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 31,1997
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)
c/o Herson: 270 Rocky Run Rd. Glen Gardner NJ 08826
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 908-537-4378
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 ___ 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......($50,000)
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of 12/31/97 was approximately $400,000.
Number of shares of Class A Common Stock, no par value, outstanding as
of December 31, 1997: 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>
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
1
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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 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
,members of his family and other associates.
In March of 1995, the Company suspended its principal operations, radon
testing and analysis, following the bankruptcy of its distributor. Accordingly,
all operations relative to radon testing have been classified as discontinued.
The Company sold its building in June of 1995.\
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.
2
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On July 12, 1996, Charles D. Cascio resigned as President, Chief
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
In the fall of 1996, the Company commenced the development of four
systems to market 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,
et. al.
(2) "Vizcom"
The visual communications technology concerns application of visual
graphics to new applications. (It is thus directly related to stock traders and
also has 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.
3
<PAGE>
Proposed Solution: Increase the number of tradable shares without the
issuance of additional shares by the company. This can be 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.
4
<PAGE>
Post Balance Sheet Event
The Company is in the processof negotiating the sale of 90% of the
common stock of it's subsidiary, DMA-Radtech, Inc. (DMA) with an anticipated
gain of approximately $45,000. As part of this transaction the Board of
Directors has voted a dividend to the shareholders of the Company, payable in
the remaining 10% of the shares of DMA. There is no assurance that this
transaction will be completed or on these terms. It should be noted that the
carryforward loss of DMA is approximately $475,000 and accordingly, the current
combined carryforward loss will be reduced from approximately 3.3 million to 2.8
million.
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 that would be used to produce the
Company's 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 there are adequate sources to meet its future needs.
Employees
The Company has two part-time officers.
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 parent company and it's four subsidiaries have combined 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, net cash proceeds were all
applied to principal debt.
5
<PAGE>
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
average price during the year was $.01 bid and $.01 3/8 asked.
ITEM 6. Management's Discussion and Analysis of Results of Operation and
Financial Conditions
The following should be read in conjunction with the financial
statements appearing elsewhere in this report.
Results of Operations
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 effors to develop
popular consumer magazines and provided for losses in the amount of $44,000.
The Company's only recurring source of income has been its equity in
its 50% owned subsidiary, Printone Media, a loss of $50,000 in 1997 and $33,165
in 1996. 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 1997 of$68,523 compares to a loss for 1996 of
$124,916 and a loss for 1995 of $21,901.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).
6
<PAGE>
The following is a summary comparison of Income Statements for the
years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Equity (loss)in Earnings of
Unconsolidated Subsidiary $ (50,000) $ (33,165) $ (4,500)
Selling, General and
Administrative 11,705 60,740 150,392
--------- --------- ---------
Loss before Other Income (61,705) (93,905) (154,892)
--------- --------- ---------
Other (Income)/Expense
Gain on Sale of Building
& Forgiveness of Debt (2,900) 0 (315,919)
Writedown of Assets 0 0 125,802*
Interest Expense 9,700 5,939 23,006
Other 0 (17,119) (7,559)
--------- --------- ---------
Total Other (Income)/Expenses 6,800 (11,180) (174,670)
(Income)/Loss Before
Discontinued Operations (68,505) (82,725) 19,778
Discontinued Operations (0) (42,191) (41,679)
--------- --------- ---------
Loss Before Income Taxes $ (68,505) $(124,916) $ (21,901)
========= ========= =========
* 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 to ($186,727) as of December 31, 1997 in part
due the reclassification of Due To Officers from long term to current.
Shareholders' equity declined from $113,309 to $9,193 to ($59,312) as of the
same dates.
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 as described
above. There is no assurance of success in these endeavors.
The Company's operating losses during the past years have been funded
by the sale of its common stock and by loans from shareholders. 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.
7
<PAGE>
ITEM 7. Financial Statements Pages
Consolidated Balance Sheets as of December 31, 1997 F 1-2
and 1996
Consolidated Statements of Operation for the Years F 3
Ended December 31, 1997 and 1996
Consolidated Statement of Cash Flows for the F 4
Years Ended December 31, 1997 and 1996
Consolidated Statement of Changes in Stockholders' F 5
Deficiency (Equity) For The Years Ended
December 31, 1997 and 1996
Notes to Consolidated Financial Statements F 6-7
8
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
-------- --------
Current Assets:
Cash $ 1,505 $ 0
Equipment Held for Sale 9,000 9,000
-------- --------
Total Current Assets $ 10,505 $ 9,000
Other Assets
Excess of Cost over Net Assets Acquired,
Less Accumulated Amortization 16,176 18,036
Investment and Advances to 50% Owned
Affiliate 110,939 160,939
Organization Costs 300 300
-------- --------
Total Other Assets $127,415 $179,275
-------- --------
Total Assets $137,920 $188,275
======== ========
F-1
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
----------- -----------
Current Liabilities
Accounts Payable $ 63,583 $ 59,968
Accrued Exp and other Current 21,254 17,920
Notes Payable 46,614 44,881
Due To Officers 65,781 0
----------- -----------
Total Current Liabilties $ 197,232 $ 122,769
Long-Term Liabilities
Due to Officers $ 0 $ 56,314
----------- -----------
Total Liabilities $ 197,232 $ 179,083
Stockholders' Equity
Class "A" Common Shares, No Par Value; $ 3,441,308 $ 3,446,308
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 (3,552,913) (3,489,408)
----------- -----------
Total Stockholders' Equity ($ 59,312) $ 9,193
Total Liabilities & Stockholders' Equity $ 137,920 $ 188,276
=========== ===========
F-2
<PAGE>
ELECTRO-KINETIC SYSTEMS INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
--------- ---------
Equity in Earnings of
Unconsolidated Affiliate ($ 50,000) ($ 33,165)
--------- ---------
($ 50,000) ($ 33,165)
Selling, General & Admin
Expenses $ 9,845 $ 60,120
Depreciation/Amortization 1,860 620
--------- ---------
$ 11,705 $ 60,740
--------- ---------
Net Loss From
Continuing Operations ($ 61,705) ($ 93,905)
--------- ---------
Other (Income)/Expense
Interest Expense 9,700 5,939
Reduction of Liabilities (15,000)
Forgiveness of Debt (2,900) (2,119)
--------- ---------
$ 6,800 ($ 11,180)
--------- ---------
Operating Loss/Profit Before
Discontinued Operations ($ 68,505) ($ 82,725)
Discontinued Operations (42,191)
--------- ---------
Net Loss ($ 68,505) ($124,916)
Loss Per Class A Common
Share -0.002 -0.004
========== ==========
Weighted Average Number
of Common Shares
Outstanding 30,166,069 29,126,069
========== ==========
F-3
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
1997 1996
--------- ---------
Cash Flows From Operating Activities
Net Income ($ 68,505) ($124,916)
Adjustments to Reconcile Net Loss
to Net Cash Used in Operating Activities
Equity in Earnings of Unconsolidated
Subsidiary 50,000 33,165
Depreciation and Amortization 1,860 620
Provision for Uncollectible Advances 40,000
Write-Off of Assets 8,000
(Increase) Decrease in Assets
Other Receivables 3,906
Increase (Decrease) in Liabilities
Accounts Payable - Trade 3,615 8,439
Accrued Expenses and Other Current
Liabilities 3,334 (7,195)
Notes Payable 1,733 174
--------- ---------
Total Adjustments $ 60,542 $ 87,109
--------- ---------
Net Cash Used in Operating Activities ($ 7,963) ($ 37,807)
Cash Flows From Financing Activities
Loans - Officers $ 1,500 $ 3,860
Accrued Interest Due Officers 7,968
Common Stock Issued For Fees 20,800
--------- ---------
Net Cash Provided by Financing Activities $ 9,468 $ 24,660
--------- ---------
Net Increase (Decrease) in Cash $ 1,505 ($ 13,147)
Cash - Beginning of Year $ 0 $ 13,147
--------- ---------
Cash - End of Year $ 1,505 $ 0
========= =========
F-4
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (EQUITY)
YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Common Additional
Shares Shares Paid In
Class A Class A Capital Deficit Total
---------- ---------- ------- ----------- ---------
Balance at
Jan. 1, 1996 28,086,069 $3,420,508 $52,293 ($3,359,492) $ 113,309
Common Stock
To Be Issued 2,080,000 20,800 20,800
Net Loss (124,916) (124,916)
---------- ---------- ------- ----------- ---------
Balance at
Dec. 31,1996 30,166,069 $3,441,308 $52,293 ($3,484,408) $ 9,193
Net Loss for Year ($ 68,505) ($ 68,505)
---------- ---------- ------- ----------- ---------
Balance at
Dec 31,1997 30,166,069 $3,441,308 $52,293 ($3,552,913) ($ 59,312)
F-5
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 in
Glen Garner, New Jerey.
NOTE B: Accounting Policies
The Company suspended operations in radon testing and analysis
following the bankruptcy of its principal distributor in March of 1995 and
abandoned it's efforts in the publishing field in 1996. Accordingly, all
operations have been classified as discontinued.
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 and it's subsidiaries have 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.
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.
F-6
<PAGE>
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 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 and a negative book value. The Company believes that
current funds may be 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 is doubt about the Company's ability to continue
as a going concern.
NOTE E: Post Balance Sheet Events
The Company is in the process of negotiating the sale of 90% of the
common stock of it's subsidiary, DMA-Radtech, Inc. (DMA) with an anticipated
gain of approximately $45,000. As part of this transaction, the Board of
Directors has voted a dividend to the shareholders of the Company, payable in
the remaining 10% of the shares of DMA. There is no assurance that this
transaction will be completed or on these terms. It should be noted that the
carryforward loss of DMA is approximatley $475,000 and accordingly the current
combined carryforward loss will be reduced from approximately $3.3 million to
$2.8 million.
F-7
<PAGE>
ITEM 8: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There are no audited reports for the years 1994, 1995, 1996 and 1997.
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 61 Director,President and Chief 1996
Executive Officer
Richard J.L. Herson 79 Director, Treasure, Secretary 1996
Chief Accounting Officer
Daniel Herzka 47 Director 1996
Ralph Lanciano III 33 Director 1993
Gary Dornhoefer 52 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. In October 1997, Dr.Cherny
became president of Bureau of Translation Services, Inc. (BTS), and since 1996 a
member of the Board of Directors of the Translation Group, Ltd. (TTGL), parent
of BTS. Mr. Charles Cascio, a former director and CEO of the Company and owner
of approximately 9% of it's common shares, is currently CEO and a director of
TTGL.
Richard J.L. Herson was Secretary, Treasure and a Director of The
Translation Group, Ltd. since inception until February 1, 1996, when he resigned
as Secretary and Treasurer and was appointed Chief Accounting Officer, the
position he resigned in October 1997. 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. Mr. Herson is also a consultant to,and member of the Board of
Directors of TTGL.
9
<PAGE>
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 a broad range of industries
including printing and publishing, textile, CAD/CAM, PCB, mapping, medical
imaging and scientific visualization. Mr. Herzka 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 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, review 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.
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ITEM 10: Executive Compensation
The Company has part time executive officers. There was no compansation
paid to officers in 1997. The following is the compensation paid to them in
1996:
Julius Cherny President $10,400
Richard J.L. Herson Secretary and 10,400
Treasurer ------------
Total $20,800
============
The directors 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.
Common
Name Position Shares Owned and Percentage
To Be Issued
---- -------- ---------------- ----------
Julius Cherny President 2,505,000 8.2
Richard J.L. Herson(1) Secretary/Treasurer 2,880,655 9.5
Gary Dornhoefer Director 240,000 .8
Ralph Lanciano Director 800,000 2.6
Daniel Herzka Director 480,000 1.6
All Executive Officers ---- 6,905,655 22.7
and Directors as a Group
Charles D. Cascio ---- 2,735,000 9.0
(1) Disclaims control of 2,041,955 common shares owned by corporation in
which adult son is shareholder and 140,000 shares owned by daughter.
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
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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 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.
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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.
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.
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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 : 5/4/98 By: /s/
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
/s/ Chairman of the 5/4/98
Julius Cherny, PhD. Board, Director (DATE)
