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 is 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 since May 10, 1991, the Company is principally an integrated manufacturer of magnetic recording heads primarily for computer disk drives. The Company is currently primarily performing pilot projects concerning ferrite bars, cores and recording head assemblies.
The Company has begun the distribution and sale of other products. Some, such as electrical light fixture ballasts and tee shirts, are imported and outside its previous markets. The Company is dependent upon other manufacturers and vendors for production and assembly work.
Sales and Customers
The Company's computer products are sold to original equipment manufacturers. Because product life cycles for computer products are relatively short, sales in one period are not necessarily indicative of future sales. At any given time, the Company is likely to be dependent on sales of specific computer products to specific customers. Please refer to note 9 to the consolidated financial statements on page 39 for an analysis of export sales of computer products, exports of which comprised 75% of net sales in fiscal 1996.
The past sales and customers of the Company may not be indicative of its future sales and customers, since during the two fiscal years ended June 24, 1995, the Company had sold most of its assembly line production equipment for manufacturing ferrite cores and slider assemblies and is contemplating selling different products in new markets. The Company has sold and solicited orders for electronic light ballasts and tee shirts.
In fiscal 1996, one customer, Newmax, accounted for 67% of net sales on a consolidated basis. Victas, Inc., accounted for 13% of net sales in fiscal 1996. See footnote 9 on page 39 for a summary of major customers and footnote 10 to the consolidated financial statements on pages 39 and 40 for a discussion of related party transactions.
Backlog A comparison of backlog at fiscal year-end is shown below:
June 29, 1996 June 24, 1995 (in thousands) $ 878 $1,300
Backlog (primarily Tae Il/Newmax orders at June 29, 1996) includes only those orders for which a delivery schedule has been specified by the customer, although such orders may be subject to cancellation or modification by the customer without significant penalty. The backlog at June 29, 1996 includes $154,000 in tee shirt orders. Sales fluctuations are not seasonal and often are not anticipated.
Competition The Company's principal market is supplying recording heads primarily for computer disk drives. Newmax, Tae Il and their related entities (see Item 10, under the caption Relationships and Beneficial Interests) are larger and better capitalized than the Company, which has become almost entirely dependent upon them for working capital, assembly facilities, personnel, sales revenue and for bank loan financing. Physical proximity to customers does not significantly affect competition for computer components due to low shipping costs for this small and light product. Competition from both recording head and ferrite core suppliers is principally in the areas of price, quality and product performance. In addition to changes within the disk storage market, other types of computer memory technologies may become competitive with current disk drive applications.
The Company has recently entered two new, unrelated markets - electrical light fixture ballasts and tee shirts - both of which are highly competitive. The Company has not yet ascertained whether there are other markets in which it will actively compete for significant market share though the Company has given substantial consideration to at least two product lines as to which final decisions have not been made.
Research, Development and Engineering During fiscal years 1996 and 1995 the Company spent approximately $231,000 and $259,000, respectively, in connection with continuing engineering and product development of computer related products. Research and engineering efforts are currently being directed toward the enhancement of its floppy disk drive and tape drive recording head products. For the past four years there has been substantial direct support from Newmax and Tae Il of manufacturing operations and current product lines.
The Company is currently performing technical and market research on products that could be sold by the Company. Many of these products are outside the Company's previous markets and many would be manufactured for the Company by contractors or vendors.
Employees At June 29, 1996 the Company actively employed 45 persons.
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.
Item 2. Properties The Company's corporate offices are located at 71 Smith Avenue, Kingston, New York, 12401. The Company's operations are conducted from 83,000 square feet of facilities located in Kingston, New York, owned by the Company, and mortgaged by an institutional lender. The loan from the institutional lender has been in default since June 30, 1995. In addition to the above, the Company sold a 5,400 square foot building on September 7, 1995 and vacant buildings totalling 42,000 square feet remain available for sale.
The Company believes that its facilities and the equipment located therein are in good working condition and are adequate and sufficient for the current conduct of its business. The Company has sold or disposed of idle and obsolete equipment and could not return to the production volumes of previous years without significant changes in operations or use of subcontractors. The Company is dependent upon its parent companies for contract production assembly facilities. See Item 1 above and note 2 to the consolidated financial statements on page 34 for a discussion of efforts to overcome underutilization of facilities.
Item 3.
Item 3. Legal Proceedings The Company is not a party to any material legal proceedings, except that 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 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.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders The last annual meeting of stockholders of the Company was held on March 20, 1991. 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.
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 High Low
First Quarter $ N/A $ N/A Second Quarter .01 .01 Third Quarter N/A N/A Fourth Quarter .001 .001 First Quarter .02 .001 Second Quarter .02 .001 Third Quarter N/A N/A Fourth Quarter N/A N/A
(b). Approximate Number of Equity Security Holders
The approximate number of holders of record of the Company's common stock as of August 31, 1996 was 2,500.
(c). Dividends
The Company has not paid any cash dividends on its Common Stock. Due in part to the working capital deficiency of $11,069,000 and the stockholders' deficiency of $7,933,000 as of June 29, 1996, the Company does not anticipate paying dividends for the foreseeable future.
Item 6.
Item 6. Selected Financial Data
Selected Consolidated Statement of Operations Data (in thousands, except per share amounts)
Year Ended In June 1996 1995 1994 1993 1992 Net sales $ 4,151 $ 3,822 $ 7,227 $12,664 $ 7,397 Cost of products sold 3,605 3,849 7,777 15,287 10,222 Gross profit (loss) 546 (27) (550) (2,623) (2,825) Research, development and engineering expense 231 259 481 887 1,141 Selling and administration expense 849 712 816 849 169 Loss before income taxes (1,336) (1,599) (2,699) (5,083) (5,079) Net loss (1,336) (1,599) (2,699) (5,083) (5,079) Net loss per common share $ (0.06) $ (0.07) $(0.12) $ (0.23) $(0.25) Weighted average shares outstanding 22,313 22,313 22,313 22,313 20,726 Cash dividends - - - - -
Selected Consolidated Balance Sheet Data (in thousands)
Year Ended in June 1996 1995 1994 1993 1992 Working capital deficiency $(11,069) $(10,806) $(11,267) $(12,846) $(4,783) Total assets 4,817 5,400 5,449 6,819 12,772 Long-term debt and lease obligations, including current portion 4,363 4,626 4,494 5,408 6,618 Stockholders' deficiency (7,933) ( 7,059) (6,514) (6,986) (2,469)
The reasons for the significant changes in net sales and cost of products sold, the significant net losses and the decline in assets are discussed at Item 7, Management's Discussion and Analysis of Financial Condition, and Results of Operations.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 1992 began with the lay-off of 40 non-production employees. The Philippine assembly operation of the Company's independent contractor was closed during August to reduce costs. Total employment was at or about 100 for six months. The remaining 40 production employees were utilized primarily for engineering experiments to improve the production process. Net sales for the first six months of fiscal 1992 were a very disappointing $1,390,000. Every effort was made to reduce overhead spending, but it was impossible to attempt to break even at this low a sales volume.
During the third quarter of fiscal 1992, the Company began to see signs of improvement. The Company rehired 100 production employees during the quarter to work on orders for metal-in-gap recording head ("MIG") products. Work-in-progress increased significantly as the Company prepared for fourth quarter deliveries.
Net sales for the fourth quarter of fiscal 1992 were $4,615,000. The backlog exceeded $7 million at May 4, 1992 and $5 million at June 27, 1992. The fourth quarter and full year results benefited by the recording of the value of Maxtor Corporation common stock received from Maxtor as a result of the Miniscribe bankruptcy. The stock was recorded as a recovery within selling and administrative expenses of $883,000. At year-end the stock was reduced to market value of $689,000 by a charge to other expense of $194,000.
The Company sold its Maxtor stock for $1,089,000 in late August and early September 1992 pursuant to a registration statement filed by Maxtor. The gain on the sale of $400,000 was recorded in other income during the first quarter of fiscal 1993. The improved sales trend established during fiscal 1992 continued through the first half of fiscal 1993. Sales began to decline during the third quarter of fiscal 1993 as the demand for MIG products with a single sputtered surface declined. The Company continued to sell significant quantities of established products as it intensified efforts to develop a double MIG product. The Company qualified a double MIG product with one customer. The Company continued efforts to qualify double MIG products with additional customers.
Fiscal 1994 began with increasing volume of double MIG slider sales as well as an increase in sales of floppy recording head bars. The sale of MIG products dropped significantly after December 1993 and stopped by the end of February 1994. Sales of floppy recording head bars increased significantly beginning in February 1994 and represented the majority of sales recorded for the rest of fiscal year. The Company continued efforts to obtain orders for double MIG products throughout fiscal 1994. The dramatic changes in disk drive design and ready availability of thin-film recording heads combined to make a very difficult market for selling double MIG products.
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.
Current levels of production are low by historic standards for the Company. The Company recognizes it must significantly increase production to absorb the engineering and other overhead of its products. Further increases in production are dependent upon receiving larger orders from current customers and cooperation of parent companies or independent contractors. Due to the "customer specific" nature of the Company's products and qualification procedures, these increases require time and patience to materialize.
Fiscal Year Ended June 29, 1996 ("1996") Compared to Fiscal Year Ended June 24, 1995 ("1995")
Net Sales.
The Company's net sales increased by $329,000, or 9%, over 1995. The increase is due to sales of tee-shirts of $543,000 offset by a decline in sales of recording head products to related parties.
Gross Profit.
Gross profit, as a percentage of sales, increased from a negative 1% in 1995 to 13% in 1996. This improvement is due to reductions in material and overhead spending as well as a significant reduction in depreciation charged to operations as a result of fixed assets becoming fully depreciated.
Research, Development and Engineering.
Research, development and engineering ("R & D"), as a percentage of sales, decreased from 7% in 1995 to 6% in 1996. The decrease is primarily due to tee-shirt sales, which require no R & D activity, and a reduction in facility overhead charged to the R & D department.
Selling and Administration.
Selling and administration expenses ("S & A"), as a percent of sales, increased from 19% in 1995 to 20% in 1996. The increase in S & A as a percent of sales is due primarily to the costs associated with developing new markets for the new product lines being introduced during 1996.
Interest Expense.
Interest expense decreased by $46,000 or 5% from 1995 to 1996. This is a result of a 3/4% decrease in the prime rate during fiscal 1996 and a reduction of total long-term debt.
Fiscal Year Ended June 24, 1995 ("1995") Compared to Fiscal Year Ended June 25, 1994 ("1994")
Net Sales.
The Company's net sales decreased by $3.4 million, or 47%, from 1994 to 1995. The decrease was due to a reduction in orders from and sales to the Company's parent (Newmax) and affiliates.
Gross Profit.
Gross profit, as a percentage of sales, improved from a negative 8% in 1994 to a negative 1% in 1995. This improvement was due to a reduction in sales of finished products with high labor content and lower than average margins.
Research, Development and Engineering.
Research, development and engineering ("R & D"), as a percentage of sales, remained constant at 7% of sales for both 1994 and 1995. The R & D effort was adjusted consistent with the decline in sales during this period.
Selling and Administration.
Selling and administration expenses ("S & A"), as a percentage of sales, increased from 11% in 1994 to 19% in 1995. The increase in S & A as a percent of sales is due primarily to the inability to make significant reductions in administrative costs as sales declined from 1994 to 1995.
Interest Expense.
Interest expense increased by $42,000 or 5% from 1994 to 1995. This is the result of an increase of 3/4% in the prime interest rate from 1994 to 1995 and a revision in the term loan increasing the stated rate from prime to prime plus 1%.
Inflation Prices in the peripheral data storage market do not ordinarily increase to offset the effects of inflation. The Company anticipates that inflationary effects on its costs will be largely offset through productivity increases. The Company has curtailed production of certain products due to the inability to obtain price increases and reduce costs.
Liquidity and Capital Resources 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 December 23, 1994 the lending institution agreed to a modification of repayment terms resulting in quarterly payments due from September 30, 1996 through June 30, 1997. The balance remaining unpaid on this loan is $2,741,000 as of June 29, 1996 and $2,841,000 as of June 24, 1995. Although the Company has not made principal payments and is therefore in default, monthly interest payments have been made within 90 days of their respective due dates. Collateral provided by a Newmax affiliate (guarantor) included a letter of credit issued by a Korean bank. The current letter of credit for $2,850,000 expires November 19, 1996 and must be replaced at that time. The Company expects the letter of credit to be renewed upon maturity. The Company entered into a $3,000,000 term loan agreement with the same lending institution on November 5, 1991. On December 23, 1994 the lending institution agreed to a modification of repayment terms resulting in quarterly payments due from June 30, 1995 through June 30, 1996. The balance remaining unpaid on this loan is $1,611,000 as of June 29, 1996 and $1,645,000 as of June 24, 1995. Although the Company has not made principal payments and is therefore in default, monthly interest payments have been made within 90 days of their respective due dates.
The term loan and the May 1991 revolving credit loan are secured by substantially all the assets of the Company, including a $7,000,000 first mortgage on the facilities of the Company in Kingston, New York. The term loan has been guaranteed by the related parties Newmax, Co., Ltd., Tae Il Media Co., Ltd. and Mr. K.H. Chung. The term loan requires principal payments of $1,611,000 in fiscal 1997, as all payments are past due.
The Company had no material commitments for capital expenditures as of June 29, 1996. Depreciation has exceeded capital expenditures by at least $500,000 per year for the last three years. Required repayments of long-term debt for fiscal 1997 are $3,752,000. The repayment terms with the primary lending institution had been modified to decrease the payments originally scheduled for fiscal 1995 and increase payments that will be required for fiscal 1997. The Company did not make the $329,000 payment due on June 30, 1995 or subsequent quarterly payments, due to its limited cash resources and thereby defaulted on the lending agreements. Therefore, $611,000 of payments originally due after June 29, 1997 have been reclassified as current liabilities. A revised payment schedule is being discussed with the primary lending institution, but no agreement has been reached as to terms. The primary lending institution has not issued any notices of default or acceleration or initiated any legal action against the Company.
The Company is hopeful that funds generated by operations and received from Newmax will be adequate to fund production, new product development, debt service and other operational needs. Although there is no firm commitment, affiliated parties and parents are expected to advance funds on a short-term as needed basis to offset operational cash shortfalls. Management believes that the combination of reduction in overhead spending, continued cooperation of parent companies and their affiliates, cooperation of the institutional lender and development of new distribution markets for non-manufactured products will enable the Company to remain viable for the next twelve months. See note 2 to the Company's consolidated financial statements included herein (page 34) for a further discussion of liquidity and management's action plan.
Item 8.
Item 8. Financial Statements and Supplementary Data The information called for by item 8 is set forth on pages 24 to 41 and listed on page 24 of this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III
Item 10.
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. Yoon H. Choo,......Chairman, President, 1990 - 58 Chief Executive Officer, Secretary and Treasurer
Dr. Heehwan Lee,.......Vice President and 1990 (2) - 46 Chief Operations Officer
Mr. K.H. Chung,........President, Tae Il Media 1990 (1) (2) - 51 Co., Ltd. Ansan City & 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.
(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. Yoon H. Choo was elected Chairman of the Board in January 1991. He was elected President, Chief Executive Officer, Secretary and Treasurer on February 11, 1991. He has been a director of the Company since December 1990. He has been President of Tae Il USA, Inc. since 1984, and Gigamax Corporation since 1989. Tae Il USA, Inc. and Gigamax Corporation are affiliates of the Company and are engaged in businesses which are similar to that of the Company. He previously had more than seven years experience with Digital Equipment Corporation.
Dr. Heehwan Lee has been a director since December 1990. He was elected Vice President and Chief Operations Officer on March 1, 1992. 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 are 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 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 are engaged in businesses which are 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.
Relationships and Beneficial Interests
Newmax designated Mr. K.H. Chung, Dr. Yoon H. Choo 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.
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 own 30 percent of the common stock of Newmax.
Mr. K. H. Chung owns approximately 3 percent of the common 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 25 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 14 percent of the capital stock of Newmax.
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.
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 is related by blood or marriage to Mr. K.H. Chung, Dr. Heehwan Lee and Dr. Yoon H. Choo, 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.
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 1995 and 1994 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, ($1,281,000 and $610,000 in fiscal 1995 and 1994 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 $5 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, President of the Company. Payment of interest with respect to fiscal year 1996, however, was forgiven. See note 10 to the Company's consolidated financial statements included herein (page 39) 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 5 to the Company's consolidated financial statements included herein (page 35) for a further discussion of short-term debt and related party assistance and note 6 (page 36) for a further discussion of long-term debt and related party assistance.
Board and Committee Meetings
The Board of directors has a standing Audit Committee, but does not have a Nominating Committee or Compensation Committee.
The functions of the Audit Committee include recommending the appointment of independent auditors, reviewing with the independent auditors the results of the annual audit, reviewing the independence of the auditors, determining the appropriateness of fees for audit and non-audit services provided by independent auditors and reviewing transactions between the Company and associates of the directors or officers of the Company.
During fiscal 1996 and 1995 there were no meetings of the Board of Directors, and no meetings of the Audit Committee. The Independent Public Accountants attended no meetings.
Item 11.
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 Year Annual Salary
Dr. Yoon H. Choo, 1996 $ 80,000 Chairman, President and Chief 1995 $ 80,000 Executive Officer 1994 $ 80,000
There are no other officers whose total annual salary and bonus exceeds $100,000.
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 1996 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 are affiliates 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 were parents of the Company. Mr. K.H. Chung also served as a member of the Board of Directors of the Company for fiscal 1996 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 owns 3 percent of the capital stock of Media and 6 percent of the capital stock of Magnetics.
See Transactions with Management and Others on page 13. Also see Relationships and Beneficial Interests on pages 12-13 with respect to the ownership by Media and Magnetics of 30 percent of the outstanding shares of capital stock of Newmax and the ownership of Newmax of 47.1 percent of the outstanding shares of common stock of the Company, as well as the ownership by Media of 25 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.
Dr. Yoon H. Choo 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 5 and 10 to the consolidated financial statements on pages 35 and 39 because of his control over those two companies.
Dr. Heehwan Lee may be deemed to have a material indirect interest in the transactions between the Company and each of Newmax and Media and in the credit enhancements provided by Newmax and Media to the Company, as described in notes 5, 6, and 10 to the consolidated financial statements on pages 35, 36 and 39-40, respectively, 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.
Mr. K.H. Chung has a direct material interest in the credit enhancement which he personally provides to the Company and may be deemed to have an indirect material interest in the transactions between the Company and each of Newmax and Media and in the credit enhancements provided by Newmax and Media to the Company as described in notes 5, 6, and 10 to the consolidated financial statements on pages 35, 36, and 39-40, respectively.
Mr. K.H. Chung, who is a director of the Company, a representative director and president of Media, a 3 percent stockholder of Media, and a 6 percent stockholder of Magnetics, has a direct material interest in the credit enhancement which he personally provides to the Company and may be deemed to have an indirect material interest in the transactions between the Company and each of Media and Newmax, and in the credit enhancements provided by Newmax and Media to the Company, as described in notes 5, 6 and 10 to the consolidated financial statements on pages 35, 36 and 39-40, respectively. Newmax owed the Company $12,000 and the Company owed Media $1,195,000 as of June 29, 1996.
Dr Heehwan Lee, who is a director and the vice president and chief operations officer of the Company, the vice president of Media 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, and in credit enhancements provided by Newmax and Media to the Company, as described in notes 5, 6, and 10 to the consolidated financial statements on pages 35, 36, and 39-40. Newmax owed the Company $12,000 and the Company owed Media $1,195,000, respectively, as of June 29, 1996.
Dr. Yoon H. Choo, who is a director, the chairman, the president, the treasurer, and the secretary of the Company, a director and the president of Gigamax Corporation and a director and the president 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 5 and 10 to the consolidated financial statements on pages 35 and 39-40, respectively. The Company owed Gigamax $4,896,000, in principal and $1,370,000 of net accrued expenses (primarily interest accrued prior to June 24, 1995), as of June 29, 1996.
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 $183,000 at June 29, 1996. Board members are 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. Based upon the terms of the agreement, it automatically renews for another year on each anniversary date. The agreement requires periodic salary payments totaling $150,000 per year. Effective November 18, 1991, the salary was renegotiated down to $80,000 per year due to continuing losses of the Company. The agreement provides for payment of one year's salary in the event of contract non-renewal or termination of employment. In the event of a change in control, then a change in title or responsibilities is contractually defined as a termination of employment.
Item 12.
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 4, 1996. 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
Gwang Jai Koh ................................10,500,000 47.1% Jung Kyun Bae Indirect owner (2) Hong Kyu Shin shared voting Jeong Soo Choi power, shared Y.R. Kwon investment power 456-1 Moknae-Dong Ansan, Kyunggi-Do 425-100, Korea
Dae Bang Venture Capital Co., Ltd. ...........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% K.H. Chang Indirect owner (2) Y.W. Kim shared voting K.W. Oh power, shared C.D. Um investment power D.H. Koo 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.
(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 262,643 2.7% 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 935,595 29.8% of Newmax Indirect owner (2) Co., Ltd. (1) Shared voting power Shared investment power
Capital Stock Heehwan Lee 410,006 13.6% of Newmax Indirect owner (2) Co., Ltd. (1) Shared voting power Shared investment power
Capital Stock Directors and 935,595 29.8% of Newmax Executive Indirect owners (2) Co., Ltd. Officers as a Shared voting power Group Shared investment power
(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.
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 2,5,6,9, and 10, 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.
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 Accountants are incorporated in Part II of this report (see index on page 24).
2. Financial Statement Schedules
Included In Part IV of this report:
Page # Independent Auditors' Report on Schedule 42
Schedule II- Valuation and Qualifying Accounts 43
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 is 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 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).
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).
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 Promissory Note dated May 10, 1991 in the maximum principal amount of $4,000,000 payable by the Company to Shinhan Bank New York Branch (Incorporated by reference to Exhibit (4) (c) to the Report on Form 8-K dated May 10, 1991, Commission File Number 0-7207).
4.3 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 10Q for the quarter ended September 28, 1991, Commission File Number 0-7207).
4.4 Promissory Note dated November 5, 1991 in the principal amount of $3,000,000 payable by the Company to Shinhan Bank New York Branch (Incorporated by reference to Exhibit 4.2 to the quarterly report on Form 10Q for the quarter ended September 28, 1991, Commission File Number 0-7207).
4.5 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 10Q for the quarter ended September 28, 1991, Commission File Number 0-7207).
4.6 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 10Q for the quarter ended September 28, 1991, Commission File Number 0- 7207).
4.7 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).
4.8 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).
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 Warrant which is Exhibit B to the Second Restated Credit Agreement between the Company and Wells Fargo Bank, N.A. dated June 30, 1986 (Incorporated by reference to Exhibit 10.5 to the annual report on form 10-K for the year ended June 28, 1986, Commission File Number 0-7207). 10.3 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).
10.4 Letter dated December 26, 1990 from the Company to Wells Fargo Bank, N.A. in respect of the Warrant dated July 23, 1986 (Incorporated by reference to Exhibit 10.16 to the annual report on Form 10-K for the year ended June 29, 1991, Commission File Number 0-7207).
10.5 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).
21. Subsidiaries of the Company (Incorporated by reference to Exhibit 22 to the annual report on Form 10-K for the year ended June 30, 1990, Commission File Number 0-7207).
23. Consent of KPMG Peat Marwick LLP 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.
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.
By DR. YOON H. CHOO Dr. Yoon H. Choo President and Chief Executive Officer
Dated: September 18, 1996
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 18th day of September, 1996.
Signature Title
DR. YOON H. CHOO Chairman of the Board of Directors, (Dr. Yoon H. Choo) President, Chief Executive Officer, Treasurer and Secretary (Principal Executive, Financial and Accounting Officer).
DR. HEEHWAN LEE Director, Vice President and Chief (Dr. Heehwan Lee) Operations Officer
Director (Mr. K.H. Chung)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedule
Pages
Independent Auditors' Report 25
Consolidated Balance Sheets as of June 29, 1996 and June 24, 1995 26-27
Consolidated Statements of Operations for the years ended June 29, 1996, June 24, 1995 and June 25, 1994 28
Consolidated Statements of Changes in Stockholders' Deficiency for the years ended June 29, 1996, June 24, 1995 and June 25, 1994 29
Consolidated Statements of Cash Flows for the years ended June 29, 1996, June 24, 1995 and June 25, 1994 30-31
Notes to Consolidated Financial Statements 32-41
Independent Auditors' Report on Schedule 42
Schedule of Valuation and Qualifying Accounts 43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders National Micronetics, Inc.:
We have audited the accompanying consolidated balance sheets of National Micronetics, Inc. and subsidiaries as of June 29, 1996 and June 24, 1995, and the related consolidated statements of operations, changes in stockholders' deficiency, and cash flows for each of the years in the three-year period ended June 29, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to report on these consolidated financial statements based on the results of 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.
The accompanying consolidated financial statements have been prepared assuming that National Micronetics, Inc. and subsidiaries will continue as a going concern. The Company has suffered recurring losses from operations and has net capital deficiencies. As a result of these recurring losses, the Company has experienced a significant deterioration in liquidity. The Company has received funding for operations from its parent, Newmax Co., Ltd., and affiliated companies in the current and prior years; however, the Company has no guarantee that this funding will continue. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Because of the effects on the consolidated financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty discussed in the preceding paragraph been known, we are unable to, and do not, express an opinion on the accompanying consolidated financial statements as of June 29, 1996 and June 24, 1995, and for each of the years in the three-year period ended June 29, 1996.
KPMG PEAT MARWICK LLP Albany, New York August 28, 1996
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 29, 1996 and June 24, 1995 (in thousands)
ASSETS
1996 1995 Current assets (note 6): Cash and cash equivalents $ 464 $ 538 Trade receivables (less allowance of $132 in 1996) 233 125 Inventories (note 3) 902 814 Prepaid and other current assets 82 78
Total current assets 1,681 1,555
Property, plant and equipment, at cost (notes 4 and 6) 12,129 17,173 Less accumulated depreciation and amortization ( 8,993) (13,328)
Net property, plant and equipment 3,136 3,845 $ 4,817 $ 5,400
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - Continued
June 29, 1996 and June 24, 1995
(in thousands, except common share amounts)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
1996 1995
Current liabilities: Current portion of long-term debt (note 6) $ 3,752 $ 1,358 Long-term debt classified as current (note 6) 611 3,170 Short-term debt (note 5) 4,896 4,896 Accounts payable 394 675 Accrued salaries and related expenses 212 212 Other accrued expenses 298 205 Due to related parties, net (note 10) 2,587 1,845
Total current liabilities 12,750 12,361
Long-term debt, less current portion (note 6) - 98 Total liabilities 12,750 12,459
Stockholders' deficiency (note 7): Common stock ($.10 par value; authorized - 40,000,000 shares; issued and outstanding 22,312,524 shares) 2,231 2,231 Additional paid-in capital 58,805 58,343 Accumulated deficit (68,969) (67,633)
Total stockholders' deficiency ( 7,933) ( 7,059) Commitments and contingencies (notes 2,4 and 12) $ 4,817 $ 5,400
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 29, 1996, June 24, 1995, and June 25, 1994
(in thousands, except per share amounts)
1996 1995 1994
Net sales $ 4,151 $ 3,822 $ 7,227 Cost and expenses: Cost of products sold 3,605 3,849 7,777 Research, development and engineering 231 259 481 Selling and administration 849 712 816 4,685 4,820 9,074
Loss from operations ( 534) ( 998) ( 1,847)
Other expense (income): Interest expense 865 911 869 Interest income ( 36) ( 3) ( 1) Other (income) expense, net ( 27) ( 307) ( 16) 802 601 852
Loss before income taxes ( 1,336) ( 1,599) ( 2,699)
Income taxes (note 8) - - -
Net loss $(1,336) $(1,599) $(2,699)
Loss per common share (note 1) $( 0.06) $( 0.07) $( 0.12)
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' DEFICIENCY
Years ended June 29, 1996, June 24, 1995 and June 25, 1994
(in thousands, except common share amounts)
Additional Common Stock (note 7) Paid-In Accumulated Shares Par Value Capital (Deficit)
Balance June 26, 1993 22,312,524 $ 2,231 $ 54,118 $ (63,335)
Net loss -- 1994 - - - (2,699)
Sale of assets to a related party (note 10) - - 3,171 - Balance June 25, 1994 22,312,524 2,231 57,289 (66,034)
Net loss -- 1995 - - - ( 1,599)
Sale of assets to a related party (note 10) - - 1,054 - Balance June 24, 1995 22,312,524 2,231 58,343 (67,633)
Net loss -- 1996 - - - ( 1,336) Interest forgiven on related party debt (note 5) - - 462 -
Balance June 29, 1996 22,312,524 $ 2,231 $ 58,805 $ (68,969)
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 29, 1996, June 24, 1995 and June 25, 1994 (in thousands)
1996 1995 1994 Cash flows from operating activities: Net loss $(1,336) $(1,599) $(2,699) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 549 723 992 Provision for losses (recoveries) on receivables 135 - (28) Retirements of property and equipment 171 168 70 Interest forgiven on related party debt 462 - - Changes in operating assets and liabilities: Decrease (Increase) in trade receivables (243) (76) 31 Increase (Decrease) in inventories (88) (443) 110 Decrease in prepaid and other current assets ( 4) 26 257 Increase in other assets - 17 53 Decrease in accounts payable and accrued expenses (188) (767) (1,241) Increase (Decrease) in due to related parties, net 742 1,131 (428) Net cash provided (used) by operating activities 200 (820) (2,883) Cash flows from investing activities: Additions to property and equipment ( 11) - - Cash flows from financing activities: Sale of assets to a related party - 1,054 3,171 Proceeds of long-term debt - 143 - Repayments on long-term debt and capitalized lease obligations (263) (11) (914) Proceeds of short-term debt - - 741 Net cash provided (used) by financing activities (263) 1,186 2,998 Net increase (decrease) in cash and cash equivalents ( 74) 366 115 Cash and cash equivalents at beginning of year 538 172 57
Cash and cash equivalents at end of year $ 464 $ 538 $ 172
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 29, 1996, June 24, 1995 and June 25, 1994
1996 1995 1994
Supplemental cash flow disclosures: Interest paid $342 $422 $442
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1996, June 24, 1995 and June 25, 1994
(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. The Company has purchased components from and 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 since May 10, 1991, the Company is principally an integrated manufacturer of magnetic recording heads primarily for computer disk drives. The Company is currently primarily performing pilot projects concerning ferrite bars, cores and recording head assemblies.
The Company has begun the distribution and sale of other products. Some, such as electrical light fixture ballasts and tee shirts, are outside its previous markets. The Company is dependent upon other manufacturers and vendors for production and assembly work.
(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.
(b) Consolidated Statements of Cash Flows For purpose 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. Cash equivalents consist of certificates of deposit of $300,000 and $500,000 at June 29, 1996 and June 24, 1995, respectively.
(c) Inventories Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis.
(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.
(Continued) NATIONAL MICRONETICS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(1) Summary of Significant Accounting Policies, Continued
(e) 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.
(f) Loss per Share 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 fiscal years 1996, 1995 and 1994. Common stock equivalents are not considered in this calculation since their effect would be anti-dilutive.
(g) Fiscal Year The Company's fiscal year ends on the last Saturday in June. The fiscal year ended June 29, 1996 was comprised of 53 weeks. The fiscal years ended June 24, 1995 and June 25, 1994 were comprised of 52 weeks.
(h) 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.
(i) New Accounting Standards In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which is effective for fiscal years beginning after December 15, 1995. Effective June 30, 1996, the Company will adopt FAS 121, which requires that long-lived assets (e.g., property, plant and equipment and goodwill) held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the assets may not be recoverable. An impairment loss will be recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset is less than the net book value of the asset. The amount of the impairment loss will generally be measured as the difference between the net book value of the assets and the estimated fair value of the related assets. It is anticipated that adoption in the first quarter of fiscal 1997 will have no effect on the Company's financial results. NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(1) Summary of Significant Accounting Policies, Continued
(i) New Accounting Standards, Continued In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which is effective for fiscal years beginning after December 15, 1995. Effective June 30, 1996, the Company will adopt FAS 123, which establishes financial accounting and reporting standards for stock-based employee compensation plans. The pronouncement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock option compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting as prescribed by Acounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in FAS 123 had been applied. The Company will continue to account for stock-based employee compensation plans under the intrinsic method pursuant to APB 25 and will make any required disclosures in its footnotes.
(2) Liquidity and Management's Action Plan
The Company continues to experience difficulty generating sufficient cash flow from operations to meet its obligations. Several factors have had a negative impact on liquidity including product development costs, qualification of products at customers, and under utilization of facilities.
The Company is aggressively seeking new orders with existing and new customers. During this rebuilding process, the Company will continue to need significant amounts of operating cash. The Company has not made $1,611,000 in payments due through June 30, 1996 to its primary lending institution due to its limited cash resources. An additional $710,000 payment is due by September 30, 1996. A revised payment schedule is being discussed with the primary lending institution but no agreement has been reached as to terms. Since December 1990, the Company has received direct and indirect support from Newmax to fund operational needs. Although there is no formal commitment for continuing support, Newmax has made no indication that this support will cease. The Company will continue to make every effort to become self sufficient and profitable.
The Company is hopeful that funds generated by operations and received from Newmax will be adequate to fund debt service and other operational needs. Although there is no firm commitment, related parties are expected to advance funds on a short-term as needed basis to offset operational cash shortfalls. Management believes that the combination of reduction in overhead spending and development of distribution markets for non-manufactured products will enable the Company to remain viable for the next twelve months. NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (3) Inventories June 29, 1996 June 24, 1995 (in thousands) Finished goods $ 793 $ 667 Work in process 25 61 Raw materials and supplies 84 86 $ 902 $ 814 Finished goods at June 29, 1996 includes $641,000 of electronic light ballasts purchased from Tae Il for resale to distributors and lighting fixture manufacturers. The Company has the right of return for all of the ballast inventory if any remains unsold on July 1, 1997.
(4) Property, Plant and Equipment June 29, June 24, Classification Life 1996 1995 (in thousands) Land - $ 263 $ 267 Buildings and improvements 20 years 7,435 7,869 Machinery and equipment 3-8 years 4,274 8,791 Leasehold improvements and fixtures 3-10 years 157 246 $12,129 $17,173 The Company conducts certain of its operations using equipment under operating leases that expire at various times over the next three years. Total rental expense was $11,000, $22,000, and $16,000 for fiscal 1996, 1995, and 1994, respectively. The total minimum rental commitments at June 29, 1996 under noncancellable operating leases are approximately $7,000.
(5) Short-Term Debt A revolving credit agreement was established in April 1991 for $4,000,000 with a lending institution not previously used by the Company. This credit line was renewed on November 16, 1994 and has been collateralized by a Newmax affiliate. Collateral provided by the Newmax affiliate included a letter of credit issued by a Korean bank, which has been renewed until November 19, 1996. The Company expects the letter of credit to be renewed upon maturity. Interest on the revolving credit agreement is payable at prime plus 1% (9.25% at June 29, 1996; 10% at June 24, 1995). 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 1996, 1995 and 1994. These loans were unsecured at an 8% interest rate. At June 29, 1996 and June 24, 1995 the balance of these loans was $4,896,000. The average amount of short-term debt outstanding and weighted average interest rate was $4,896,000 at 8% in fiscal 1996 and 1995, and $4,699,000 at 8% in fiscal 1994. The maximum short-term debt outstanding was $4,896,000 in fiscal 1996 and 1995,and $5,011,000 in fiscal 1994, respectively. Interest expense recorded on the related party debt was $462,000 for fiscal 1996 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. NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(6) Long-term Debt A summary of long-term debt follows:
Annual Interest Rate at Balance at June 29, 1996 June 29, 1996 June 24, 1995 (in thousands)
Term loan 9.25% $ 1,611 $ 1,645 Converted revolving loan 8.25% 2,741 2,841 Debt settlement agreement 4% 11 140 Total long-term debt 4,363 4,626
Less: Current portion 3,752 1,358 Long-term debt classified as current 611 3,170
$ 0 $ 98
The Company entered into a $3,000,000 term loan agreement with a lending institution on November 5, 1991. This loan, which based upon a December 23, 1994 revision matured on June 30, 1996, is secured by substantially all the assets of the Company. As a condition of this loan, the Company granted a $7,000,000 mortgage to the lending institution which serves as collateral for this loan as well as for a revolving credit agreement executed with the same lending institution in May 1991. Payments were scheduled quarterly through June 30, 1996 but not paid on a timely basis. The term loan, which bears interest at prime plus 1%, has been guaranteed by the related parties Newmax Co., Ltd., Tae Il Media Co., Ltd. and Mr. K.H. Chung. The amended revolving credit agreement, which bears interest at the prime rate, requires no payment until September 1996 and then four quarterly payments to pay the loan in full by June 30, 1997. The repayment terms have been modified to decrease the payments originally scheduled for both loans and extend payment terms through June 1997.
The Company has not made the payments to its primary lending institution due to its limited cash resources. A revised payment schedule is being discussed but no agreement has been reached as to terms. The long-term portion of the related debt has been reclassified as current due to the unresolved default on payment terms.
Long-term debt maturities, based upon contractual terms, are as follows:
Year Amount 1997 $ 3,752,000 1998 611,000
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(7) Common Stock and Employee Benefits
On June 24, 1992, Dae Bang Venture Capital Co., Ltd. purchased 1,575,000 shares of common stock at $.40 per share for a total of $630,000. The proceeds were recorded as additional paid-in capital.
On December 27, 1990, Newmax purchased 10,500,000 shares of common stock at $.40 per share for a total of $4,200,000. The proceeds, net of expenses of $371,000, were recorded as additional paid-in capital.
The Company issued a warrant in connection with a lending agreement, which provided for the issuance of 1,131,165 shares of common stock at $3.00 per share exercisable to June 30, 1996. This exercise price was reduced to $.40 during fiscal 1991 upon the issuance of common stock to Newmax, in accordance with the original warrant. The warrant also included a right of first refusal to buy a proportionate amount of stock which may be issued by the Company.
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 50,700 shares of common stock were outstanding at June 29, 1996. Options issued under the plans generally become exercisable over a period of from six months to five 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 29, 1996, 1,122,797 shares are available for future grants under the Program.
As of June 29, 1996 and June 24, 1995 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 26, 1993 132,700 $ .22 - $2.50 Cancelled (18,500) .22 - 2.13 June 25, 1994 114,200 .22 - 2.50 Cancelled (63,500) .22 - 1.13 June 24, 1995 and June 29, 1996 50,700 $ .22 - $2.50
Options exercisable: June 29, 1996 50,700 $ .22 - $2.50
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(7) Common Stock and Employee Benefits, Continued The Company's profit sharing plan covers 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 is 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 allows for employee contributions through payroll deductions with optional matching contributions by the Company.
There was no Company contribution to either plan for fiscal 1994 through 1996. 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.
(8) Income taxes No income tax expense or benefit was recognized for fiscal 1996, 1995 and 1994 due to losses incurred and the inability to utilize these losses for income tax purposes. At June 29, 1996, the Company has net operating loss carryforwards of approximately $20,000,000 which will expire as follows: Year Amount (in thousands) 2006 $ 6,167 2007 6,176 2008 5,436 2009 1,272 2010 220 2011 813 $20,084
Carryforwards from prior years have been limited due to the change in control of the Company which took place on December 24, 1990. Loss carryforwards available as of June 29, 1996 from years prior to the change in control, which are included above, are approximately $1,600,000.
Deferred tax liabilities (assets) are comprised of the following at June 29, 1996 and June 24, 1995: 1996 1995
Depreciation $ 528,000 $ 893,000 Net operating loss carryforwards (6,828,000) (4,710,000) Inventory reserves (510,000) (511,000) Allowance for bad debts (45,000) - Other (16,000) (16,000) (7,399,000) (5,237,000) Deferred tax valuation allowance 6,871,000 4,344,000 Deferred taxes, net $ - $ -
The deferred tax valuation allowance increased by $2,527,000 and $544,000 during fiscal 1996 and 1995, respectively. NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(9) Export Sales - Major Customers
The Company's operations consist primarily of the manufacture of recording heads. The principal products manufactured and sold are 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) 1994 $ 7,021 1995 $ 3,587 1996 $ 3,101
The amount and percent of sales to those customers comprising 10 percent or more of total sales are shown below.
Products ($ in thousands) 1996 1995 1994 Major Customer 1 $ 2,763 - 67% $ 3,287 - 86% $ 5,825 - 81% Major Customer 2 $543 - 13% - - - - Major Customer 3 $40 - 1% $15 - $ 1,063 - 15%
(10) Related Party Transactions
During fiscal 1995 and 1994, the Company sold equipment to Newmax for $1,281,000 and $918,000 respectively. The gain on the sale of $1,054,000 and $837,000 respectively, was recorded as additional paid-in capital and was not recognized in the consolidated statement of operations.
Inventory was sold to Newmax during fiscal 1994 totalling $2,124,000 whereby Newmax retained the right to return the goods. These transactions were not recorded as sales due to the high probability that the goods would be returned. Effective June 25, 1994 Newmax waived the right of return on $2,334,000 of merchandise previously purchased. This amount has been recorded as an increase to additional paid-in-capital and not in the statement of operations due to the related party nature of the transactions. Net sales for fiscal 1996, 1995 and 1994 included sales of goods totalling $2,763,000, $3,287,000 and $5,825,000 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. During fiscal 1994, the Company purchased approximately $187,000 of other goods from Newmax in the ordinary course of business.
(Continued)
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(10) Related Party Transactions, Continued
Newmax owed the Company $12,000 and $63,000, respectively, at June 29, 1996 and June 24, 1995 which is included in the consolidated balance sheets under due to related parties, net.
The Company purchased equipment during 1996 at the request of an affiliated company, Tae Il Magnetics Co., Ltd. ("Magnetics"), to be sold to and used by Magnetics. The Company earned a fee of $33,000 for these services which is included in other (income) expense, net.
The Company also sold products to Tae Il Media Co., Ltd. ("Tae Il") totaling approximately $40,000, $15,000 and $1,063,000 in fiscal 1996, 1995 and 1994, respectively. Tae Il sold the Company approximately $211,000 and $562,000 of electrical light fixture ballasts during fiscal 1996 and 1995, respectively. Tae Il sold the Company approximately $500,000 of non-electronic consumer goods for resale during fiscal 1996. The Company owed Tae Il $1,195,000 and $640,000 at June 29, 1996 and June 24 1995, respectively. These balances have been included in the consolidated balance sheets under due to related parties, net.
Newmax has provided quarantees via a letter of credit to assist in obtaining a $4 million revolving credit agreement. Gigamax has made short-term loans averaging $4,896,000 for fiscal 1996 and 1995. Both of these are also discussed in note (5). Included in due to related parties at June 29, 1996 and June 24, 1995 is $1,370,000 and $1,268,000, respectively, due to Gigamax and Tae Il USA, Inc. for interest on short-term borrowings and other charges.
The Company was advanced $34,000 by Techmedia International Corporation ("Techmedia"), an affiliated company, during fiscal 1996 to fund operating expenses. This amount was owed to Techmedia at June 29, 1996.
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.
(11) 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, Trade Receivables, Accounts Payable and Accrued Expenses The carrying amount of cash, trade receivables, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments.
(Continued) NATIONAL MICRONETICS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(11) Fair Value of Financial Instruments, Continued
(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 note 6). Consequently, the carrying value of the debt approximates fair value.
(12) Contingent Liabilities
The Company is not a party to any material legal proceedings, except that 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. The Company believes, however, that it is unlikely that any liability it may incur would have a significant effect on its financial statements.
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders National Micronetics, Inc.:
Under date of August 28, 1996, we reported on the consolidated balance sheets of National Micronetics, Inc. and subsidiaries as of June 29, 1996 and June 24, 1995, and the related consolidated statements of operations, changes in stockholders' deficiency and cash flows for each of the years in the three-year period ended June 29, 1996. 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 24. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to report on this financial statement schedule based on the results of our audits.
The accompanying financial statement schedule has been prepared assuming that National Micronetics, Inc. and subsidiaries will continue as a going concern. The Company has suffered recurring losses from operations and has net capital deficiencies. As a result of these recurring losses, the Company has experienced a significant deterioration in liquidity. The Company has received funding for operations from its parent, Newmax Co., Ltd., and affiliated companies in the current and prior years; however, the Company has no guarantee that this funding will continue. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in note 2 to the consolidated financial statements. The financial statement schedule does not include any adjustments that might result from the outcome of this uncertainty.
Because of the effects on the financial statement schedule of such adjustments, if any, as might have been required had the outcome of the uncertainty discussed in the preceding paragraph been known, we are unable to, and do not express, an opinion on the accompanying financial statement schedule for the years ended June 29, 1996, June 24, 1995 and June 25, 1994.
KPMG PEAT MARWICK LLP
Albany, New York August 28, 1996
Schedule II
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts
Years ended June 1996, 1995 and 1994 (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
Year ended June 1996:
Allowance for doubtful accounts receivable $ - $ 135 $ 3 $ 132
Year ended June 1995:
Allowance for doubtful accounts receivable $ - $ - $ - $ -
Year ended June 1994:
Allowance for doubtful accounts receivable $ 33 $ (28) $ 5 $ -
Exhibits Filed Electronically
Page
23 Consent of KPMG Peat Marwick LLP 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. 45
27 Financial Data Schedule (For electronic filing purposes only). 46
Consent of Independent Auditors'
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 August 28, 1996, relating to the consolidated balance sheets as of June 29, 1996 and June 24, 1995, and the consolidated statements of operations, changes in stockholders' deficiency and cash flows and related schedule for each of the years in the three-year period ended June 29, 1996, which reports appear in the June 29, 1996 annual report on Form 10-K of National Micronetics, Inc.
Our reports dated August 28, 1996 contain explanatory paragraphs that state that the Company's recurring losses from operations, its net capital deficiencies, the deterioration in liquidity and other matters raise substantial doubt about the Company's ability to continue as a going concern.
Because of the effects on the consolidated financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty discussed in the preceding paragraph been known, we were unable to, and did not express, an opinion on the consolidated financial statements and schedule as of June 29, 1996 and June 24, 1995 and for each of the years in the three-year period ended June 29, 1996.
KPMG PEAT MARWICK LLP
Albany, New York September 20, 1996