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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
COMMISSION FILE NUMBER: 2-85175W
ELECTRO-KINETIC SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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PENNSYLVANIA 22-1954716
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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525 WASHINGTON BLVD.(36TH FLOOR), 07310
JERSEY CITY, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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ISSUER'S TELEPHONE NUMBER 201-216-0100
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 ........................
None
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of 3/24/00 was approximately $2,800,000 (Co. had no operating
revenue 1999 and had negative stockholders' equity at 12/31/99).
Number of shares of Class A Common Stock, no par value, outstanding and to
be issued as of December 31, 1999: 31,287,369
Transitional Small Business Disclosure Format
Yes [ ] No [X]
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TABLE OF CONTENTS
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PAGE
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ITEM 1: Description of Business..................................... 2 - 3
ITEM 2: Description of Property..................................... 3
ITEM 3: Legal Proceedings........................................... 3
ITEM 4: Submission of Matters to a Vote of Security Holders......... 3
ITEM 5: Market of the Registrant's Common Stock and Related
Stockholders' Matters....................................... 3
ITEM 6: Management's Discussion and Analysis of Results of
Operations and Financial Conditions......................... 3 - 4
ITEM 7: Financial Statements Contents............................... 5
Financial Statements and Notes.............................. F-1 - F-8
ITEM 8: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 6
ITEM 9: Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act......................................................... 6 - 7
ITEM 10: Executive Compensation...................................... 7
ITEM 11: Security Ownership of Certain Beneficial Owners and
Management.................................................. 7 - 8
ITEM 12: Certain Relationships and Related Transactions.............. 8
ITEM 13: Exhibits and Reports on Form 8-K............................ 8
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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. The initial public offering
was in 1983. 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 operated as a testing laboratory and production facility. 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 its operations as a
testing laboratory and production facility.
The Company acquired Israel Imaging Technologies, Inc., and its two
affiliates, Electronic Textbook Corporation and Medical Compliance Corp., 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;
operations were accounted for beginning October 1, 1995. The 1995 acquisition of
Israel Imaging Technologies, Inc., gave the Company a 50% equity interest in
Printone Media, Inc. [PM]. PM was a computer-imaging and preprint company
offering graphic arts services in a plant in Jerusalem, Israel. PM was accounted
for as equity in earnings of an unconsolidated affiliate. During 1996, the
Company acquired companies in the field of publishing and then rescinded such
transaction; continued to negotiate in the field of publishing and attempted to
exploit its Israeli facility. The Company was unsuccessful and abandoned its
efforts in the publishing field. PM ceased operations in 1998.
On July 12, 1996, Charles D. Cascio resigned as President, Chief Executive
Officer and Chairman of the Board, and as a Director. 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 included 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 were
unsuccessful. Accordingly, the designs for these decision models have been
returned to the officers.
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 was
distributed
2
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in 1999 to its shareholders of record of June 1, 1998; and the Company received
an additional $25,000 for reimbursement of expenses in connection with this
transaction.
OPERATIONS IN 1999
The Company had no operations in 1999. The Company had extraordinary income
from the settlement of indebtedness as well as from the cancellation of
indebtedness as a result of the running of the statute of limitations on
indebtedness incurred in 1994 and 1995.
EMPLOYEES
The Company has three part-time officers. No salaries were paid in 1999,
1998, and 1997.
RESEARCH AND DEVELOPMENT
As a result of the acquisition of Israel Investment Technologies, Inc. and
two affiliates, in 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. Other research and development have been the
results of the individual efforts of its officers and directors at no expense to
the Company. As stated above, in 1996 and 1997 the officers of the Company made
available at no cost or expense to the Company certain designs and decision
models developed by them. 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
During the period 1997 -- 1999, the Company maintained its office at 270
Rocky Run Road, Glen Gardner, New Jersey. Rent was waived through December 31,
1999. There was no lease. In January 2000, the Company moved its principal
office to 525 Washington Blvd. (36th floor), Jersey City, New Jersey. Currently,
the company pays no rent; there is no lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor involved in any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 1999 has remained in the range of 1.0c
bid and 1.5c 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
1999
There were no operations. The Company recognized gain from consideration
received and deferred, the AK transaction as described above to the extent of
$19,850; and extraordinary income from settlement and cancellation of
indebtedness of approximately $126,000. This consisted of forgiveness of
interest by an officer of approximately $15,000; settlements of indebtedness
below carrying values of $64,000; and the cancellation of recorded liabilities
based on statute of limitations in the amount of $47,000.
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Selling, general, and administrative expenses approximated $12,000 for the
year. These consist of the costs of stock transfer, taxes, bookkeeping, legal
and accounting.
1998
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.
ii) write-off of Equipment for Sale of $9,000.
iii) deferral of part of consideration received on the AK transaction
to the extent of $20,000.
iv) income from cancellation of liabilities in the amount of $36,786,
net of $5,000 payment of prior expenses. (Cancellation of liabilities is
based on statute of limitations for indebtedness incurred prior to March
31, 1995.)
LIQUIDITY AND CAPITAL RESOURCES
1999
The working capital deficit decreased to ($19,565) as of December 31, 1999,
from ($167,072) as of December 31, 1998. This decrease was primarily the result
of settlement and cancellation of indebtedness. Stockholders' deficit decreased
from ($167,072) to ($19,565) as of the same dates.
1998
The working capital deficit decreased to ($167,072) as of December 31,
1998, from ($186,727) as of December 31, 1997. This decrease was primarily the
result of a $25,000 gain on the reverse merger of the Company's subsidiary,
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. New officers were elected in January
2000. The Company is seeking to acquire a revenue-generating business or
conclude a business combination with potential candidates; there is no assurance
of success in these endeavors.
OTHER
The Company was not impacted by the Year 2000 issue.
Inflation has not been a factor in the Company's results of operations.
4
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ITEM 7. FINANCIAL STATEMENTS
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Accountants' Report......................................... F-a
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-1
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998................................ F-2
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998................................ F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998............ F-4
Notes to Consolidated Financial Statements.................. F-5 - F-8
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[WISS & COMPANY, LLP LOGO]
To the Board of Dirctors and Stockholders of
Electro-Kinetic Systems, Inc.
We have audited the consolidated balance sheets of Electro-Kinetic Systems, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Electro-Kinetic
Systems, Inc. and subsidiaries at December 31, 1999 and 1998, 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 E 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 E.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
WISS & COMPANY, LLP
Livingston, New Jersey
March 14, 2000
[L O G O]
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ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31,
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1999 1998
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(UNAUDITED)
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ASSETS
Current assets:
Cash...................................................... $ 611 $ 4,065
Receivable................................................ 2,000 25,000
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Total current assets........................................ 2,611 29,065
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Total assets................................................ $ 2,611 $ 29,065
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable & accrued expenses....................... $ 22,176 $ 64,126
Notes payable............................................. -- 35,828
Due to officers........................................... -- 76,183
Deferred income........................................... -- 20,000
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Total current liabilities................................... 22,176 196,137
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Stockholders'equity
Preferred shares, no par value authorized 10,000,000 -- --
shares; no shares issued...............................
Class "A" common shares, no par value 3,452,521 3,441,308
authorized -- 90,000,000 shares; issued 31,287,369 in 1999
and 30,166,069 in 1998....................................
Additional paid-in-capital................................ 52,293 52,293
Accumulated deficit....................................... (3,524,379) (3,660,673)
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Total stockholders' equity (deficit)........................ (19,565) (167,072)
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Total liabilities and stockholders' equity.................. $ 2,611 $ 29,065
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See accompanying Notes to Consolidated Financial Statements
F-1
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ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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FOR THE YEAR ENDED
DECEMBER 31,
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1999 1998
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Selling, general and administrative expenses................ $ 11,869 $ 7,161
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Other income (expenses)
Miscellaneous............................................. 2,000 --
Interest expense.......................................... -- (9,200)
Gain on sale of subsidiary................................ 19,850 14,640
Write down of assets...................................... -- (9,300)
Impairment of investments in subsidiaries & affiliates.... -- (127,115)
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Total.................................................. $ 21,850 $ 130,975
Profit (loss) before extraordinary income................... 9,981 (138,136)
Extraordinary income:
cancellation & settlement of debt......................... 126,313 30,376
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Net profit (loss) for the year.............................. $ 136,294 $ (107,760)
========== ==========
Earnings per share
Operations................................................ -- (0.005)
Extraordinary............................................. 0.004 0.001
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Income (loss) per share (basic and diluted)................. $ 0.004 $ (0.004)
========== ==========
Weighted average number of common shares outstanding........ 30,676,719 30,166,069
========== ==========
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See accompanying Notes to Consolidated Financial Statements
F-2
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ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE YEAR ENDED
DECEMBER 31,
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1999 1998
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Cash flows from operating activities:
Net profit (loss)......................................... $ 136,294 $(107,760)
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Adjustments to reconcile net profit (loss) to net cash
used in operations:
Extraordinary (non-cash) income........................ (126,313) (36,876)
Deferred income........................................ (20,000) 20,000
Accounts receivable.................................... 23,000 (25,000)
Cash used to reduce indebtedness
Accounts payable & accrued expenses.................. (10,935) 3,179
Officer's loan....................................... (8,000) --
Impairment of assets................................... -- 136,415
Accrual of interest.................................... -- 9,200
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Total adjustments........................................... (142,248) 106,918
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Net cash from activities.................................... (5,954) (842)
Cash flows from financing: officer's loan................... 2,500 3,402
Net (decrease) increase in cash............................. (3,454) 2,560
Cash -- beginning of the year............................... 4,065 1,505
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Cash -- end of the year..................................... $ 611 $ 4,065
========= =========
Supplemental cash flow information: there was no cash paid
for interest or income taxes. Stock was issued in payment
of creditors in the amount of $8,713 and in payment of
officer's loan in the amount of $2,500.
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
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ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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CLASS A COMMON STOCK
----------------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT PAID IN CAPITAL DEFICIT TOTAL
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BALANCE AT JANUARY 1, 1998.... 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)
Debt settled for stock........ 1,121,300 11,213 11,213
Net profit for 1999........... -- -- -- 136,294 136,294
---------- ---------- ------- ----------- ---------
BALANCE AT DECEMBER 31,
1999........................ 31,287,369 $3,452,527 $52,293 $(3,524,379) $ (19,565)
========== ========== ======= =========== =========
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See accompanying Notes to Consolidated Financial Statements
F-4
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ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
NOTE A: THE COMPANY
Electro-Kinetic Systems, Inc. was formed on April 24, 1972, under the laws
of the State of Pennsylvania. Its corporate office currently is located in
Jersey City, New Jersey.
The Company ceased operations as a laboratory and production facility in
March 1995 and failed in its subsequent efforts to exploit its various business
opportunities: magazine and electronic textbook 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, are 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, 1999 include the
accounts of the Company and its wholly owned subsidiaries, Israel Imaging
Technologies, Inc., Electronic Textbook Corporation, and Medical Compliance
Monitoring, Inc.
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
DMA-Radtech, Inc. (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. 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.
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 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.
The acquisition of Israel Imaging Technology, Inc. gave the Company an
effective 50% ownership interest in Printone Media, an Israeli Corporation.
Operations were accounted for as equity in an unconsolidated affiliate. In 1998
the Company has reviewed the operations of its subsidiaries and its 50%
ownership interest in Printone Media and determined that this investment was
impaired. Accordingly, the Company has recorded a charge to operations of
$127,115 for the year ended December 31, 1998, since it was anticipated that it
would not produce future revenues. PM ceased operations in 1999.
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
F-5
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ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a reverse merger, with AK as the surviving company. The 300,000 AK common shares
were distributed in 1999 to EKS shareholders of record as at June 1998 pursuant
to the agreement with AK.
3) Revenue Recognition
The Company did not have operating revenues during the years ended December
31, 1999 and 1998.
In 1999 the Company recognized extraordinary income on the settlement and
write-off of certain outstanding liabilities that were recorded as liabilities
prior to July 1, 1995, and for 1998, prior to December 31, 1994.
4) Income Taxes
The Parent Company and its subsidiaries have combined tax carry forward
losses of approximately $2,500,000, 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 in the event of future
changes in stock ownership. As a result of uncertainty of realization of the
benefits of the tax carryforward loss, the Company has recorded a deferred tax
asset with an offsetting valuation allowance for the same amount.
5) Distributions to Shareholders
In 1999, as noted above, the Company distributed 300,000 common shares of
AK to its shareholders of record as of June 1998. Such shares had a zero cost
basis to the Company, and there was no market in 1998 for such shares when the
agreement with AK to distribute such shares was made.
6) Income 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. There was no dilutive
effect.
7) 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.
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.
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
F-6
<PAGE> 14
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 plan.
10) New Accounting Pronouncements
Recent Accounting Pronouncements (SOP98-1 and SFAS no. 133) will not impact
the Company's financial statements.
NOTE C: SUBSEQUENT EVENTS
All directors with the exception of Richard J.L. Herson resigned during the
year 1999. In February 2000, new directors were appointed and new officers were
elected at the subsequent meeting of the new board. The board consists of
Raymond Burke, Robert Geber, and Richard J. L. Herson. The new management team
includes Mr. Burke as President and CEO, Mr. Geber and Mr. Herson as Vice
Presidents. In line with the new management team's goal to create value for the
shareholders, which includes raising capital, acquiring a revenue-generating
business or arranging a business combination, new loans in the amount of $20,000
were pledged and subsequently received. The loans are evidenced by two-year
convertible notes, interest at 6% per annum, convertible to shares of common
stock at a price of half a cent per share.
At the same meeting 2,500,000 stock options were granted to Raymond Burke
at a price of one cent per share for an option period of five years.
NOTE D: 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 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, 1999 and 1998. In 1996, a fully vested five-year option to purchase
1,000,000 shares of Common Stock at $0.01 per share was issued; this option
expires in 2001. Also, see Subsequent Events (above) in which 2,500,000 shares
were granted at $0.01 a share to the new president.
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.
F-7
<PAGE> 15
ELECTRO-KINETIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 E: GOING CONCERN
During the last seven years, the Company's financial position has reflected
a significant shortage of working capital and declines in book value. While the
Company has temporarily arranged for the financing of its immediate obligations,
additional funds will be required in order to implement its goals. If the
Company is unsuccessful in its current courses of action and/or the raising of
additional capital, there is substantial doubt about the Company's ability to
continue as a going concern.
NOTE F: 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.
NOTE G: EXTRAORDINARY INCOME
In 1999 the Company recognized extraordinary income on the settlement and
write-off of certain outstanding liabilities that were recorded as liabilities
prior to July 1, 1995.
<TABLE>
<S> <C> <C>
Due to officer 12/31/98................................. $76,183
-------
less forgiveness of interest............................ $14,700 $ 14,700
cash settlement......................................... 8,000 $ 53,483
-------
cash settlement with creditor below
carrying value........................................ $ 11,075
statute of limitations
notes payable......................................... $ 35,828
accounts payable...................................... $ 11,227
--------
TOTAL................................................... $126,313
--------
</TABLE>
F-8
<PAGE> 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Wiss and Company has rendered its report for the years 1997 and 1998, and
their report for the year 1999 is included in this Form 10-KSB. There are no
disagreements with auditors on accounting matters and financial disclosure.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A)OF THE EXCHANGE ACT
Prior directors except Herson resigned in 1999. At a meeting in February
2000, two new directors were invited to the Board. Set forth below is certain
information regarding the current executive officers and directors of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
- ---- --- -------- -----
<S> <C> <C> <C>
Raymond L. Burke..................... 57 President, Treasurer, and Chief Executive January 2000
Officer; Director
Robert Geber......................... 63 Vice President and Secretary; Director January 2000
Richard J. L. Herson................. 81 Vice President and Assistant Secretary; 1996
Director
</TABLE>
Mr. Raymond L. Burke is currently President, CEO, and Director of Allison
Investment Corp. of Jersey City, New Jersey, a Merchant Bank. Mr. Burke has
spent much of his professional career in acquiring and rehabilitating companies
in a variety of industries. Mr. Burke was President of American Graphic
Industries, Inc. (AGI). In 1997, AGI filed for Chapter XI protection. After
reorganization, AGI merged with a fully integrated successful chocolate company.
Mr. Burke became associated with Horowitz/Rae Book Manufacturing in 1993. Mr.
Burke was Chairman and CEO of this multi-million-dollar book manufacturer. The
company filed a Chapter XI petition shortly after acquisition, was refinanced,
rehabilitated, and emerged from bankruptcy approximately one year later. Mr.
Burke also served as President and Director of North American Energy of
Delaware. This company was a dormant public entity which also filed a Chapter XI
petition. North American emerged from bankruptcy in less than nine months and
merged with a multi-million-dollar electronics firm. Mr. Burke has held his
current positions in Allison Investment since 1998.
Mr. Robert Geber is presently the Chief Operating Officer and a Director of
Environmental Asset Management, Inc., a New Jersey-based environmental holding
company, and its subsidiaries. Prior to this he was retained by the Savino
Group, a Waste Management Company, as Assistant Chief Operating Officer. Mr.
Geber started his career at Alexanders, Inc., a 500-million-dollar company,
where he rose to the position of Senior Operating Officer. After leaving
Alexanders in 1990, Mr. Geber became Chief Operating Officer and a Director of
Temco Corp., a public company in the commercial maintenance business. In 1993,
Mr. Geber became a Director and Executive Officer in a multi-million-dollar
book-binding and printing company. Currently, Mr. Geber is an officer and a
Director of Environmental Asset Management, a position he assumed in 1998.
Richard J. L. Herson was a Director and Secretary and Treasurer of the
Company since July 12, 1996 and is now Vice President and Assistant Secretary.
He was Secretary/Treasurer and a Director of The Translation Group, Limited,
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
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.
Charles D. Cascio was a Director and CEO of the Company from 1993 until
July 1996; he owns approximately 9% of its common shares; he is currently an
officer and a Director of The Translation Group Limited, a public company listed
on the Bulletin Board. Dr. Julius Cherny was President and Director from 1996 to
1999 and owns approximately 8% of the common shares.
6
<PAGE> 17
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 three 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 Mr. Geber. 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 and Options Committee consists of
Mr. Burke and Mr. Geber. The Compensation and Options Committee will make
recommendations to the Board of Directors concerning compensation for executive
officers and consultants of the Company and will make recommendations for stock
options under the Company's incentive stock option.
ITEM 10. EXECUTIVE COMPENSATION
The Company has three part-time executive officers. There was no
compensation paid to officers in 1999 and 1998. 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.
<TABLE>
<CAPTION>
COMMON SHARES
OWNED AND
NAME(1) POSITION TO BE ISSUED PERCENTAGE
- ------- -------- ------------- ----------
<S> <C> <C> <C>
Ray Burke(2)............................ Pres., Treas., CEO, & Dir. 2,500,000 7.4
Robert Geber............................ V.P., Sec., & Dir. no shares
Richard J. L. Herson(3)................. V.P., Ass't Sec., & Dir. 2,431,850 7.4
Jonathan Herson(4)...................... -- 2,041,955 6.2
Charles D. Cascio(5).................... -- 3,735,000 11.6
Julius Cherny........................... -- 2,515,000 8.0
All executive officers and directors.... 4,931,850 14.6
</TABLE>
- ---------------
(1) Use address of Company.
(2) Denotes shares which Mr. Burke has the right to acquire upon exercise of
stock options which are exercisable within sixty days.
(3) In addition, there are 140,000 shares owned by adult daughter.
(4) Adult son of Richard J. L. Herson, owns these shares through a wholly owned
corporation.
(5) Includes 1,000,000 shares of common stock exercisable at $0.01 per share
under a five-year option to purchase said common stock. The option expires
in 2001.
7
<PAGE> 18
Section 16(a). Beneficial Ownership Compliance Reporting:
Richard J. L. Herson, an officer and director, failed to file Forms 3
and 4 on a timely basis for shares purchased and for shares that the
corporation was obligated to issue in prior years. Julius Cherny, former
president and former director, failed to file Form 3 on a timely basis for
shares the corporation was obligated to issue in prior years. These reports
have been filed with the Commission in March 2000, prior to the filing of
this Form 10K for the year 1999.
The capitalization of EKS, as of December 31, 1999, was as follows:
<TABLE>
<CAPTION>
TITLE OF CLASS AMOUNT AUTHORIZED ISSUED
- -------------- ----------------- ------
<S> <C> <C>
Common Stock No Par Value Per Share..... 90,000,000 shares 31,287,369 shares
Preferred Stock No Par Value Per 10,000,000 shares None
Share.................................
</TABLE>
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
None.
REPORTS ON FORM 8-K
None.
8
<PAGE> 19
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:
- -------------------------------
---------------------------------------------------------
Raymond L. Burke, 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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATED
- --------- -------- -----
<S> <C> <C>
President, Treasurer, & CEO; --------------
- --------------------------------------------------- Director
Raymond L. Burke
Vice President & Secretary; --------------
- --------------------------------------------------- Director
Robert Geber
Vice President & Assistant --------------
- --------------------------------------------------- Secretary; Director
Richard J. L. Herson
</TABLE>
9
