SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB/A
Amendment No. 1
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Year Ended December 31, 1998
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)
270 Rocky Run Road, Glen Gardner, New Jersey 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 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 ................--
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of 12/31/98 was approximately $400,000.
Number of shares of Class A Common Stock, no par value, outstanding as
of December 31, 1998: 30,166,069 (Common Stock issued 20,936,069 and to be
issued 9,230,000)
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
TABLE OF CONTENTS
Page
ITEM 1: Description of Business 2-3
ITEM 2: Description of Property 3
ITEM 3: Legal Proceedings 4
ITEM 4: Submission of Matters to a Vote of Security Holders 4
ITEM 5: Market of the Registrant's Common Stock and Related
Stockholders' Matters 4
ITEM 6: Management's Discussion and Analysis of Results of
Operations and Financial Conditions 4-5
ITEM 7: Financial Statements and Notes 6
F-1-F-10
ITEM 8: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
ITEM 9: Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16 (a) of the Exchange Act 7-9
ITEM 10: Executive Compensation 9
ITEM 11: Security Ownership of Certain Beneficial Owners and 9-10
Management
ITEM 12: Certain Relationships and Related Transactions 10
ITEM 13: Exhibits and Reports on Form 8-K 10
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
History
Electro-Kinetic Systems Inc. [EKS or the Company] was formed on April 24, 1972,
under the laws of the State of Pennsylvania. In February 1990, 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 (name
changed to DMA-Radtech Inc.), and in 1992, the remaining minority interest.
In December 1992, a significant change in management of EKS occurred as
a result of the investment of approximately $425,000 by private investors,
principally Charles D. Cascio, members of his family, and other associates.
The Company was achieving modest success in radon testing and analysis
when, in March 1995, the bankruptcy of its principal distributor forced the
suspension of all operations. In June 1995, the Company sold its building. After
unsuccessful joint venture/merger negotiations, the Company ceased operations in
the field of environmental hazards.
The Company acquired Israel Imaging Technologies, 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 had been allocated to Investment in a 50%
Owned Affiliate in the amount of $84,503 and the balance to Excess of Costs over
Net Assets Acquired, in the amount of $18,656. Operations were accounted for
beginning October 1, 1995, as equity in earnings of an unconsolidated affiliate.
The 1995 acquisition of Israel Imaging Technologies, Inc., gave the
Company a 50% interest in Printone Media, Inc. [PM]. PM was a computer-imaging
and preprint company offering scanning, color separation, and other graphic arts
services in a plant in Jerusalem, Israel. During 1996, the Company acquired
companies in the field of publishing and then rescinded such transaction;
continued to negotiate for the acquisition of assets and joint ventures in the
field of publishing and attempted to exploit its Israeli facility. The Company
was unsuccessful and abandoned its efforts in the publishing field. During the
years 1995 and 1996, the Company issued approximately two million shares of
Common Stock to reduce its indebtedness and to fund its operations.
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. The resignations were not
caused by or related to any disagreements "on any matter relating to the
registrant's operating policies or practices." On July 12, 1996, Dr. Julius
Cherny, Mr. Daniel Herzka, and Mr. Richard J. L. Herson were selected for the
Board of Directors. Carryover members include Gary Dornhoefer and Ralph Lanciano
III. Dr. Cherny was elected President and Mr. Herson was elected Secretary and
Treasurer. In the Fall of 1996, the new officers of the Company made available
for use certain systems developed by them which the Company attempted to market.
No costs or expenses have been incurred by the Company. Such efforts have been
unsuccessful. Accordingly, the designs for these decision models have been
returned to the officers.
-2-
<PAGE>
Merger of DMA-Radtech [DMAR] and Advanced Knowledge, Inc. [AK]
During 1997, the Company continued to search for other business opportunities.
In December 1997, the Company entered into negotiations for DMAR, its wholly
owned subsidiary, to be acquired by AK, a privately held Delaware Corporation.
On July 22, 1998, DMAR's Board of Directors declared a stock split of 300:1,
resulting in 300,000 shares being issued and outstanding.
On August 26, 1998, pursuant to a Plan of Merger and Reorganization,
DMAR acquired the assets of AK in exchange for 2,700,000 shares of its Common
Stock, or 90% of its issued and outstanding shares. Concurrent with the closing,
DMAR's shareholders voted to change the name to Advanced Knowledge, Inc. The
transaction was accounted for as a reverse merger, with AK as the surviving
company.
Pursuant to the reorganization agreement: AK paid $25,000 to the
Company for certain proprietary know-how and work products; the Company assumed
all liabilities of DMAR relating to its business prior to the closing; following
all regulatory approval, the capital stock of AK owned by the Company will be
distributed to its shareholders of record of June 1, 1998; and the Company will
receive an additional $25,000 for reimbursement of expenses in connection with
this transaction. In the absence of regulatory approval, the transaction can be
rescinded by AK.
Employees
Currently, the Company has two part-time officers. No salaries were paid in 1998
and 1997.
Research and Development
The Company's research and developments have been the results of the individual
efforts of its officers and directors at no expense to the Company. As stated
above, the Company has been unable to exploit such efforts and as a result,
designs and decision models associated with this effort have been returned to
the officers.
ITEM 2. DESCRIPTION OF PROPERTY
In November 1984, the Company purchased a building located at 701 Chestnut
Square, 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 this
building in June 1995 and reflected net income from this transaction, in the
amount of $315,919; net cash proceeds were all applied to reduce secured
principal debt.
The Company maintains an office at 270 Rocky Run Road, Glen Gardner,
New Jersey. Rent has been waived through December 31, 1998. There is no lease.
-3-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor involved in any legal proceeding as plaintiff
or defendant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET OF THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDERS' MATTERS
The price of common shares of the Company is reported on the NASDAQ OTC Bulletin
Board. The price during the year has remained in the range of 1.0(cent) bid and
1.5(cent) asked.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITIONS
The following should be read in conjunction with the financial statements
appearing elsewhere in this report.
Results of Operations
The Company's 50% owned unconsolidated affiliate, Printone Media Inc., continued
to show losses through 1997 and 1998 and ceased operations. Accordingly, at the
end of the second quarter of 1998, the Company wrote off the carrying value of
its investment in and advances to this affiliate in the amount of $85,939. The
Company has no other operating income from itself or any of its subsidiaries.
Results for the year 1998 also reflect the following fourth quarter
adjustments:
i) write-off of the remaining balance from the September 1995
acquisition of the Excess of Cost over Net Assets Acquired of
$14,781. (1)
ii) write-off of Equipment for Sale of $9,000. (2)
iii) deferral of part of consideration received expense
reimbursements merger of subsidiary to the extent
of $20,000. (3)
____________________
(1) As a result of the acquisition of Israel Investment Technologies, Inc. and
two affiliates, September 1995, the Company acquired certain preliminary designs
for developments of computer models in the fields of medical compliance and
electronic book publishing. The Company has been unsuccessful in its efforts to
exploit these developments.
(2) Age and technological changes have obsolesced the value of the radon-testing
equipment for sale.
(3) Since the merger of subsidiary is subject to rescision, recognition of
expense reimbursements due has been deferred.
-4-
<PAGE>
iv) income from cancellation of liabilities in the amount of
$36,786, net of $5,000 payment of prior expenses.(4)
Waiver of compensation to officers has enabled selling, general, and
administrative expenses to remain under $10,000 per year. These consist of stock
transfer, tax, and bookkeeping costs. Interest has been accrued on an
outstanding note indebtedness and on officer's loans.
Impairment of Investments in subsidiaries and Affiliates for the year
1997, reflect equity in losses of unconsolidated subsidiary and amortization of
Excess ($1,860).
Liquidity and Capital Resources
The working capital deficit decreased to ($167,072) as of December 31, 1998,
from ($186,727) as of December 31, 1997. This decrease is primarily the result
of a $25,000 net decrease in the deficit due to the net sale of proprietary
know-how, DMAR, with Advanced Knowledge and cancellation of certain
indebtedness, offset by an increase in amounts due to officers. Shareholders'
deficit increased from ($59,312) to ($167,072) as of the same dates.
The Company's operating losses during the past years have been funded by the
sale of its Common Stock, by loans from shareholders, and by the disposal of a
subsidiary. For the Company to become a viable entity, it must raise sufficient
capital to fund its operations. The Company is making continuing efforts to
negotiate the settlement of liabilities aggregating approximately $100,000 for
shares of its Common Stock. The Company is also seeking merger opportunities,
but there is no assurance of success in these endeavors. Inflation has not been
a factor in the Company's results of operations.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The company's computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on recent assessments and the inactive nature of the Company's operations,
the Company does not feel it will be greatly impacted by the Year 2000 issue.
___________
(4) Cancellation of liabilities is based on statute of limitations for
indebtedness incurred prior to March 31, 1995. Additional recorded liabilities
expiring in 1999, for which no claims have been asserted by creditors,
approximate $25,000.
-5-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Electro-Kinetic Systems, Inc.
We have audited the balance sheets of Electro-Kinetic Systems, Inc. as of
December 31, 1998 and 1997 and the related statements of operations, changes in
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electro-Kinetic Systems, Inc.
at December 31, 1998 and 1997, and the results of its operations and its cash
flows for the two years in the period then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note D to the
financial statements, the Company's financial position continues to reflect a
significant shortage of working capital and negative book value. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are described in Note D.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ WISS & COMPANY, LLP
Livingston, New Jersey
September 27, 1999
<PAGE>
Pages
Consolidated Balance Sheets as of December 31, 1998 and 1997
Assets F-1
Liabilities and Stockholders' Equity F-2
Consolidated Statements of Operations for the Years Ended F-3
December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended F-4
December 31, 1998 and 1997
Consolidated Statements of Changes in Stockholders' F-5
Equity for the Years Ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements F-6-F10
-6-
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1998 1997
Current assets:
Cash $ 4,065 $ 1,505
Miscellaneous receivable and other assets 25,000 9,000
------- -----
Total current assets 29,065 10,505
------- ------
Other assets:
Excess of cost over net assets acquired,
less accumulated amortization - 16,176
Investment and advances to 50% owned
affiliate - 110,939
Organization costs - 300
-------- -------
Total other assets - 127,415
-------- -------
Total assets $ 29,065 $ 137,920
========= =========
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1998 1997
Current liabilities:
Accounts payable $ 44,333 $ 63,583
Accrued expenses 19,793 21,254
Notes payable 35,828 46,614
Due to officers 76,183 65,781
Deferred income 20,000 -
------- -------
Total current liabilities 196,137 197,232
--------- -------
Commitments and contingencies
Stockholders' equity (deficit):
Class "A" common shares, no par value;
authorized - 90,000,000 shares; issued
and to be issued - 30,166,069 in 1998
and in 1997 3,441,308 3,441,308
Additional paid-in-capital 52,293 52,293
Accumulated deficit (3,660,673) (3,552,913)
------------ -----------
Total stockholders' equity (deficit) (167,072) (59,312)
--------- --------
Total liabilities and stockholders' equity (deficit) $ 29,065 $ 137,920
========= =========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31,
1998 1997
Selling, general and
administrative expenses $ 7,161 9,845
-------- -----
Other income (expenses):
Interest expense (9,200) (9,700)
Gain on sale of proprietary know-how 14,640 -
Write down of assets (9,300) -
Impairment of investments in subsidiaries
and affiliates (127,115) (51,860)
--------- --------
(130,975) (61,560)
Loss before extraordinary income (138,136) (71,405)
Extraordinary income - cancellation of indebtedness 30,376 2,900
------ -----
Net loss $ (107,760) (68,505)
=========== ========
Loss per share (basic and diluted) $ 0.004 0.002
======== =====
Weighted average number of
common shares outstanding 30,166,069 30,166,069
========== ==========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Year Ended
December 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (107,760) $ (68,505)
Adjustments to reconcile net loss to net
cash used in operating activities:
Impairment of investments in affiliates 127,115 51,860
Accrued interest on notes payable 2,200 2,132
Accrued interest due officers 7,000 7,569
Extraordinary income - cancellation of indebtedness (36,876)
Write down of assets 9,300 -
Change in assets and liabilities:
Miscellaneous receivable (25,000) -
Accounts payable 4,640 3,615
Accrued expenses (1,461) 3,334
Deferred income 20,000 -
------ ------
Total adjustments 106,918 68,510
Net cash - operating activities (842) 5
Cash flows from financing activities:
Proceeds from officers' loans 3,402 1,500
Net increase in cash 2,560 -
Cash - beginning of the year 1,505 1,505
-------- -------
Cash - end of the year $ 4,065 $ 1,505
======== =======
Supplemental cash flow information:
Interest paid $ - $ -
Income taxes paid $ - $ -
==== ===
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Class A Common Stock Additional Accumulated
Shares Amount Paid In Capital Deficit Total
Balance at January 1, 1997 30,166,069 $ 3,441,308 $ 52,293 $(3,484,408) $ 9,193
Net loss for 1997 - - - (68,505) (68,505)
Balance at December 31, 1997 30,166,069 3,441,308 52,293 (3,552,913) (59,312)
Net loss for 1998 - - - (107,760) (107,760)
Balance at December 31, 1998 30,166,069 $ 3,441,308 $ 52,293 $(3,660,673) $(167,072)
=========== ============ ========= ============ ===========
</TABLE>
F-5
<PAGE>
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
NOTE A: THE COMPANY
Electro-Kinetic Systems, Inc. [EKS or the Company] was formed on April 24, 1972,
under the laws of the State of Pennsylvania. Its corporate office is now located
in Glen Gardner, New Jersey.
The Company ceased operations in radon testing in March 1995 and failed in its
subsequent efforts: magazine publishing (1996), visual communication technology
(1997), marketing of computer decision models (1997 and 1998), and desktop
publishing and printing (1998).
The Company and its subsidiaries, (collectively the "Company"), which are
currently inactive, is searching for merger opportunities with other companies
as a base of operations.
NOTE B: ACCOUNTING POLICIES
1) Principles of Consolidation
The consolidated financial statements at December 31, 1997, include the accounts
of the Company and its wholly owned subsidiaries, Israel Imaging Technology,
Electronic Textbook Corporation, Medical Compliance Monitoring, Inc. and DMA -
Radtech, Inc. ("DMAR").
On August 26, 1998, the Company transferred 2,700,000 shares (representing 90%)
of its then 3,000,000 shares in DMAR to Advanced Knowledge, Inc. ("AK").
Advanced Knowledge in turn transferred its assets to DMAR, and concurrent with
the transaction, DMAR voted to change its name to Advanced Knowledge, Inc. The
effect of this transaction was to give the Company a then 10% ownership interest
in Advanced Knowledge, Inc. in exchange for its 100% then ownership in DMAR in a
transaction that was accounted for as a reverse merger, with AK as the surviving
company. (See NOTE F: Subsequent Events)
All significant inter-company accounts and transactions have been eliminated in
consolidation.
2) Business Acquisitions
In 1990 and 1992, the Company acquired 100% ownership interest in DMAR. In
September 1995, the Company acquired 100% of Israel Imaging Technology, Inc. and
two affiliated companies, Electronic Textbook Corporation and Medical Compliance
Monitoring, Inc. The acquisition of Israel Imaging Technology, Inc. gave the
Company an effective 50% ownership interest in Printone Media, an Israel
Corporation. The Company has reviewed the operations of its subsidiaries and its
50% constructive ownership interest in Printone Media and determined these
investments to be impaired. Accordingly, the Company has recorded a charge to
operations of $127,115 and $51,860 for the years ended December 31, 1998 and
1997, respectively. These assets are not anticipated to produce future revenues.
F-6
<PAGE>
3) Revenue Recognition
Given its inactive nature, the Company did not have operating revenues during
the years ended December 31, 1998 and 1997.
In connection with the aforementioned transaction between DMAR and AK, the
Company sold certain proprietary know-how to AK, which was effective upon the
execution of the agreement.
4) Income Taxes
The Parent Company and its subsidiaries have combined tax carry forward losses
of approximately $3,300,000, which expire through December 2018. Under Section
382 of the Internal Revenue Code of 1986, as amended, the utilization of prior
net operating loss-carry forwards may be limited due to future changes in stock
ownership. As a result of these temporary differences, the Company has recorded
a deferred tax asset with an offsetting valuation allowance for the same amount.
5) Loss Per Common Share
The Company calculates earnings per share in accordance with Statement of
Financial Standards (SFAS) No. 128, "Earnings Per Share" (EPS), which was issued
in February 1997 and is effective for periods ending after December 15, 1997.
SFAS No. 128 requires dual presentation of basic and diluted EPS on a
retroactive basis. The Company uses the weighted-average number of shares
outstanding during each period to compute basic earnings per share. Diluted
earnings per share are computed using the weighted-average number of common
shares and dilutive potential common shares outstanding. Dilutive potential
common shares are additional common shares assumed to be exercised. The Company
has included in both its common stock outstanding and in the weighted-average
number of shares outstanding, 9,230,000 shares of common stock, which the
Company is obligated, but has not formally issued to shareholders.
6) Use of Estimates
The preparation of the Consolidated 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
reported amounts of revenues and expenses. Actual results could differ from
these estimates.
7) Extraordinary Item - Cancellation of Indebtedness
The Company has recognized extraordinary income on the write-off of certain
outstanding liabilities that prior to December 31, 1994, were recorded as
expenses.
8) Financial Instruments
Financial instruments include cash, receivables, accounts payable, accrued
expenses, and notes payable. The amounts reported for financial instruments are
considered to be reasonable approximations of their fair values, based on
information available to management.
F-7
<PAGE>
9) Stock Compensation
SFAS No. 123, Accounting for Stock Based Compensation, requires companies to
measure employee stock compensation plans based on the fair value method of
accounting. However, the statement allows the alternative use of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
with pro forma disclosures of net income and earnings per share determined as if
the fair value based method had been applied in measuring compensation cost. The
Company has determined it will continue to apply APB Opinion No. 25 in
accounting for its stock option plans.
10) New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1 ("SOP 98-1"), Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 requires all costs related to
the development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998.
In addition, the Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities in June 1998 for years beginning after June
15, 1999. Subsequently, the Board deferred the effective date of this
pronouncement through the issuance of SFAS No. 137.
The Company does not expect that any of the previously mentioned pronouncements
will impact its financial statements.
NOTE C: STOCK OPTION PLAN
The Company adopted a Stock Option Plan [the Option Plan] on May 3, 1993. Under
the Option Plan a maximum of 1,000,000 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 under the Option Plan to employees
(including officers and directors who are employees of the Company or
subsidiaries) 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 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.
No options to purchase shares were issued during the years ended December 31,
1998 and 1997. However, as of the date hereof, options to purchase 1,000,000
shares of Common Stock remain outstanding under the Option Plan at $0.015 per
share that expire in the year 2001.
F-8
<PAGE>
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 are insufficient to continue to meet its obligations. While the Company
continues to pursue alternate courses of action, including searching for
potential merger candidates, there can be no assurance that it will be
successful. The Company has a history of continuing losses and a significant
working capital deficit. There is substantial doubt about the Company's ability
to continue as a going concern.
NOTE E: COMMITMENTS AND CONTINGENCIES
During the past years, the Company has entered into various agreements in
connection with actual and proposed transactions. The Company believes it has no
direct or contingent obligations relative to these matters that are not recorded
in the accompanying financial statements. The Company has no outstanding leases
or employment contracts, nor is it a party to or involved in any legal
proceeding as plaintiff or defendant.
A former officer and director of the Company who resigned in December 1995 has
now presented certain claims of approximately $30,000 dating back to 1993 and
1994 which previously had not been presented and for which the Company denies
all liability.
NOTE F: SUBSEQUENT EVENTS
During 1999, the transaction with Advanced Knowledge Inc. met regulatory
approval and an expense reimbursement receivable of $25,000 was collected. Upon
regulatory approval of the agreement, the 300,000 shares of Advanced Knowledge's
common stock owned by the Company were distributed to the Company's
shareholders, as previously voted by its Board of Directors and pursuant to the
agreement with Advanced Knowledge Inc.
In 1999, liabilities of approximately $26,000 were settled for $10,000; interest
due to an officer in the amount of $14,200 was forgiven by the officer.
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NOTE G: DUE TO OFFICERS
Amounts due to officers are due on demand and bear interest at the rate of 10%
per annum.
NOTE H: NOTES PAYABLE
Notes payable consists of various notes from 1996 and prior. These notes are
payable upon demand with interest ranging up to approximately 10% per annum.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no previously audited reports for the years 1994, 1995, 1996,
1997, and 1998. The Company has retained independent public accountants to
report upon the financial statements for the years 1998 and 1997. This document
is the amended Form 10-K, which includes the opinion of the outside auditors for
these two years.
In their report for 1993, the Company's former 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).
The fee was settled in 1998. There was no disagreement on accounting matters and
financial disclosure.
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 62 Director, President, and Chief
Executive Officer 1996
Richard J. L. Herson 80 Director, Treasurer, Secretary,
Chief Accounting Officer,
Chief Operating Officer 1996
Daniel Herzka 48 Director 1996
Ralph Lanciano III 34 Director 1993
Gary Dornhoefer 53 Director 1993
Julius Cherny, Ph.D., has been president and a director since July 12,
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
the faculty at the NYU Graduate School of Business and was 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., a wholly owned subsidiary of The Translation Group, Ltd. [TTGL],
a Delaware public company. Dr. Cherny was a director of TTGL and resigned in
November 1998.
Richard J. L. Herson has been a director and secretary and treasurer of
the Company since July 12, 1996. He was secretary/treasurer and a director of
TTGL from its inception in July 1995 until February 1, 1996, when he resigned as
secretary and treasurer and was appointed chief accounting officer; he resigned
this position in October 1997 and remains a director. Mr. Herson was previously
a general partner in the firm of Hertz, Herson and Company, CPAs with offices in
New York, Boston, and Charlotte. He is currently secretary of the Bruner
Foundation, where he oversees its investment portfolio. He holds a Bachelor's
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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 was the vice president
for marketing and product management of Linotype-Hell Company from 1993 through
1998. In this position he was 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 Technologies Inc., the inventors of Impostrip, the professional
electronic imposition software, where he served as senior vice president for
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.
Charles D. Cascio was a director and CEO of the Company from 1993 until
July 1996; he owns approximately 9% of its common shares and is currently CEO
and a director of TTGL.
Board of Directors
Each director holds office until the next annual meeting of
stockholders, and 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 and until his successor is elected and qualified. Officers are
elected by the Board of Directors and their terms of office are at the
discretion of the Board. 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. 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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Filing Compliance by Officers and Directors
Timely reports have not been filed by Dr. Julius Cherny (Form 3) and Richard J.
L. Herson (Form 3 and Form 4). These reports are in the process of preparation
and will be filed together with this Form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
The Company has part-time executive officers. There was no compensation paid to
officers in 1998 and 1997. 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.
Name Position Common Shares Owned Percentage
and To Be Issued
Julius Cherny President 2,515,000 8.3
Richard J. L. Herson(5) Sec./Treas. 2,181,850 7.2
Gary Dornhoefer Director 240,000 0.8
Ralph Lanciano Director 800,000 2.7
Daniel Herzka Director 630,000 2.1
All executive officers
and directors as a Group --------- 6,366,850 21.1
Charles D. Cascio --------- 2,735,000 9.0
_____________________
(5) Disclaims control of 2,041,955 common shares owned by corporation in which
adult son is shareholder and 140,000 shares owned by adult daughter.
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The capitalization of EKS, as of December 31, 1998, was as follows:
Title of Class Amount Authorized Currently Outstanding
Common Stock $.001
Par Value Per Share 90,000,000 shares 30,166,069 shares(6)
Preferred Stock $.001
Par Value Per Share 10,000,000 shares None
Stock Option Plan
Reference is made to Note C, Stock Option Plan, for a description of the terms
of the Plan and options granted and outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits (7)
1) Agreement and Plan of Merger and Reorganization between DMA-Radtech, Inc. and
Advanced Knowledge, Inc.
2) Advanced Knowledge, Inc. Form 10-SB, filed January 6, 1999.
Reports on Form 8-K
None.
____________________
(6) Shares issued 20,936,069; to be issued 9,230,000.
(7) Previously Filed.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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: October 25, 1999 By: /s/ Julius Cherny
Julius Cherny, Ph.D., President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following person(s) on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
SIGNATURE CAPACITY DATED
/s/ Julius Cherny President, Director 10/25/99
Julius Cherny
/s/ Richard J. L. Herson Secretary, Treasurer, 10/25/99
Richard J. L. Herson Director
- --------------------- Director ______
Daniel Herzka
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