julius Cherny, PhD., President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the Dates indicated.
SIGNATURE CAPACITY DATED
JULIUS CHERNY Chairman of the 7/15/97
- ------------------- Board, Director ----------
Julius Cherny, PhD. (DATE)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 188,275
<CURRENT-LIABILITIES> 122,768
<BONDS> 56,314
0
0
<COMMON> 3,446,308
<OTHER-SE> (3,437,115)
<TOTAL-LIABILITY-AND-EQUITY> 188,275
<SALES> 0
<TOTAL-REVENUES> (33,165)
<CGS> 0
<TOTAL-COSTS> 60,740
<OTHER-EXPENSES> (17,119)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,939
<INCOME-PRETAX> (82,715)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (42,191)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,916)
<EPS-PRIMARY> (.004)
<EPS-DILUTED> 0
</TABLE>
