UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 26, 1999.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 0-7207
National Micronetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 14-1507019
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1128, Kingston, New York 12402
678 Aaron Court, Kingston, New York 12401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 338-0333
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
Indicate by check mark whether the registrant (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
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in this Form 10-K or any amendment to
this Form 10-K.
The aggregate market value of the Common Stock held by non-affiliates as of
September 7, 1999 was $20,000. For purposes of determining this number all
officers and directors of the registrant are considered to be affiliates of
the registrant. This number is provided only for the purposes of this report
on Form 10-K and does not represent an admission by either the registrant or
any such person as to the status of such person.
As of September 7, 1999, the registrant had 22,312,524 shares of Common Stock
issued and outstanding.
Index to Exhibits is on sequential page No. 56. Total pages 64.
PART I
Item 1. Business
National Micronetics, Inc. (the "Company") was originally incorporated in
1969 in New York and reincorporated in Delaware in 1982. On December 24,
1990, Newmax Co., Ltd. ("Newmax") acquired a controlling interest (50.9%) in
the Company through the purchase of common stock. Newmax, a Korean
corporation, is affiliated with Tae Il Media Co., Ltd. ("Tae Il") which had
been a significant customer of the Company. The Company historically had
operated exclusively in the magnetic recording head industry.
In reliance primarily upon assembly facilities owned and operated by its
parent company, Newmax, sales revenue attributable to its parent companies
and debt financing supplied or guaranteed by its parent companies or its
affiliated companies between May 10, 1991 and September 1997, the Company had
been principally an integrated manufacturer of magnetic recording heads
primarily for computer disk drives. The Company had been performing pilot
projects concerning ferrite bars, cores and recording head assemblies. The
Company on March 10, 1999 sold the building in which it had installed a
sealed lead acid battery manufacturing line and simultaneously disposed of
the equipment for the purpose, because of a lack of funding mainly due to
the debt restructuring of both Tae Il and Newmax.
On December 1, 1998, the board of directors of the Company adopted a
resolution to approve the dissolution of the Company and the Stockholders
voted to approve the proposed dissolution at the annual meeting of
stockholders of the Company on February 26, 1999. Since then, the Company
has been in process of liquidation pursuant to its plan of complete
liquidation. The Company was dissolved on September 20, 1999 in the State
of Delaware.
Sales and Customers
The Company's computer products had been sold to original equipment
manufacturers. Because product life cycles for computer products are
relatively short, sales in one period were not necessarily indicative of
future sales. At any given time, the Company was likely to be dependent on
sales of specific computer products to specific customers. Please refer to
note 8 to the consolidated financial statements on page 50 for an analysis
of export sales of computer products, exports of which comprised 100% of net
sales in fiscal 1998.
The past sales and customers of the Company will not be indicative of its
future sales and customers, since the Company has sold all of its operating
assets pursuant to its plan of complete liquidation and has been dissolved
pursuant to Delaware law. The Company has cancelled its plans for selling
sealed lead acid batteries due to lack of funds.
In the period from December 2, 1998 to June 26, 1999, the Company has been
liquidating its assets and liabilities, so it has had no customers or sales.
In the period from June 28, 1998 to December 1, 1998, the Company had no
customers or sales. See footnote 8 on page 50 for a summary of major
customers and footnote 9 to the consolidated financial statements on pages
50 to 51 for a discussion of related party transactions.
Backlog
There were no backlog at December 1, 1998 or June 27, 1998.
Competition
The Company on December 1, 1998 terminated its plan to enter the sealed lead
acid battery market due to a lack of working capital from affiliated
companies. The Company sold the building which it had modified for that
purpose on March 10, 1999 in order to avoid foreclosure of a mortgage secured
by that building. The Company adopted a plan of complete liquidation on
December 1, 1998, because the Company could not compete in the sealed lead
acid battery business without working capital from its affiliated companies,
which currently are subject to Korean judicial proceedings pursuant to which
moratoriums deferring payment of their creditors have been granted after
approval by creditors as to Tae Il Media Co., Ltd. by the Suwon District
court on September 4, 1998 and as to Newmax Co., Ltd. by the Cheongju
District Court on September 15, 1998.
Research, Development and Engineering
During the five-month period ended December 1, 1998 and fiscal year 1998 the
Company spent approximately $81,000 and $81,000, respectively, in connection
with continuing engineering and product development of computer related
products. Research and engineering efforts during this period had been
directed toward the enhancement of its floppy disk drive and tape drive
recording head products.
Employees
At June 26, 1999 the Company actively employed 4 persons working five days
per week.
Environmental Compliance
The material effects that compliance with federal, state and local provisions
that have been enacted or adopted regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment
upon the future capital expenditures or earnings of the Company are described
in Item 3, Legal Proceedings.
Item 2. Properties
The Company's corporate offices have been relocated to 678 Aaron Court,
Kingston, New York from their original site at 71 Smith Avenue, Kingston, New
York, 12401. The Company's operations had been conducted from 83,000 square
feet of facilities located in Kingston, New York, had been owned by the
Company, and mortgaged to an institutional lender to secure a term loan note
which matured in November 1997 and was satisfied on March 10, 1999 when the
building was sold to the City of New York. In addition, the Company had owned
a vacant building totalling 37,000 square feet, which the Company sold on
September 14, 1999, and part of a parking lot which the Company expects to
sell during the next few months.
Item 3. Legal Proceedings
The Company is a defendant in a lawsuit brought about as the result of an
accident involving a Company automobile. The lawsuit was commenced by John
Conklin and Nancy Conklin against the Company on October 15, 1997 and against
Mr. Montgomery Lee in the Supreme Court for the State of New York for the
County of New York and claims damages aggregating $7,700,000 in regard to an
accident involving a car leased by the Company. Mr. Montgomery Lee is the
son of Dr. Heehwan Lee, a director and the vice president of operations of
the Company. The Company's insurer has assumed responsibility and is
defending the Company; however, the damages claimed exceed the $300,000
policy limits. The Company has filed an answer and is cooperating with
discovery. Depositions have not been rescheduled at this time. After
consulting with counsel, the Company has determined that it is not possible
at this time to estimate the amount of damage, if any, that may ultimately
be incurred. Accordingly, no provision has been made in the financial
statements of the Company.
The Company has been notified it is one of many potentially responsible
parties ("PRP's") for an Environmental Protection Agency ("EPA") Superfund
site. A "PRP" may be jointly and severally liable for clean-up of a
Superfund site, except to the extent of any settlement agreement with the
Environmental Protection Agency.
The site is known as the Solvents Recovery Service of New England Superfund
site and is located on Lazy Lane in Southington, Connecticut. The Company
was notified by the EPA on June 12, 1992 that it was considered to be a PRP
under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) with respect to the above referenced site. The EPA has
identified in excess of 1,600 PRP's for this site.
The EPA has indicated it has incurred costs in excess of $3.35 million but
has not as yet completed a remedial action plan. The EPA is not prepared at
this time to estimate the total cost of remedial action. Two Non-Time
Critical Removal Actions have been undertaken by the PRP's with EPA
approval.
The actions undertaken to date are designed to help limit further
environmental damage and to obtain data to better understand the extent of
damage. Additional treatment will be based upon analysis of data obtained.
The Company has paid its allocated share of these costs.
The Company is currently unable to predict the outcome of this matter as the
total cost of remedial action has not been determined and the method of
allocation of liability among all parties who may ultimately be found liable
remains uncertain.
Item 4. Submission of Matters to a Vote of Security Holders
The last annual meeting of stockholders of the Company was held on February
26, 1999, as reported in Item 4 of the Quarterly Report on Form 10-Q dated
May 5, 1999 of the Company. Since that date, no actions have been taken by
written consent of stockholders and no meetings of stockholders have been
held.
PART II
Item 5. Market for Company's Common Stock and Related Stockholder Matters
(a). Price Range of Common Stock
There is no established public trading market for the common stock of the
Company. The Company's Common Stock is traded on the OTC Bulletin Board and
pink sheets. The following table sets forth for the periods indicated the
bid prices of the Company's Common Stock as reported by market makers.
Over-the-counter market quotations reflect inter-dealer prices, without
retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Fiscal Year (ending in June) High Low
1999
First Quarter $ .003 $ .003
Second Quarter .003 .003
Third Quarter .004 .004
Fourth Quarter .003 .002
1998
First Quarter .002 .002
Second Quarter .002 .002
Third Quarter .005 .002
Fourth Quarter .005 .002
The plan of complete liquidation of the Company provides that the transfer
books of the Company will be closed upon the filing of the certificate of
dissolution of the Company with the Secretary of State of the State of
Delaware on September 20, 1999. Only transfers required by applicable law
will be effectuated.
(b). Approximate Number of Equity Security Holders
The approximate number of holders of record of the Company's common stock as
of June 26, 1999 was 2,500. Furthermore, the Company on February 5, 1999
informed holders of its common stock that there will be no distribution in
liquidation, that the Company will not have any cash or other assets
remaining to distribute to stockholders after satisfaction of some to its
liabilities, and that stockholders will not receive any proceeds from the
sales of the property and assets of the Company, because the debts of the
Company far exceed the fair market value to its assets.
(c). Dividends
The Company has not paid any cash dividends on its Common Stock. Due in part
to the working capital deficiency and the stockholders' deficiency, the
Company does not anticipate paying dividends for the foreseeable future.
Furthermore, the Company on February 5, 1999 informed holders of its common
stock that there will be no distribution in liquidation, that the Company
will not have any cash or other assets remaining to distribute to
stockholders after satisfaction of some of its liabilities, and that
stockholders will not receive any proceeds from the sales of the property and
assets of the Company, because the debts of the Company far exceed the fair
market value of its assets.
(d). No Sales of Unregistered Equity Securities
Within the fiscal year ended June 26, 1999 and thereafter, the Company has
not sold any equity securities which were not registered under the Securities
Act of 1933, as amended.
Item 6. Selected Financial Data
Selected Consolidated Statement of Operations Data
(in thousands, except per share amounts)
5 Months
Ended
Dec. 1, Year Ended in June
1998 1998 1997 1996 1995
Net sales $ - $ 73 $ 2,682 $ 4,151 $ 3,822
Cost of products sold 245 803 2,556 3,605 3,849
Gross profit (loss) (245) (735) 126 546 ( 27)
Research, development
and engineering expense 31 81 209 231 259
Selling and administration
expense 98 314 489 849 712
Loss before income taxes ( 595) (1,599) (1,267) (1,336) (1,599)
Net loss ( 595) (1,599) (1,267) (1,336) (1,599)
Net loss per common share $ (0.02) $ (0.07) $(0.06) $ (0.06) $ (0.07)
Weighted average shares
outstanding 22,313 22,313 22,313 22,313 22,313
Cash dividends - - - - -
Selected Consolidated Balance Sheet Data
(in thousands)
5 Months
Ended
Dec. 1, Fiscal Year End in June
1998 1998 1997 1996 1995
Working capital
deficiency $(12,843) $(12,584) $(11,431) $(11,069) $(10,806)
Total assets 2,635 2,807 2,977 4,817 5,400
Long-term debt and lease
obligations, including
current portion 1,419 1,420 4,191 4,363 4,626
Stockholders' deficiency (10,232) (9,819) (8,655) (7,933) (7,059)
Comparable statement of operations data for the seven-month period commencing
December 1, 1998 and comparable balance sheet data as of the end of the
seven-month period commencing December 1, 1998 and ended June 26, 1999 is not
available due to the change by the Company from the going concern basis of
accounting to the liquidation basis of accounting on December 1, 1998.
Significant Changes in Operating Results and Assets
The reasons for the significant changes in net sales and gross profit margin,
the significant net losses and the decline in assets are discussed at
"Managements's Discussion and Analysis of Financial Condition, and Results
of Operations" on pages 8 to 11.
Working Capital Deficiency
The reasons that had enabled the Company to operate until December 1, 1998
with a working capital deficiency are discussed in "Liquidity and Capital
Resources" on pages 11 to 13.
Lack of Comparability of Financial Data
The decision to liquidate and to dissolve the Company on December 1, 1998 and
the utilization of the liquidation basis of accounting after December 1,
1998, rather than the going concern basis of accounting which had been used
prior to December 1, 1998, makes the financial information prior to December
1, 1998 of questionable comparability with the financial information after
December 1, 1998. Therefore, the Company has omitted Financial information
after December 1, 1998 from the Selected Consolidated Statement of Operations
Data and has omitted financial information after December 1, 1998 from the
Selected Consolidated Balance Sheet Data. The lack of any sales of computer
products during the last two years make the financial information for the
three fiscal years ended June 28, 1997 of questionable comparability with the
financial information for the fiscal year ended June 17, 1998 and the
five-month period ended December 1, 1998.
Lack of Predictability and Material Uncertainties
The decision of the Company on December 1, 1998 to terminate all business
operations, rather than to commence production and sales of sealed lead acid
batteries, the sale by the Company to the City of New York on March 10, 1999
of the facility where sealed lead acid battery manufacturing equipment had
been installed and the sale by the Company on September 14, 1999 of its
remaining industrial building materially cause the information reflected in
"SELECTED FINANCIAL DATE" on pages 6 to 7 not to be indicative of the
Company's future financial condition and are material uncertainties which
make the financial information for the four fiscal years ended June 27, 1998
and the five-month period ended December 1, 1998 not to be indicative of the
future financial condition of the Company.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fiscal 1995 saw a continuation of the trend established during the second
half of fiscal 1994. There was a significant lay-off in September 1994 as
the demand for finished floppy recording head bars dropped dramatically. At
that time, the Company began shipping unfinished floppy disc recording head
bars which were less labor intensive and had a higher profit margin. The
lower selling price resulting from a lower labor and overhead content of the
product being sold resulted in a significant reduction in sales for fiscal
1995. There was some improvement in sales to unrelated parties of ferrite
based products made to customers' specifications.
Fiscal 1996 began with significant sales of ferrite products to unrelated
parties. This business began to decline mid-year as orders were completed
and not replaced with new orders. There was an increase in related party
orders for ferrite products in the fourth quarter as well as increased sales
of non-ferrite products to unrelated parties. Employment remained consistent
throughout the year and the Company achieved a positive gross profit margin
for the year. This was the first positive gross profit in over five years.
Fiscal 1997 has sales of non-ferrite products to unrelated parties only in
the first quarter. The vast majority of sales for the year were unfinished
floppy disc recording head products sold to related parties (Newmax). The
gross profit margin remained positive for the second year in a row even
though sales declined by 35%. By the fourth quarter, sales declined
significantly and most employees were working a reduced number of hours at
reduced pay. Significant effort was devoted to consolidating remaining
operations to a reduced square footage to make room for the battery
manufacturing line.
Fiscal 1998 began with the installation of the battery manufacturing line
with equipment consigned from a related party, and the production of
recording head products was suspended. Consequently, revenues from recording
head products ceased, so obligations to its primary institutional lender
could not be satisfied by the Company and funds had to be borrowed from
related companies or had to be obtained from the disposal of equipment, since
no revenues were realized from the as yet non-operational sealed lead acid
battery manufacturing line. The installation was completed in November 1997,
but the Company could not proceed with the manufacturing operation due to the
discontinuation of the funding from a related party.
Fiscal 1999
Fiscal 1999 left the Company in worse financial condition than prior fiscal
years, because the affiliated and related companies which had provided
financial support to the Company in the past drastically curtailed that
financial support after December 1, 1998 and the primary lending institution
of the Company forced the Company to dispose of its most valuable real estate
in order to avoid foreclosure of its mortgage. The board of directors of the
Company on December 1, 1998 decided to liquidate the assets of the Company
and to dissolve the Company after stockholder approval was obtained on
February 26, 1999. Efforts to commence sealed lead acid battery operations
ceased on December 1, 1998, when the Company changed from the going concern
basis of accounting, and the equipment belonging to a related company to be
used by the Company for its sealed lead acid battery operations was disposed
of. The sale of the 83,000 square foot facility in Kingston, New York by the
Company to the City of New York for $2,400,000 enabled the Company to satisfy
its term loan note secured by a mortgage on the real estate of the Company
and to pay certain other liabilities. In part as a result of that sale and
satisfaction of that mortgage, total current liabilities were reduced from
$12,626,000 on June 27, 1998 to $11,041,000 on June 26, 1999, but total
assets were reduced from $2,807,000 on June 27, 1998 to $174,000 on June 26,
1999.
Fiscal Year Ended June 26, 1999 ("1999")
Compared to
Fiscal Year Ended June 27, 1998 ("1998")
Net Sales.
The Company's net sales decreased by $73,000 or 100% from 1998. The decrease
is due to the suspension of sales of recording head products, which caused
a decline in sales to Newmax of $73,000.
Gross Profit.
Gross profit, as a percentage of sales, declined dramatically. This decline
in performance is due to no sales combined with the inability to further
reduce significant overhead items such as electricity, real estate taxes, and
etc.
Research, Development and Engineering.
Research, development and engineering ("R&D"), as a percentage of sales,
increased 1999. This is due to no sales for the fiscal year.
Selling and Administration.
Selling and administration expenses ("S&A"), as a percent of sales, increased
in 1999. The increase in S&A as a percent of sales is due to no sale for the
fiscal year.
Interest Expense.
Interest expense decreased by $434,000 from 1998 to 1999. This is due to
payment of the Company's mortgage debt.
Total Assets.
Total assets reduced by $2,633,000 from $2,807,000 on June 27, 1998 to
$174,000 on June 26, 1999. This is primarily due to the sale of the 83,000
square foot facility of the Company in Kingston, New York.
Fiscal Year Ended June 27, 1998 ("1998")
Compared to
Fiscal Year Ended June 28, 1997 ("1997")
Net Sales.
The Company's net sales decreased by $2,609,000, or 97%, from 1997. The
decrease is due to the suspension of sales of recording head products, which
caused a decline in sales to Newmax of $2,414,000 and a decline in sales of
ballast of $195,000.
Gross Profit.
Gross profit, as a percentage of sales, declined dramatically to (100%) from
5% in 1997. This decline in performance is due to the significant decline
in sales combined with the inability to further reduce significant overhead
items such as electricity, real estate taxes, gas and water.
Research, Development and Engineering.
Research, development and engineering ("R & D"), as a percentage of sales,
increased from 8% in 1997 to 110% in 1998. This is due to a cessation of
sales after the first quarter, without a cessation of development and
engineering support.
Selling and Administration.
Selling and administration expenses ("S&A"), as a percent of sales, increased
from 18% in 1997 to 430% in 1998. The increase in S&A as a percent of sales
is due to cessation of sales after the first quarter, without a cessation of
selling and administration expenses.
Interest Expense.
Interest expense increased by $58,000 or 8% from 1997 to 1998. This is due
to increases in related party debt and increases in the rate of interest on
bank debt due to the defaults in payment of bank debt.
Total Assets.
Total assets declined by $170,000 or 6% from 1997 to 1998. This is primarily
due to a reduction of prepaid and other current assets, but also due to the
absence of inventories and a reduction of cash. Although dispositions of
nearly fully depreciated machinery and equipment materially reduced property,
plant and equipment, at cost and accumulated depreciation and amortization,
the impact on total assets of those old equipment dispositions was offset by
an increase in buildings and improvements attributable to the installation
of a line for manufacturing sealed lead acid batteries.
Inflation
Prices in the peripheral data storage market do not ordinarily increase to
offset the effects of inflation. The Company has curtailed production of
certain products due to the inability to obtain price increases and reduce
costs.
Liquidity and Capital Resources
The plan of complete liquidation which the board of directors of the Company
adopted on December 1, 1990 has been carried out in substantial part and the
Company on September 20, 1999 filed its certificate of dissolution with the
Secretary of State of the State of Delaware. Currently the Company has few
assets, including cash held in escrow to pay certain repairs, a parking lot
which the Company is negotiating a contract to sell and office equipment.
On September 14, 1999, the Company sold its vacant 37,000 square foot
facility in Kingston, New York for $275,000 and used the net proceeds of that
sale to pay certain liabilities among other things. Currently the Company
has liabilities exceeding $11,000,000, most of which are owed to related or
affiliated companies. See Item 3, Legal Proceedings on Pages 4 to 5
regarding contingent liabilities of the Company. Although the Company has
no plans to file for bankruptcy protection while it completes its liquidation
and winding up, the Company can make no assurances that creditors of the
Company will not seek to force the Company into involuntary bankruptcy
proceedings or to have a receiver appointed to complete the liquidation of
the Company.
The Company entered into an agreement with a lending institution on May 10,
1991. On April 30, 1992 this loan was converted from a $4,000,000 one year
renewable loan to a loan with a fixed repayment plan. On November 19, 1996
the lending institution agreed to a modification of repayment terms resulting
in payment due November 18, 1997. This loan has been collateralized by a
Newmax affiliate (guarantor). The $2,741,000 loan was in default before its
maturity on November 18, 1997. The institutional lender completed collection
proceedings against a Korean bank letter of credit in the amount of
$2,789,000 securing payment of the revolving credit note. An affiliated
company which had provided a mortgage on its Korean real estate as collateral
for that Korean bank letter of credit will become entitled to assert a claim
against the Company for all amounts collected from it by the institutional
lender out of the pledge of its assets.
The Company entered into a $3,000,000 term loan agreement with the same
lending institution on November 5, 1991. On November 26, 1996 the lending
institution agreed to a modification of repayment terms resulting in no
principal payments due until the November 26, 1997 maturity. The balance
remaining unpaid on this loan was -0-, $1,408,000 and $1,408,000 as of June
26, 1999, December 1, 1998 and June 28, 1997, respectively. Monthly interest
payments had not been made between August 1997 and March 10, 1999, when the
entire principal balance and all accrued interest were paid by the Company
and the mortgage on all of the real estate owned by the Company securing the
term loan note was satisfied. The amount of interest in default and in
arrears pursuant to the $1,450,000 note was $126,000 as of June 27, 1998.
The rate of interest of the $1,450,000 term loan note was the prime rate of
Citibank, N.A. until the earlier of November 26, 1997, which was its maturity
date, or December 16, 1997, which was the date of the demand for payment of
$1,408,000 of principal and $30,252.44 of accrued interest, and thereafter
became two percent (2%) above the interest rate of eight and one half percent
(8.5%) in effect on that date.
The term loan had been guaranteed by the related parties Newmax, Co., Ltd.,
Tae Il Media Co., Ltd. and Mr. K.H. Chung. The Company has been advised that
Newmax Co., Ltd. and Tae Il Media Co., Ltd. on October 14, 1997 had obtained
waivers of defaults in the payment of amounts due pursuant to their
indebtedness from their institutional lenders and on November 8, 1997 had
filed for reorganization pursuant to bankruptcy laws in Korea so that they
might become entitled to a two-year moratorium on the repayment of certain
obligations to certain creditors. The debt restructuring plan of Tae Il
Media Co., Ltd. was accepted by its creditors and was approved by Suwon
District Court in Korea on September 4, 1998. The debt restructuring plan
of Newmax Co., Ltd. was accepted by its creditors and was approved by
Cheongju District Court in Korea on September 15, 1998.
The Company had commitments for capital expenditures of $463,706 as of June
27, 1998. These capital expenditures pertain to the installation of the
sealed lead acid battery line which the Company sold on March 10, 1999.
Capital expenditures exceeded depreciation during the fiscal year ended June
27, 1998, but depreciation had exceeded capital expenditures during the three
prior fiscal years ended June 28, 1997 by at least $300,000 per year.
The affiliated and related companies which have provided loans to the Company
in the past withdrew their support on December 1, 1998, though some
additional loans have been made subsequently. The Company anticipates that
funds received from the liquidation of its few remaining assets will be
insufficient to satisfy the claims of its creditors so that there will be no
funds to distribute to stockholders. The Company can make no assurances that
the remaining creditors of the Company will not seek to file a petition in
bankruptcy against it or to appoint a receiver for its assets.
Because the capital of the Company is impaired, Delaware law prohibits the
Company from purchasing fractional share of its common stock in connection
with a reverse stock split and prohibits the Company from purchasing its
shares of common stock, whether by means of a self-tender offer, a merger
with an affiliate, a distribution in liquidation, or otherwise. Accordingly,
the Company has no plans for a reverse stock split, a self-tender offer, a
merger with an affiliate or a transaction which would yield anything of value
to the holders of its common stock.
See note 2 to the Company's consolidated financial statements included herein
(pages 44 to 45) for a further discussion of liquidity and the plan of
liquidation.
Item 8. Financial Statements and Supplementary Data
The information called for by item 8 is set forth on pages 32 to 52 and
listed on page 29 of this report. See foot note on page 29 about non-
compliance with Regulation S-X, Article 2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Shares Owned
Position with As a Percentage
Name, Age and Company or Director Of Outstanding
Committee Membership Principal Occupation Since Shares
Dr. Heehwan Lee,.......Chairman, President, 1990 - (1) (2)
49 Secretary, Treasurer 2000
of the Company since
December 1, 1998;
vice president and chief
operations officer of
the Company form March
1, 1992 until December
1, 1998.
Mr. K.H. Chung,........Representative Director 1990 - (1) (2)
54 and President of Tae Il
Media Co., Ltd., Ansan
City and
Seoul, Korea
All directors and officers as a group (3 persons).... (1) (3) -
(1) See the caption Relationships and Beneficial Interests for shares of
capital stock of the parents of the Company owned by Mr. K.H. Chung and Dr.
Heehwan Lee.
(2) Not listed are shares owned by Newmax Co., Ltd. as explained in detail
in Item 12, Security Ownership of Certain Beneficial Owners and Management.
Mr. K.H. Chung and Dr. Heehwan Lee expressly disclaim that either of them is
at the present time the beneficial owner of any shares of common stock of the
Company for the purpose of Section 13(d) or 13(g) of the Securities Exchange
Act of 1934, as amended, or that either of them is at the present time able
to exercise a controlling influence over the Company.
(3) Not listed are shares owned by Newmax as explained in detail in Item 12,
Security Ownership of Certain Beneficial Owners and Management.
Business Experience of Directors
Dr. Heehwan Lee has been a director since December 1990. He was elected
Chairman, President, Chief Executive Officer, Secretary and Treasurer on
December 1, 1998. He has been Vice President of Tae Il Media Co., Ltd. since
August 1986. He had been Vice President of Newmax from August 1990 until
March 29, 1994. Newmax and Media are parents and affiliates of the Company
and are engaged in businesses which had been similar to that of the Company.
From July 1975 to July 1986 he was a Senior Researcher with the Korean Agency
for Defense Development.
Mr. K.H. Chung has been a director since December 1990. He has been
Representative Director and President of Tae Il Media Co., Ltd. since October
1983. He had been president of Tae Il Magnetics Co., Ltd., from July 1987
until March 29, 1994. He had been president of Newmax Co., Ltd. from August
1990 until March 29, 1994. Newmax, Tae Il Media and Tae Il Magnetics are
parents and affiliates of the Company and had been engaged in businesses
which had been similar to that of the Company. He previously had more than
seventeen years experience with Hanil Textile Co., Ltd. as Chief of the
Corporate Planning Board.
While the value of the Korean won on foreign exchange markets was declining
dramatically and unprecedented numbers of Korean companies nearly
simultaneously were defaulting on their obligations or filing for Korean
bankruptcy law protection, Tae Il Media Co., Ltd., of which Mr. K. H. Chung
is the President and the Representative Director and Dr. Heehwan Lee is a
Director, and its affiliated companies, including Newmax Co., Ltd. on October
14, 1997 obtained waivers of defaults in the payments of amounts due pursuant
to their indebtedness to institutional lenders and on November 8, 1997 filed
for mediation or reorganization pursuant to bankruptcy laws in Korea so that
they might become entitled to a two-year moratorium on the repayment of
certain obligations to certain creditors. The debt restructuring plan of Tae
Il Media Co., Ltd. was accepted by its creditors and was approved by the
Suwon District Court in Korea on September 4, 1998. The debt restructuring
plan of Newmax Co., Ltd. was accepted by its creditors and was approved by
the Cheongju District Court in Korea on September 15, 1998.
Relationships and Beneficial Interests
Newmax designated Mr. K.H. Chung and Dr. Heehwan Lee as nominees pursuant to
its right to designate a majority of the directors to be nominated pursuant
to the Stock Purchase Agreement dated November 30, 1990 between Newmax and
the Company.
Newmax owns 47.1 percent of the common stock of the Company. Pursuant to the
Stock Purchase Agreement dated November 30, 1990 between the Company and
Newmax, Newmax may agree to purchase additional shares of common stock of
the Company from time to time in an amount (presently 2,000,000 shares) which
will enable Newmax to own more than 50 percent of the issued and outstanding
shares of common stock of the Company. This provision directly inures to the
benefit of Newmax and may be deemed indirectly to inure to the benefit of Tae
Il Media Co., Ltd. ("Media"), Tae Il Magnetics, Co., Ltd. (Magnetics) Mr.
K.H. Chung, Dr. Heehwan Lee, and Mr. Yoon K. Choo. This provision does not
extend to other holders of the common stock of the Company. The dissolution
of the Company on September 20, 1999 rendered this provision moot, since the
Company no longer may issue any share of common shock.
Until March 29, 1994, Mr. K.H. Chung was the representative director and the
president of Newmax and Dr. Heehwan Lee was a director and vice president of
Newmax. Media and Magnetics combined owned 28 percent of the capital stock
of Newmax as of June 26, 1999.
Mr. K. H. Chung owns approximately 1 percent of the capital stock of Media
and is a representative director and the president of Media and Dr. Heehwan
Lee a director and vice president of Media. Mr. Yoon K. Choo is a director
and the chairman of the board of directors of Media. Media owns almost 19
percent of the capital stock of Dae Bang Venture Capital Co., Ltd., which
owns 7.1 percent of the common stock of the Company. Media owns
approximately 12 percent of the capital stock of Newmax as of June 26, 1999.
Mr. K.H. Chung owns approximately 6 percent of the common stock of Magnetics.
Until March 29, 1994, Mr. K.H. Chung was the representative director and the
president of Magnetics. Magnetics owns 16 percent of the capital stock of
Newmax as of June 26, 1999.
Dr. Yoon H. Choo is the brother of Mr. Yoon K. Choo and Mr. K.H. Chung and
Dr. Heehwan Lee are sons-in-law of Mr. Yoon K. Choo.
Mr. Yoon K. Choo and Dr. Yoon H. Choo are related by blood or marriage to Mr.
K.H. Chung and Dr. Heehwan Lee, who are directors of the Company. Newmax and
Media also are associates of Mr. K.H. Chung and Dr. Heehwan Lee.
Magnetics was an associate of Mr. K.H. Chung and Dr. Heehwan Lee until March
29, 1994. Newmax, Media, Magnetics, Mr. Yoon K. Choo, Mr. K.H. Chung and Dr.
Heehwan Lee also have a substantial direct interest in the transactions
described below.
The Stock Purchase Agreement dated November 30, 1990 between Newmax and the
Company states that they mutually shall provide technical assistance and
patent licenses to one another under the terms of the technical assistance
agreement to be agreed upon by them, subject to appropriate government
approval. From time to time, varying amounts of services had been rendered
by the Company to Newmax or its designees and by Newmax to the Company
pursuant to this commitment.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3 and 4 and amendments thereto furnished
to the Company pursuant to Rule 16a-3(e) of the Securities and Exchange
Commission during its most recent fiscal year ended June 26, 1999 and any
written representation from a reporting person that no Form 5 is required,
no person who, at any time during the fiscal year ended June 26, 1999, was
a director, officer or beneficial owner of more than ten percent of any class
of equity securities of the Company failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, during the most recent fiscal
year ended June 26, 1999 or prior fiscal years.
Transactions with Management and Others
Newmax, Media, Magnetics, or their affiliates have made payments to the
Company or its subsidiaries for property or services. In particular, the
Company sold to Newmax in fiscal 1997 and 1995 equipment comprising machining
assembly lines and other excess equipment in exchange for cash in an amount
equal to fair market value, as determined by an independent appraisal in
1991, and by subsequent determinations by employees of the Company, ($157,000
and $1,281,000 in fiscal 1997 and 1995, respectively), of that equipment.
Furthermore, the Company or its subsidiaries have made payments to Newmax,
Media, Magnetics or their affiliates for property or services in amounts
material to the Company. Nearly $6 million has been borrowed by the Company
at 8 percent interest from Gigamax Corporation and Tae Il U.S.A., Inc., both
of which are controlled by Dr. Yoon H. Choo, a former director, chairman of
the board, president, chief executive officer, secretary and treasurer of the
Company. Techmedia International Corporation ("Techmedia"), which is wholly
owned by Media and has the same president as Newmax, has occasionally
advanced funds to the Company. Payment of interest with respect to fiscal
years 1999, 1998, 1997 and 1996, however, was forgiven. See note 9 to the
Company's consolidated financial statements included herein (pages 50 and 51)
for a further discussion of related party transactions.
See also Item 7, Liquidity and Capital Resources, for a discussion of loans
obtained by the Company with the assistance of guarantees provided by Newmax
and other related parties. See note 4 to the Company's consolidated
financial statements included herein (page 46) for a further discussion of
short-term debt and related party assistance and note 5 (page 47) for a
further discussion of long-term debt and related party assistance.
Board and Committee Meetings
The Board of directors of the Company does not have an audit committee,
nominating committee or compensation committee. The board of directors of
the Company held no meetings during the fiscal year ended June 26, 1999;
however, the board of directors of the Company acted twice by unanimous
written consent. Dr. Yoon H. Choo resigned as a director, as the chairmen
of the board, as the president, as the secretary and as the treasurer of the
Company on December 1, 1998; however, his resignation was not because of a
disagreement with the Company on any matter relating to the operations,
policies or practices of the Company.
Item 11. Executive Compensation
Summary Compensation Table
The compensation of the chief executive officer of the Company for services
rendered to the Company and its subsidiaries is set forth below:
Name and Principal Position Fiscal Year Annual Salary
Dr. Yoon H. Choo, 1999 $ 42,000
Chairman, President, Secretary, 1998 $ 80,000
Treasurer until December 1, 1998 1997 $ 80,000
Dr. Heehwan Lee 1999 $ 58,000
Chairman, President, Secretary, 1998 $ 14,000
Treasurer after December 1, 1998 1997 $ -0-
Vice President before
December 1, 1998
There are no other officers whose total annual salary and bonus exceeds
$100,000. Dr. Heehwan Lee and Dr. Yoon H. Choo received no other annual
compensation or long-term compensation or other compensation from the
Company, except that Dr. Heehwan Lee received health benefits costing $8,500
during the fiscal year ended June 26, 1999, $8,500 during the fiscal year
ended June 27, 1998 and $8,400 during the fiscal year ended June 28, 1997.
Dr. Heehwan Lee and Dr. Yoon H. Choo received no grants of stock options or
SARs from the Company and had no stock options or SARs of the Company to
exercise or to be repriced or amended. Dr. Heehwan Lee and Dr. Yoon H. Choo
received no long-term incentive plan awards from the Company. See Board
Interlocks and Insider Participation below. Mr. K. H. Chung and Dr. Heehwan
Lee, being all members of the board of directors of the Company, report that
its compensation policies applicable to Dr. Heehwan Lee and Dr. Yoon H. Choo
are to maintain compensation levels, including those required by Dr. Choo's
employment contract, which recognize efforts to minimize losses and to
maximize cash flow of the Company and the exercise of authority as the chief
executive officer of the Company.
Board Interlocks and Insider Participation
Dr. Yoon H. Choo and Dr. Heehwan Lee served as officers of the Company and
as members of the Board of Directors for fiscal 1999 and as such, were
entitled to participate in deliberations of the Board of Directors concerning
executive officer compensation.
Dr. Yoon H. Choo is a director and president of Gigamax Corporation and of
Tae Il USA, Inc., which had been affiliates of the Company until December 1,
1998 and remain creditors of the Company.
Dr. Heehwan Lee was a director and vice president of Newmax until March 29,
1994 and is a director and vice president of Media, both of which are parents
of the Company.
Mr. K.H. Chung also served as a member of the Board of Directors of the
Company for fiscal 1999 and, as such, was entitled to participate in
deliberations of the Board of Directors concerning executive officer
compensation. He is the president and a representative director of Media,
which is an affiliate of the Company. Until March 29, 1994 he was the
president and representative director of Magnetics and of Newmax. He owned
1 percent of the capital stock of Media and 6 percent of the capital stock
of Magnetics.
See Transactions with Management and Others on page 17. Also see
Relationships and Beneficial Interests on pages 15-16 with respect to the
ownership by Media and Magnetics of 28 percent of the outstanding shares of
capital stock of Newmax, and the ownership by Newmax of 47.1 percent of the
outstanding shares of common stock of the Company, as well as the ownership
by Media and Magnetics combined of 21 percent of the capital stock of Dae
Bang Venture Capital Co., Ltd., which owns 7.1 percent of the outstanding
shares of capital stock of the Company.
Mr. K.H. Chung, who is a director of the Company, a representative director
and president of Media, a 1 percent stockholder of Media, and a 6 percent
stockholder of Magnetics, and may be deemed to have an indirect material
interest in the transactions between the Company and each of Media and
Newmax, as described in notes 4, 5 and 9 to the consolidated financial
statements on page 46, 47 and 50 to 51. The Company owed Newmax $125,400 and
Media $217,000 as of June 26, 1999.
Dr. Heehwan Lee, who is a director and the vice president and chief
operations officer of the Company and the son-in-law of Mr. Yoon K. Choo, may
be deemed to have a material indirect interest in the transactions between
the Company and each of Media and Newmax, as described in notes 4, 5, and 9
to the consolidated financial statements on pages 46, 47 and 50 to 51,
because of his official relationships with Media and because the
father-in-law of Dr. Heehwan Lee, Mr. Yoon K. Choo, is a director and
chairman of the
board of directors of Media. The Company owed Newmax $125,400 and Media
$217,000 as of June 26, 1999.
Dr. Yoon H. Choo, who until December 1, 1998 had been a director, the
chairman, the president, the treasurer, and the secretary of the Company and
is still a director and the president of Gigamax Corporation and of Tae Il
USA. Inc., has a direct material interest in the loans provided by Gigamax
Corporation and by Tae Il USA, Inc., to the Company, as described in notes
4 and 9 to the consolidated financial statements on pages 47 and 50 to 51,
respectively. The Company owed Gigamax $5,656,000, in principal and
$1,370,000 of net accrued expenses (primarily interest accrued prior to June
24, 1995), as of June 26, 1999.
Compensation of Directors
The annual fee for directors who are not employees of the Company is $8,000.
All of the outside directors earn $1,000 for each Board meeting or Committee
meeting attended, except that if a Committee meets on the same day as the
full Board, Committee members earn only $500 for the Committee meeting.
Telephonic meetings are compensated at fifty percent of the rates noted
above. Fees earned but unpaid to current and former Board members are
$80,000 at June 26, 1999. Prior to the dissolution of the Company on
September 20, 1999, board members had been eligible to receive stock options.
See Board Interlocks and Insider Participation above.
Employment Contract
The Company entered into a compensation agreement with Dr. Yoon H. Choo on
April 17, 1991 for a one year period, which has been renewed automatically
for successive one year periods on each anniversary date. As renegotiated
on November 18, 1991, the compensation agreement requires annual salary
payments of $80,000 per year. The compensation agreement provides for
payment of one year's salary, which originally was $150,000 per year, in the
event of contract non-renewal or termination of employment. Dr. Yoon H. Choo
resigned as a director, the chairman of the board, the president, the
secretary and the treasurer of the Company on December 1, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table presents information as to the persons who have reported
or are otherwise known to the Company to be the beneficial owners of more
than 5% of the outstanding Common Stock of the Company as of September 20,
1999.
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership of Class
Newmax Co., Ltd. ........................10,500,000 47.1%
27-15 Song Jeong-Dong Direct owner (1)
Cheongju, Chungbuk sole voting and
360-290, Korea investment powers
Jung Kyun Bae ...........................10,500,000 47.1%
Jeong Soo Choi Indirect owner (2)
Dong Myung Lee shared voting
Kuk Gyo Jeong power, shared
In Soo Kim investment power
Byung In Kang
456-1 Moknae-Dong, Ansan
Kyunggi-Do, 425-100, Korea
Dae Bang Investment Finance Corp.........1,575,000 7.1%
1-181 Chagin-Dong Direct owner
Iri-si, Jullabuk-do sole voting and
Korea investment powers
S.Y. Choi ...............................1,575,000 7.1%
C.S. Choi Indirect owner (2)
C.H. Lee shared voting
K.W. Choi power, shared
D.H. Coue investment power
C.D. Um
Y.W. Kim
J.M. Lee
J.Y. Joo
O.J. Kwon
D.K. Lee
KWTC Building, Suite 4202, Samsung-dong,
Kangnam-gu, Seoul, Korea
(1) See the caption Relationships and Beneficial Interests in Item 10,
Directors and Executive Officers of the Registrant. The dissolution of the
Company on September 10, 1999 nullifies the right of Newmax Co., Ltd. to
agree to purchase additional share of common stock of the Company form time
to time in an amount (presently 2,000,000 share) which would enable Newmax
Co., Ltd. to own more than fifty percent of the issued and outstanding shares
of common stock of the Company pursuant to the Stock Purchase Agreement dated
November 30, 1990 between the Company and Newmax Co., Ltd.
The dissolution of the Company on September 20, 1999 nullifies the right of
Newmax Co., Ltd. to agree to purchase additional shares of common stock of
the Company from time to time in an amount (presently 2,000,000 shares) which
would enable Newmax Co., Ltd. to own more than fifty percent of the issued
and outstanding shares of common stock of the Company pursuant to the Stock
Purchase Agreement dated November 30, 1990 between the Company and Newmax
Co., Ltd.
(2) The persons who are deemed to be indirect owners possessing shared
voting power and shared investment power expressly disclaim that any of them
is at the present time the beneficial owner of any shares of common stock of
the Company for the purposes of Section 13(d) or 13(g) of the Securities
Exchange Act of 1934, as amended, or that any one of them is at the present
time able to exercise a controlling influence over the Company.
Security Ownership of Management
Identification of and certain information concerning executive officers and
directors of the Company is set forth in part III, Item 10 under the heading
"Directors and Executive Officers of the Registrant".
According to Rule 13d-3 of the Securities and Exchange Commission, the
directors and the executive officers of the Company are not beneficial owners
of any equity securities of the Company. The following table presents
information as to those directors' and executive officers' beneficial
ownership of equity securities in the parents of the Company.
Title Name of Amount and Nature Percent
of Beneficial of Beneficial of
Class Owner Ownership Class
Capital Stock Kang Hoan Chung 137,746 1.0%
of Tae Il Direct owner (2)
Media Co., Ltd. (1) Sole voting power
Sole investment power
Capital Stock Kang Hoan Chung 37,396 6.2%
of Tae Il Direct owner (2)
Magnetics Co., Ltd. (1) Sole voting power
Sole investment power
Capital Stock Kang Hoan Chung 574,008 12.2%
of Newmax Indirect owner (2)
Co., Ltd. (1) Shared voting power
Shared investment power
Capital Stock Heehwan Lee 45,393 .3%
of Tae Il Direct owner (2)
Media Co., Ltd. (1) Sole voting power
Sole investment power
Capital Stock Heehwan Lee 574,008 12.2%
of Newmax, Co., Indirect owner (2)
Ltd. (1) Shared voting power
Shared investment power
Capital Stock Directors and 574,008 12.2%
of Newmax Executive Officers Indirect owners (2)
Co., Ltd. (1) of the Company as Shared voting power
a group Shared investment power
See footnotes on next page.
(1) See the caption Relationships and Beneficial Interests in Item 10,
Directors and Executive Officers of the Registrant.
(2) The person who is the direct owner possessing sole voting and sole
investment power of shares of the parents of the Company and the persons who
are deemed to be indirect owners possessing shared voting power and shared
investment power of shares of a parent of the Company, expressly disclaim
that either of them is at the present time the beneficial owner of any shares
of the common stock of the Company for purposes of Section 13(d) or 13(g) of
the Securities Exchange Act of 1934, as amended, or that either one of them
is at the present time able to exercise a controlling influence over the
Company.
Item 13. Certain Relationships and Related Transactions
Identification of and certain information concerning executive officers and
directors of the Company is set forth in Part III, Item 10 under the heading
"Directors and Executive Officers of the Registrant" and under the heading
"Transactions with Management and Others" and in Part III, Item 11 under the
heading "Board Interlocks and Insider Participation."
Identification of certain information concerning security holders who are
known to the Company to own of record or beneficially more than 5% of its
outstanding shares of common stock and members of the immediate families of
those persons and of executive officers and directors of the Company are set
forth in Part I, Item 1, Business, under the headings "Sales and Customers",
"Backlog", in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, under the Headings, "Liquidity
and Capital Resources", Item 8, Financial Statements and Supplementary Data,
notes 2, 4, 5, 8, and 9, Part III, Item 10, Directors and Executive Officers
of the Registrant, under the headings, "Relationships and Beneficial
Interests", "Transactions with Management and Others", and Item 11, Executive
Compensation, under the heading "Board Interlocks and Insider Participation."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
Consolidated Financial Statements, Notes to Consolidated
Financial Statements and the Report of Independent Certified
Public Accountant are incorporated in Part II of this report
(see index on page 29).
2. Financial Statement Schedules
Included In Part IV of this report:
Page #
Independent Auditor's Report on Schedule 53-54
Schedule II- Valuation and Qualifying Accounts 55
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the consolidated financial
statements or notes thereto.
Separate financial statements and supplemental schedules of the Company are
omitted since the Company had been primarily an operating company and its
subsidiaries, included in the consolidated financial statements being filed,
do not have a minority equity interest or indebtedness to any person other
than the Company in an amount which exceeds five percent of the total assets
as shown by the consolidated financial statements as filed herein.
3. Exhibits Page #
2.1 Agreement of Purchase and Sale dated November 4, 1998 between
the City of New York and the Company (Incorporated by
reference to Exhibit 2 to the Information Statement dated
February 5, 1999 of the Company on Schedule 14C, Commission
File Number 0-7207).
2.2 Plan of Complete Liquidation of the Company 59
3.1 Certificate of Incorporation of the Company dated October
15, 1981 (Incorporated by reference to Exhibit 3.1 to the
annual report on Form 10-K for the year ended June 24, 1995,
Commission File Number 0-7207).
3.2 Amendment to Certificate of Incorporation of the Company
dated March 2, 1982 (Incorporated by reference to Exhibit 3.2
to Registration Statement of the Company, Registration
No. 2-77035).
Page #
3.3 Amendment to the Certificate of Incorporation of the Company
dated November 30, 1983 (Incorporated by reference to Exhibit
3.3 to the annual report on Form 10-K for the year ended June
24, 1995, Commission File Number 0-7207).
3.4 Amendment to the Certificate of Incorporation of the Company
dated December 27, 1984 (Incorporated by reference to
Exhibit 3.4 to the annual report on Form 10-K for the year
ended June 29, 1985, Commission File Number 0-7207).
3.5 Amendment to the Certificate of Incorporation of the Company
dated December 26, 1986 (Incorporated by reference to
Exhibit 3.5 to the annual report on Form 10-K for the year
ended June 27, 1987, Commission File Number 0-7207).
3.6 Amendment to the Certificate of Incorporation of the Company
dated April 1, 1991 (Incorporated by reference to Exhibit
3.6 to the annual report on Form 10-K for the year ended
June 29, 1991, Commission File Number 0-7207).
3.7 By-Laws of the Company as amended on December 17, 1990
(Incorporated by reference to Exhibit 3.7 to the annual
report on form 10-K for the year ended June 29, 1991,
Commission File Number 0-7207).
3.8 Certificate of Dissolution of the Company dated
September 15, 1999 60-62
4.1 Revolving Credit Agreement dated May 10, 1991 between
the Company and Shinhan Bank New York Branch
(Incorporated by reference to Exhibit (4)(b) to the
Report on Form 8-K dated May 10, 1991, Commission File Number
0-7207).
4.2 Term Loan Agreement between the Company and Shinhan Bank
New York Branch dated November 5, 1991 (Incorporated
by reference to Exhibit 4.1 to the quarterly report on
Form 10-Q for the quarter ended September 28, 1991, Commission
File Number 0-7207).
4.3 General Loan and Security Agreement between the Company
and Shinhan Bank New York Branch dated November 5, 1991
(Incorporated by reference to Exhibit 4.3 to the quarterly
report on Form 10-Q for the quarter ended September 28, 1991,
Commission File Number 0-7207).
4.4 Mortgage between the Company and Shinhan Bank New York
Branch dated November 5, 1991 (Incorporated by reference
to Exhibit 4.4 to the quarterly report on Form 10-Q for the
quarter ended September 28, 1991, Commission File Number 0-
7207).
Page #
4.5 Revised repayment schedule between the Company and Shinhan
Bank New York Branch dated December 23, 1994 (Incorporated by
reference to Exhibit 4.7 to the annual report on Form 10-K for
the year ended June 24, 1995, Commission File Number 0-7207).
4.6 Promissory Note dated May 31, 1995 in the maximum principal
amount of $142,916 payable by the Company to Hartford Fire
Insurance Company (Incorporated by reference to Exhibit 4.8
to the annual report on Form 10-K for the year ended June 24,
1995, Commission File Number 0-7207).
4.7 Amended Term Note dated November 26, 1996 in the maximum
principal amount of $1,450,000 payable by the Company to
Shinhan Bank New York Branch (Incorporated by reference to
Exhibit 4.1 to the quarterly report on Form 10-Q for the
quarter ended March 29, 1997, Commission File Number 0-7207).
4.8 First Amendment to Term Loan Agreement between the Company and
Shinhan Bank New York Branch dated November 26, 1996.
(Incorporated by reference to Exhibit 4.2 to the quarterly
report on Form 10-Q for the quarter ended March 29, 1997,
Commission File Number 0-7207).
4.9 Amended Revolving Credit Note dated November 19, 1996 in the
principal amount of $2,741,000 payable by the Company to
Shinhan Bank New York Branch (Incorporated by reference to
Exhibit 4.3 to the quarterly report on Form 10-Q for the
quarter ended March 29, 1997, Commission File Number 0-7207).
4.10 Second Amendment to Revolving Credit Agreement between the
Company and Shinhan Bank New York Branch dated November 19,
1996 (Incorporated by reference to Exhibit 4.4 to the
quarterly report on Form 10-Q for the quarter ended March 29,
1997, Commission File Number 0-7207).
10.1 1987 Stock Incentive Program, as amended in 1989 (Incorporated
by reference to Appendix A to the Company's Proxy Statement
dated September 22, 1989 for Annual Meeting of Stockholders
to be held on November 2, 1989, Commission File Number 0-
7207).
10.2 Compensation agreement between the Company and Yoon H. Choo
dated April 17, 1991 (Incorporated by reference to Exhibit
10.15 to the annual report on Form 10-K for the year ended
June 29, 1991, Commission File Number 0-7207).
10.3 Stock Purchase Agreement dated as of November 30, 1990
between Newmax Co. Ltd. and the Company (Incorporated by
reference to Exhibit 10.8 to the annual report on Form 10-
K for the year ended June 24, 1995, Commission File Number
0-7207).
Page #
21. Subsidiaries of the Company. 57
23.1 Consent of Sung I. Rhee, C.P.A. to incorporation by 63-64
reference of his report on Financial Statements in
Registration Statements on Form S-8 Registration Nos.
2-81098, 2-81456, 2-89221, 2-96120, 2-96139, 33-14778
and 33-33567.
27. Financial Data Schedule (For electronic filing purposes only).
Copies of Exhibits listed above may be obtained for a nominal
fee by writing to the Company's Investor Relations Department
at 71 Smith Avenue, Kingston, New York 12401.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NATIONAL MICRONETICS, INC.
ByDr. Heehwan Lee
Dr. Heehwan Lee
President and Chief
Executive Officer
Dated: September 23, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 23th day of September,
1999.
Signature Title
Dr. Heehwan Lee Chairman of the Board of Directors,
(Dr. Heehwan Lee) President, Chief Executive Officer,
Treasurer, Secretary, Director and
Chief Operations Officer (Principal
Executive, Financial and Accounting
Office).
Mr. K.H. Chung Director
(Mr. K.H. Chung)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedule
Pages
Independent Auditor's Report 30-31
Consolidated Statement of Net Liabilities in Process of
Liquidation as of June 26, 1999 32
Consolidated Statement of Changes in Net Liabilities in
Process of Liquidation for the period from December 2,
1998 to June 26, 1999 33
Consolidated Balance Sheet as of June 27, 1998 34-35
Consolidated Statements of Operations for the five-
month period from June 28, 1998 to December 1, 1998
and for the years ended June 27, 1998 and June 28, 1997 36
Consolidated Statements of Changes in Stockholders'
Deficiency for the five-month period from June 28, 1998
to December 1, 1998 and for the years ended June 27, 1998
and June 28, 1997 37
Consolidated Statements of Cash Flows for the five-month
period from June 28, 1998 to December 1, 1998 and for the
years ended June 27, 1998 and June 28, 1997 38-39
Notes to Consolidated Financial Statements 40-52
Independent Auditor's Report on Schedule 53-54
Schedule of Valuation and Qualifying Accounts 55
The Securities and Exchange Commission staff has expressed the opinion that
the audit reports of Mr. Sung I. Rhee and this annual report on Form 10-K do
not comply with Regulation S-X, Article 2, which requires the accountant's
report to state clearly the opinion of the accountant in respect of the
financial statements covered by the report and provides that any matters to
which the accountant takes exception shall be clearly identified, the
exception there to specifically and clearly stated, and, to the extent
practicable, the effect of each such exception on the related financial
statements given.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
National Micronetics, Inc.:
We have audited the accompanying consolidated balance sheet of National
Micronetics, Inc. and subsidiaries as of June 27, 1998 and the related
consolidated statements of operations, changes in stockholders' deficiency,
and cash flows for each of the years in the two-year period ended June 27,
1998 and the consolidated statement of operations, changes in stockholders'
deficiency and cash flow for the five-month period from June 28, 1998 to
December 1, 1998. In addition, we have audited the accompanying consolidated
statement of net liabilities in liquidation as of June 26, 1999, and the
related consolidated statement of changes in net liabilities in liquidation
for the seven-month period from December 2, 1998 to June 26, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to report on these consolidated 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 report.
As described in note 1 to the consolidated financial statements, on December
1, 1998, the board of directors of the Company adopted a resolution to
approve the dissolution of the Company and the stockholders voted to approve
the proposed dissolution at the annual meeting of stockholders of the Company
on February 26, 1999. As a result, the Company has changed its basis of
accounting for periods subsequent to December 1, 1998, from the
going-concern basis to the liquidation basis. Accordingly, the carrying
value of
the remaining assets as of June 26, 1999, are presented at estimated
realizable values and all liabilities are presented at estimated settlement
amounts.
As discussed in note 1 to the consolidated financial statements, it is not
presently determinable whether the amounts that creditors agree to accept in
settlement of the obligations due them will differ materially from the
amounts shown in the accompanying consolidated financial statements. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Because of the possible material effect of the matter discussed in the
preceding paragraph, we are unable to express, and do not express, an opinion
on the consolidated financial statements referred to above.
As discussed in note 11 to the consolidated financial statements, the Company
is a defendant in a lawsuit brought about as the result of an accident
involving a Company automobile. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any liability
that may result upon adjudication has been made in the accompanying
consolidated financial statements.
Sung I. Rhee, C.P.A.
Fort Lee, New Jersey
September 20, 1999
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET LIABILITIES
In Process of Liquidation
(In Thousands)
June 26, 1999
Cost Current
Basis Value Basis(note 1)
ASSETS
Cash and cash equivalents $ 25 $ 25
Other current assets 35 35
Property, plant and
equipment, net (notes 2 and 3) 163 323
TOTAL ASSETS $ 223 $ 383
LIABILITIES
Accounts Payable $ 275 $ 275
Current portion of long-term
debt (note 5) 9 9
Other accrued expenses 169 169
Short-term debt (note 4) 8,397 8,397
Due to related parties,net(note9) 2,190 2,190
Total liabilities $ 11,040 $ 11,040
NET LIABILITIES $ 10,817 $ 10,657
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Net Liabilities
In Process of Liquidation
(In Thousands)
For the Five-month
Period from
Dec. 2, 1998
to June 26, 1999
Cost Current Value
Basis Basis (note 1)
Net Liabilities,
December 2, 1998 $ 10,232 $10,072
Add:
Overhead expense 462 462
Administration expense 31 31
Interest expense 516 516
$ 1,009 $ 1,009
Deduct:
Gain on sale of properties
and others 156 156
Related party
interest forgiven 268 268
$ 424 $ 424
Net Liabilities,
June 26, 1999 $ 10,817 $10,657
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 27, 1998
(in thousands)
ASSETS
1998
Current assets (note 5):
Cash and cash equivalents $ 22
Prepaid and other current assets 20
Total current assets 42
Property, plant and equipment, at cost
(notes 2, 3 and 5) 8,843
Less accumulated depreciation and amortization ( 6,078)
Net property, plant and equipment 2,765
$ 2,807
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
June 27, 1998
(in thousands, except common share amounts)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
1998
Current liabilities:
Current portion of long-term debt (note 5) $ 1,420
Short-term debt (notes 4 and 9) 8,337
Accounts payable 577
Accrued salaries and related expenses 145
Other accrued expenses 312
Due to related parties, net (note 9) 1,835
Total current liabilities 12,626
Stockholders' deficiency (note 6):
Common stock ($.10 par value; authorized -
40,000,000 shares; issued and
outstanding 22,312,524 shares) 2,231
Additional paid-in capital 59,785
Accumulated deficit (71,835)
Total stockholders' deficiency ( 9,819)
Commitments and contingencies (notes 2,3 and 11)
$ 2,807
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Five-month period from June 28, 1998 to December 1, 1998
and years ended June 27, 1998 and June 28, 1997
(in thousands, except per share amounts)
From
Jun. 28, Year Year
1998 to Ended Ended
Dec. 01, Jun.27, Jun.28,
1998 1998 1997
Net sales $ - $ 73 $ 2,682
Cost and expenses:
Cost of products sold 245 808 2,556
Research, development and engineering 31 81 209
Selling and administration 98 314 489
374 1,203 3,254
Loss from operations ( 374) ( 1,130) ( 572)
Other expense (income):
Interest expense 300 798 740
Interest income - ( -) ( 8)
Other (income) expense, net (note 3) ( 79) ( 329) ( 37)
221 469 695
Loss before income taxes ( 595) ( 1,599) (1,267)
Income taxes (note 7) - - -
Net loss $( 595) $(1,599) $(1,267)
Basic loss per common share (note 1) $( 0.02) $( 0.07) $(0.06)
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' DEFICIENCY
Five-month period from June 28, 1998 to December 1, 1998
and years ended June 27, 1998 and June 28, 1997
(in thousands, except common share amounts)
Additional
Common Stock (note7) Pain-in Accumulated
Shares Par Value Capital (Deficit)
Balance June 29, 1996 22,312,524 2,231 58,805 (68,969)
Net loss -- 1997 - - - ( 1,267)
Interest forgiven on
related party debt (note 4) 392
Sale of assets to a
related party (note 9) - - 153 -
Balance June 28, 1997 22,312,524 2,231 59,350 (70,236)
Net loss -- 1998 - - - ( 1,599)
Interest forgiven on
related party debt(note 4) - - 435 -
Balance June 27, 1998 22,312,524 2,231 59,785 (71,835)
Net loss -- Five-month
period 6/28/98 to
12/01/98 - - - ( 595)
Interest forgiven on
related party debt(note 4) - - 182 -
Balance December 1, 1998 22,312,524 $ 2,231 $ 59,967 $ (72,430)
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Five-month period June 28, 1998 to December 1, 1998
and years ended June 27, 1998 and June 28, 1997
(in thousands)
From
Jun. 28, Year Year
1998 to Ended Ended
Dec. 01, Jun. 27, Jun. 28,
1998 1998 1997
Cash flows from operating activities:
Net loss $( 595) $(1,599) $(1,267)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization 114 377 412
Provision for losses (recoveries)
on receivables - - (132)
Losses (gains) on sale of property,
plant and equipment 39 (302) 4
Interest forgiven on related party debt 182 435 392
Changes in operating assets and liabilities:
Decrease (Increase) in trade receivables - - 365
Decrease (Increase) in inventories - 22 880
Decrease (Increase) in prepaid and other
current assets 33 124 (62)
Increase (Decrease) in accounts payable
and accrued expenses 27 135 (5)
Increase (Decrease) in due to related
parties, net 153 189 (941)
Net cash provided (used) by operating
activities ( 47) (619) (354)
Cash flows from investing activities:
Additions to property and equipment ( -) (420) (56)
Proceeds from sales of property,
plant and equipment - 356 -
Net cash used by investing activities ( -) (64) (56)
Cash flows from financing activities:
Sale of assets to a related party - - 153
Proceeds of short-term debt 60 712 -
Repayments on long-term debt ( -) (42) (172)
Net cash provided (used) by financing
activities 60 670 (19)
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Five-month period June 28, 1998 to December 1, 1998
and years ended June 27, 1998 and June 28, 1997
From
Jun. 28, Year Year
1998 to Ended Ended
Dec. 01, Jun. 27, Jun. 28
1998 1998 1997
Net increase in cash and
cash equivalents 13 ( 31) (429)
Cash and cash equivalents at
beginning of year 22 35 464
Cash and cash equivalents at end of period $ 35 $ 22 $ 35
Supplemental cash flow disclosures:
Interest paid $ 117 $ 112 $ 386
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Five-month period June 28, 1998 to December 1, 1998
and years ended June 27, 1998 and June 28, 1997
(1) Description of Business and Summary of Significant Accounting
Policies
On December 24, 1990, Newmax Co., Ltd. ("Newmax") acquired a controlling
interest (50.9%) in the Company through the purchase of common stock.
Newmax, a Korean corporation, and its affiliate Tae Il Media Co., Ltd. ("Tae
Il") operate businesses with product lines similar to that of the Company.
The percentage ownership declined to 47.1% at June 27, 1992 due to other
equity transactions of the Company. Until the Company ceased manufacturing
computer components in commercial quantities late in the summer of 1997, the
Company had sold products and equipment to Newmax and its affiliates.
In reliance primarily upon assembly facilities owned and operated by its
parent and affiliated companies, sales revenue attributable to its parent
and affiliated companies and debt financing supplied or guaranteed by its
parent and affiliated companies between May 10, 1991 and September 1997, the
Company had been principally an integrated manufacturer of magnetic recording
heads primarily for computer disk drives. The Company had modified its
facility to begin manufacturing sealed lead acid batteries; however, no
revenues were realized from the as yet non-operational sealed lead acid
battery manufacturing line.
The Company had at times been involved in the distribution and sale of other
products. Some, such as electrical light fixture ballasts and tee shirts,
were outside its previous markets. The Company had been dependent upon other
manufacturers and vendors for production and assembly work.
In fiscal 1999 the Company was in worse financial condition than prior fiscal
years, because the affiliated and related companies which had provided
financial support to the Company in the past drastically curtailed that
financial support after December 1, 1998 and the primary lending institution
of the Company forced the Company to dispose of its most valuable real estate
in order to avoid foreclosure of its mortgage. On December 1, 1998, the
board of directors of the Company adopted a resolution to approve the
dissolution of the Company and the Stockholders voted to approve the proposed
dissolution at the annual meeting of stockholders of the Company on February
26, 1999. Since then, the Company has been in process of liquidation.
(a) Principles of Consolidation
The consolidated financial statements include National Micronetics, Inc. and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(1) Description of Business and Summary of Significant Accounting Policies
- Continued
(b) Liquidation Basis Accounting
Since the board of directors of the Company adopted a resolution to approve
the dissolution of the Company on December 1, 1998, and as the liquidation
is imminent, the Company has changed its basis of accounting for periods
subsequent to December 1, 1998, from the going concern basis to the
liquidation basis. Accordingly, the Company prepared the consolidated
statement of net liabilities as of June 26, 1999 and the consolidated
statement of changes in net liabilities for the seven-month period from
December 2, 1998 to June 26, 1999 on the liquidation basis, where the carry
value of the assets are presented at estimated realizable values and all
liabilities are present at estimated settlement amounts.
The current value amounts are based on estimates of fair values at June 26,
1999, as follows:
Property, plant and equipment, net - value determined by sales
contracts, less estimated costs of disposition.
Cash and other current assets - at cost basis amounts that approximate
estimated fair values.
All liabilities - at cost basis as it was not possible to estimate
settlement amounts.
All liabilities were not adjusted and are presented at cost basis amounts
because, in the opinion of the Company, it was not possible to estimate
settlement amounts. The Company is in the process of settling the
obligations, but, in the opinion of the Company, it is not presently
determinable whether the amounts that creditors agree to accept in settlement
of the obligations due them will differ materially from the amounts shown in
the consolidated financial statements. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Except for the consolidated statement of net liabilities as of June 26, 1999
and the consolidated statement of changes in net liabilities for the
seven-month period from December 2, 1998 to June 26, 1999, the consolidated
financial statements are prepared on a going concern basis. The assets and
liabilities carrying amounts on those going concern basis financial
statements do not report to represent realizable or settlement values.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(1) Description of Business and Summary of Significant Accounting Policies
- Continued
(c) Consolidated Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
short-term investments and highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(d) Property, Plant and Equipment
Depreciation and amortization for financial reporting purposes are provided
by the straight-line method. Depreciation for tax purposes is on an
accelerated method. Leasehold improvements are amortized either over the
estimated useful lives of the improvements or the lease term (including
option periods expected to be utilized) whichever is less.
(e) Revenue Recognition
Revenue is recognized upon shipment of products to customers.
(f) Income Taxes
The Company utilizes the asset and liability method, whereby deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(g) Basic Loss per Share
Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the respective periods.
The weighted average number of common shares was 22,312,524 for the
five-month period from June 26, 1998 to December 1, 1998 and fiscal years
1998 and
1997. Diluted loss per common share is not presented since it would be
anti-dilutive.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(1) Description of Business and Summary of Significant Accounting Policies
- Continued
(h) Fiscal Year
The Company's fiscal year ends on the last Saturday in June. The fiscal
years ended June 28, 1997 and June 27, 1998 were comprised of 52 weeks. The
five-month period from June 28, 1999 to December 1, 1998 was comprised of 22
weeks plus two days. The seven-month period from December 2, 1998 to June
26, 1999 was comprised of 29 weeks plus two days.
(i) Use of Estimates in the Preparation of Financial Statements
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 of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(j) New Accounting Standards
In June, 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 130 "Reporting
Comprehensive Income". SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
in equal prominence with the other financial statements.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Comparative financial statements provided for earlier periods are required
to be reclassified to reflect the provisions of this statement. The Company
complied with SFAS 130 in the Form 10-Q for the quarter ended September 26,
1998.
In June, 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS 131 focuses on a "management approach"
concept as the basis for identifying reportable segments. The management
approach is based on the way that management organizes the segments within
the enterprise for making operating decisions and assessing performance.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(1) Description of Business and Summary of Significant Accounting Policies
- Continued
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
The Company is complying with the reporting requirements of SFAS 131 for the
five-month period from June 28, 1998 to December 1, 1998. Management
anticipates that the adoption of SFAS 131 will not have a significant impact
of the Company's consolidated financial statements.
In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management is currently evaluating the impact of SFAS 133 on the
Company's consolidated financial statements.
(2) Liquidation Plan
Since December 1990, the Company has received direct and indirect support
from Newmax to fund operational needs. As a result of the dramatic decline
in value of the Korean won on foreign exchange markets in late 1997,
unprecedented numbers of Korean companies nearly simultaneously defaulted on
their obligations or filed for Korean bankruptcy law protection. As further
discussed in note 5, the Company has been advised that Newmax Co., Ltd. and
Tae Il Media Co., Ltd. filed for reorganization pursuant to bankruptcy laws
in Korea. As Newmax discontinued its direct and indirect support of the
Company and the Company's efforts to seek financing from other affiliated
companies failed, on December 1, 1998, the board of directors of the Company
adopted a resolution to approve the dissolution of the Company and the
stockholders voted to approve the proposed dissolution at the annual meeting
of stockholders of the Company on February 26, 1999.
Since December 2, 1998, the Company has been liquidating its assets. In
March 1999, the Company sold its 83,000 square foot building for $2,400,000
to the City of New York. The Company sold its 37,000 square foot building
on September 14, 1999 for $275,000.00. The company is also in negotiation
to sell a parking lot, which is the last piece of its real estate.
The Company benefitted from the sale of its real estate to the City of New
York primarily by avoiding a foreclosure of the mortgage which was satisfied
out of the proceeds of the sale and by avoiding a petition in bankruptcy.
The Company can make no assurances that the remaining creditors of the
Company will not seek to file a petition in bankruptcy against it.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(2) Liquidation Plan - Continued
The Company plans to commence formal dissolution processing pursuant to the
General Corporation Law of the State of Delaware in September 1999.
(3) Property, Plant and Equipment Classification (in thousands)
June 26, 1999 June 27,
Current 1998
Cost Basis Value Cost Basis
Land $ 54 $ 64 $ 239
Buildings and improvements (20 yrs) 1,442 259 7,832
Machinery and equipment (3-8 yrs) 112 - 626
Furnishings and fixtures (3-10 yrs) 7 - 146
$ 1,615 $ 323 $ 8,843
The Company had conducted certain of its operations using equipment under
operating leases. The Company is currently renting office space. Total rental
expense was $2,000, $1,000, $9,000, and $22,000 for the seven-month period
from December 2, 1998 to June 26, 1999, for the five-month period from June
28, 1998 to December 1, 1998 and for fiscal 1998 and 1997, respectively.
During fiscal 1998, the Company sold machinery and equipment which had a cost
of $3,208,000 and accumulated depreciation of $3,171,000 for $318,000 to
third parties. For fiscal 1998 the Company realized $302,000 gain from sale
of property, plant and equipment. In March, 1999, the Company sold for
$2,400,000 its 83,000 square foot building which consisted of land amounting
to $211,622 and building and improvements amounting to $7,219,381 and
accumulated depreciation of $4,891,662. The Company sold its 37,000 square
foot building on September 14, 1999 for $275,000. The Company is also in
negotiation to sell a parking lot, which is the last piece of its real
estate. The Company has been relocated to 678 Aaron Court, Kingston, New
York, which is a rental, from their original site at 71 Smith Avenue,
Kingston, New York.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(4) Short-Term Debt
A revolving credit agreement had been established in April 1991 for
$4,000,000 with a lending institution not previously used by the Company.
This credit line had been renewed on November 26, 1996 and had been
collateralized by a Newmax affiliate (guarantor). The $2,741,000 note was
in default before its maturity on November 18, 1997. The institutional
lender completed collection proceedings against a Korean bank letter of
credit in the amount of $2,789,000 securing payment of the revolving credit
note. An affiliated company which had provided a mortgage on its Korean real
estate as collateral for that Korean bank letter of credit will become
entitled to assert a claim against the Company for all amounts collected from
it by the institutional lender out of the pledge of its assets. In addition
to the above, the Company borrowed funds from affiliates Gigamax Corporation
("Gigamax"), and Tae Il USA, Inc. from time to time during fiscal 1999, 1998
and 1997. These loans were unsecured at an 8% interest rate. At June 26,
1999, at December 1, 1998 and at June 27, 1998 the balance of these loans was
$5,656,000, $5,656,000 and $5,596,000, respectively. The average amount of
short-term debt outstanding and weighted average interest rate was $7,068,000
at 8% in fiscal 1999 and $6,616,000 at 8% in fiscal 1998. The maximum
short-term debt outstanding was $8,397,000 in fiscal 1999 and $8,337,000 in
fiscal
1998. Interest expense recorded on the $2,741,000 note was $131,000 in the
seven-month period from December 1, 1998 to June 26, 1999, $89,000 in the
five-month period from June 28, 1998 to December 1, 1998 and $217,000 in
fiscal 1998. Interest expense recorded on the related party debt to Gigamax
was $270,000 in the seven-month period from December 2, 1998 to June 26,
1999, $182,000 in the Five-month period from June 28, 1998 to December 1,
1998 and $435,000 for fiscal 1998, respectively, and as a result of the
interest being forgiven by related parties in the fourth quarter due to the
Company's limited resources and inability to pay interest on a timely basis,
this amount has been recorded as additional paid-in capital in the
accompanying financial statements.
The holder of the $2,741,000 note made by the Company to the principal
institutional lender of the Company may be entitled to enforce collection of
the principal amount and of interest accrued on that principal amount against
the Company, even though part of the accrued interest and principal due in
respect of that revolving credit note had been satisfied by the Korean
affiliate of the principal institutional lender of the Company by honoring
a draft on its letter of credit in the amount of $2,789,000, which was
secured by a mortgage on the factory of Tae Il Magnetics, Co., Ltd.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(5) Long-term Debt
A summary of long-term debt follows:
Annual Interest
Rate at Balance at
June 27, 1998 June 26, 1999 June 27,1998
(in thousands)
Term loan 10.50% $ - $ 1,408
Others 9 12
Total long-term debt - 1,420
Less: Current portion 9 1,420
$ 0 $ 0
The Company had entered into a $3,000,000 term loan agreement with a lending
institution on November 5, 1991. This loan, which based upon a November 26,
1996 revision matured on November 26, 1997, had been secured by substantially
all the assets of the Company. As a condition of this loan, the Company had
granted a $7,000,000 mortgage to the lending institution which had served as
collateral for this loan. The term loan, which bears interest at prime, had
been guaranteed by the related parties Newmax Co., Ltd., Tae Il Media Co.,
Ltd. and Mr. K.H. Chung. The Company has been advised that Newmax Co., Ltd.
and Tae Il Media Co., Ltd. on October 14, 1997 had obtained waivers of
defaults in the payment of amounts due pursuant to their indebtedness from
their institutional lenders and on November 8, 1997 had filed for
reorganization pursuant to bankruptcy laws in Korea so that they might become
entitled to a two-year moratorium on the repayment of certain obligations to
certain creditors. The debt restructuring plan of Tae Il Media Co., Ltd. was
accepted by its creditors and was approved by the Suwon District Court in
Korea on September 4, 1998. The debt restructuring plan of Newmax Co., Ltd.
was accepted by its creditors and was approved by the Cheongju District court
in Korea on September 15, 1998. The Company repaid the principal balance of
$1,408,000 and accrued interest of the term loan note on March 10, 1999 with
part of the proceeds of sale of part of its real estate and satisfied the
mortgage on its real estate.
The $2,741,000 revolving credit loan was in default before its maturity on
November 18, 1997. The amount of interest in default and in arrears is
$397,000 at August 31, 1999 in respect of the revolving credit note and the
amount of the principal balance of the revolving credit note is $2,741,000.
The institutional lender completed collection proceedings against a Korean
bank letter of credit in the amount of $2,789,000 securing payment of the
revolving credit note. An affiliated company which had provided a mortgage
on its Korean real estate as collateral for that Korean bank letter of credit
will become entitled to assert a claim against the Company for all amounts
collected from it by the institutional lender out of the pledge of its
assets. It may be possible that the two year moratorium on collection of
certain debts from certain affiliated companies of the Company, as approved
by a Korean court during September, 1998, may prolong those collection
efforts. (Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(6) Common Stock and Employee Benefits
Under the Stock Incentive Program, 1,525,000 shares of Common Stock were
authorized for the grant of options and the issuance of awards. Under the
terms of this program, options for the purchase of 48,700 shares of common
stock were outstanding at June 26, 1999. Options issued under the plans
generally become exercisable over a period of from six months to ten years
from the date of grant at a price per share not less than the fair market
value on the date of the grant. Amounts received upon exercise of options
in excess of par value of shares sold are credited to additional paid-in
capital. At June 26, 1999, 1,124,797 shares are available for future grants
under the Program.
As of June 26, 1999 and June 27, 1998 there were no outstanding restricted
stock awards for shares issued under the Company's stock award plans.
Options Outstanding Number of Shares Option Price Per Share
June 27, 1998 and
June 26, 1999 48,700 $ .22 - $2.50
Options exercisable:
June 26, 1999 48,700 $ .22 - $2.50
The Company's profit sharing plan had covered all employees with six months
employment with the Company. Contributions to the plan by the Company are
made with its common shares. The annual contribution had been determined
under a formula that considers each participant's compensation for the plan
year and the fair market value of the Company's common shares on the last
trading day of the Company's fiscal year. The Company's 401(k) retirement
savings plan had allowed for employee contributions through payroll
deductions with optional matching contributions by the Company.
There was no Company contribution to either plan for fiscal 1995 through 1998
or for the seven-month period from December 2, 1998 to June 26, 1999 and the
five-month period from June 28, 1998 to December 1, 1998. The plans as
amended are intended to comply with the Internal Revenue Code and the
Employee Retirement Income Security Act of 1974 and are administered by
trustees appointed by the Board of Directors. The Company terminated the
profit sharing plan on December 31, 1998 and the 401(K) retirement savings
plan on June 15, 1999.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(7) Income taxes
No income tax expense or benefit was recognized for the seven-month period
from December 2, 1988 to June 26, 1999, the five-month period from June 28,
1998 to December 1, 1998 or fiscal 1998 and 1997 due to losses incurred and
the inability to utilize these losses for income tax purposes. At June 26,
1999, the Company has net operating loss carry forwards of approximately
$23,109,000 which will expire as follows:
Year Amount (in thousands)
2006 $ 7,031
2007 6,177
2008 5,436
2009 1,272
2010 220
2011 808
2012 1,016
2013 1,378
2014 1,149
$23,109
Carry forwards from prior years have been limited due to the change in
control of the Company which took place on December 24, 1990. Loss carry
forwards available as of June 26, 1999 from years prior to the change in
control, which are included above, are approximately $2,451,000.
Deferred tax liabilities (assets) are comprised of the following at June 26,
1999, and June 27, 1998: 1999 1998
Depreciation $ 559,000 $ 559,000
Net operating loss carryforwards (8,603,000) (7,837,000)
Inventory reserves - (407,000)
Other (16,000) (16,000)
(8,619,000) (8,260,000)
Deferred tax valuation allowance 8,060,000 7,701,000
Deferred taxes, net $ - $ -
The deferred tax valuation allowance increased by $359,000 and $492,000
during fiscal 1999 and 1998, respectively.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(8) Export Sales - Major Customers
The Company's operations used to consist primarily of the manufacture of
recording heads. The principal products which used to be manufactured and
sold were ferrite materials, recording head cores, and recording head
assemblies. A recording head assembly is a significant component of a
computer disk or tape memory.
Net sales of the United States operations includes export sales as follows:
Asia
(in thousands)
FYE 1997 $ 2,517
FYE 1998 $ 73
7 Mo. Ended 6/26/99 $ -
5 Mo. Ended 12/1/98 $ -
The amount and percent of sales to those customers comprising ten percent or
more of total sales are shown below.
Products ($ in thousands)
7 Mo. Ended 5 Mo. Ended FYE FYE
6/26/99 12/1/98 1998 1997
Major Customer 1 $ 0 - 0% $ 0 - 0% $ 73 - 93% $2,487 - 93%
Major Customer 2 $ 0 - 0% $ 0 - 0% $ 0 - 0% $ 143 5%
(9) Related Party Transactions
During fiscal 1997, the Company sold equipment, at fair value, to Newmax for
$157,000. The gain on the sale of $173,000 was recorded as additional
paid-in capital and was not recognized in the consolidated statement of
operations. The gain was not recognized in the statement of operations since
the sale was of "items not held for sale in the ordinary course of business"
and income recognition on items sold to a related party where fair value was
judgmental could be misleading.
Net sales for fiscal 1998 and 1997 included sales of goods totalling $73,000
and $2,487,000, respectively, to Newmax of products made to specification of
Newmax's customer. These products required significant additional value
added before sale to the ultimate customer.
The Company owed Newmax $ 38,000 at June 26, 1999, $38,000 at December 1,
1998 and $38,000 at June 27, 1998 which is included in the consolidated
balance sheets under due to related parties, net.
The Company owed Tae Il Media Co. Ltd., ("Tae Il") $217,000 at June 26, 1999,
$365,000 at December 1, 1998 and $210,000 at June 27, 1998. These balances
have been included in the consolidated balance sheets under due to related
parties, net. (Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(9) Related Party Transactions - Continued
Newmax provided quarantees via a letter of credit to assist in obtaining a
$4 million revolving credit agreement; however, that revolving credit loan
in the amount of $2,741,000 has been in default and that letter of credit was
drawn down by the primary institutional lender of the Company. An affiliated
company had provided a mortgage on its Korean real estate as collateral for
the Korean bank letter of credit. The Company now owes $2,741,000 to the
affiliated company as of June 27, 1998 which is included in short-term debt
in the consolidated financial statements. Interest accrued on $2,741,000
debt to the affiliate of $270,000, $89,000 and $182,000 as of June 26, 1999,
December 1, 1998 and June 27, 1998 has been included in due to related
parties. Gigamax has made short-term loans averaging $5,656,000 for the
seven-month period from December 2, 1998 to June 26, 1999, $5,656,000 for the
five-month period from June 28, 1998 to December 1, 1998, $5,596,000 for
fiscal 1998 and $4,896,000 for fiscal 1997. Both of these are also discussed
in note (5). Included in due to related parties at June 26, 1999, December
1, 1998, and June 27, 1998 is $1,370,000 due to Gigamax and Tae Il USA, Inc.
for interest on short-term borrowing and other charges.
The Company was advanced $35,000 by Techmedia International Corporation
("Techmedia"), an affiliated company, during fiscal 1997 to fund operating
expenses. The total $35,000 from Techmedia still remains payable at June
26, 1999 and at December 1, 1998.
Although negotiated in good faith, the impact of the above transactions on
the financial statements may be significantly different than had the
transactions been negotiated with unrelated parties.
(10) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
(a) Cash and Cash Equivalents, Accounts Payable and Accrued Expense
The carrying amount of cash, accounts payable and accrued expenses
approximate fair value because of the short maturity of these
instruments.
(b) Debt
The interest rates on the Company's short-term and long-term debt
are reset according to changes in the current market (see notes
4 and 5). Consequently, the carrying value of the debt
approximates fair value.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(11) Contingent Liabilities
The Company is a defendant ia a lawsuit brought about as the result of an
accident involving a Company automobile. The lawsuit was commenced by the
plaintiffs against the company on October 15, 1997 in the Supreme Court for
the State of New York for the county of New York and claims damages
aggregating $7,700,000 in regard to an accident involving a car leased by
the Company. The Company's insurer has assumed responsibility and is
defending the Company; however, the damages claimed exceed the $300,000
policy limits. The Company has filed an answer and is cooperating with
discovery.
After consulting with counsel, the Company has determined that it is not
possible at this time to estimate the amount of loss, if any, that may
ultimately be incurred. Accordingly, no provision has been made in the
accompanying consolidated financial statements.
The Company has been notified it is one of many potentially responsible
parties ("PRP's") for an Environmental Protection Agency ("EPA") Superfund
site. A "PRP" may be jointly and severally liable for clean-up of a
Superfund site, except to the extent of any settlement agreement with the
Environmental Protection Agency.
The site is known as the Solvents Recovery Service of New England Superfund
site and is located on Lazy Lane in Southington, Connecticut. The EPA has
identified in excess of 1,600 PRP's for this site. The EPA has indicated it
has incurred costs in excess of $3.35 million but has not as yet completed
a remedial action plan. The EPA is not prepared at this time to estimate the
total cost of remedial action. Two Non-Time Critical Removal Actions have
been undertaken by the PRP's with EPA approval. The actions undertaken to
date are designed to help limit further environmental damage and to obtain
data to better understand the extent of damage. Additional treatment will
be based upon analysis of data obtained. The Company has paid its allocated
share of these costs, the amount not being significant to the financial
statements of the Company.
The Company is currently unable to predict the outcome of this matter as the
total cost of remedial action has not been determined and the method of
allocation of liability among parties who may ultimately be found liable
remains uncertain.
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE
The Board of Directors and Stockholders
National Micronetics, Inc.:
Under date of September 20, 1999, we reported on the consolidated balance
sheet of National Micronetics, Inc. and subsidiaries as of June 27, 1998 and
the related consolidated statements of operations, changes in stockholders'
deficiency and cash flows for each of the years in the two-year period ended
June 27, 1998 and the consolidated statements of operations, changes in
stockholders' deficiency, and cash flows for the five-month period from June
28, 1998 to December 1, 1998. In addition, we reported on the consolidated
statement of net liabilities in liquidation as of June 26, 1999, and the
related consolidated statement of changes in net liabilities in liquidation
for the seven-month period from December 2, 1998 to June 26, 1999. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule as
listed in the index on page 29. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to report
on this financial statement schedule based on our audits.
As described in note 1 to the consolidated financial statements, on December
1, 1998, the board of directors of the Company adopted a resolution to
approve the dissolution of the Company and the stockholders voted to approve
the proposed dissolution at the annual meeting of stockholders of the Company
on February 26, 1999. As a result, the Company has changed its basis of
accounting for periods subsequent to December 1, 1998, from the going-concern
basis to the liquidation basis. Accordingly, the carrying value of the
remaining assets as of June 26, 1999, are presented at estimated realizable
values and the liabilities are presented at estimated settlement amounts.
As discussed in note 1 to the consolidated financial statements, it is not
presently determinable whether the amounts that creditors agree to accept in
settlement of the obligations due them will differ materially from the
amounts shown in the accompanying consolidated financial statements. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Because of the possible material effect of the matter discussed in the
preceding paragraph, we are unable to express, and do not express, an opinion
on the financial statement schedule referred to above.
As discussed in note 11 to the consolidated financial statements, the Company
is a defendant in a lawsuit brought about as the result of an accident
involving a Company automobile. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any liability
that may result upon adjudication has been made in the accompanying financial
statement schedule.
Sung I. Rhee, C.P.A.
Fort Lee, New Jersey
September 20, 1999
Schedule II
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Five-month period ended from June 28, 1998 to December 1, 1998
and years ended June 27, 1998 and June 28, 1997
(in thousands)
Accounts
Balance at Charged to written off Balance
beginning costs and as uncollectible, at end
Description of period expenses net of recoveries of period
Five-month period ended
December 1, 1998:
Allowance for doubtful
accounts receivable $ - $ - $ - $ -
Year ended June 1998:
Allowance for doubtful
accounts receivable $ - $ - $ - $ -
Year ended June 1997:
Allowance for doubtful
accounts receivable $ 132 $ (132) $ - $ -
Exhibits Filed Electronically
Page
21 Subsidiaries of the Company 57
2.2 Plan of Complete Liquidation of the Company 58-59
3.8 Certificate of Dissolution of the Company dated
September 15, 1999 60-62
23.1 Consent of Sung I. Rhee, C.P.A. to incorporation by
reference of its report on Financial Statements in
Registration Statements on Form S-8 Registration Nos.
2-81098, 2-81456, 2-89221, 2-96120, 2-96139, 33-14778
and 33-33567. 63-64
7 Financial Data Schedule (For electronic filing purposes only).
Exhibit 21
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
State or County in
Name which incorporated
National Micronetics Sales, Inc...................Delaware
National Micronetics International Limited........Hong Kong
Exhibit 2.2
PLAN OF COMPLETE LIQUIDATION OF
NATIONAL MICRONETICS, INC.
IRS EIN 14-1507019
National Micronetics, Inc. (the "Company") was incorporated on April 17, 1969
in the State of New York and was reincorporated on October 15, 1981 in the
State of Delaware. The New York corporation was merged into the Delaware
corporation on January 25, 1982. The employer identification number of the
Company is 14-1507019.
The offices of the Company are located at 678 Aaron Court, Kingston, New York
12401 on February 26, 1999, which is the date of adoption of this Plan of
Complete Liquidation by the stockholders of the Company. Formerly, the
offices of the Company had been located at 71 Smith Avenue, Kingston, New
York 12401.
The Company is authorized to issue forty million (40,000,000) shares of
common stock, par value ten cents ($.10) per share on February 26, 1999. The
Company issued from time to time twenty-two million three hundred twelve
thousand five hundred twenty-four (22,312,524) shares of common stock, par
value ten cent ($.10) per share.
All of the twenty-two million three hundred twelve thousand five hundred
twenty-four (22,312,524) issued share of common stock, par value ten cents
($.10) per share, of the Company are fully paid, non-assessable and
outstanding on February 26, 1999 and held of record by approximately two
thousand five hundred (2,500) registered owners, some of whom hold as
nominees for an estimated one thousand five hundred (1,500) additional
beneficial owners.
The Company plan to sell all of its assets and to apply all of the net
proceeds of sales of its assets to pay some of the debts owed by the Company
to some of its creditors.
The Company plans to distribute none of its assets and none of the proceeds
of sale of its assets to any of the holders of its issued and outstanding
shares of common stock either as a dividend or as a distribution or
distributions in partial or complete liquidation on account of the shares of
common stock of the Company held by them.
Accordingly, the Company does not plan to ask the holders of its outstanding
shares of common stock to assign, transfer or deliver to the Company for
cancellation or for retirement any of the certificates for the twenty-two
million three hundred twelve thousand five hundred twenty-four (22,312,524)
issued and outstanding shares of common stock, par value ten cents ($.10),
of the Company.
At the time of its complete liquidation, the Company will have no liabilities
or obligations, except to pay state and federal income taxes and state
franchise taxes and to pay creditors, some of whom are affiliates or
associates of the largest stockholder of the Company, several million dollars
of outstanding debts which the net proceeds of the assets of the Company will
not be sufficient to satisfy. The Company will make an adequate reserve for
the taxes, if they will not have become due and will not have been paid
before the time of the complete liquidation of the Company.
Prior to the complete liquidation of the Company, the Company plans to
commence formal dissolution proceedings pursuant to the General Corporation
Law of the State of Delaware. The Company anticipates that its affairs will
be wound up in their entirety pursuant to the General Corporation Law of the
State of Delaware.
On the effective date of that filing, the stock transfer books for the shares
of common stock, par value ten cents (.10) per share, of the Company will be
closed and no further transfers of those shares will be effective, except to
the extent required by applicable law.
The Company anticipates that its affairs will be wound up in their entirety
pursuant to the General Corporation Law of the State of Delaware.
Exhibit 3.8
CERTIFICATE OF DISSOLUTION OF
NATIONAL MICRONETICS, INC.
PURSUANT TO SECTION 275 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
NATIONAL MICRONETICS, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY THAT:
FIRST: The name of the corporation is National Micronetics, Inc.
SECOND: The board of directors of the corporation, by the unanimous written
consent of its members, dated December 1, 1998, filed with the minutes of the
board, duly adopted the following resolutions:
RESOLVED, that it is deemed advisable in the judgment of the board
of directors of National Micronetics, Inc., a Delaware corporation (the
"Company"), that the Company should be dissolved in the State of
Delaware, when and as authorized by a resolution adopted by the holders
of a majority of the outstanding stock of the Company pursuant to
section 275(a) of the General Corporation Law of the State of Delaware;
and it is further
RESOLVED, that, after adoption by the stockholders of a resolution
approving the dissolution of the Company pursuant to section 275(b) and
payment of all franchise taxes which may be due and owing by the Company
to the State of Delaware pursuant to Section 277 of the General
Corporation Law of the State of Delaware, the president of the Company
is authorized to execute, to acknowledge and to file with the secretary
of state of the State of Delaware a certificate of dissolution of the
Company pursuant to Section 275(d) and Section 103 of the General
Corporation Law of the State of Delaware, among other things certifying
that such certificate of dissolution has been duly adopted in accordance
with Sections 216 and 275 of the General Corporation Law of the State
of Delaware, and to record a certified copy of that certificate of
dissolution of the Company with the recorder of New Castle County,
Delaware; and it is further
RESOLVED, that the president, treasurer and secretary of the
Company is authorized to execute and deliver whatever agreements,
certificates, instruments and documents and to take whatever steps may
be necessary or appropriate to effectuate the intent of the foregoing
resolutions.
THIRD: The following resolution was adopted and approved by the
affirmative votes of the holders of a majority of the issued and outstanding
shares of common stock of the corporation at an annual meeting of
stockholders which was duly called and held on February 26, 1999 and at which
a quorum was present and acting throughout:
WHEREAS, the Board of Directors of National Micronetics, Inc., a
Delaware corporation ("NMI"), on December 1, 1998 deemed it advisable
in its judgment that NMI should be dissolved and recommended that the
stockholders adopt a resolution to that effect and vote for the proposed
dissolution of NMI in the State of Delaware,
NOW, THEREFORE, it is
RESOLVED, that it is advisable in the judgment of the stockholders
that National Micronetics, Inc., a Delaware corporation ("NMI"), should
be dissolved in the State of Delaware.
FOURTH: The dissolution of the corporation has been authorized by the
board of directors and by the stockholders of the corporation, in accordance
with subsections (a) and (b) of Section 275 of the General Corporation Law
of the State of Delaware.
FIFTH: The names and addresses of the directors and officers of the
corporation are as follows:
DIRECTORS
Names Addresses
Dr. Heehwan Lee National Micronetics, Inc.
678 Aaron Court, Kingston,
New York 12401
P.O. Box 1128, Kingston,
New York, 12402
Mr. K. H. Chung Tae Il Media Co., Ltd.
333-18, Yang Jae-Dong
Seocho-Ku, Seoul
137-130, Korea
OFFICERS
Names Offices Address
Dr. Heehwan Lee Chairman of the National Micronetics, Inc.
Board, President, 678 Aaron Court, Kingston,
Secretary, New York 12401
Treasurer P.O. Box 1128, Kingston,
New York, 12402
IN WITNESS WHEREOF, said National Micronetics, Inc., has caused this
certificate to be signed by Heehwan Lee, its president, and to be attested
by Heehwan Lee, its secretary, this 15th day of September 1999.
NATIONAL MICRONETICS, INC.
By /s/Heehwan Lee
Heehwan Lee, President
Attest: /s/ Heehwan Lee
Heehwan Lee, Secretary
Exhibit 23.1
Consent of Independent Auditor's
The Board of Directors
National Micronetics, Inc.:
We consent to incorporation by reference in the Registration Statement Nos.
2-81098, 2-81456, 2-89221, 2-96120, 2-96139, 33-14778 and 33-33567 on Forms
S-8 of National Micronetics, Inc. of our reports dated September 20, 1999,
relating to the consolidated balance sheet as of June 27, 1998 and the
related consolidated statements of operations, changes in stockholders'
deficiency, and cash flows for the two-year period ended June 27, 1998, and
the consolidated statements of operations, changes in stockholders'
deficiency, cash flows and related schedule for the five-month period from
June 28, 1998 to December 1, 1998, and the consolidated statement of net
liabilities in liquidation as of June 26, 1999, and the related consolidated
statement of changes in net liabilities for the seven-month period from
December 2, 1998 to June 26, 1999, which reports appear in the June 26, 1999
annual report on Form 10-K of National Micronetics, Inc.
Our reports dated September 20, 1999 contain explanatory paragraphs that
state that on December 1, 1998, the board of directors of the Company adopted
a resolution to approve the dissolution of the Company and the stockholders
voted to approve the proposed dissolution at the annual meeting of
stockholders of the Company on February 26, 1999 and the Company has changed
its basis of accounting for periods subsequent to December 1, 1998, from the
going-concern basis to the liquidation basis, and the carrying values and all
liabilities are presented at estimated settlement amounts.
Our reports dated September 20, 1999, also contain an explanatory paragraph
that states that it is not presently determinable whether the amounts that
creditors agree to accept in settlement of the obligations due them will
differ materially from the amounts shown in the accompanying consolidated
financial statements. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of this uncertainty.
Because of the possible material effect of the matter discussed in the
preceding paragraph, we are unable to express, and do not express, an opinion
on the consolidated financial statements and schedule referred to above.
As discussed in note 11 to the consolidated financial statements, the Company
is a defendant in a lawsuit brought about as the result of an accident
involving a Company automobile. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any liability
that may result upon adjudication has been made in the accompanying
consolidated financial statements and schedule.
Sung I. Rhee, C.P.A.
Fort Lee, New Jersey
September 23, 1999
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