ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS This Current Report on Form 8-K/A (Amendment No. 1) amends the Current Report on Form 8-K previously filed with the Commission on July 24, 2000, relating to the acquisition of Sterling Media Fund Managers L.L.C., an Oklahoma corporation (the "Registrant" or "Sterling"), by Electro Kinetic Systems, Inc., a Pennsylvania corporation ("EKS") on July 7, 2000. The following documents are included as part of this report: (a) Financial Statements of the Business Acquired. (i) Audited Financial Statements. The following audited financial statements of Sterling are hereby included as part of this report:
Report of Independent Auditors........................................F-1
Balance Sheet as of December 31, 1999.................................F-2
Statement of Operations for the period from inception (April 5, 1999)
to December 31, 1999, ................................................F-3
Statement of Changes in Members' Equity for the period from inception
(April 5, 1999) to December 31, 1999 ...............................F-4
Statement of Cash Flows for the period from inception to (April 5, 1999)
to December 31, 1999 ................................................F-5
Notes to Financial Statements.........................................F-6
(ii) Interim Financial Statements (Unaudited). The following interim financial statements of Sterling are hereby included as part of this report.
Unaudited Interim Balance Sheet as of June 30, 2000.................F-7
Unudited Interim Statement of Operations for the six months ended
June 30, 2000 ......................................................F-8
Unaudited Interim Statement of Changes in Members' Equity for the
six months ended June 30, 2000 .....................................F-9
Unaudited Interim Statement of Cash Flows for the six months ended
June 30, 2000.......................................................F-10
Notes to Unaudited Interim Financial Statements.....................F-11
(b) Pro Forma Financial Information (Unaudited). The pro forma financial statements of the Registrant are hereby included as part of this report:
Unaudited Pro Forma Consolidated Balance Sheet as of June 30,
1999..............................................................PF-1
3
Unaudited Pro Forma Consolidated Statement of Operations for the six
months ended June 30, 2000.......................................PF-2
Notes to Unaudited Pro Forma Consolidated Financial Statements for the
six months ended June 30, 2000 .................................PF-3
(c) Exhibits. None SIGNATURE Pursuant to the requirements 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. Dated: July 28, 2000. STERLING MEDIA FUND MANAGERS L.L.C. By: /s/ Dwight L. Pierce ----------------------------- Dwight L. Pierce, President and Chief Executive Officer 3 4
INDEPENDENT AUDITORS' REPORT To the Board of Managers and Members Sterling Media Fund Managers, L.L.C.We have audited the accompanying balance sheet of Sterling Media Fund Managers, L.L.C. (“SMFM”)(an Oklahoma Limited Liability Company) as of December 31, 1999, and the related statements of operations, changes in members’ equity and cash flows for the period from inception (April 15, 1999) to December 31, 1999. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides 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 SMFM as of December 31, 1999 and the results of its operations and its cash flows for the period from inception (April 15, 1999) to December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ Tullius, Taylor, Sartain and SartainTulsa, OklahomaJuly
27, 2000
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4
5
Sterling Media Fund Managers, L.L.C. Balance Sheet as of December 31, 1999
ASSETS
- ------
Current Assets
Cash in bank $
2,856
Accounts Receivable from Related 88,839
------
Company
Total Current Assets 91,695
------
Non-Current Assets
Notes Receivable from Related Parties 257,147
Accrued Interest Receivable 8,809
Fixed Assets 9,534
-----
Total Non-current Assets 275,490
-------
TOTAL ASSETS
$367,185
=========
LIABILITIES AND MEMBERS' EQUITY
- -----------------------------
LIABILITIES
Current Liabilities
Accounts Payable $
2,146
Advances from Related Company 100,000
Accrued Interest Payable 9,981
Current Portion of Notes Payable 200,000
Convertible Notes Payable 400,000
-------
Total Current Liabilities 712,127
-------
Long-Term Liabilities
Total Long-Term Liabilities 0
-
TOTAL LIABILITIES 712,127
-------
MEMBERS' EQUITY
Membership Interests, 135,000 shares 0
authorized;
110,000 shares issued and outstanding 1,000
Contributed Capital 136,000
Accumulated Deficit (481,942)
---------
TOTAL MEMBERS EQUITY (DEFICIENCY) (344,942)
---------
TOTAL LIABILITIES AND MEMBERS' EQUITY
$367,185
=========
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
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5
6
Sterling Media Fund Managers,L.L.C. Statement ofOperations for the period from inception (April 15,1999) to December 31, 1999
REVENUES
$0
--
TOTAL REVENUES 0
-
EXPENSES
Accrued Officer's 136,000
Compensation
Interest 16,479
Professtional 4,393
Services
Rent 89,782
Other General AND 18,918
Administrative
Payroll and Payroll 44,650
taxes
Telephone 32,274
Travel 148,257
-------
TOTAL EXPENSES 490,753
-------
LOSS FROM OPERATIONS (490,753)
---------
OTHER INCOME (EXPENSE)
Interest Income 8,811
-----
TOTAL OTHER INCOME 8,811
-----
(EXPENSE)
NET LOSS $
(481,942)
===========
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F3
Sterling Media Fund Manager, L.L.C. Statement of Changes in Members' Equity for the period from inception (April 15, 1999) to December 31,1999
ContributeAccumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
Shares of Membership 110,000$1,000 $0 $0 $1,000
Interest
Net Loss 0 0 (481,942) (481,942)
Contributed Services 136,000 136,000
------ -------------------------- --------
Balance at December 110,000$1,000 $136,000 ($481,942)($344,942)
31, 1999
====== ========================== ========
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F4
6
7
Sterling Media Fund Managers,L.L.C. Statement of Cash Flows for the period from inception (April 15, 1999) to December 31, 1999
Cash flows from operating activities:
Net Loss ($481,942)
Adjustments to reconcile net profit/(loss) to net
cash used in operations
Contributed services 136,000
Funds advanced to related entities (345,986)
Accrued interest income (8,809)
Accounts payable and accrued liabilities 12,127
------
Net Cash Provided/(Used) from/in Operations (688,610)
---------
Investing Actiivities
Property and Equipment (9,534)
---------
Net Cash Provided from Investing Activities (9,534)
---------
Financing Activities
Advances from Related Company 100,000
Proceeds from Notes Issued 600,000
Proceeds from issuance of members' interests 1,000
---------
Net cash provided from Financing Activities 701,000
---------
Net increase in cash 2,856
Cash balance - beginning of period 0
---------
Cash balance - end of period $2,856
=========
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F5
Sterling Media Fund Managers, L.L.C.
| | Notes to Financial Statementsfor the period from inception (April 15, 1999) to December 31, 1999 |
NOTE A - Organization
Organization
Sterling Media Fund Managers, L.L.C. ("SMFM" or the "Company") is an Oklahoma Limited Liability Company. It is the General Partner and 1% owner of Sterling Media Investment Group, L.P., ("SMIG") an Oklahoma Limited Partnership. SMIG will act as portfolio manager and funding affiliate for Sterling Media Capital Fund I, L.P. ("SMCF I"), an Oklahoma Limited Partnership. SMCF I is an investment7
8fund capitalized with prepaid broadcast and print media advertising time and space (“Media Credits”). SMIG will use several techniques to employ the media credits to raise funds to invest in various venture capital opportunities. Such techniques may include the sale of certain of the media credits, or issuance of bonded indebtedness secured by the media credits.SMFM will manage the funds so raised and the pool of media credits invested in SMCF I. SMFM will also direct the investment of capital raised by SMIG into venture capital opportunities. SMFM will receive traditional “placement fees” for this activity. Such placement fees are projected at 5-8% of the venture capital investments in the initial year, and 2% per year thereafter. In addition, SMFM will receive a profit participation in all the profits received by SMIG from these investments and from the disposition of any of the media credits.
NOTE B - Summary of Significant Accounting Policies Fiscal Year - ----------- SMFM has adopted the calendar year as its fiscal year.Use of Estimates
The preparation of 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 disclosure during the reporting period. Actual results could differ from those estimates.
NOTE C - Accounts and Notes Receivable
Accounts Receivable from Related Companies
SMFM has funded many of the necessary organization and other related costs for certain related companies.There is no collateral for these advances.The advances are non-interest bearing and have no definite repayment term.
Notes Receivable
Members of the Company’s management have provided services to the Company without compensation. The Company has made advances to these individuals in the amount of $ 257,147 at December 31, 1999. The notes provide for interest at 8% annually on the outstanding balance and are due no later than December 31, 2002. There is no collateral for these advances.
NOTE D - Notes Payable and Convertible Notes Payable
Notes Payable
Part of the initial funding for the Company came from the issuance of Company notes. To date, the Company has issued $200,000 in regular notes. These notes carry an interest rate of 10% per year and are due and payable on August 3, 2000. The notes are collateralized by stock held by one of the principals of the Company. It is anticipated that this note will be extinguished from proceeds received from the sale of additional stock as a part of the pending merger and reorganization (see NOTE H - Subsequent Events for a more complete description of these activities.) Interest of $ 1,433 has been accrued through December 31, 1999. Interest of $6,498 was paid in 1999.
Convertible Notes Payable
The Company borrowed $400,000 under convertible notes payable. These notes accrue interest ranging from 10% to 18%. The notes are due and payable at various times throughout the 2000 and 2001 fiscal years. These notes are collateralized by stock pledged by one of the Company’s principals. These notes contain a conversion feature that allows the note holders to convert their notes into shares of SMFM membership interests. It is expected that the Convertible Note Holders will convert their note positions to equity positions subsequent to the financial statement date. See NOTE H - Subsequent Events, below for a more detailed explanation. Interest of $ 8,548 has been accrued through December 31, 1999.
8
9NOTE E - Members’ Equity
The Company has authorized 135,000 shares of membership interests and has 113,877 shares issued and outstanding. The balance of 21,123 shares are held for the conversion of Convertible Note Holders, Option Holders, and other account payable holders. Options have been issued and are outstanding to allow option holders to purchase a total of 10,093 membership interests at an option price of $100.00 per share.
NOTE F - Income Taxes
As a Limited Liability Company, SMFM is treated as a partnership for federal and state income tax purposes. As required, all items of income, deductions, credits, etc. are allocated among the members and reported by them, individually, on their tax returns. Therefore, no liability for income taxes has been accrued.
NOTE G - Subsequent Events
On July 7, 2000, SMFM underwent a merger with Electro Kinetic Systems, Inc. (“EKS”) resulting in SMFM becoming a wholly owned subsidiary of EKS. Immediately after the merger, EKS changed its name to Sterling Media Capital Group, Inc. (“SMCG”). After the transaction was completed, the former members of SMFM owned approximately 91.5% of the equity and voting rights of EKS and the former stockholders of EKS owned the remaining 8.5%. The acquisition will be accounted for as a purchase of EKS by SMFM.
It is currently contemplated that the shareholders of SMCG will authorize a “reverse-split” to reduce the number of SMCG shares authorized to 17,000,000 shares. After conversion of Convertible Note Holders, Option Holders and others, as discussed below, SMCG will have 17,000,000 shares of common stock issued and outstanding with 15,555,000 of these shares, (91.5%), held by the old shareholders of SMFM and 1,445,000 shares will be held by the old shareholders of EKS.
Current SMFM members will own 13,121,111 shares of SMCG common stock after the exchange and “reverse-split”. It is anticipated that the Convertible Note Holders will exercise their conversion features and receive, in aggregate, 1,155,736 shares of SMCG common stock after the exchange and “reverse-split”. It is anticipated that the Option Holders will exercise their options and receive, in aggregate, 1,162,930 shares of SMCG common stock after the exchange and “reverse-split”. Other account payable holders will receive 115,223 shares of SMCG common in extinguishment of their amounts due.
After the exercise, the Convertible Notes Payable in the amount of $925,000 will become SMCG stockholders’ equity. At the time of exercise, SMCG will receive option proceeds totaling $1,009,300 in cash that is not presently shown in this financial statement.
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9
10F7
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10
11 Sterling Media Fund Managers,L.L.C. Unaudited Interim Balance Sheet as of June 30, 2000
ASSETS
- ------
Current Assets
Cash in bank $
103,056
Accounts receivable from 196,062
-------
related companies
Total Current Assets 299,118
-------
Non-Current Assets
Notes Receivable from Related 341,060
Parties
Accrued Interest Receivable 20,665
Fixed Assets 20,493
Media Credits 2,500,000
---------
Total Non-current Assets 2,882,218
---------
TOTAL ASSETS $
3,181,336
==============
LIABILITIES MEMBERS EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $
77,477
Advances from Related Company 100,000
Accrued Interest Payable 58,315
Current Portion of Notes Payable 200,000
Convertible Notes Payable 900,000
-------
Total Current Liabilities 1,335,792
---------
Long-Term Liabilities
Total Long-Term Liabilities 0
-
TOTAL LIABILITIES 1,335,792
---------
MEMBERS' EQUITY
Membership Interests, 135,000 shares
authorized;
113,877 issued and outstanding 2,501,000
Contributed Capital 232,000
Accumulated Deficit (887,456)
---------
TOTAL MEMBERS EQUITY 1,845,544
---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 3,181,336
==============
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Sterling Media Fund Managers, L.L.C. Unaudited Interim Statement of Operations for the six months ended June 30, 2000
REVENUES
$0
--
TOTAL REVENUES 0
-
EXPENSES
Accrued Officer's Compensation 96,000
Interest 50,500
Professtional Services 12,318
Rent 95,228
Other General and Administrative 33,198
Payroll and Payroll taxes 37,056
Telephone 29,683
Travel 63,441
------
TOTAL EXPENSES 417,424
-------
LOSS FROM OPERATIONS (417,424)
---------
OTHER INCOME (EXPENSE)
Interest Income 11,910
TOTAL OTHER INCOME (EXPENSE) 11,910
------
NET LOSS $
(405,514)
==============
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
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11
12 Sterling Media Fund Manager, L.L.C.Unaudited
Interim Statement of Changes in Members’ Equity
for the six months ended June 30, 2000
ContributeAccumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
Balance at December 110,000 $1,000 $136,000 ($481,942($344,942)
31, 1999
Shares issued for 3,877 2,500,000 2,500,000
assets
Net Loss for the (405,514)(405,514)
Period
Contributed Services 96,000 96,000
------- --------- -------- -------- ---------
Balance at June 30, 113,877 $2,501,000$232,000 ($887,456$1,845,544
2000
======= ========= ======== ======== =========
ACCOMPANYING NOTES ARE IN INTEGRAL PART OF THESE STATEMENTS
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12
13 Sterling Media Fund Managers, L.L.C. Unaudited Interim Statement of Cash Flows for the six months ended June 30, 2000
Cash flows from operating activities:
Net Profit (Loss) ($405,514)
Adjustments to reconcile net profit/(loss) to
net cash used in operations
Contributed Services 96,000
Increase in receivables from related (191,136)
entities
Increase in accounts payable and accrued 123,665
expenses
Increase in accrued interest income (11,856)
--------
Net cash used in operations (388,841)
-----------
Investing Actiivities
Property and Equipment (10,959)
-----------
Net cash used in investing activities (10,959)
-----------
Financing Activities
Proceeds from Notes Issued 500,000
-----------
Net cash provided from Financing Activities 500,000
-----------
Net Cash from activities 100,200
Cash balance - beginning of period 2,856
-----------
Cash balance - end of period $103,056
=========== ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-10 Sterling Media Fund Managers, L.L.C. Notes to Unaudited Interim Financial Statements for the period ended June 30, 2000 NOTE A - Organization Organization - ------------ Sterling Media Fund Managers, L.L.C. ("SMFM" or the "Company") is an Oklahoma Limited Liability Company. It is the General Partner and 1% owner of Sterling Media Investment Group, L.P., ("SMIG") an Oklahoma Limited Partnership. SMIG will act as portfolio manager and funding affiliate for Sterling Media Capital Fund I, L.P. ("SMCF I"), an Oklahoma Limited Partnership. SMCF I is an investment fund capitalized with prepaid broadcast and print media advertising time and space ("Media Credits"). 13 14 SMIG will use several techniques to employ the media credits to raise funds to invest in various venture capital opportunities. Such techniques may include the sale of certain of the media credits, or issuance of bonded indebtedness secured by the media credits. SMFM will manage the funds so raised and the pool of media credits invested in SMCF I. SMFM will also direct the investment of capital raised by SMIG into venture capital opportunities. SMFM will receive traditional "placement fees" for this activity. Such placement fees are projected at 5-8% of the venture capital investments in the initial year, and 2% per year thereafter. In addition, SMFM will receive a profit participation in all the profits received by SMIG from these investments and from the disposition of any of the media credits. NOTE B - Summary of Significant Accounting Policies Fiscal Year - ----------- SMFM has adopted the calendar year as its fiscal year. Interim Financial Information - ----------------------------- In the opinion of management, the accompanying interim financial statements, which have not been audited, reflect all adjustments necessary to present fairly the results for the interim period. All of the accounting adjustments reflected in the accompanying interim financial statements are of a normal recurring nature. These interim financial statements should be read in conjunction with the Company's annual financial statements. The accompanying interim financial statements have been prepared on the accrual basis of accounting in accordance with the accounting principles generally accepted in the United States for interim financial information, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets liabilities as of June 30, 2000 and revenues and expenses for the six month period ended June 30, 2000. Actual results may differ from the estimates and assumptions used. The results of operations for the six months ended June 30, 2000, are not necessarily indicative of the results to be expected for the year ended December 31, 2000. Use of Estimates - ---------------- The preparation of 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 disclosure during the reporting period. Actual results could differ from those estimates. NOTE C - Accounts and Notes Receivable Accounts Receivable from Related Companies - ------------------------------------------ SMFM has funded many of the necessary organization and other related costs for certain related companies. There is no collateral for these advances. The advances are non-interest bearing and have no definite repayment term. Notes Receivable - ----------------- Members of the Company's management have provided services to the Company without compensation. The Company has made advances to these individuals in the amount of $ 341,060 at June 30, 2000. The notes provide for interest at 8% annually on the outstanding balance and are due no later than December 31, 2002. There is no collateral for these advances. NOTE D Media credit trade due bill In June 2000, SMFM issued 3,877 shares of its membership interests for a media credit trade due bill in the amount of $2,500,000. The media credit trade due bill represents a $2,500,000 undivided portion of a 14 15 $10,000,000 credit trade due bill issued in favor of an SMCF I limited partner. The amount of the trade due bill is based on the appraised value of the Media Credits. Media Credit assets have been appraised by Satterfield and Perry, Inc., media brokers, appraisers and consultants based on research and a preliminary evaluation provided by JWT Specialized Communications, a division of J. Walter Thompson Advertising Agency. NOTE E - Notes Payable and Convertible Notes Payable Notes Payable - ------------- Part of the initial funding for the Company came from the issuance of Company notes. To date, the Company has issued $200,000 in regular notes. These notes carry an interest rate of 10% per year and are due and payable on August 3, 2000. The notes are collateralized by stock held by one of the principals of the Company. It is anticipated that this note will be extinguished from proceeds received from the sale of additional stock as a part of the pending merger and reorganization (see NOTE H - Subsequent Events for a more complete description of these activities.) Interest of $ 16,219 has been accrued through June 30, 2000. Convertible Notes Payable - -------------------------- The Company borrowed $900,000 under convertible notes payable. These notes accrue interest ranging from 10% to 18%. The notes are due and payable at various times throughout the 2000 and 2001 fiscal years. These notes are collateralized by stock pledged by one of the Company's principals. These notes contain a conversion feature that allows the note holders to convert their notes into shares of SMFM membership interests. It is expected that the Convertible Note Holders will convert their note positions to equity positions subsequent to the financial statement date. See NOTE H - Subsequent Events, below for a more detailed explanation. Interest of $ 42,096 has been accrued through June 30, 2000. If the Convertible Note Holders exercise their conversion rights, as is expected, $12,279 of this interest amount would no longer be due and payable. NOTE F - Members' Equity The Company has authorized 135,000 shares of membership interests and has 113,877 shares issued and outstanding. The balance of 21,123 shares are held for the conversion of Convertible Note Holders, Option Holders, and other account payable holders. Options have been issued and are outstanding to allow option holders to purchase a total of 10,093 membership interests at an option price of $100.00 per share. NOTE G - Income Taxes As a Limited Liability Company, SMFM is treated as partnership for federal and state income tax purposes. As required, all items of income, deductions, credits, etc. are allocated among the members and reported by them, individually, on their tax returns. Therefore, no liability for income taxes has been accrued. NOTE H - Subsequent Events On July 7, 2000, SMFM underwent a merger with Electro Kinetic Systems, Inc. ("EKS") resulting in SMFM becoming a wholly owned subsidiary of EKS. Immediately after the merger, EKS changed its name to Sterling Media Capital Group, Inc. ("SMCG"). After the transaction was completed, the former 15 16 members of SMFM owned approximately 91.5% of the equity and voting rights of EKS and the former stockholders of EKS owned the remaining 8.5%. The acquisition will be accounted for as a purchase of EKS by SMFM. It is anticipated that the shareholders of SMCG will authorize a "reverse-split" to reduce the number of SMCG shares authorized to 17,000,000 shares. After conversion of Convertible Note Holders, Option Holders and others, as discussed below, SMCG will have 17,000,000 shares of common stock issued and outstanding with 15,555,000 of these shares, (91.5%), held by the old shareholders of SMFM and 1,445,000 shares will be held by the old shareholders of EKS. Current SMFM members will own 13,121,111 shares of SMCG common stock after the exchange and "reverse-split". It is anticipated that the Convertible Note Holders will exercise their conversion features and receive, in aggregate, 1,155,736 shares of SMCG common stock after the exchange and "reverse-split". It is anticipated that the Option Holders will exercise their options and receive, in aggregate, 1,162,930 shares of SMCG common stock after the exchange and "reverse-split". Other account payable holders will receive 115,223 shares of SMCG common in extinguishment of their amounts due. After the exercise, the Convertible Notes Payable in the amount of $925,000 will become SMCG stockholders' equity. At the time of exercise, SMCG will receive option proceeds totaling $1,009,300 in cash that is not presently shown in this financial statement. F-11 THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK 16 17 Sterling Media Fund Managers L.L.C. Unaudited Consolidated Pro-Forma Balance Sheet as of June 30, 2000
PRO FORMA As
SMFM, ADJUSTMENTS Adjusted
------ ----------- ---------
L.L.C.
------
ASSETS
- ------
Current Assets
Cash in bank $103,056 $6,182 (1) $109,238
Accounts receivable from 196,062 196,062
related companies
Subscriptions Receivable 25,000 0 25,000
------- ------
Total Current Assets 324,118 6,182 330,300
-------- ------ -------
Non-Current Assets
NotesReceivable from related 341,060 341,060
parties
Interest Receivable 20,665 20,665
Fixed Assets 20,493 20,493
Media Credits 2,500,000 2,500,000
Goodwill 0 196,317 (1) 196,317
-- -------- -------
Total Non-current Assets 2,882,218 196,317 3,078,535
---------- -------- ---------
TOTAL ASSETS $3,206,336 $202,499 $3,408,835
=========== =========== ============
LIABILITIES AND MEMBERS' EQUITY
- -----------------------------
LIABILITIES
Current Liabilities
Accounts Payable $77,477 $11,345 (1) $88,822
Advances from Related Company 100,000 100,000
Accrued Interest Payable 58,315 58,315
Notes Payable 200,000 200,000
Convertible Notes Payable 925,000 35,000 (1) 960,000
-------- ------- -------
Total Current 1,360,792 46,345 1,407,137
---------- ------- ---------
Liabilities
Long-Term Liabilities
Total Long-Term 0 0 0
-- --
Liabilities
TOTAL LIABILITIES 1,360,792 46,345 1,407,137
---------- ------- ---------
MEMBERS' EQUITY
Membership interests 2,501,000 (2,501,000) (2)
Common Stock 0 2,792,111 (2) 2,792,111
Additional Paid-in-Capital 0 97,043 (2) 97,043
Contributed Capital 232,000 (232,000) (2) 0
Retained Earnings (887,456) 0 (887,456)
--------- ---------
TOTAL SHAREHOLDERS EQUITY (655,456) 2,657,154 2,001,698
--------- ---------- ---------
TOTAL LIABILITIES AND MEMBERS' $705,336 $2,703,499 $3,408,835
EQUITY
=========== =========== ============
(1) - to record the allocation of purchase price to acquired assets and assumed liabilities with the excess recorded asgoodwill. (2) - to remove capital structure for SMFM and record EKS capital ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
1
17
18 Sterling Media Fund Managers L.L.C.Unaudited
Pro Forma Consolidated Statement of Operations
for the six months ended June 30, 2000
SMFM, ADJUSTMENTS
------ -----------
L.L.C. Adjusted
------ --------
REVENUES
$0 $0 $0
--- --- --
TOTAL REVENUES 0 0 0
-- -- -
EXPENSES
Accrued Officer's 96,000 96,000
Compensation
Interest 50,500 44,945 (1) 95,445
Professtional Services 12,318 12,318
Rent 95,228 95,228
Payroll and Payroll taxes 37,056 37,056
Telephone 29,683 29,683
Travel 63,441 63,441
Other General and 33,198 52,016 (2)(1) 85,214
------- -------
Administrative
TOTAL EXPENSES 417,424 96,961 514,385
-------- ------- -------
INCOME (LOSS) FROM OPERATIONS (417,424) (96,961) (514,385)
--------- -------- ---------
OTHER INCOME (EXPENSE)
Interest Income 11,910 11,910
------- ------
TOTAL OTHER INCOME (EXPENSE) 11,910 0 11,910
------- -- ------
NET INCOME (LOSS) $ $ $
(405,514) (96,961) (502,475)
=========== ========= =========
EARNINGS PER SHARE:
Operations ($0.0052) ($0.0013) ($0.0065)
Weighted avg. no. of common 77,362,369 77,362,369 77,362,369
shares
(1) - to consolidate the results of operations of the acquired company. (2) - to record amortization of goodwill. ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS PF-2 THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK 18 19 Sterling Media Fund Managers, L.L.C. Notes to Unaudited Pro Forma Consolidated Statements for the six months ended June 30, 2000 NOTE A - Organization Organization - ------------ On July 7, 2000, Electro Kinetic Systems, Inc. ("EKS") acquired 100% of the outstanding stock of Sterling Media Fund Managers, L.L.C. ("SMFM" or the "Company") in exchange for 91.5% of the outstanding stock, common and preferred, of EKS. NOTE B - Summary of Significant Accounting Policies Principles of Consolidation - --------------------------- The Pro Forma Consolidated Financial Statements include the accounts of EKS and its wholly owned subsidiaries, Israel Imaging Technologies, Inc., Electronic Textbook Corporation, and Medical Compliance Monitoring, Inc. All material intercom any transactions have been eliminated. NOTE C - Business Combination On July 7, 2000, the Company purchased 91.5% of the outstanding stock of Electro Kinetic Systems, Inc., ("EKS") a publicly traded (OTC BB) Pennsylvania corporation. The Company acquired EKS through a reverse acquisition giving up 8.5% of its stock to former EKS shareholders. The 91.5% of EKS acquired was valued at approximately $155,000. The acquisition is being accounted for as a purchase with the purchase price paid allocated over the assets acquired and the liabilities assumed. The excess of the purchase price paid over the assets acquired less the liabilities assumed has been recorded as goodwill in the amount of $ 196,317. Due to the limited going concern value of EKS, this goodwill is being amortized over the next five years resulting in a charge to earnings of approximately $40,000 per year. These statements, prepared on an unaudited pro forma basis, combines the Company's balance sheet and results of operations with EKS's balance sheet and results of operations as if EKS had been acquired at the Company's inception. The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies from combined operations. PF-3 19