UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED
December 25, 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
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
As of December 25, 1999, the registrant had 22,312,524 shares
of Common Stock issued and outstanding.
NATIONAL MICRONETICS, INC.
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statement of Net Liabilities - In
Liquidation - December 25, 1999..................... 3
Consolidated Statement of Changes in Net Liabilities
In Liquidation for the six months ended
December 25, 1999................................... 4
Consolidated Statements of Operations - For the
period five months ended December 1, 1998............5
Consolidated Statements of Cash Flows - For the
five months period ended December 1, 1998............6
Notes to Consolidated Financial Statements .........7-10
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations ....11-13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk .........................................14
Part II. Other Information
Item 1. Legal Proceedings ....................................14
Item 2. Changes in Securities and use of Proceeds.............14
Item 3. Defaults upon Senior Securities ......................14
Item 6. Exhibits and Reports on Form 8-K .....................15
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET LIABILITIES
In Process of Liquidation
(In Thousands)
December 25, 1999
(unaudited)
Cost Current
Basis Value Basis
ASSETS
Cash and cash equivalents $ 15 $ 15
Other current assets 31 31
Property, plant and
equipment, net (note 1) 50 61
TOTAL ASSETS $ 96 $ 107
LIABILITIES
Accounts Payable $ 210 $ 210
Other accrued expenses 202 202
Short-term debt 8,397 8,397
Due to related parties, net 2,392 2,392
Total liabilities $ 11,201 $ 11,201
NET LIABILITIES $ 11,105 $ 11,094
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Net Liabilities
In Process of Liquidation (unaudited)
(In Thousands)
Six Months Ended
December 25, 1999
Cost Current Value
Basis Basis
Net liabilities,
at beginning of period $ 10,817 $ 10,657
Add:
Salary expense 55 55
Overhead expense 13 13
Interest expense 334 334
$ 402 $ 402
Deduct:
Sale of properties
and others 114 -
Current value
Adjustments - (35)
$ 114 $ (35)
Net liabilities,
at end of period $ 11,105 $ 11,094
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
Five
Months
Ended
Dec. 1,
1998
Net Sales $ -
Cost and expenses:
Cost of products sold 245
Research, development
and engineering 31
Selling and administration 98
374
Income (Loss) from
operations ( 374)
Other deductions (income):
Interest expense 300
Other (income) expense,net ( 79)
$ (221)
Net loss $( 595)
Net loss per common share $( .02)
Average common shares
outstanding 22,313
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Five
Months
Ended
Dec. 1,
1998
Cash flows from operating activities:
Net income (loss) $ (595)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 150
Retirements of property and equipment 38
Changes in operating assets and liabilities:
Decrease (Increase) in inventories -
Decrease (Increase) in other current assets 33
Increase (Decrease) in accounts payable
and accrued expenses 65
Increase (Decrease) in due to related parties 298
Net cash provided (used) by
operating activities ( 47)
Cash flows from financing activities:
Purchase of plant and equipment -
Repayment on long-term debt and
capitalized lease obligations -
Proceeds of short-term debt -
Increase in short-term debt to related parties 60
Net cash provided (used) by
financing activities 60
Net increase (decrease) in cash and cash
equivalents 13
Cash and cash equivalents at beginning
of period 22
Cash and cash equivalents at end of period $ 35
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. 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 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 carrying value of the
remaining assets as of December 25, 1999, are presented at
estimated realizable values and all liabilities are presented
at estimated 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.
In the opinion of the Company, except for the effect, if any,
of not adjusting the carrying value of all liabilities as
discussed in the proceeding paragraph, the accompanying
unaudited consolidated financial statements contain all
adjustments necessary to present fairly the net liabilities in
liquidation of the Company as of December 25, 1999, and the
changes in its net liabilities in liquidation for the six months
period ended December 25, 1999.
The current value amounts are based on estimates of fair values
at December 25, 1999, as follows:
Property, plant and equipment, net - value determined by
sales contract, 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.
2. The Company is 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, total current
liabilities were reduced for $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.
The Company benefitted from the sale of its real estate to the
City of New York and D. K. Shah Properties, Inc. primarily by
avoiding a petition in bankruptcy by the Company or by the
creditors of the Company, though the Company can make no
assurances that the remaining creditors of the Company will not
seek to file a petition in bankruptcy against it.
The affiliates of the Company benefitted from the sale of its
real estate to the City of New York and D. K. Shah Properties,
Inc. primarily because net proceeds of sale would be available
to satisfy debts of the Company to Gigamax Corporation, Tae Il
Magnetics, Co., Ltd., Tae Il U.S.A., Inc., Tae Il Media Co.,
Ltd., Newmax Co., Ltd. or Techmedia International Corporation,
in some of which Mr. K. H. Chung and Dr. Heehwan Lee, directors
of the Company, and Dr. Yoon H. Choo, a former director of the
Company, may be deemed to have an interest.
On September 14, 1999, the Company sold part of its real estate
for two hundred seventy-five thousand dollars ($275,000.00) in
cash to D. K. Shah Properties, Inc., 27 Grand Street, Kingston,
New York. The terms of the transaction are set forth in an
agreement of purchase and sale dated April 20, 1999 between the
Company and D. K. Shah Properties, Inc., a copy of which was
filed on October 12, 1999 with the Securities and Exchange
Commission as Exhibit 13.1 of the form 8-K.
3. Over seventeen months of interest payments totaling
approximately $224,302 were due the primary lending institution
at March 10, 1999 in respect of the term loan note, which had
matured on November 26, 1997. 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 $506,000 at December 25, 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.
4. Loss per common share has been determined on the basis of the
weighted average number of common shares outstanding during the
respective quarters. At December 25, 1999 and December 1, 1998
there was no dilutive effect from common stock options or
warrants.
5. The Company is a defendant in a lawsuit brought as the result
of an accident involving a Company automobile. The total of the
damages claimed in the causes of action is $7,700,000. The
summons designates the Supreme Court State of New York, County
of New York, as the place of trial. The Company's insurer has
assumed responsibility and is defending the Company; however
the damages claimed exceed the $300,000 policy limits.
Depositions are scheduled for May 1999, but were postponed and
no new date was scheduled. 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") 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 date 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Results of Operations
The following table sets forth, for the periods indicated the
relative percentages that certain items in the Company's Consolidated
Statement of Operations for the quarter ended September 26, 1998 and
in the Company's Consolidated Statement of Changes in New Liabilities
- - in Liquidation - for the quarter ended December 25, 1999 bear to
net sales. On December 1, 1998, the Company decided to discontinue
all business operations, to wind up its affairs and to dissolve, and
stockholder approval was obtained on February 26, 1999. Therefore,
there were no net sales during the quarter ended December 25, 1999.
See Note 1 to Consolidated Financial Statements.
Five Months Ended December 1, 1998
Six Months Ended December 25, 1999
Income and Expense
Items as percent Percent Change
of sales in dollars
1999 1998 from 1998-1999
Net Sales 0% 0% 0 %
Cost of products sold N/A 0 (N/A)
Gross Profit (loss) N/A 0 (N/A)
Research, development & engineering N/A N/A (N/A)
Selling and administration N/A N/A (N/A)
Other deductions (income) N/A N/A
Net earnings (loss) N/A % N/A% (N/A)%
Material Changes in Financial Condition
The consolidated statement of net liabilities at December 25, 1999
shows $2,392,000 of due to related parties. This balance increased
since September 26, 1999 by $169,000 as a result of increases in
interest expense of $169,000 on related party debt remaining unpaid.
Liquidity and Capital Resources
The plan of complete liquidation which the board of directors of the
Company adopted on December 1, 1998 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 and thus dissolved. Currently the Company has few
assets, including a parking lot which the Company is negotiation 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 proceed 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. 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.
Revolving Credit Loan Agreement. The Company entered into a
revolving credit loan 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 Co., Ltd. affiliate
(guarantor) named Tae Il Magnetics Co., Ltd.
Default of Revolving Credit Loan. The $2,741,000 loan was in default
before its maturity on November 18, 1997. The amount of interest in
default and in arrears was $506,000 at December 25, 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 named Tae Il Magnetics, Co., Ltd.
which had provided a mortgage on its Korean real estate as collateral
for the 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.
Debt Restructuring Proceedings in Korea. 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.
Sources of Liquidity. 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 anticipated 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 appoint a receiver for its
assets.
No Funds to Pay Stockholders.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
According to Item 305(e) of Regulation S-K and Rule 12b-2, the
Company need not provide the information required by Item 305 about
quantitative and qualitative disclosures about market risk, because
the Company is a small business issuer.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See note 5 to the consolidated financial statements included herein
on pages 7 to 10 for a discussion of current legal proceedings.
Item 2. Changes in Securities and use of Proceeds.
On September 20, 1999, the Company dissolved pursuant to authority
of its board of directors and its stockholders. Thus, pursuant to
its plan of complete liquidation, which was filed as Exhibit 2.2 to
its annual report on Form 10-K for the fiscal year ended June 26,
1999, the stock transfer books for the shares of common stock, par
value ten cents ($.10) per share, of the Company closed and no
further transfers of those extent required by applicable law.
Since the Company has been dissolved, the Company may not issue any
more shares on common stock, par value ten cents ($.10) per share,
for any purpose, including exercise of stock options or rights to
purchase additional shares of common stock pursuant to an agreement
with the Company. Delaware law allows a dissolved corporation to pay
dividends or the make distributions in liquidation in respect of its
outstanding shares of common stock; however, the distribution in
respect of this outstanding shares of common stock. See No Funds To
Pay Stockholders in Part I - FINANCIAL INFORMATION, Item 2,
Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 13 above.
Item 3. Defaults Upon Senior Securities.
The institutional lender completed collection proceedings against the
letter of credit in the amount of $2,789,000 securing payment of the
revolving credit note, which had matured on November 18, 1997. The
amount of interest in default and in arrears as of December 25, 1999
is $506,000 in respect of the revolving credit note and the amount
of the principal balance of the revolving credit note is $2,741,000.
An affiliated company, Tae Il Magnetics, Co., Ltd., which had
provided a mortgage on its real estate in Korea as collateral for
that Korean bank letter of credit will become entitled to assert a
claim against the Company for any amounts which may be 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.
See note 3 on page 9 and the caption Liquidity and Capital Resources
on page 11 to 12 for additional discussions concerning defaults on
the revolving credit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27 Financial data schedule.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on October 12,
1999 in order to report under Item 2, Acquisition or Disposition of
Assets, the sale of substantially all of the assets of the Company
on September 14, 1999 and to file under Item 7, Financial Statements
and Exhibits, the following:
Pro forma financial information.
Unaudited consolidated condensed pro forma statement of net
liabilities of the Company and its subsidiaries as of June 26,
1999.
Unaudited consolidated condensed pro forma statement of changes
in net liabilities of the Company and its subsidiaries for the
period from December 2, 1998 to June 26, 1999.
Unaudited consolidated condensed pro forma statement of
operations of the Company and its subsidiaries for the period
from June 28, 1998 to December 1, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NATIONAL MICRONETICS, INC.
By Dr. Heehwan Lee
Dr. Heehwan Lee
President, Chief
Executive Officer
and Treasurer
(Principal Financial
Officer)
Dated: February 09, 2000
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