SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8K
Current Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
February 12, 2001
Date of Report
(Date of Earliest Event Reported)
SINTEC CO. LTD.
--------------------------------
(Name of Small Business Issuer)
Republic of Korea 000-28419 Not Applicable
- --------------------------- -------------------- --------------
(State or Other Jurisdiction Commission File Number I.R.S. Employer
Incorporation or Organization) Identification Number
Buchon Technopark, 103-608, Samjung-dong, Ojung-gu, Buchon City,
Kyonggi-do, Republic of Korea
(Zip Code: 421-150)
------------------------------------------------------------
(Address of Principal Executive Offices including Zip Code)
Tel No.: 82-32-2342000 Fax No.: 82-32-2342020
----------------------------
(Issuer's Telephone Number)
Securities to be Registered Under Section 12(b) of the Act: None
Securities to be Registered Under Section 12(g) of the Act: None
Common Stock : Par value 200 Won per share
(Title of Class)
Page 1
INFORMATION TO BE INCLUDED IN THE REPORT
Convention
In this Form 8K all references to "Korea" are references to The
Republic of Korea. All references to the "Government" are references to
the government of Korea. Unless otherwise noted all references to
"shares" or "common stock" are references to the common shares of
Sintec Co. Ltd. par value 200 Won per share (the "company"). All
references to "KOSDAQ" herein are references to the Korea Securities
Dealers Automated Quotation System. All references to "SEC" are reference
to the United States Securities and Exchange Commission.
References to "Won" or "W" are to the currency of Korea and all
references to "Dollars", "$", or "US$" are to the currency of the United
States of America. Solely for the convenience of the reader, this Form 8-
K contains translations of certain Won amounts into Dollars at specified
rates. All translations from Won to Dollar were made (unless otherwise
indicated) at the noon buying rate in The City of New York for cable
transfers in Won per US$1.00 as certified for customs purposes by the
Federal Reserve Bank of New York. Unless otherwise stated, the
translation of Won into Dollars have been made at the noon buying rate
in effect on January 30, 2001, which was Won 1,264.6 to US$1.00.
No representation is made that the Won or US$ amounts referred to
herein could have been or could be converted into US$ or Won, as the
case may be, at any particular rate or at all. On January 31, 2001,
the noon buying rate was Won 1,287.1 to US$1.00.
Exchange Rate Information
The following table sets forth, for the periods and dates indicated,
certain information concerning the noon buying rate. No representation is
made that the Won or Dollar amounts referred to herein could have been
or could be converted into Dollars or Won, as the case may be, at any
particular rate, or at all.
Year Ended At End of Average High Low
December 31 Period Rate Per
$1.00US
1994 W792.7 W805.3 W816.6 W790.6
1995 775.8 771.2 797.5 758.5
1996 847.5 807.7 849 775.8
1997 1695 988.1 1960 845.5
1998 1206 1404.7 1812 1196
1999 1136 1187.7 1241.8 1124.5
2000 1265 1187,7 1146.5 1105
- - The average of the noon buying rates on the last date of each month
(or a portion thereof) during the period.
Page 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) MERGER AGREEMENT.
Pursuant to an Agreement and Plan of Reorganization (the "Merger
Agreement") dated January 24, 2001, Sintec Co. Ltd. (the "Company"), a
Korean corporation, acquired all the outstanding shares of common stock
of Captex Capital, Inc. ("Captex"), a Texas corporation, from the
shareholders thereof in an exchange of an aggregate of 888,050 shares of
common stock of the Company and other consideration of payments of
certain fees and expenses (the "Acquisition"). Immediately following
the Acquisition, Sintec (Texas) Corp. ("Subco"), a Texas corporation
and a wholly-owned subsidiary of the Company merged with Captex (the
"Merger") in a transaction in which the Subco becomes the surviving
corporation.
The Acquisition was approved by the unanimous consent of the
Board of Directors of Captex and its shareholders on January 24, 2001.
The Acquisition was effective on January 24, 2001. The Merger was
approved by unanimous consent of the respective Board of Directors of
Subco and the Company on January 24, 2001. The Merger was effective
on January 31, 2001. The Acquisition and Merger is intended to qualify
as a reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
Upon effectiveness of the Acquisition and Merger, pursuant to Rule
12g-13(a) of the General Rules and Regulations of the Securities and
Exchange Commission ("SEC"), the Company elected to become the
successor issuer to Captex for reporting purposes under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and elects to report
under the 1934 Act effective January 31, 2001.
A copy of the Merger Agreement is filed as an exhibit to this Form
8-K and is incorporated in its entirety herein. The foregoing description
is modified by such reference.
(b) CONTROL OF THE COMPANY
The Company had 6,880,275 shares of common stock par value 200
Won per share issued and outstanding prior to the Acquisition, and
7,768,325 shares issued and outstanding following the Acquisition.
Captex had 5,000,000 shares of common stock par value of $0.001 per
share issued and outstanding prior and after the Acquisition.
On February 2, 2001 the Company converted its paid-in capital to
3,884,163 common shares in the capital stock of the Company and issued
the shares on a pro rata basis to all of the shareholders of the Company
(the "conversion") resulting in a total of 11,652,488 shares of common
shares in the capital stock of the Company being issued and outstanding
The following table sets forth certain information regarding the
beneficial ownership of the common stock of the Company as of February
2, 2001, after taking into effect the Acquisition and the Conversion of:
(a) each person who is known to the Company to own beneficially more
than 5% of the Company's outstanding common stock, (b) each of the
Company's directors and officers, and (c) all directors and officers of
the Company, as a group:
Page 3
NAME AND ADDRESS OF AMOUNT STOCK
PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY CLASS
AND POSITION WITH OWNED
THE COMPANY
Woon Yong Kim 1,622,138 common shares 13.9%
1216-18 Joong Dong
Wonmi-Gu, Buchoo City
Kyonggi-do, Korea
President, CEO and
Director
Soo Yong Kim 29,850 common shares .26%
154-4 Ganseok, 2-dong,
Namdong-gu, Inchon City
Kyonggi-do, Korea
Director/Treasurer
Young Lo Kim 11,250 common shares .09%
105/1054 Poonglim APT.
Sorae-maeul,
Nonyun-Dong, Namdong-
gu,
Inchon City, Korea
Director and Manager of
Research and Development
Jun Hyun Kim 11,250 common shares .09%
13-1 Cooneui-dong
Wonmi-gu,
Buchon City, Korea
Director
Burton Mason Venture 1,050,000 common shares 9.02%
Capital LLC
33 N. Fairlax St.
Alexandria
VA, USA
All Officers and Directors 1,674,488 common shares 14.39%
as a Group
Beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with respect
to securities. In accordance with SEC rules, shares of the Company's
common stock which may be acquired upon exercise of stock options or
warrants are deemed beneficially owned by the optionees. Subject to
community property laws, where applicable, the persons or entities
named in the table above have sole voting and investment power with
respect to all shares of the Company's common stock indicated as
beneficially owned by them.
Page 4
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) CRITERIA FOR MERGER
The consideration exchanged pursuant to the Acquisition Agreement
was negotiated between Captex and the Company.
In evaluating the Acquisition, Captex used criteria such as the
value of assets of the Company, the Company's anticipated operations
and acquisitions, material contracts, business name and reputation,
quality of management, and current and anticipated operations. Captex
determined that the consideration for the Merger was reasonable. In
evaluating Captex, the Company placed a primary emphasis on Captex's
status as a reporting company under Section 12(g) of the 1934 Act, as
amended, and Captex's facilitation of the Company becoming a reporting
company under the 1934 Act.
(b) CORPORATE HISTORY OF THE COMPANY
The Company was incorporated in Korea on March 7, 1996. From 1996
to 1998, the Company was predominantly engaged in the management
information systems and enterprise resource planning industries. In late
1996 the Company started developing biometric software focusing on
image and face recognition. In 1997 the Company developed the basic
module of face recognition software known as Automatic Detecting,
Tracking, Recognizing And Action-command generating software or
"ADTRASS". The Company exhibited the ADTRASS software at the COMDEX
show in Las Vegas in the fall of 1998. In 1998 the Company obtained
ISO 9001 Certification from SGA International Information Systems Ltd
of the United States and started developing camera applications for the
ADTRASS software. In 1998 the Company discontinued its prior business.
In 1999 the Company introduced the first working unit of a pan/tilt,
automatic motion tracking camera which incorporated biometric features
to the COMDEX show and the CEBIT 2000 show in Hannover, Germany. After
these two major exhibitions, the Company started preparation for final
development and the mass production of the pan/tilt camera which included
such key features as automatic motion tracking, face tracking, face
recognition and controllability via the internet. The Company's first
commercial product, the "SmileCAM" was formally launched at the COMDEX
show in the fall of 2000.
On December 23, 2000 the Company forward split all of its
outstanding common shares, being 264,811 shares, on the basis of 25 new
shares of common stock of the Company for each issued share of common
stock of the Company (the "Forward Split") resulting in a total of
6,880,275 shares being issued and outstanding.
Business of the Company
The Company designs, develops and markets biometric and security
solutions for personal computers, communication devices, video
surveillance systems, access control systems and other security-oriented
systems using its patented core software, ADTRASS , pan/tilt camera
control mechatronics, motion tracking software, and internet-based
application software.
The Company intends to provide the rapidly growing security market
with camera products which have differentiated, competitive functions
such as automatic motion detecting and tracking, camera control via
internet, fast pan/tilt mechanism. SmileCAM (CCD), the Company's first
product, is a small, low cost, computer controlled, motorized pan/tilt
video camera with motion tracking and remote controllable function, which
can be used for video surveillance applications and also to provide real
time video over the internet. The lens of the SmileCAM (CCD) was engineered
to be panned both left and right and up and down by clicking the local or
remote video screen or by operating arrow keys on the key board control
signals may be transmitted via the internet. This ability enables wide area
video surveillance through one camera in real time and at a lower cost compared
with competitor's products currently in the market place. The Company's
second product is the SmileCAM(USB) which has the same mechanical
features as the SmileCAM-CCD with the addition of an USB port to
permit plug and play features.
Page 5
The Company is currently completing the development of a second
product designed to apply the ADTRASS technology. This is a
pan/tilt/zoom camera embedded with proprietary biometric face and iris
recognition software (the "AiroCAM"). With its embeded face recognition
software the AiroCAM can search, detect, track and recognize a person's
face. If the facial features that the camera pans falls within certain preset
parameters (which parameters can be adjusted according to the
circumstances), then the camera will automatically zoom in on the face
and using its iris recognition software make a more accurate identification of
the person.
Biometrics is the science of identifying an individual through his/her
own unique personal physiology. Examples of the range of biometric-
based products are fingerprint readers, hand geometry, eye (iris) scanners and
face-recognition products. The Company has been focusing on iris and
face recognition technology as well as motion tracking software for its
pan/tilt cameras. Among all the biometric technologies, only the face and iris
technologies can perform biometric recognition at a distance. In the other
types of biometrics such as fingerprint, vein, signature, hand geometry,
etc., recognition can only occur by contacting a part of the body to a
scanner.
It is the intention of the Company to develop strategic sales partner
relationships with original equipment manufacturers ("OEM"), Value
Added Resellers ("VARs"), Distributors and system integrators, as well as to
establish its own product distribution channel to the end customer. The
Company intends to assist its strategic customers in developing new
applications for such products as personal identification systems, medical
imaging devices, machine control systems, automotive applications and
videophones.
The Company designs and manufactures its own patented motorized
video camera system. As a result, unlike competitive motorized camera
systems, which require multiple parts to achieve the same functions, the
Company has been able to integrate all motorized camera functions into
one small device. As a result, the Company believes that it will be able to
supply the market with the lowest cost, most highly integrated and
motorized pan/tilt video camera available. The Company feels that its
products will offer competitive advantages that will allow its customers
to design security and monitoring systems that are lower in cost, smaller in
size, lighter in weight, consume less power, and are more reliable and
more easily integrated with other security systems currently available.
The Company intends to increase market acceptance of its products by
continuing to offer products that are low-cost and simple to operate
without costly technical staff or substantial capital investment. The Company
also intends to continue to promote third-party development of software
applications for its products through partnership programs with
independent software developers. The Company expects to actively seek
to encourage VARs, OEMs and Internet hosting and application service
providers ("ASPs") to add value to the Company's products by modifying its
products to meet specific customer needs. Finally, the Company intends to
continue to develop and release products that meet specific customer needs
at relatively low prices that are customized in design to perform their tasks.
Page 6
Offices of the Company
The Company's offices are located:
Korean Corporate Office: Buchon Technopark, 103-608, Samjung-dong,
Ojung-gu, Buchon City, Kyonggi-do,
Republic of Korea
(Zip Code: 421-150)
Tel No.: 82-32-2342000
Fax No.: 82-32-2342020
Korean Office Space: 5,359.71 square feet
Korean Factory: (Same address as Korean Corporate Office)
Tel No. and Fax No.: (Same as for Korean
Corporate Office)
Factory space: 7,965.04 square feet
The Company is the owner of both premises.
United States Corporate Office: the Company anticipates that it will
open an representative office in the State of California in the first
quarter of 2001.
Employees of the Company
As of February 1, 2001, the Company had 19 employees. From time
to time, the Company uses the services of independent contractors and
consultants to support product research and development, marketing, sales
and business development. Currently the Company does not utilize the
services of any part-time or full-time consultants.
The Company will need to hire approximately 3 new employees for its
United States operations and 48 new employees in Korea when it
commences full scale production of its current products. It is anticipated
that the training period for the new employees will take approximately
one week.
Assembly, Installation and Maintenance
The Company's products will be assembled from purchased components
at its facility in Buchon City, Kyonggi-do, Korea. The Company estimate
that the time required for product delivery will average approximately five
(5) weeks from the date a purchase order is received.
Most of the components which comprise the Company's products are
readily available from outside suppliers. Other components have been
designed by the Company and/or are custom manufactured to its
specifications. The Company will test and inspect incoming parts and
components. While certain components to be used in the manufacturing of
the Company's products will be supplied by a single vendor to obtain
volume economies secondary sources are readily available in the event of
delays in shipment.
Page 7
Products of the Company
SmileCAM
The SmileCAM is a small, low cost, computer controlled, motorized
pan/tilt video camera with advanced image processing for personal
computers, Internet appliances, and remote security systems.
Key features of SmileCAM:
- - automatic motion tracking;
- - camera control (both local and remote) over Internet by the
customer just clicking the mouse on his computer;
- - provides clear high quality digital video;
- - high speed pan/tilt function (90 degrees per second);
- - with free, bundled SmileNET software, a purchaser can enjoy
video conferencing, video chatting, and video surveillance
anywhere in the world with an Internet hookup.
SmileCAM Specifications:
- - Video Signal: NTSC/PAL
- - Image Sensor: Color CCD 1/3" format
- - Effective Pixel: NTSC 290K / PAL 320K
- - Pan: +180E, 90E/sec
- - Tilt: +60E, 90E/sec
- - Weight: 250g
- - Size (W x D x H): 110mm x 109mm x 110mm
- - Input Power: 9V DC, 500mA
SmileNET
SmileNET is a bundled, free software that comes with the
SmileCAM package. The customer can enjoy vivid video conferencing
and chatting with SmileCAM and SmileNET by connecting to Personal
Computers or by a Personal Computer server to Personal Computer
connection. Both local and remote cameras can be controlled by clicking
the video screen or by keyboard arrows during conferencing or chatting.
By choosing the advanced biometric auto-tracking icon, SmileCAM will
automatically centre the customer and his partner's face on the video
screen. Other software the Company provides in the SmileCAM package
such as SmileCAM controller and smilecontrol.ocx, allows software
developers to take advantage of the advanced features of SmileCAM in
their own applications.
New Products of the Company
The Company continually makes enhancements and improvements to
its products and is in the process of developing new products for the
market place. With software currently completed the Company is finalizing
the hardware development of the AiroCAM camera.
Page 8
AiroCAM
The AiroCAM is a camera with high speed, pan/tilt/zoom functions
which incorporates the Company's face and iris recognition software module. It
is expected that this product will have applications in the various biometric
security markets, including access control, intelligent surveillance
systems, criminal justice, visual inspection, and fraud prevention. While the
Company anticipates finalizing the hardware for the AiroCAM by the
third quarter of 2001 there can be no assurances that the Company will
meet that timetable nor that the AiroCAM will ever be brought to market.
Proprietary Technology
The Company has three registered and four service marks pending,
eighteen registered and 5 trade names pending at the Korea Industrial
Property Office. The Company believes that Korean intellectual property
laws and regulations afford owners of intellectual property protections
similar to those enjoyed by owners of intellectual property in the United
States. Korean intellectual property laws were amended at the end of 1995
to harmonize them with the Trade-Related Aspects of Intellectual
Property Rights Agreement. In addition the Company has filed trade mark
applications in the United States, China, Taiwan, Japan, Germany and England.
The Company relies on a combination of patent and trade secrets to
establish and protect proprietary rights in its products. In order to
protect and support current and future development of the its products the
Company has made the following patent applications:
Application No. Date Applied Country Title of Invention
/Trademark
10-1999-0019229 99/05/27 Korea USB HUB
Apparatus of Camera
10-1999-0022940 99/06/18 USA, England, Method Apparatus of
Germany, Japan, Controlling Pan/Tilt
China, Taiwan Camera
10-1999-0027688 99/07/09 Korea Method & Apparatus of
Sun-Tracking by Image
Recognition
10-1999-0027690 99/07/09 USA, England, Pan/Tilt Camera
German, Japan,
China, Taiwan
10-1999-0032134 99/08/05 Korea Method of Controlling
Pan/Tilt Camera
10-1999-0035698 99/08/26 Korea Method & Apparatus of
Access Control by
Biometric
10-1999-0039323 99/09/14 Korea Apparatus & Control-
Method of Video Game
10-1999-0021715 99/06/11 USA, England, Method & Apparatus of
Germany, Japan, Face-Photographing
China, Taiwan /Recognizing by an
Equipment of
Automatic Skin Colour
& its Movement -
Tracing
10/1999-0045407 99/10/19 USA, England, Method and Apparatus
Germany, Japan, for Photographing
China, Taiwan /Recognizing
Page 9
The Company believes that the ownership of patents will be a
significant factor in its business. However the success of the Company
will depend primarily on the innovative skills, technical competence and
marketing abilities of its personal. In addition, there can be no assurances
that the Company's current and future patent applications will be granted,
or if granted, that the claims covered by the patents will not be reduced
from those included in the Company's original application.
Claims by third parties that the Company's current or future products
infringe upon their intellectual property rights may have a material
adverse effect on the Company. Intellectual property litigation is complex,
expensive and the outcome is difficult to predict. Any future litigation,
regardless of outcome, may result in substantial expense to the Company
and significant diversion of the Company's management and technical
personal
Markets
Industry Background
The following table indicates the Company's target markets for the
SmileCAM and the AiroCAM if and when development is completed:
Product Target Market Product Strengths
SmileCAM-USB -Personal Computer -high speed pan/tilt
control
Cameras for: via Internet
-video communication -high performance at
-video surveillance relatively low cost
SmileCAM-CCD -security equipment -high speed pan/tilt
control
market: via Internet
-CCTV (closed caption -high performance at
television) relatively low cost
-CCD Camera (charged- -high resolution at low
coupled device) price
-network camera
-video surveillance
equipment
AiroCAM -Biometric equipment -face and iris recognition
for security market: software with high
-access control recognition rate
-one-to-one, or one-to- -high speed pan /tilt /zoom
many searches camera mechtronics
-criminal justice -competitive price
-identity authentication
Page 10
Personal Computer Camera Market
According to Cahners In-Stat Group ("In-Stat"), a market research
company, in 1998 the size of the world Personal Computer ("PC") Camera
market was 1.3 million units. In-Stat estimates that in 1999 it grew to
2.35 million units, and will reach 17 million units by the year 2003.
According to a forecast report by Info Trends Research Group, the North
American market for PC cameras is expected to reach 38 million
units by 2003, growing at an average annual rate of 110%.
The market distribution of the PC Camera is similar to most other
information products. The United States has maintained the leading
position in the PC Camera market and, in 1998, represented nearly 60% of the
market. The European and Japanese markets only began to show clear
growth in 1999. By 2002, In-Stat predicts that as the other parts of the
world catch up, the United States will represent less than 50% of the
world market for PC Cameras. The Company intends to sell its products world-
wide to take advantage of the expanding market outside of the United
States.
Video Surveillance Market
According to the Freedonia Group the closed caption television
("CCTV") industry has been used as a tool for non-security purposes such
as training, traffic control and production monitoring in the past two
years. In 1980, CCTV appealed primarily to banks and large retailers and
generated US$117 million dollars in sales. By 1990, the market had more
than doubled to US$282 million, prices were lower, and colour was being
introduced. By 2000,new products such as digital signal processing
cameras, direct-to-disk digital recorders, and digital transmission
equipment were being introduced, and "camera on a chip" ("CMOS chips") emerged
as a major competitor to CCD cameras (charged-coupled device).
According to Frost & Sullivan's recent United States Physical
Security Equipment Market Report, the compound annual growth rate for
electronic access controls at 11.4% is the highest average of the products
in the perimeter, interior and electronic access control product segments.
With 10-year (1995 - 2005) revenue studies of the related product
segments, security products such as CCTV cameras and monitors, dual
technology sensors, microwave sensors, magnetic sensors, magnetic
contacts and glass break sensors are defined as "interior" security products.
This segment ranks second in compound annual growth rate at 11.1%.
Biometric Market
Biometrics is the use of unique physiological traits or behaviours to
distinquish one person from another. The industry began with forensic
applications which used fingerprints for law enforcement and government
security applications. Today, biometrics is a US$500 million industry
(Yankee Group, 1995 Study) and a US$1 billion market, if one includes
sales of related computer systems (Benjamin Miller, Editor, Personal
Identification News). The biometrics industry can be divided into the
following major types: face recognition, hand geometry, iris/retina
scanning, voice print, signature recognition and fingerprint scanning.
The Company has focussed its efforts on developing face recognition software
and camera solutions applicable to facial recognition technology. In
2000, the Company acquired the exclusive right to use an iris recognition
algorithm software program from Eyecheck Corp., a Korean company. The
Company plans to embed this software in the AiroCAM product and will
pay a licensing fee of approximately $20 per unit sold.
Page 11
Marketing Strategy
Customers
The Company anticipates that its direct customers will include
regional and national security systems companies, VARs, OEMs and
Internet ASPs in the United States. The Company's indirect customers will
initially be composed of small to medium-sized organizations. With
respect to both the direct and indirect sales, the Company predicts that
customers will buy its products for a single location, department or division,
and then, based upon the initial success of the product, later expand their
use of the Company's products into other parts of the organization.
Sales and Marketing
The Company intends to sell its products through direct
sales by a small direct sales force augmented with established sales
representatives, and channel partners including distributors, resellers and
system integrators. The Company's direct sales efforts will focus on
regional and national security systems companies, VARs, OEMs and
Internet ASPs in the United States. The Company also intends to pursue sales to
the growing number of security systems companies, VARs, OEMs and Internet
ASPs outside the United States.
Direct Sales
The primary function of the Company's direct sales force will be to
generate demand for the products that are fulfilled either directly by the
Company or through distribution channel partners. The Company will
encourage its direct sales staff to work with security systems companies,
VARs, OEMs and Internet ASPs customers regardless of whether the
customer ultimately purchases the product directly from the Company or
through one of its distribution channel partners. The Company's direct
sales force will use a team approach, which will enable it to achieve
better control of the sales process and respond more rapidly to customer needs.
The Company's direct sales force for North America will be distributed
throughout the United States.
The Company plans on opening sales offices in Europe and Asia once
established in the Americas.
Channel Partners
If and when the Company's market matures, the Company intends to
develop a multi-tier sales channel that is comprised of distributors,
resellers and system integrators. The Company believes that as the
market matures, sales through channel partners will represent the increasing
percentage of the sales.
In addition to delivering its products to small security systems
companies, VARs, OEMs and Internet ASPs and small to medium-sized organizations,
the Company feels that using distributors will enable it to more effectively
pursue a number of vertical markets. Vertical markets and applications
such as branch offices of large organizations, government, education and
Internet-based direct resellers will be targets of the Company's
channel partners.
Page 12
Original Equipment Manufacturer Relationships
The Company intends to aggressively pursue Original Equipment
Manufacturer ("OEM") relationships. As part of these relationships, the
Company will design and manufacture products that are customized to
meet the end users' needs and which are branded and sold under that company's
label. The Company plans to expand the selling efforts through OEM
relationships and is currently evaluating opportunities in this area.
Marketing Programs
When fiances are available the Company intends to support its sales
organization and distribution channels to devote significant resources to
the building and launching of a series of marketing campaigns. These
marketing efforts will include a number of programs, such as seminars, industry
trade shows, mailings to resellers, analyst and press tours, print and online
advertising, and other public relations activities. The Company believes
these marketing programs will increase awareness of the Company's
brand.
Customer Support
The Company believes that high quality customer service and support
is critical to the successful marketing of its products. The Company
intends to develop a comprehensive service and support organization to manage
customer accounts. The Company anticipates it will provide support for
its products and services primarily from its United States location, but the
Company also plans to establish additional service and support sites
internationally to meet customer needs.
The Company's products are designed to be deployed quickly and
effectively by its customers with minimal technical support. The
Company intends to offer various levels of service and support programs to meet
pre and post-scale technical requirements. The Company intends to offer
extended warranties, advanced product replacement, trouble shooting
assistance by telephone and electronic mail and other support and
services. The Company will vary the price of services accordingly to the
level of support selected by the customer. The Company will also offer a
variety of services specifically tailored for security systems companies, VARs,
OEMs, and Internet ASPs and resellers that provide immediate access
to the latest support information, white papers and answers to frequently asked
questions.
Competition
Each of the identified markets in which the Company intends to sell
its products are fragmented and highly competitive with relatively low
barriers to entry. Many of the Company's competitors have greater
financial, marketing, distribution and technical resources than the
Company. The Company believes that the ease of use, the uniqueness of
the products and the potential patented technology are posittive factors that
enhance itscompetitive position. The success of the Company will be dependant
onits ability to compete with these competitors on both a quality and cost-
effective basis and there is no assurance that the Company will be
successful in that competition.
Page 13
Competition in Facial and Iris Biometric fields
The following table indicates the Company's major competitors in the
facial and iris biometric fields:
Vendor Product Technology Current
Availability Implementations
BioID BioID Eigenface/neural -limited IT security
(USA) Client/Server network: images rollouts in SE Asia
complied into -software bundled with
single reference PC cameras
face
eTrue TrueFace for Neural network -distributed in
(formerly Web, Network, facial- recognition
Miros) PC, NT, ATM's
(USA) Database -airport baggage
identification
-component of NT-based
software suites
Viisage Viisage Gallery Eigenfaces- -driver's license
(USA) (including C++ applications
DLL) -many gaming
surveillance
applications
Visionics FaceIt DB local feature -surveillance
(USA) evalFaceIt NT, analysis applications
driver's C++ SDK -license applications
Identification component of NT-based
and Verification software suites
SDK
Iridian+ Iriscan Proprietary Licensing its core
(USA) recognition technology technology to many
technology companies
SINTEC ADTRAAS S/W Feature analysis -surveillance &
(Korea) & AiroCAM as and vector searching camera
a system algorithm, Face system with
tracking facial-scan software
-Multi-biometric
solution of face and
iris recognition with
interacting
camera system
- - a technology developed by Messrs Sirovich and Kirby from Massachusetts
Institute of Technology.
While the industries in which the Company competes are intensely
competitive and the Company competes with and will continue to compete
with companies having much greater financial and technical resources it
is not aware of any other company that has integrated biometric software
with hardware technology such as the Company's patented tilt/zoom/tracking
or the plug and play features sound in the Company's cameras.
Page 14
Competitors in Pan/Tilt cameras
The pan/tilt part of the camera industry in which the Company
competes is intensely competitive with many competitors having greater
financial and technical resources than the Company. The following table
shows several products available from competing companies:
Vendor Product Name End-user price Key Features
in
United States
Surveyor TransitRCM $320 -Closed-loop servo
Corporation (Robotic (mount only) control for fast
(USA) Camera and accurate camera
Mounts) positioning
-Similar mechanism to
the SmileCAM-CCD in
mechanism
-May be used with
other PC cameras
SONY EVI-G20,21 $1,200~1,400 -Compact video camera
(Japan) with pan/tilt, zoom
-High speed direct
drive pan/tilt mechanisim
SONY EVI-D30,31 $900~1,200 -High speed pan/tilt
(Japan) -x 12 optical zoom,
auto-focus
-Auto tracking, motion
detector
Cannon VC-C3,4 $1,045 -1,495 -High speed pan/tilt
(Japan) and zoom
-Motion detecting
SINTEC SmileCAM $295 -High speed pan/tilt
(Korea) - CCD & USB -Auto motion tracking
The Company designs and manufactures its own patented motorized
video camera system. As a result, unlike competitive motorized camera
systems, which require multiple parts to achieve the same functions, the
Company has been able to integrate all motorized camera functions into
one small device. The Company believes this means that it will be able
to offer the lowest cost, most highly integrated and motorized pan/tilt
video camera available. The Company believes its products will offer
competitive advantages that will allow its customers to design security
and monitoring systems that are lower in cost, smaller in size, lighter in
weight, consume less power, and are more reliable and more easily
integrated with other security systems currently available. An additional
positive factor is the ability toa access and control the Company's
camera products over the Internet. The Company believes that the price
of its products coupled with their unique features will allow it to
compete against much larger and better financed competitors.
Page 15
(c) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company was incorporated in Korea on March 7, 1996. From
1996 to 1998, the Company was engaged in the management information
systems and enterprise resource planning industries. In late 1996 the
Company started developing cost efficient Internet enabled media devices
with advanced image recognition and biometric software for personal
computers and communications devices, security systems and consumer
electronic applications.
Results of Operations
The Company spent $153,269 on research and development in the
year ended December 1999 as compared to $38,433 for the year ended
December 31, 1998. This increase was due to the efforts expended by the
Company to develop commercial products ready for the market. During
the same period advertising increased from $12,202 to $43,029. Total
selling, general and administrative expenses increased from $375, 697 in
the year ended December 31, 1998 to $504,828 for the year ended
December 31, 1999 due mainly to increases in research and development,
advertising costs and commissions. The Company's loans to the President
of the Company increased from $520,283 in the year ended December 31,
1998 to $575,496 in the year ended December 31, 1999. Working capital
increased for the period from $24,618 to $378,347. During the year
ended December 31, 1999 the Company had an accumulated deficit of
$616,653.
The operating results for the Company for the period ending
December 31, 1999 showed a net operating loss of $417,372 as compared
to a loss of $75,856 in 1998.This increase in net loss of approximately
$341,516 was due primarily to the expenditure of funds for
administrative, research and development and general expenses together
with decrease in net sales from 1998 of $715,948 to $116,055 in 1999.
This decrease in sales was a result of the Company discontinuing its prior
business and commencing its current business. The Company is not
currently realizing any significant revenue from operations but expects
sales in 2001 to increase as the SmileCAM was completed in 2000 and is
now ready for commercial production.
For the 9 months ending September 30, 2000 the Company's
research and development expenses increased to $199,661 due to
continuing efforts of the Company to develop its products. Furthermore,
commissions and advertising expenses increased to $99,031 and $61,557
respectively. The loan to the President of the Company was repaid in full
and the Company borrowed $140,870 from the President. Employees
salaries increased to $59,624; commissions and advertising expenses
increased to $99,031 and $61,557 respectively.
Liquidity and Capital Resources
Since inception, the Company's capital resources have been
limited. The Company's capital resources have mainly been derived from
cash flows generated from the sale of the Company's common stock. As
at December 31, 1998 the Company had working capital of approximately
$24,618. In August 1999 the Company raised $180,600 by way of the sale
of 17,720 pre forward split shares of the Company. In November and
December 1999 it raised an additional $312,576 and $314,521
respectively by way of the sale of a total of 101,080 pre Forward Split
shares of the Company. In December 2000 the Company raised an
additional $625,000 through the sale of common stock of the Company
Page 16
Since the Company does not currently have sufficient revenue to finance
its operations, the Company must continue to rely upon equity and debt
financing. The Company expects to increase the number of its employees
in Korea by 48 employees in order for it to commence full scale
production of the SmileCAM. The Company also intends to open a
representative office in the United States early in 2001 and expects to
hire 3 employees to man that office. The Company anticipates that it will
continue with its ongoing research and development in order to complete
the development of the AiroCAM and to develop other products. The
Company will have to raise additional funds in order to accomplish the
forgoing. There can be no assurances that financing, whether debt or
equity, will always be available to the Company in the amount required
any particular time or for any particular period, or if available, that it
can be obtained on terms satisfactory to the Company. The Company has
no arrangements with its officers, directors or affiliates to provide
liquidity to the Company.
Nine Months Ending September 30, 2000
Cash flow from operations did not satisfy all of the Company's
operational requirements and cash commitments. At the end of its fiscal
year ending December 31, 1999 the Company had working capital of
$378,347. In the month of December, 2000 the Company raised
$625,000 through the sale of common stock.
Fiscal Years ending December 31, 1999 and 1998
Cash flow from operations did not satisfy all of the Company's
operational requirements and cash commitments. At the end of its fiscal
year ending December 31, 1998 the Company had working capital of
$24,618. During 1999 the Company raised on three separate occasions,
by way of the sale of its common stock a total of $ 807,697. At the end of
the fiscal year ending December 31, 1999 the Company had working
capital of $378,347
Subsequent Events
Subsequent to September 30, 2000 the Company completed a private
placement of 28,000 common shares for total proceeds of $625,000.
Plan of Operation
The Company's plan of operation for the year ending December 31,
2001 anticipates the commencement of full production of the SmileCAM
in February 2001 and accordingly an increase in employees in Korea to
67 employees. Furthermore the Company intends to open a representative
office in California and will hire 3 employees to man this office.
The Company will require additional cash in order to address the
going concern problem discussed in the Company's financial statements.
The Company will also require additional cash to implement its business
strategies, including cash for (i) payment of increased operating
expenses, (ii) commence full scale production of the SmileCAM,
continued research and development and (iii) further implementation of
those business strategies. In order to implement its plans for 2001 the
Company intends to raise approximately $3,000,000 in a direct private
placement offering pursuant to the terms of Regulation S. It is
anticipated that such offering will be self-underwritten. No assurance can
be given, however, that the Company will have access to the capital
markets in the future, or that financing will be available on acceptable
terms to satisfy the Company's cash requirements needed to implement
the Company's business strategies. The Company's inability to access
the capital markets or obtain acceptable financing could have a material
adverse effect on the Company's results of operations and financial
condition, and could severely threaten the Company's ability to operate
as a going concern.
Page 17
Sales are budgeted to increase from the start of the year as the
SmileCAM goes into full production and new products come on stream.
Recent orders from Europe for the SmileCAM underpin this forecast.
It is expected that overhead expenses will continue to rise as the
Company puts its existing products into commercial production and as
new products are developed. General investment in product development
is budgeted to continue at its current rate pending agreement on specific
product investments which will be treated as projects external to the
current budget.
The budgeted increase in gross profit arising from an increase in
volume indicates that the Company should be profitable on a month to
month basis form the end of the fiscal year.
Forward Looking Statements
The Company's forecast of the period of time through which the
Company's financial resources will be adequate to support the
Company's operations is a forward-looking statement that involves risks
and uncertainties. Actual results could vary as a result of a number of
factors. Any statements that express or involve discussions with respect
to predictions, expectations, beliefs, plans, projections, objections,
assumptions or future events or performance (often, but not always, using
words or phrases such as "expects" or "does not expect", "is
expected", "anticipates", or "does not anticipates", "plans",
"estimates", or "intends" or stating that certain actions, events or
results "may", "could", "would", "might", or "will" be taken,
occur or be achieved) are not statements of historical fact and may be
"forward looking statements". Such statements are included among other
places in the Form 8K, in the sections entitled "Management's
Discussion and Analysis", "Plan of Operation", "Business", and "Risks
Factors". Forward-Looking Statements are based on expectations,
estimates and projections at the time the statements are being made that
involve a number of risks and uncertainties which could cause actual
results or events to differ materially from those presently anticipated.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurances that
such expectations will prove to have been correct.
The Company anticipates that it will need to raise additional capital
within the next 12 months in order to continue as a going concern. Such
additional capital may be raised through additional public or private
financings, as well as through loans and other resources. The issuance of
equity or equity-related securities to raise additional capital could result
in dilution of the Company's stockholders. There can be no assurance
that additional funding will be available on favourable terms, if at all. If
adequate funds are not available within the next 12 months, the Company
may be required to curtail its operations significantly or to obtain funds
through entering into arrangements with collaborative partners or others
that may require it to relinquish rights to certain of the Company's
assets that it would not otherwise relinquish.
Page 18
(d) RISK FACTORS
For ease of reference the Company has divided the Risk Factors into
two (2) distinct categories: Risk Factors associated with the Company
and it's Business and Country Risks.
RISK FACTORS ASSOCIATED WITH THE COMPANY AND ITS BUSINESS
The following risks relate specifically to the Company's business
and should be considered carefully. The Company's business, financial
condition and results of operations could be materially and adversely
affected by any of the following risks. In particular, the Company is a
Korean Company and is governed by a legal and regulatory environment
which in some respects may differ from that which prevails in other
countries.
The Company's limited operating history makes the evaluation of the
Company's current business and the forecasting of the Company's future
results difficult
The Company has only a limited operating history on which to base
an evaluation of the Company's current business and prospects, each of
which should be considered in light of the risks, expenses and problems
frequently encountered in the early stages of development of all
companies. The Company has no record of commercial production,
earnings or sales. The Company, therefore, must be considered
promotional and in its early formative and development stage. There is
no assurance that the Company's products will achieve acceptance in the
marketplace on commercially acceptable terms.
The Company's lack of cash flow and additional funding requirements
The Company has no significant source of operating cash flow. The
Company has limited financial resources. To the extent that additional
funds are required, the Company will seek to obtain such funds through
equity and/or debt offerings. There is no assurance that if additional
funding were needed, that it would be available to the Company on terms
and conditions acceptable to it. Failure to obtain such additional funding
could result in delay or indefinite postponement of some or all of the
Company's products to the market place or the ability to supply
sufficient product to the market place on a continual and profitable basis.
Future growth predictions may be inaccurate
The Company's limited operating history makes the prediction of
future results difficult or impossible. This limited operating history
leads the Company to believe that period-to-period comparisons of its
operating results may not be meaningful and that the results for any
particular period should not be relied upon as an indication of future
performance. If revenues do not grow at anticipated rates, the
Company's business, results of operations and financial condition would
be materially and adversely affected.
Page 19
The Company anticipates that losses may continue
The Company anticipates incurring losses for the foreseeable
future. The extent of future losses will depend, in part, on the amount of
growth in revenues from the Company's services and products. The
Company expects that operating costs will increase during the next
several years, especially in the areas of sales and marketing, product
development and general and administrative expenses as it pursues its
business strategy. Thus, the Company will need to generate increased
revenues faster than the rate of growth in costs to achieve profitability.
To the extent that increases in its operating expenses precede or are not
subsequently followed by corresponding increases in revenues, or if it is
unable to adjust operating expense levels accordingly, the Company's
business, results of operations and financial condition would be
materially and adversely affected. There can be no assurance that the
Company will sustain profitability or that its operating losses will not
increase in the future.
Competition from larger companies
The industries in which the Company competes are intensely
competitive and the Company competes and will compete with companies
having greater financial and technical resources. Therefore, to the extent
that the Company is able to establish sales, revenues and profits, there is
no assurance that it would be able to sustain such sales, revenues and
profits. Moreover, although not a major factor today, if and when the
Company begins achieving its objectives, larger, better financed
companies in peripheral businesses may be attracted to the Company's
markets. They may be prepared to spend large sums quickly to develop
competitive products and to mount major marketing campaigns. The
Company is aware of this possibility and hopes to establish itself as an
industry leader early on. Time is of the essence and the Company's
financing and marketing programs are essential to minimize this risk.
Need to upgrade products and develop new technologies
Continued participation by the Company in its market may require
the investment of the Company's resources in upgrading of its products
and technology for the Company to compete and to meet regulatory and
statutory standards. There can be no assurance that such resources will
be available to the Company or that the pace of product and technology
development established by management will be appropriate to the
competitive requirements of the marketplace.
The Company's success will depend to a substantial degree on its
ability to develop and introduce in a timely manner new products and
enhancements that meet changing customer requirements and emerging
industry standards. The development of new, technologically advanced
products and enhancements is a complex and uncertain process requiring
high levels of innovation as well as the anticipation of technology and
market trends. The Company has experienced delays in completing the
development and introduction of new products on several occasions in the
past, some of which exceeded six months.
The Company currently depends on a limited number of foreign
suppliers to manufacture certain key components and these manufactures may not
be able to satisfy its requirements that could cause the Company's
potential revenues to decline
The Company currently buys certain key components, including
optical lenses, motors, and certain other integrated circuits, from a
limited number of suppliers. The Company anticipates that these
suppliers will manufacture these key components in sufficient amounts to
meet its production requirements. If these suppliers fail to satisfy the
Company's requirements on a timely basis and at competitive prices, the
Company could suffer manufacturing delays, a possible loss of revenues
or higher than anticipated costs of revenues, any of which could seriously
harm its operating results.
Page 20
The Company's business model and acceptance of the Company's
products is unproven in the developing market in which the Company
operates
The Company's business model is unproven. No assurance can be
given that the Company's business model will be successful or that it can
sustain revenue growth or be profitable. The market for the Company's
products is new, rapidly developing and characterized by an increasing
number of market entrants. As is typical of any new and rapidly evolving
market, demand and market acceptance for recently introduced products
are subject to a high level of uncertainty and risk. Moreover, because
this market is new and rapidly evolving, it is difficult to predict its
future growth rate, if any, and its ultimate size. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's products do not achieve or sustain
market acceptance, then the Company's business, results of operations
and financial condition would be materially and adversely affected.
There can be no assurance that the Company will be able to
identify, develop, manufacture, market, sell, or support new products and
enhancements successfully, that new products or enhancements will
achieve market acceptance, or that the Company will be able to respond
effectively to technology changes, emerging industry standards or
product announcements by competitors.
New product announcements by the Company could cause its
customers to defer purchases of existing products or cause distributors to
request price protection credits or stock rotations.
The Company's ability to attract additional financing as needed may
affect its future success
The Company will require additional financings as it expects
negative operating cash flow for the foreseeable future until income from
its operations has grown to cover the cost of their support and
development. Such financing, if obtained by the Company, may result in
the issuance of additional securities and may not be available on terms
favourable to it.
The Company expects that it will continue to experience negative
operating cash flow for the foreseeable future as a result of significant
spending on product development, marketing and infrastructure.
Accordingly, the Company may need to raise additional funds in a timely
manner in order to fund its marketing and distribution of its products,
respond to competitive pressures or acquire complementary products,
businesses or technologies. Additional funds will have to be raised
through the issuance of equity or convertible debt securities causing the
Company's current stockholders to experience dilution. Such securities
may grant rights, preferences or privileges senior to those of the
Company's common stockholders.
The Company does not have any contractual restrictions on the
Company's ability to incur debt and, accordingly, the Company could
incur significant amounts of indebtedness to finance its operations. Any
such indebtedness could contain covenants which would restrict the
Company's operations. There can be no assurance that additional
financing, if and when needed, will be available on terms favourable to
the Company or at all. If adequate funds are not available or are not
available on acceptable terms, it would have a material adverse effect on
the Company's ability to fund its expansion, take advantage of
acquisition opportunities, develop or enhance services or products or
respond to competitive pressures.
Page 21
Future acquisitions of other business entities by the Company would
entail numerous risks and uncertainties that could have an adverse affect
on its operations and financial condition
As part of the Company's business strategy, it expects to review
acquisition prospects that would complement its existing business,
augment the distribution of its products or enhance its technological
capabilities. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, large and immediate
write-offs, the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other intangible assets, any
of which could materially and adversely affect the Company's business,
results of operations and financial condition.
Furthermore, acquisitions entail numerous risks and uncertainties,
including difficulties in the assimilation of operations, personnel,
technologies, products and information systems of the acquired
companies, the diversion of management's attention from other business
concerns, the risks of entering geographic and business markets in which
the Company has no or limited prior experience, and the potential loss of
key employees of acquired organizations.
No assurance can be given as to the Company's ability to
successfully integrate any businesses, products, technologies or personnel
that might be acquired in the future, and the Company's failure to do so
could have a material adverse effect on its business, results of operations
and financial condition.
Any significant deterioration in the general economic conditions
would have an adverse effect on the Company's business, result of operations,
or financial condition
The success of the Company's operations depends to a significant
extent upon a number of factors relating to discretionary consumer
spending, including economic conditions (and perceptions of such
conditions by consumers) affecting disposable consumer income such as
employment, wages, salaries, business conditions, interest rates,
availability of credit and taxation for the economy as a whole and in
regional and local markets where the Company operates. There can be no
assurance that consumer spending will not be adversely affected by
general economic conditions, which could negatively impact the
Company's results of operations and financial conditions. Any
significant deterioration in general economic conditions or increases in
interest rates may inhibit consumers' use of credit and cause a material
adverse effect on the Company's revenues and profitability. Any
significant deterioration in general economic conditions that adversely
affects these companies could also have a material adverse effect on the
Company's business, results of operations and financial condition.
No dividends declared or any likely to be declared in the future
The Company has not declared any dividends since inception, and
has no present intention of paying any cash dividends on its common
stock in the foreseeable future. The payment by the Company of
dividends, if any, in the future, rests in the discretion of the Company's
Board of Directors and will depend, among other things, upon the
Company's earnings, its capital requirements and financial condition, as
well as other relevant factors.
Page 22
The possible issuance of additional shares may impact the value of the
Company stock
The Company is authorized to issue up to 50,000,000 shares of
common stock. It is the Company's intention to issue more shares. Sales
of substantial amounts of common stock (including shares issuable upon
the exercise of stock options, the conversion of notes and the exercise of
warrants), or the perception that such sales could occur, could materially
adversely affect prevailing market prices for the common stock and the
ability of the Company to raise equity capital in the future.
Sales and Distribution
The Company has yet to establish a significant distribution and
support network. Failure on the part of the Company to put into place an
experienced and effective marketing infrastructure in a timely manner
could act to delay or negate the realization of anticipated revenues.
Market Acceptance
The viability of the Company is dependent upon market acceptance
of its current and future products. There is no assurance that these
products will attain a level of market acceptance that will allow for
continuation and growth of the Company's business operations. In
addition, the Company will need to develop new processes and products
to maintain its operations in the longer term. The development and
launching of such processes and products can involve significant
expenditure. There can be no assurance that the Company will have
sufficient financial resources to fund such programs and whether such
undertaking will be commercially successful.
Adequate Labour and Dependence Upon Key personnel; No Employment
Agreements
The Company will depend upon recruiting and maintaining qualified
personnel to staff its operations. The Company believes that such
personnel are currently available at reasonable salaries and wages. There
can be no assurance, however, that such personnel will always be
available in the future. The continuing development of the Company's
products has been almost entirely dependent on the skills of management
and certain key employees of the Company. The Company currently has
no employment agreements. Loss of the services of any of this
management team aor key employees could have a material adverse effect
upon the Company.
The Company's financing requirements may increase in order to obtain
additional manufacturing capacity in the future
To obtain additional manufacturing capacity, the Company may be
required to make deposits, equipment purchases, loans, joint ventures,
equity investments or technology licenses in or with other companies.
These transactions could commit of substantial amounts of the
Company's capital and technology licenses in return for production
capacity. The Company may be required to seek additional debt or equity
financing if the Company needs substantial capital in order to secure this
capacity and the Company cannot be assured that it will be able to obtain
such financing.
If the Company's suppliers discontinue the products needed to meet
the Company's demands, or fail to upgrade the technologies needed to
manufacture the Company's products, the Company may face production
delays and lower the Company's anticipated revenues
Page 23
The Company's requirements may represent a small portion of the
total production of the suppliers that manufacture the components used in
the Company's products. As a result, the Company is subject to the risk
that a supplier may cease production on an older or lower-volume
manufacturing process that it uses to produce the Company's parts. Each
of these events could increase the Company's costs and harm the
Company's ability to deliver its products on time.
The Company's growth depends on its ability to commercialize products
It is anticipated that a significant amount of the Company's
revenue will come from the SmileCAM product line initially, which is
central to the Company's growth strategy. This line of products
encounters competition and is price sensitive. While the Company is
currently developing new products in this product line, the Company
cannot be assured that these products will reach the market on time, will
satisfactorily address customer needs, will be sold in high volume, or
will be sold at profitable margins.
The Company may have limited ability to reduce expenses quickly in
response to any revenue shortfall
The Company anticipates that its operating expenses will be
relatively fixed, and the Company therefore has limited flexibility to
reduce expenses quickly in response to any revenue shortfalls.
Consequently, the Company's operating results will be harmed if the
Company's revenues do not meet its revenue projections. The Company
may experience revenue shortfalls for the following reasons:
- - significant pricing pressures that occur due to competition,
over supply, or other reasons;
- - sudden shortages of raw materials or fabrication, test or
assembly capacity constraints that lead the Company's
suppliers to allocate available supplies or capacity to other
customers which, in turn, harm the Company's ability to meet
its sales obligations; and
- - the reduction, rescheduling or cancellation of customer
orders.
The Company's markets are subject to rapid technological change and,
therefore, its success depends upon the Company's ability to develop and
introduce new products
The markets for the Company's products are characterized by:
- - rapidly changing technologies;
- - evolving and competing industry standards;
- - changing customer needs;
- - frequent new product introductions and enhancements;
- - increased integration with other functions; and
- - rapid product obsolescence.
To develop new products for its target markets, the Company must
develop, gain access to and use leading technologies in a cost-effective
and timely manner and continue to expand its technical and design
expertise. In addition, the Company must have its products incorporated
into its customers' future products and maintain close working
relationships with key customers in order to develop new products that
meet their changing needs.
The Company cannot be assured that it will be able to identify new
product opportunities successfully, develop and bring to market new
products or respond effectively to new technological changes or product
announcements by its competitors. In addition, the Company may not be
successful in developing or using new technologies or in developing new
products or product enhancements that achieve market acceptance. The
pursuit of necessary technological advances may require substantial time
and expense. Failure in any of these areas could harm the Company's
anticipated operating results.
Page 24
The Company's ability to compete successfully will depend, in part,
on its ability to protect its intellectual property rights, which the Company
may not be able to protect
The Company relies on a combination of patent, trade secrets, and
copyright, nondisclosure agreements and other contractual provisions and
technical measures to protect its intellectual property rights. Policing
unauthorized use of the Company's products is difficult, especially in
foreign countries. Litigation may continue to be necessary in the future
to enforce the Company's intellectual property rights, to protect its trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity.
Litigation could result in substantial costs and diversion of resources and
could harm the Company's business, operating results and financial
condition regardless of the outcome of the litigation.
The Company has acquired ownership or exclusive license to a
number of patents or patent applications related to its products.
However, the Company cannot be assured that any pending patent
application will be granted, or that all such patents can provide adequate
protection for its intellectual property. The Company's operating results
could be seriously harmed by the failure to protect its intellectual property.
If the Company is accused of infringing the intellectual property
rights of other parties, it may become subject to time-consuming and costly
litigation. If the Company loses, it could suffer a significant impact on
its business and it may be forced to pay damages
Third parties may assert that the Company's products infringe their
proprietary rights, or may assert claims for indemnification resulting
from infringement claims against it. Any such claims may cause the
Company to delay or cancel shipment of its products or pay damages that
could seriously harm its business, financial condition and results of
operations. In addition, irrespective of the validity or the successful
assertion of such claims, the Company could incur significant costs in
defending against such claims.
The Company's litigation may be expensive, protracted, and confidential
information may be compromised
Whether or not the Company is successful in any litigation, the
Company expects the litigation to consume substantial amounts of its
financial and managerial resources. Further, because of the substantial
amount of discovery required in connection with this type of litigation,
there is a risk that some of the Company's confidential information could
be compromised by disclosure.
The Company's business may suffer due to risks associated with
international sales and operations
The Company anticipates that export products will account for
most of its revenues. International business activities are
subject to a number of risks, which could impose unexpected
costs on the Company that would have anadverse effect on
its operating results. These risks include:
- - difficulties in complying with regulatory requirements and
standards;
- - tariffs and other trade barriers;
- - costs and risks of localizing products for foreign countries;
- - reliance on third parties to distribute the Company's
products;
- - longer accounts receivable payment cycles;
- - potentially adverse tax consequences;
- - limits on repatriation of earnings; and
- - burdens of complying with a wide variety of foreign laws.
Page 25
The Company anticipates that it will have to depend on manufacturers'
representatives and distributors to generate substantial amounts of its
revenues
The Company anticipates that it will have to rely on manufacturers'
representatives and distributors to sell its products, and these entities
could discontinue selling its products at any time.
The loss of any significant agent could seriously harm the
Company's operating results.
The Company's success may be affected by unusual growth of certain
new products
There may be new products introduced in the future which meet
unusually high global demands. If the new products' customer base
overlaps a substantial portion of the Company's products' customer
base, or that the new products use the same key component as the
Company's products, the demand for the Company's products or the
supply of their key component may be reduced, which may seriously harm
the Company's operations.
Potential fluctuations in the Company's operating results and quarterly
fluctuations may adversely affect the Company's trading price
The Company's operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of the
Company's control. As a strategic response to changes in the
competitive environment, the Company may from time to time make
certain pricing, service or marketing decisions or acquisitions that could
have a material short-term or long-term adverse effect on the Company's
business, results of operations, and financial condition.
Its officers, directors and entities affiliated with them control the
Company
Management of the Company owns a large proportion of the
Company's issued and outstanding shares of common stock. These
stockholders, if acting together, will be able to significantly influence all
matters requiring approval by the Company's stockholders, including the
election of directors and the approval of mergers or other business
combination transactions.
The value and transferability of the Company's shares may be
adversely impacted by the limited trading market for the Company's
common stock, the penny stock rules and future share issuances.
There is a limited market for the Company's common stock in the United States:
No assurance can be given that a market for the Company's
common stock will be quoted on the NASDAQ or the NASDAQ Over-the-
Counter Bulletin Board ("NASDAQ-BB").
Page 26
The sale or transfer of the Company's common stock by shareholders
in the United States may be subject to the so-called "penny stock rules".
Under Rule 15g-9 of the 1934 Act, a broker or dealer may not sell a
"penny stock" (as defined in Rule 3a51-1) to or effect the purchase of a
penny stock by any person unless:
(a) such sale or purchase is exempt from Rule 15g-9;
(b) prior to the transaction the broker or dealer has (i) approved the
person's account for transaction in penny stocks in accordance with
Rule 15g-9, and (ii) received from the person a written agreement
to the transaction setting forth the identity and quantity of the
penny stock to be purchased; and
(c) the purchaser has been provided an appropriate disclosure statement
as to penny stock investment.
The SEC adopted regulations that generally define a penny stock to
be an equity security other than a security excluded from such definition
by Rule 3a51-1. Such exemptions include, but are not limited to (i)
equity security issued by an issuer that has (A) net tangible assets of at
least $2,000,000, if such issuer has been in continuous operations for at
least three years, (B) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three years, or (C)
average revenue of at least $6,000,000 for the preceding three years; (ii)
except for purposes of Section 7(b) of the 1934 Act and Rule 419, any
security that has a price of $5.00 or more; and (iii) a security that is
authorized or approved for authorization upon notice of issuance for
quotation on the NASDAQ Stock Market, Inc.'s Automated Quotation
System.
It is likely that shares of the Company's common stock, assuming a
market were to develop in the United States. therefore, will be subject to
the regulations on penny stocks; consequently, the market liquidity for
the common stock may be adversely affected by such regulations limiting
the ability of broker/dealers to sell the Company's common stock and the
ability of shareholders to sell their securities in the secondary market in
the United States. Moreover, the Company's shares may only be sold or
transferred by the Company's shareholders in those jurisdictions in the
United States in which an exemption for such "secondary trading" exists
or in which the shares may have been registered.
Conflicts of Interest of certain directors and officers of the Company
From time to time certain of the directors and executive officers of
the Company may serve as directors or executive officers of other
companies and, to the extent that such other companies may participate in
the industries in which the Company may participate, the directors of the
Company may have a conflict of interest. In addition, the Company's
dependence on directors and officers who devote time to other business
interests may create conflicts of interest, i.e. that the fiduciary
obligations of an individual to the other company conflicts with the
individual fiduciary obligations of the Company and vice versa.
Directors and officers must exercise their judgment to resolve all
conflicts of interest in a manner consistent with their fiduciary duties to
the Company. If such a conflict of interest arises at a meeting of the
directors of the Company, a director who has such a conflict will abstain
from voting for or against the approval of such participation or such
terms. In appropriate cases, the Company will establish a special
committee of independent directors to review a matter in which several
directors, or management, may have a conflict. The Company is not
aware of the existence of any conflict of interest as described herein.
Page 27
Forward Looking Statements
This Form 8K includes "forward-looking statements" within the
meaning of Section 27A of the 1933 Act and Section 21E of the 1934 Act.
A shareholder or prospective shareholder should bear this in mind when
assessing the Company's business. All statements, other than statements
of historical facts, included in this registration statement, including,
without limitation, the statements under and located elsewhere herein
regarding industry prospects and the Company's financial position are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectation will prove to have been
correct.
Shares Eligible for Future Sales
There has been no market for the Company's shares, and there can
be no assurance that a significant market will develop or be sustained.
Future sales of substantial amounts of the Company's shares (including
shares issued upon exercise of outstanding options and warrants) in the
public market could adversely affect market prices prevailing from time
to time and could impair the Company's ability to raise capital through
sales of the Company's equity securities.
COUNTRY RISKS
There are unique economic and political risks associated with investing
in companies from Korea:
Since early 1997, a number of development shave adversely affected
the Korean economy. Some of Korea's recent financial and economic
difficulties have included:
- - exchange rate fluctuations;
- - interest rate fluctuations;
- - reduced credit from foreign banks;
- - reduced liquidity in the economy;
- - volatile stock prices; and
- - higher unemployment.
A 47.5% depreciation in the value of the Won relative to the Dollar
during the second half of 1997 led to sharply higher domestic interest
rates. Domestic interest rates in Korea, however, declined significantly
in the fourth quarter of 1998 and are currently below interest rates which
prevailed in Korea before late 1997. If interest rates rise in the future,
the debt service costs of Korean borrowers (including the Company)
would increase, which may have an adverse effect on the Company's
ability, if necessary, to borrow funds.
Based on preliminary statements prepared by the Bank of Korea,
Korea's gross domestic product contracted by 5.8% in 1998. In 1999,
however, Korea's gross domestic product grew by 9.9%. The
Government has recently taken a number of steps in response to recent
economic developments, including the following:
Page 28
- - negotiation with the International Monetary Fund of a
financial aid package involving loans in an aggregate amount
of approximately US$58 billion;
- - negotiation of an agreement with a substantial number of
international creditors of Korean financial institutions to
extend the maturities of an aggregate of approximately
US$21.8 billion of Korean financial institutions' short-term
foreign currency obligations owed to those international
creditors by exchanging the obligations for longer-term
floating rate loans guaranteed by the Government;
- - the Government's issuance of Dollar-denominated bonds in
the aggregate principal amount of US$4 billion in April 1998; and
- - the announcement and implementation of a number of
important economic, financial sector, labour and other
reforms.
While the Government's reforms of the Korean economy may
alleviate its current economic difficulties and improve the economy over
time, in the short-term, implementation of the reform measures may:
- - slow economic growth;
- - cause a budget deficit because of a decrease in tax revenues
and an increase in Government expenditures;
- - increase the rate of inflation;
- - increase the number of bankruptcies of Korean companies; and
- - increase unemployment.
In addition, the continuing weakness of the Japanese economy and
recent volatility of the Japanese Yen against the Dollar increase the
uncertainty of economic stability in Asia in general and may hinder
Korea's ability to recover quickly from its own economic difficulties.
Future adverse developments in Southeast Asia, Japan and elsewhere in
the world could worsen Korea's economic difficulties.
Other developments that could occur in Korea include social and
labour unrest resulting from economic difficulties and higher
unemployment, a substantial increase in the Government's expenditures
for unemployment compensation and other costs for social programs.
Korea may need to increase reliance on exports to service of foreign
currency debts, which could friction with Korea's trading partners. In
addition, the economies of neighbouring countries, including Japan,
China and Russia, could deteriorate further. Any such developments
would hurt Korea's plans for economic recovery.
Finally, relations between South Korea and North Korea have been
tense over most of Korea's history. The level of tension between the two
Koreas has fluctuated and may increase or change abruptly as a result of
current or future events. The occurrence of such events could have a
material adverse effect on the Company's operations and the price of its
shares.
Ownership of shares may be subject to certain restrictions under Korean
law
Prior to acquiring 10% or more of the outstanding shares of a
Korean company, foreign investors are generally required under the
Foreign Investment Promotion Law of Korea to submit a report to a
Korean bank. Failure to comply with this reporting requirement may
result in the imposition of criminal sanctions. Subsequent sales of their
investment by these investors also require a prior report to the bank.
Page 29
The Company may not be able to convert and remit dividends in Dollars
if the Government imposes certain emergency measures
The Company does not intend to pay dividends on its shares in the
foreseeable future. However, if it declares cash dividends, such
dividends will be declared in Won. In order for the Company to pay
dividends outside Korea, the dividends will be converted into Dollars and
remitted to the shareholders, subject to certain conditions. Fluctuations
in the exchange rate between the Won and the Dollar will affect, among
other things, the amount a holder of shares of the Company will receive
as dividends. Under Korean law, if the Government deems that certain
emergency circumstances including, but not limited to, sudden
fluctuations in interest rates or exchange rates, extreme difficulty in
stabilizing the balance of payments or a substantial disturbance in the
Korean financial and capital markets are likely to occur, it may impose
restrictions such as requiring foreign investors to obtain prior approval
from the Ministry of Finance and Economy for the acquisition of Korean
securities or for the repatriation of interest, dividends or sales proceeds
arising from Korean securities or from disposition of such securities,
including the Company's shares. The Company cannot give any
assurance that it can secure such prior approval from the Ministry of
Finance and Economy for payment of dividends to foreign investors in
the future when the Government deems that there are emergency
circumstances in the Korean financial market.
The Company's ability to raise money in equity offerings may be
constrained by the need to register those offerings with the SEC
The Commercial Code of Korea and the Company's Articles of
Incorporation require the Company, with certain exceptions, to offer
shareholders the right to subscribe for new shares in proportion to their
existing ownership percentage whenever new shares are issued. The
Company cannot exclude United States holders of shares from these
offers, and must thus register those offers with the SEC. If the Company
cannot, or chooses not to register these offerings, the Company will be
unable to consummate them, which will restrict the range of capital
raising options available to the Company.
Exchange rate fluctuations may adversely affect the Company's results of
operations
In the second half of 1997, the value of the Won relative to the
Dollar depreciated at an accelerated rate. The noon buying rate as of
December 31, 1997 was Won 1.695.0 to US$1.00 compared to Won 890.0
to US$1.00 on June 30, 1997. This represented depreciation in the value
of the Won relative to the Dollar of approximately 47.5%. As a result of
such sharp depreciation, the Government was forced to effectively
suspend its efforts to support the value of the Won, and on December 16,
1997, the Government allowed the Won to float freely. The depreciation
of the Won relative to the Dollar increased the cost of imported goods
and services and the Won revenue needed by Korean companies to service
foreign currency denominated debt. Since then, however, the Won, while
it has fluctuated, has generally appreciated relative to the Dollar and
other major foreign currencies. On February 1, 2001, the noon buying
rate was Won 1,287.1 to US$1.00.
Page 30
Korean Foreign Controls and Securities Regulations.
General
The Foreign Exchange Transaction Law of Korea and the
Presidential Decree and regulations established thereunder (collectively
the "Foreign Exchange Transaction Laws") regulate investment in
Korean securities by non-residents and issuance of securities outside
Korea by Korean companies. Under the Foreign Exchange Transaction
Laws, non-residents may invest in Korean securities only to the extent
specifically allowed by such laws or otherwise permitted by the Ministry
of Finance and Economy. The Financial Supervisory Commission also
has adopted, pursuant to the delegated authority under the Securities and
Exchange Law of Korea, regulations that restrict investment by foreigners
in Korean securities and regulate issuance of securities outside Korea by
Korean companies.
Under the Foreign Exchange Transaction Laws, if the Government
deems that certain emergency circumstances are likely to occur, it may
impose any necessary restrictions such as requiring foreign investors to
obtain prior approval from the Ministry of Finance and Economy for the
acquisition of Korean securities or fore the repatriation of interest,
dividends or sales proceeds arising from Korean securities or from
disposition of such securities. Such emergency circumstances include
sudden fluctuations in interest rates or exchange rates, extreme difficulty
in stabilizing the balance of payments or a substantial disturbance in the
Korean financial and capital markets.
Government Reporting Requirements
In order for the Company to issue its shares outside of Korea, the
Company is required to file a prior report of such issuance with the
Ministry of Finance and Economy. No further approval from the
Government is necessary to issuance the Company's shares.
Prior to acquiring 10% or more of the outstanding shares of a
Korean company, foreign investors are generally required under the
Foreign Investment Promotion Law to submit a report to a Korean bank
pursuant to a delegation by the Ministry of Commerce, Industry and
Energy. Sale of these shares will also require a prior report to the bank.
Dividend to be declared in Won
The Company does not intend to pay dividends on its shares for the
foreseeable future. However, if the Company declares cash dividends,
they will be declared in Won. In order for the Company to pay
dividends outside Korea, the dividends will be converted into Dollars and
remitted to the shareholders, subject to certain conditions. The Company
will convert dividend amounts in foreign currency and remit them to
shareholders abroad. No governmental approval is required for foreign
investors to receive dividends. However, in order for the Company to
convert the Won amount in foreign currency and to remit such amount
abroad, relevant documents must be submitted to the foreign exchange
bank to verify (i) that the amount being paid conforms to the amount
required to be paid and (ii) whether all necessary legal procedures have
been completed.
Korean Taxation
The following is a summary of the principal Korean tax
consequences to owners of the Company's shares that are non-resident
individuals or non-Korean corporations without a permanent
establishment in Korea to which the relevant income is attributable
("non-resident holders"). The statements regarding Korean tax laws set
forth below are based on the laws in force and as interpreted by the
Korean taxation authorities as of the date hereof. This summary is not
exhaustive of all possible tax consideration which may apply to a
particular investor and prospective investors are advised to satisfy
themselves as to the overall tax consequences of the acquisition,
ownership and disposition of the Company's shares, including
specifically the tax consequences under Korean law, the laws of the
jurisdiction of which they are resident, and any tax treaty between Korea
and their country of residence, by consulting their own tax advisors.
Page 31
Taxation of Dividends
For the purposes of Korean taxation of distributions of profits
either in cash or shares made on the Company's shares, a non-resident
holder will be treated as the owner of the Company's shares. Dividends
paid (whether in cash or in shares) to a non-resident holder are generally
subject to withholding tax at a rate of 27.5% or such lower rate as is
applicable under a treaty between Korean and such non-resident holder's
country of tax residence. Such tax is required to be deducted from such
dividends and only the net amount is paid to the non-resident holder of
the Company's shares.
Under the United States - Korea Tax Treaty, the maximum rate of
withholding on dividends paid to United States residents eligible for
treaty benefits is 15% (10% if the recipient of the dividends is a United
States corporation and owned at least 10% of the outstanding shares of
voting stock of the relevant Korean company during any part of its
taxable year which precedes the date of payment of the dividend and
during the whole of its prior taxable year {if any} and certain other
conditions are satisfied) which does not include withholding of local tax.
In addition, a local surtax will be included in the withholding, therefore
the maximum rate of withholding is generally 16.5%.
Distribution of free shares representing a transfer of certain capital
reserves or asset revaluation reserves into paid-in capital may be treated
as dividends subject to Korean tax. However, stock splits, if any, will
not be treated as dividends.
Taxation of Capital Gains
A non-resident holder will be subject to Korean taxation on capital
gains realized on a sale of the Company's shares ules the non-resident
holder is eligible for the benefits of an applicable tax treaty exempting
such capital gain tax. In addition, the capital gains realized form the
transfer of shares listed on certain foreign stock exchanges (including the
Nasdaq National Market), insofar as the transfer is complete through such
stock exchanges, are exempted form Korean Income taxation by virtue of
the Tax Exemption and Limitation Law.
Under the United States - Korea Tax Treaty, capital gains realized
by holders that are residents of the United States eligible for treaty
benefits will not be subject to Korean taxation upon the disposition of
the Company's shares, with certain exceptions.
In the absence of any applicable treaty, a non-resident share holder
will generally be subject to Korean taxation on capital gains realized on a
sale of the Company's shares at a rate equalof the lesser of 27.5% of the
gains or 11% of the gross sales proceeds.
Application of the United States - Korea Tax Treaty
Under the United States - Korea Tax Treaty, a resident of the
United States means (i) a United States corporation, and (ii) any other
person (except a corporation or entity treated under United States law as
a corporation) resident in the United States for purposes of its tax, but in
the case of a person acting as partner or fiduciary only to the extent that
the income derived by such person is subject to United States tax as the
income of a resident.
Page 32
Further, the reduced Korean withholding tax rate on dividends and
capital gains under the United States -Korea Tax Treaty would not be
available if the dividends or capital gains derived by residents of the
United States if the Company's shares are effectively connected with the
United States residents' permanent establishment in Korea or, in the case
of capital gains derived by an individual, (i) such United States resident
maintains a fixed base in Korea for a period aggregating 183 days or
more during the taxable year and the Company's shares are effectively
connected with such fixed base, or (ii) such United States resident is
present in Korea for 183 days or more during the taxable year.
Securities Transaction Tax
Under the Securities Transaction Tax Law of Korea, securities
transaction tax to be imposed at the rate of 0.5% (this rate may be
reduced to 0.3%, including other surtax, if traded through the Korea
Stock Exchange or KOSDAQ) will not be imposed on the trading of
shares through a foreign stock exchange on which the shares are listed.
Although there has been no established precedent on the point of whether
the NASDAQ or the NASDAQ-BB will be included in the definition of
"foreign stock exchange" for the purposes of the Securities Transaction
Tax Law of Korea, it is likely that the securities transaction tax will not
be imposed on the trading through NASDAQ. It is unclear whether the tax
will be imposed on the NASDAQ-BB. Securities transaction tax will not
be applied if the sale is executed between non-residents without
permanent establishments in Korea and the non-resident holder (together
with the Company's shares held by an entity which has a certain special
relationship with such non-resident) did not own 10% or more of the total
issued and outstanding shares at any time during the five years before the
year within which the transfer occurs and the non-resident holder did not
sell their shares through a securities broker in Korea.
Inheritance Tax and Gift Tax
Under Korean inheritance and gift tax laws, shares issued by
Korean corporations are deemed located in Korea irrespective of where
they are physically located or by whom they are owned. Therefore,
Korean inheritance tax and gift tax are imposed with respect to the
Company's shares. The taxes are imposed currently at the rate of 10% to
45%, if the value of the relevant property is above a certain limit and
vary according to the identity of the parties involved. At present, Korea
has not entered into any tax treaty with respect to inheritance or gift tax.
Withholding of Taxes
Under Korean tax law, holders of the Company's shares in the
United States will generally be subject to Korean withholding taxes on
the capital gains and dividend payments by the Company in respect of
those shares, unless exempted by a relevant tax treaty or the Tax
Exemption and Limitation Law. Failure to withhold Korean taxes may
result in the imposition of the withholding tax itself and 10% penalty tax,
and, if prosecuted, a criminal penalty of an imprisonment of up to one
year and/or a fine up to the taxable amount, on the relevant withholding
agent. The Company, as payer of dividends, will act as withholding
agent for the collection of Korean tax on such dividend payment. The
capital gains realized from the transfer of shares listed and traded on the
Nasdaq National Market are exempt from Korean income taxation by
virtue of the Tax Exemption and Limitation Law. It is unknown at this
time whether the law will apply to Companies whose shares trade on the
NASDAQ-BB or Small Cap.
Page 33
Korean tax law provides that, in case of transfer of Korean shares,
the Korean securities broker-dealer brokering such transfer, or if there is
no such securities broker-dealer, the purchaser is required to withhold the
relevant Korean capital gains taxes.
Because no Korean securities broker-dealer will be acting as
withholding agent for capital gains resulting from a transfer of the
Company's shares through NASDAQ-BB, purchasers will be required to
collect and pay taxes on those capital gains unless they can demonstrate
that the sellers are residents of countries having a tax treaty with Korea
exempting those capital gains from taxation. Purchasers of the
Company's shares through NASDAQ-BB will not be able to identify the
country of residence of the previous owner of the purchased shares and
will therefore be liable for the payment of Korean taxes on the capital
gains, if any, resulting from their transactions. There is currently no
practical means for Korean tax authorities or purchasers of the
Company's shares to determine the amount of capital gains, if any,
resulting from purchases of the Company's shares through NASDAQ-BB.
United States Federal Income Taxation
The following is a general discussion of the material United States
federal income tax consequences of purchasing, owning, and disposing
the Company's shares for a holder that is a United States Holder (as
defined below) and holds the shares as capital assets for United States
federal income tax purposes. This discussion does not address all of the
tax consequences relating to the ownership of the common shares, and
does not take into account United States Holders subject to special rules
including:
- dealers in securities or currencies;
- financial institutions;
- tax-exempt entities;
- banks;
- life insurance companies;
- traders in securities that elect to mark-to-market their
securities;
- persons that hold shares as part of a straddle or a hedging,
or conversion transaction;
- persons liable for the alternative minimum tax;
- persons that actually or constructively owns 10% or more of
the Company's voting stock; or
- persons whose "functional currency" is not the United States
dollar.
This discussion is based on the Internal Revenue Code of 1986, as
amended, its legislative history, final, temporary, and proposed Treasury
regulations, published rulings and court decisions, all as currently in
effect. These laws are subject to change, possibly on a retroactive basis.
A holder is a "United States Holder" if that holder is:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or
organized in or under the laws of the United States or any
political subdivision thereof;
- an estate the income of which is subject to United States
federal income taxation regardless of its source; or
- a trust.
This discussion addresses only United States federal income taxation.
Page 34
Distributions on Shares
The Holder must include in his gross income as ordinary dividend
income the gross amount of any distribution (including amounts withheld
to pay Korean withholding taxes) the Company makes on the shares out of
its current or accumulated earnings and profits (as determined under
United States federal income tax principles) when the distribution is
actually or constructively received by the holder. Distributions that
exceed the Company's current and accumulated earnings and profits will
be treated as a return of capital to the holder to the extent of holder's tax
basis in the shares and thereafter as capital gain. Dividends will not be
eligible for the dividends-received deduction generally allowed to United
States corporations in respect of dividends received from United States
corporations.
If the Company makes a distribution paid in Won, the holder will be
considered to receive the United States dollar value of the distribution
determined at the spot Won/United States dollar rate on the date the
distribution is received by the holder, regardless of whether the holder
converts the distribution into U. S. dollars. Generally, any fluctuations
during the period from the date the dividend distribution is includible in
the holder's income to the date the holder converts the distribution into
United States dollars will be treated as United States source ordinary
income or loss for foreign tax credit purposes.
Subject to certain limitations, the Korean tax withheld from
distributions will be deductible or creditable against the holder's United
States federal income tax liability. For foreign tax credit limitation
purposes, the dividend will be foreign source income, but generally will
be treated separately, together with other items of "passive income" or, in
the case of some United States financial service providers, "financial
services income." The rules governing the foreign tax credit are complex.
Sale, Exchange or Other Disposition
If a holder sells, exchanges or otherwise disposes of his shares, a
holder will recognize capital gain or loss equal to the difference between
the United States dollar value of the amount that a holder realizes and his
tax basis, determined in United States dollars, in his shares. The gain or
loss generally will be United States source gain or loss for foreign tax
credit purposes. Capital gain of a non-corporate United States Holder is
generally taxed at a maximum rate of 20% where the property is held
more than one year. The holder's ability to deduct capital losses is
subject to limitations.
If a holder is paid in a currency other than United States dollars,
any gain or loss resulting from currency exchange fluctuations during the
period from the date of the payment resulting from the sale, exchange or
other disposition, to the date the payment is converted into United States
dollars generally will be treated as United States source ordinary income
or loss for foreign tax credit purposes.
Page 35
(e) DESCRIPTION OF PROPERTY
The Company currently has the following offices:
Korean Corporate Office: Buchon Technopark, 103-608, Samjung-
dong, Ojung-gu, Buchon City, Kyonggi-do,
Republic of Korea
(Zip Code: 421-150)
Tel No.: 82-32-2342000
Fax No.: 82-32-2342020
Korean Office Space: 5,359.71 square feet
Korean Factory: (Same address as Korean Corporate Office)
Tel No. and Fax No.: (Same as for Korean
Corporate Office)
Factory space: 7,965.04 square feet
The Company is the owner of both premises.
The Company anticipates that it will open a United States
(f) DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS AND KEY EMPLOYEES.
The following persons are the directors, executive officers.
directors, promoters, control persons and key employees of the Company:
Name and Age Term of Office Office(s)
Woon Yong Kim (49) 7/03/89 - Present President, Director
and CEO
Soo Yong Kim (40) 20/03/00 - Present Director, Secretary
and Treasurer
Jun Hyun Kim (28) 1/02/98 - Present Director
Youngro Kim (34) 7/03/96 - Present Director, Head of
R&D
Woon Yong Kim, Director, President and CEO:
Woon Yong Kim has been, for more than 20 years, engaged in
software development, working in the field of construction design and
architecture for Dae Rim Construction & Engineering Co. Ltd. and other
Korean companies including Doowon, Daeho Industry, Booster Boiler,
Dong Nam Enterprises, Sam Duk Engineering, and Dong Yang Plaza.
Soo Yong Kim, Director, Secretary and Treasurer:
Soo Yong Kim joined the Company in May 2000 to assist in the
restructuring of the Company's financial status. He previously worked
for Hyundia Group (1988 - 1990) in the Planning and Adjustment
Department. From 1990 to 1992, Mr. Kim worked as a corporate analyst
for Hyundai Securities Co., Ltd. From 1992 to May 2000, he was in
charge of business development for Korea Computer Incorporated.
Page 36
Youngro Kim, Director/Head of Research and Development:
Youngro Kim joined the Company in April 1996. He is currently
head of the Company's Research and Development programs. From 1990
to 1996, Mr. Kim taught computer science at the Korea Information
Administration Education Centre. He graduated from the Ho Nam
University in 1989 and obtained an Acquired Information Administration
teaching license in 1995.
Jun Hyun Kim, Director/Senior Researcher:
Jun Hyun Kim joined the Company in 1998 as a Senior Researcher.
In February 1992, he graduated from Dong Kuk University, majoring in
Electronic Computation. In March 1992, he obtained an Acquired
Information Administration teaching license (level 2). From January
1994 to September 1997, Mr.Kim was an instructor at the Min Young
Computer School in Seoul, Korea.
David B. Kim. Marketing Manager for United States Operations
David Kim joined the Company on January 1, 2001 as the Marketing
Manager for the Company's United States operations. He graduated from
the University of Southern California in 1995 majoring in Business
Administration. From July 1994 to July 1995 he worked in the marketing
department of Searchagift.com. From 1995 to 2000, he worked at Hyundai Marine
Corp as sales and marketing supervisor. In 2000 he joined USJOBER.Com,
a business-to-business internet business company as Manager of Production.
(g) SUMMARY AND COMPENSATION TABLE ANNUAL
COMPENSATION
Name and Principal Year Salary Bonus Other All Other
Position ($) Annual
Compensation
Compensation
($)
Woon Yong Kim 1998 $21,800 nil nil (1)
Director, President, 1999 $25,900 nil nil (1)
CEO 2000 $27,000 $9,400 nil (1)
Soo Yong Kim 1998 nil nil nil nil
Director 1999 nil nil nil nil
2000 $24,200 nil nil (2)
Jun Hyun Kim 1998 $8,000 nil nil nil
Director 1999 $11,300 nil nil nil
2000 $15,400 $2,900 nil (2)
Youngro Kim 1998 $10,500 nil nil nil
Director 1999 $10,400 nil nil nil
2000 $15,400 $2,900 nil (2)
(1) received interest free loans in varying amounts. For particulars of
interest free loans see MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(2) received interest free housing loans. For particulars of interest
free loans see CERTAIN RELATIONSHIP AND RELATED
TRANSACTIONS
Page 37
Compensation of Directors
Directors who are also employees of the Company receive no extra
compensation for their service on the Board of Directors of the Company.
Employment Contracts
The Company has not entered into any employment contracts, but
anticipates entering into employment contracts with certain management
and other key personnel.
Stock Option Plans
Under the Company's Articles of Incorporation, the Company may
grant options for the purchase of its shares to certain qualified officers
and employees. Set forth below are the details of the Company's stock
option plan as currently contained in its Articles of Incorporation (the
"Stock Option Plan").
In order to qualify for participation in the Stock Option Plan,
officers and employees must have the ability to contribute to, the
establishment, development or technological innovation of the Company.
Notwithstanding the foregoing, the following criteria shall not be eligible
to receive options under the Stock Option Plan; (i) the Company's
largest shareholder and its specially related parties, as defined in the
Securities and Exchange Act of Korea (the "Securities Act of Korea"),
(ii) major shareholders andtheir specially related parties, as defined in
the Securities Act of Korea, and (iii) any shareholder who would become a
major shareholder upon exercise of stock options granted under the Stock
Option Plan. Under the Securities Act of Korea a major shareholder is defined as
a shareholder who (i) holds 10% or more of shares issued and outstanding
or (ii) has actual control over major management decisions.
The specific terms and conditions of stock options granted under
the Stock Option Plan shall be approved at a duly convened shareholders'
meeting. Under the Company's Articles of Incorporation, stock options
shall be offered through (i) issuance of new shares, or (ii) payment in
cash or treasury stock held by the Company of the difference between the
market price of its shares and the option exercise price.
The maximum aggregate number of the Company's shares available for
iissuanceunder the Stock Option Plan shall not exceed 15% of the total number
of its shares outstanding. The stock options may not be granted to all officers
and employees at the same time. Any single officer or employee may not be
granted stock options for the shares exceeding 10% of the shares issued and
outstanding.
Stock options granted under the Stock Option Plan will have a
minimum exercise price equal to the arithmetic mean of (i) the weighted
average of the daily market share prices for the two-month period prior to
the date on which the stock options are granted, (ii) the weighted average
of the daily market share prices for the one-month period prior to such
date and (iii) the weighted average of the daily market share prices for
the one-week period prior to such date. When new shares are issued upon
the exercise of the stock options, the option exercise price shall not be
less than the par value of the Company's shares.
Page 38
Stock options granted under the Stock Option Plan may be
exercised after the third anniversary date of the shareholders' meeting at
which the grant of stock options under the Stock Option Plan is approved
but prior to the seventh anniversary date thereof, unless otherwise
revoked by the board of directors. The board of directors may revoke
stock options granted under the Stock Option Plan if (i) a beneficiary
resigns prior to the exercise of the stock options, (ii) the beneficiary
causes significant loss to the Company by his or her negligence or
willful misconduct, or (iii) an event of termination specified in the Stock
Option Plan occur.
Shares purchased upon the exercise of stock options granted under
the Stock Option Plan will not, at the time of their issuance, be
registered with the Securities and Exchange Commission but may be
salable in the public market in the United States in accordance with Rule
144 under the Securities Act and applicable Korean laws and regulations.
It is contemplated that the Company will at the it's next annual
general meeting of its shareholders scheduled for early spring 2001 seek
approval to replace its existing Articles of Incorporation with a new form
which will, among other things, amend the terms by which the Company
may grant Stock Options. If the new form of Articles of Incorporation
(the "New Articles of Incorporation") are adopted by the Company then
the following material changes will occur with respect to the Company's
Stock Option Plan:
- - persons entitled to receive stock options will been expanded
to included researchers, faculty members of a university, practising
lawyers, certified public accountants who possess technological or
managerial capabilities and Universities and Research Institutes;
- - the number of stock options granted at any one time cannot
exceed 50% of the total issued and outstanding shares of the Company;
- - stock option holders shall be entitled to exercise their stock
options after having served in the Company for two (2) years; and
- - the exercise price per share upon exercise of stock options
shall not be less than the greater of the market price of shares valued as
of the date of the grant of the stock options or the par value of the
shares concerned.
The Company has not issued any stock options to date, but
anticipates issuing stock options to certain management and other key
personnel of the Company.
(h) CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998 and 1999 the President of the Company borrowed a total of
$575,496 from the Company. This loan was paid back in full in 2000. As
of September 30, 2000 the Company was indebted to the President in the
amount of $140,817.
In 2000 the Company advanced under a short term loan the total
sum of $175,000 to 8 employees of the Company which funds were used
by the employees as down payments for the purchase of homes. The term
of the loan is three years and is interest free. Youngro Kim a director of
the Company received $27,322 of the loan. Soo Young Kim a director of
the Company received $35,128 of the loan. Jun Hyun Kim a director of
the Company received $23,310 of the loan.
Page 39
There is no known relationship between any of the Directors and
Officers of the Company with major clients or any provider of essential
products and technology.
If conflicts do arise the Company will attempt to resolve any such
conflicts of interest in favour of the Company. The officers and directors
of the Company are accountable to the Company and its shareholders as
fiduciaries, which requires those officers and directors exercise good
faith and integrity in handling the Company's affairs. A shareholder
may be able to institute legal action on behalf of the Company on or
behalf of that shareholder and all other similarly situated shareholders to
recover damages or for other relief in cases of the resolution of conflicts
in any manner prejudicial to the Company.
(i) LEGAL PROCEEDINGS
There are no legal actions pending against the Company nor are any
such legal actions contemplated.
(j) MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
With the completion of the Merger, the Company is applying for
participation on the OTC Bulletin Board, an electronic quotation medium
for securities traded outside NASDAQ. There can be no assurance that
the Company will be approved for participation on the OTC Bulletin
Board.
(k) RECENT SALES OF UNREGISTERED SECURITIES
The following table discloses all sales of securities of the Company
during the preceding three years:
Date Securities Number and Class of Consideration
Received
Sold Securities by Company
August 27, 1999 17,720 common shares(1) $180,600
September 1, 1999 26,564 common shares(1) (2)
November 10, 1999 29,760 common shares(1) $312,576
November 15, 1999 44,636 common shares(1) (2)
December 24, 1999 83,381 common shares(1) $314.521
March 18, 2000 11,700 common shares(1) $523,341
June 14, 2000 13,050 common shares(1) $585,423
December 23, 2000 28,000 common shares(1) $645,000
(1) pre Forward Split (before forward split of the Company's
shares of 1 to 25).
(2) pursuant to the Conversion the additional paid-in capital of the
Company was converted to shares of the Company and the resulting
shares were issued pro rata to all of the shareholders of the Company.
Page 40
The Company sold on December 23, 2000 28,000 pre forward split
shares to Burton Mason Venture Capital LLC of Virginia, United States
in a private placement. All of the other securities described above were
offered and issued outside the United States to individuals or entities
who were not citizens or residents of the United States. Accordingly, the
offering and issuance of such securities were not subject to the
registration requirements of the Securities Act of 1933 pursuant to
Regulation S under the Securities Act of 1933.
(l) DESCRIPTION OF SECURITIES OF THE COMPANY
The Company is authorized to issue 50,000,000 shares of common
stock, each share of common stock having equal rights and preferences,
including voting privileges. The Company is not authorized to issued
shares of preferred stock. As of February 1, 2001, there were 11,652,487
shares of the Company's stock issued and outstanding.
The shares of common stock of the Company constitute equity
interests in the Company entitling each shareholder to a pro rata share of
cash distributions made to shareholders, including dividend payments.
The holders of the Company's common stock are entitled to one vote for
each share of record on all matters to be voted on by shareholders. There
is no cumulative voting with respect to election of directors of the
Company or any other matter, with the result that the holders of more
than 50% of the shares voted for the election of those directors can elect
all of the directors. The holders of the Company's common stock are
entitled to receive dividends when, as and if declared by the Company's
Board of Directors from funds legally available therefor; provided,
however, that cash dividends are at the sole discretion of the Company's
Board of Directors. In the event of liquidation, dissolution or winding
up of the Company, the holders of common stock are entitled to share
ratably in all assets remaining available for distribution to them after
payment of liabilities of the Company and after provision has been made
for each class of stock, if any, having preference in relation to the
Company's common stock. Holders of the shares of the Company's
common stock have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the
Company's common stock. All of the outstanding shares of the
Company's common stock are duly authorized, validly issued, fully paid
and non-assessable.
Dividends
Dividends are distributed to shareholders in proportion to the
number of shares of capital stock owned by each shareholder following
approval by the shareholders at a general meeting of shareholders. Under
the Commercial Code and the Company's Articles of Incorporation, the
Company will pay, to the extent declared, full annual dividends on newly
issued shares.
The Company may declare dividends annually ("annual
dividends") at the annual general meeting of shareholders which is held
within three months after the end of the fiscal year. Shortly after the
annual general meeting, the annual dividend is paid to the shareholders of
record as of the end of the preceding fiscal year. Annual dividends may
be distributed either in cash or in shares provided that shares must be
distributed at par value and dividends in shares may not exceed one-half
of the annual dividend.
Under the Commercial Code and the Company's Articles of
Incorporation, the Company does have an obligation to pay any annual
dividend unclaimed for five years from the payment date.
Page 41
The Commercial Code provides that a company shall not pay an
annual dividend unless it has set aside in its legal reserve an amount
equal to at least one-tenth of the cash portion of such annual dividend or
has a legal reserve of not less than one-half of its stated capital. The
Commercial Code also provides that a company may pay an annual
dividend out of the excess of its net assets over the sum of (i) its stated
capital, (ii) the aggregate amount of its capital surplus reserve and legal
reserve which have been accumulated up to the end of the relevant
dividend period, and (iii) the legal reserve to be set aside in respect of
such annual dividend. Such reserves are not available for payment of
cash dividends but may be transferred to capital stock or used to reduce
an accumulated deficit through a shareholder action.
Distribution of Free Shares
In addition to dividends in the form of shares to be paid out of
retained or current earnings, the Commercial Code permits a company to
distribute to is shareholders an amount transferred form the capital
surplus or legal reserve to stated capital in the form of free shares. Such
distribution must be made pro rata.
Preemptive Rights and Issuance of Additional Shares
The authorized but unissued shares may be issued at such times and,
unless otherwise provided in the Commercial Code, upon such terms as
the board of directors of a company may determine. The new shares must
be offered on uniform terms to all shareholders who have preemptive
rights and who are listed on the shareholders' register as of the record
date. The Company's shareholders are entitled to subscribe for any
newly issued shares in proportion to their existing shareholdings,
provided that pursuant to the Articles of Incorporation, new share that
are (i) issued by public offering in accordance with the Securities and
Exchange Law of Korea, (ii) represented by depositary receipts, (iii)
issued to foreigners in accordance with the Foreign Investment Promotion
Law of Korea within 33% of the total number of shares outstanding, (iv)
issued to the Company's employee stock ownership association up to
20% of the newly issued shares (to the extent the total number of shares
so subscribed and held by the members of the employee stock ownership
association does not exceed 20% of the total number of shares), (v)
issued outside Korea for listing on a foreign stock exchange or foreign
securities market trading securities by means of an electronic or a
quotation system, (vi) issued according to a stock option plan, (vii)
issued to a domestic corporation having a strategic relationship with the
Company in connection with the Company's management or technology
of up to 5% of the total number of issued and outstanding shares after
such issuance, (viii) issued as consideration for the acquisition of the
stock or assets of another company up to less than 20% of the total
number of issued and outstanding shares, or (ix) issued through general
public offering in accordance with the Securities and Exchange Law of
Korea may be issued pursuant to a resolution of the board of directors to
persons other than existing shareholders.
Under the Commercial Code, a company may vary, without
shareholder approval, the terms of such preemptive rights for different
classes of shares. Public notice of the preemptive rights to new shares
and the transferability thereof must be given not less than two weeks
(excluding the period during which the shareholders' register is closed)
prior to the record date. The Company will notify the shareholders who
are entitled to subscribe for newly issued shares of the deadline for
subscription at least two weeks prior to such deadline. If a shareholder
fails to subscribe on or before such deadline, such shareholder's
preemptive rights will lapse. The board of directors may determine how
to distribute shares in respect of which preemptive rights have not been
exercised or where fractions of shares occur.
Page 42
If the Company adopts the New Articles of Incorporation newly
issued shares can be issued pursuant to a resolution of the board of
directors of the Company to persons other than existing shareholders of
the Company under the following cases(i) the Company offers new shares
or allows underwriters to underwrite new shares in accordance with
Article 2 and Article 8 of the Securities Exchange Act of Korea;(ii) the
Company issues new shares through a public offering by the resolution of
the Board of Directors in accordance with Article 189-3 of the Securities
Exchange Act of Korea; (iii) the Company issues new shares through
exercises of stock options in accordance with Article 16-3 of the Venture
Company Promotion Special Measures Act of Korea; (iv) the Company
issues new shares for the purpose of listing or registration on or with a
foreign securities exchange or market;(v) the Company issues new shares
for foreign direct investments in accordance with the Foreign Investment
Promotion Act as needed for business purposes, including but not limited
to improvement of the financial structure;(vi) the Company issues new
shares to another company with which the Company forms or intends to
form a business alliance relationship for the purpose of technology
transfer; or (vii) the Company issues new shares for consideration for the
acquisition of the shares or assets of another company or the assets of a
person.
General Meeting of Shareholders
Under the Commercial Code, the ordinary general meeting of
shareholders is held within three months after the end of each fiscal year
and, subject to board resolution or court approval, an extraordinary
general meeting of shareholders may be held as necessary or at the
request of holders of an aggregate of 3% or more of the outstanding
shares of a company or at the request of a company's statutory auditor or
audit committee. Under the Commercial Code, written notices setting
forth the date, place and agenda of the meeting must be given to
shareholders at least two weeks prior to the date of the general meeting
of shareholders. Currently, the Company uses The Korean Economic
Daily for the purpose of providing public notices. Shareholders not on
the shareholders' register as of the record date are not entitled to receive
notice of the annual general meeting of shareholders or attend or vote at
such meeting. The agenda of the general meeting of shareholders is
determined at the meeting of the board of directors. In addition,
shareholders holding an aggregate of 3% or more of the outstanding
shares may propose an agenda for the general meeting of shareholders.
Such proposal should be made in writing at least six weeks prior to the
meeting. The board of directors may decline such proposal if it is in
violation of the relevant laws and regulations of the Company's Articles
of Incorporation.
The general meeting of shareholders is held at the Company's
headquarters or, if necessary, may be held anywhere in the vicinity of the
Company's headquarters.
Voting Rights
Holders of the Company's shares are entitled to one vote for each
share, except that voting rights with respect to shares held by the
Company and shares held by a corporate shareholder, more than one-tenth
of whose outstanding capital stock is directly or indirectly owned by the
Company, may not be exercised. Cumulative voting is precluded in the
Company's Articles of Incorporation.
Page 43
Under the Commercial Code, for the purpose of electing the
Company's statutory auditors, a shareholder holding more than 3% of the
total shares may not exercise voting rights with respect to such shares in
excess of such 3% limit.
The Commercial Code also provides that in order to amend the
Company's Articles of Incorporation (which is required for any change to
the Company's authorized share capital) and for certain other instances,
including removal of any of the Company's director and statutory
auditor, dissolution, merger or consolidation, transfer of the whole or a
significant part of the Company's business, acquisition of all of the
business of any other company or issuance of new shares at a price lower
than their par value, an approval from holders of at least two-thirds of
those shares present or represented at such meeting is required, provided
that such super-majority also represents at least one-third of the total
issued and outstanding shares.
A shareholder may exercise his voting by proxy given to any
person. The proxy must present a document evidencing the power of
attorney prior to the start of the general meeting of shareholders.
Registration of Shareholders and Record Date
Pacific Corporate Trust Company of Vancouver BC Canada
("Pacific Corporate") will be the Company's sole transfer agent.
Pacific Corporate will maintain the register of the Company's
shareholders and register of transfers of registered shares traded.
For the purpose of determining the holders of the Company's shares
entitled to annual dividends, the register of shareholders is closed for a
period following December 31 and ending on the close of the ordinary
general shareholders' meeting for such fiscal year. The record date for
annual dividends is December 31. Further, the Commercial Code and the
Company's Articles of Incorporation permit the Company, upon at least
two weeks' public notice, to set a record date and/or close the register of
shareholders entitled to certain rights pertaining to the Company's
shares. The trading of the Company's shares and the delivery of
certificates in respect thereof may continue while the register of
shareholders is closed.
Annual and Periodic Reports
At least one week prior to the annual general meeting of
shareholders, the Company's annual report and audited non-consolidated
financial statements must be made available for inspection at the
Company's principal office and at all branch offices. Copies of annual
reports, the audited non-consolidated financial statements and any
resolutions adopted at the general meeting of shareholders will be
available to the Company's shareholders. In addition, the Company will
dispatch the copies of its financials and statements and business report to
its shareholders at least two weeks prior to the date of the annual general
meeting of shareholders, and the Company will make available the copies
of its semi-annual or quarterly repots submitted to the SEC or NASDAQ
to the Company's shareholders within two weeks from the submission of
such report to the SEC or NASDAQ.
Page 44
Transfer of Shares
Under the Commercial Code, the transfer of shares is effected by
delivery of share certificates but, in order to assert shareholders' rights
against the Company, the transferee must have his name and address
registered on the register of shareholders. For this purpose, shareholders
are required to file their name, address and seal or specimen signature
with the Company. Under the regulations of the Financial Supervisory
Commission of Korea, non-resident shareholders may appoint a standing
proxy and may not allow any person other than such standing proxy to
exercise rights regarding the acquired shares or perform any task related
thereto on his behalf, subject to certain exceptions. Under current
Korean regulations, securities companies and banks in Korea (including
licensed branches of non-Korean securities companies and banks),
investment management companies in Korea, internationally recognized
foreign custodians and the Korean Securities Depository are authorized to
act as agents and provide related services.
Acquisition by the Company of Shares
The Company generally may not acquire its own shares except in
certain limited circumstances, including, without limitation, a reduction
in capital. Under the Commercial Code, except in case of a reduction in
capital, any of the Company's own shares acquired by it must be sold or
otherwise transferred to a third party within a reasonable time.
Liquidation Rights
In the event of a liquidation of the Company remaining after
payment of all debts, liquidation expenses and taxes will be distributed
among shareholders in proportion to the number of the Company's shares
held.
Inspection of Books and Records
Under the Commercial Code, any individual shareholder or
shareholders having at least 3% of all outstanding shares (irrespective of
voting or non-voting shares) of a Korean corporation may inspect books
and records of the corporation.
(m) INDEMNIFICATION OF DIRECTORS AND OFFICERS
Currently, the Company does not have a provision in either the
Company's Articles of Incorporation limiting the liability of the
Company's officers and directors. The Company may in the future and
with shareholders' consent, amend its Articles of Incorporation to limit
the liability of the Company's officers and directors. In such a case, the
Company's officers and directors will not be liable to the Company for
monetary damages occurring because of a breach of their fiduciary duty
as officers and directors in certain circumstances. Such limitation will
not affect liability for any breach of an officer or director's duty to the
Company or the Company's shareholders (i) with respect to approval by
the officer or director of any transaction from which he or she derives an
improper personal benefit, (ii) with respect to acts or omissions
involving an absence of good faith, that he or she believes to be contrary
to the best interests of the Company or the Company's shareholders, that
involve intentional misconduct or a knowing and culpable violation of
law, that constitutes an unexcused pattern of inattention that amounts to
an abdication of his or her duty to the Company or the Company's
shareholders in circumstances in which he or she was or should have been
aware, in the ordinary course of performing his or her duties, of a risk of
serious injury to the Company or the Company's shareholders, or (iii)
based on transactions between the Company and the Company's officers
and director or another corporation with interrelated officers or directors
or on improper distributions, loans or guaranties. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Page 45
DISCLOSURE OF OPINION OF SECURITIES AND EXCHANGE
COMMISSION REGARDING INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES OCCURRING
PURSUANT TO THE SECURITIES ACT OF 1933 MAY BE PERMITTED
TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE
COMPANY HAS BEEN INFORMED THAT IT IS THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN
THE SECURITIES ACT OF 1933 AND IS, THEREFORE,
UNENFORCEABLE.
(n) FINANCIAL STATEMENTS
Copies of the financial statements specified in Regulation 228.310
(Item 310) are filed with this Form 8K (see Item 7 below).
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS.
Successor Issuer Election
Upon the effectiveness of the Merger on February 1, 2001, pursuant
to Rule 12g-3(a) of the General Rules and Regulations of the SEC, the
Company became the successor issuer to Captex for reporting purposes
under the 1934 Act and elects to report under the 1934 Act effective
February 1, 2001.
Foreign Private Issuer
As a foreign private issuer the Company will be exempt from the
rules under the United States Securities Act of 1934, as amended
prescribing the furnishing and content of proxy statements, and officers,
directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the said
Act. Furthermore as a foreign private issuer the Company will not furnish its
shareholders or the SEC with the same information as a fully domestic reporting
issuer including semi-annual or quarterly reports.
The Company will furnish its shareholders with its annual reports,
which will include a review of operations and annual audited financial
statements prepared in conformity with U.S. GAAP.
Page 46
ITEM 6. RESIGNATION OF DIRECTORS AND EXECUTIVE
OFFICERS.
The officers and directors of Captex, John Mackay and Roderick
Saunders, resigned such offices as a result of the merger with the
Company. The officers and directors of the Company will continue as the
officers and directors of the successor issuer.
ITEM 7. FINANCIAL STATEMENTS.
(a) Index to Financial Statements.
Audited Financial Statements of the Company:
Auditors Report dated December 23, 2000 F-1
Balance Sheet as at December 31, 1999 and December 31, 1998 F-2
Statement of Operations for the periods January 1, 1999 to
December 31, 1999 and January 1, 1998 to December 31, 1998 F-3
Statement of Stockholders' Deficit as at December 31, 1999
and December 31, 1998 F-4
Statement of Cash Flows for the periods January 1, 1999 to
December 31, 1999 and January 1, 1998 to December 31, 1998 F-5
Notes to Financial Statements as of December 31, 1999
and December 31, 1998 F-6 through F-15
Unaudited (Auditor Reviewed) Financial Statements:
Independent Accountant's Report dated December 23, 2000 F-16
Balance Sheet as at September 30, 2000 F-17
Statement of Operations for 9th Month ended September 30, 2000 F-18
Statement to Stockholders' Deficit as at September 30, 2000 F-19
Statement of Cash Flows for the periods January 1, 2000 to
September 30, 2000 F-20
Notes to Financial Statements as at
September 31, 2000 F-21 through to F-28
(b) Index to Exhibits.
Copies of the following documents are filed with this Form 8K as
exhibits:
Exhibits Page
1. Corporate Charter and Articles of Incorporation E-1
2. Articles of Incorporation (English translation only) E-2-E-11
3. Proposed new Articles of Incorporation E-12-E-16
4. Merger Agreement between the Company and Captex Capital, Inc. E-17-E-24
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 hereunto duly authorized.
SINTEC, CO. LTD.
-------------------
(Registrant)
Dated: February 12th, 2001 By: //s// "Woon Yong Kim" //s//
-------------------------------
Woon Yong Kim
Chief Executive Officer
Page 47
SINTEC Co., Ltd.
FINANCIAL STATEMENTS
For the Years ended December 31, 1999 and 1998
with
REPORT OF INDEPENDENT AUDITORS
Shinhan Accounting Corporation
F-1
SHINHAN ACCOUNTING CORPORATION
AUDITORS' REPORT TO THE DITECTORS OF:
SINTEC Co., Ltd.
(A Korean development stage company)
We have audited the accompanying balance sheets of SINTEC Co.,
Ltd.("the Company") as of December 31, 1999 and 1998, and the
related statements of income, accumulated deficits and cash flows for
the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The operations of the Company, and those of other companies in the
Republic of Korea have been significantly affected, and will continue
to be affected for the foreseeable future, by the country's unstable
economy caused by the currency devaluation, volatile stock markets
and slowdown in growth in the Asia-Pacific region. While the Korean
economy has recently shown signs of improvement, there are still
uncertainties in the region that may affect future operations. The
financial statements do not include any adjustments that might result
from those uncertainties.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SINTEC Co.,
Ltd. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
/s/SHINHAN ACCOUNTING CORPORATION/s/
Certified Public Accountant
Republic of Korea
December 23, 2000
Il-Heung bldg. Suite #8
126-1 ChungMu-Ro 4Ka, Chung-Ku
Seoul, Korea
F-2
SINTEC Co., Ltd.
BALANCE SHEET
As of December 31, 1999 and 1998
(in US Dollars)
Amounts
------------------------------
Assets 1999 1998
- --------------------------------- -------------- --------------
Current assets:
Cash and cash equivalents (Notes 2(e), 8) 104,452 11,292
Account receivable (Note 2(d)) 8,651 6,241
Other receivable 575,496 520,283
Advance payments 82,708 12,469
Prepaid expenses - 1,620
Other current assets 11,857 -
--------- -------
Total current assets 783,164 551,905
Property, plant and equipment (Note 2(f))
Machinery and equipment 175,615 58,433
Tools and and transportation equipment 29,713 33,669
Furniture and fixtures 88,394 66,312
Less : accumulated depreciation 202,857 131,733
--------- -------
Total Property, plant and equipment,net 90,865 126,681
Other non-current assets :
Long-term bank deposits 26,137 24,665
Guarantee deposits 3,085 15,308
Intangibles (Note 2(g)) 50,433 40,997
-------- -------
Total other non-current assets 79,655 80,970
-------- -------
Total assets 953,684 759,556
======== =======
(Continued)
See accompanying notes
Sintec Co. Ltd.
Balance Sheet (Cont'd)
As of December 31, 1999 and 1998
F-3
(Continued)
Sintec Co. Ltd.
Amounts
------------------------------
Liabilities and Stockholders' Equity 1999 1998
- --------------------------------- -------------- --------------
Current liabilities:
Trade payable - 145,532
Other accounts payable 7,623 8,392
Withholdings 9,069 23,794
Short-term borrowings (Notes 4, 8) 388,125 349,569
-- -------- --------
Total current liabilities 404,817 527,287
Long-term borrowings (Notes 5, 8) 268,840 320,864
Commitments
Stockholders' equity :
Common stock - W5,000 par value, 20,000,000 shares
authorized (200,000) in 1998), 212,061 shares issued
and outstanding in 1999
(10,00 in 1998) (Note 9) 907,807 29,485
Accumulated deficit 1 620,766 140,427
Capital adjustment (12,720) -
Cumulative translation adjustment
(Note 2(b)) (5,706) 22,348
---- ----- --------
Total stockholders' equity 280,027 (88,594)
---------- --------
Total liabilities and stockholders' equity 953,684 759,556
========== ========
See accompanying notes
F-4
SINTEC Co., Ltd.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
For the years ended December 31, 1999 and 1998
(in US Dollars)
Amounts
-------------------------
1999 1998
----------- ------------
Net sales: 116,055 715,948
------- -------
Good sales 30,533 467,447
Software development fees 85,522 248,501
Costs and expenses: 533,427 791,804
------- -------
Cost of goods sold 28,599 416,107
Selling and administrative expenses
(Note 7) 504,828 375,697
Operating loss (417,372) (75,856)
Other income (expenses):
Interest income 1,186 61
Interest expense (88,305) (73,154)
Other, net 24,152 (10,266)
--------- -------
(62,967) (83,359)
-------- --------
Loss before income taxes (480,339) (159,215)
Provision for Income taxes
(Notes 2(j), 6) - -
--------- ---------
Net loss (480,339) (159,215)
Accumulated surplus(deficit) at
beginning of year (140,427) 18,788
Accumulated deficit at end of year (620,766) (140,427)
========= ==========
Loss per share (Note 2 (k),10) $ 8.48 3.23
========== ==========
See accompanying notes
F-5
SINTEC Co., Ltd.
Statement of Shareholders' Equity (Deficit)
For the nine months ended September 30, 2000
(in US Dollars)
Common Stock Issued
--------------------------
Shares Amount Capital Retained Capital Accumulated
in Earnings Transl- Sharehold-
Excess (Deficit) ation ers' Equity
of Par Adjust- (Deficit)
Value ments
------- -------- --------- --------- ------- -----------
Balance January 1, 1998 10,000 29,485 18,788 48,273
Net loss (159,215) 22,348 (136,867)
------ ------ ------- --------- ------ ---------
Balance December 31, 1998 10,000 29,485 - (140,427) 22,348 (88,594)
------- ------- -------- --------- ------- ---------
Balance January 1, 1999 10,000 29,485 (118,079) (88,594)
Private placement 130,861 567,816 300,173 867,989
Stock split (dividend) 71,200 310,506 (300,173) (10,333) -
Net loss (480,339) (19,029) (499,368)
------- ------- --------- -------- ------- ---------
Balance December
31, 1999 212,061 907,807 - (620,766) (29,362) 280,027
------- ------- --------- -------- -------- ----------
See accompanying notes
F-6
SINTEC Co., Ltd.
STATEMENT OF CASH FLOWS
For the years ended December 31, 1999 and 1998 (in US Dollars)
Amount
--------------------
Cash flows from operating activities: 1999 1998
-------- ---------
Net loss (480,339) (159,215)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 62,859 92,267
Loss form disposal of transportation equipment 3,137 -
Amortization 12,074 8,117
Effect of exchange rate changes on cash balance 4,071 10,512
Changes in assets and liabilities:
Decrease(Increase) in accounts receivable (1,940) 183,787
Increase in other receivable (22,711) (481,107)
Increase in advance payments (66,309) (11,530)
Decrease in prepaid expenses 1,639 284
Increase in other current assets (11,315) -
Decrese(Increase) in trade payable (147,263) 130,405
Increase (Decrease) in withholdings (17,621) 18,524
-------------------
Total adjustments (183,379) (48,741)
-------------------
Net cash provided by operating activities (663,718) (207,956)
Cash flows from investing activities:
Increase in guarantee deposits (1,659) (817)
Decrease in guarantee deposits 14,205 -
Acquisition of building - -
Acquisition of machinery and equipment (7,268) (70,717)
Acquisition of furniture and fixtures (17,252) (26,611)
Disposal of tools and transportation equipment 2,578 -
Increase in software and development costs - (39,203)
Increase in intangibles (18,717) (5,994)
------------------
Net cash used in investing activities (28,113) (143,342)
Cash flows from financing activities:
Decrease in other accounts payable (1,217) (13,194)
Increase in short-term borrowings, net 16,652 284,822
Increase in long-term bank deposits (2,355) (22,808)
Decrease in long-term bank deposits 2,372 -
Decrease(Increase) in long-term borrowings, net (68,133) 93,008
Capital adjustments (12,138) -
Issuance of common stock 849,810 -
------------------
Net cash provided by financing activities 784,991 341,828
------------------
Net Increase in cash and cash equivalents 93,160 (9,470)
Cash and cash equivalents at beginning of the year 11,292 20,762
Cash and cash equivalents at end of the year $104,452 $11,292
==================
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $2,198 $1,529
==================
Cash paid during the year for interest $88,305 $73,154
==================
See accompanying notes
F-7
SINTEC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
1. Organizations and Business
SINTEC Co. Ltd. (the "Company") was incorporated in March 7,
1996 under the law of the Republic of Korea. The Company is currently
engage in developing and applying the face (image) recognition
technology and manufacturing the intelligent surveillance camera with
face and iris recognition.
2. Basis of Financial Statements and Summary of Significant Accounting
Policies
(a) Basis of financial statements
The Company maintains its books of accounts in accordance with
accounting principles generally accepted in the Republic of Korea
("Korean GAAP"). The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America ("U.S. GAAP"), which do not significantly
differ from the Company's statutory books and financial statements
prepared in accordance with Korean GAAP.
(b) Translation of financial statements and foreign currency
The accompanying financial statements have been translated into U.S.
dollars in accordance with SFAS No.52. All assets and liabilities are
translated at the current exchange rates at the date of translation. The
exchange rate applied as of December 31, 1999 was $1,134.5/U.S$1
($1,203/US$1 in 1998). Elements of income are translated at weighted average
exchange rates for the period. The exchange rate applied for the year
1999 was $1,118.79/US$1 ($1,300.96/US$1 for 1998). Equity accounts
other than accumulated deficits are translated at historical exchange
rates. The resulting translation adjustment is recognized as a component
of other comprehensive income.The company maintains its books of
accounts in Korean won. Transactions involving foreign currencies are
recorded in the accounts at the exchange rate prevailing at the time the
transactions are made. Assets and liabilities denominated in foreign currencies
are translated into Korean won at exchange rates in effect at year-end. The
resulting foreign currency exchange gains/losses are credited/charged to
current operations.
The exchange rates used here were published by Korea Exchange Bank as
basic rate.
(c) Use of estimates
The preparation of the financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosure of contingent assets
and liabilities at the date of financial statements and the reported amounts
of revenues and expenses during the reported period. Actual results could
differ from those estimates.
F-8
2. Basis of Financial Statements and Summary of Significant Accounting Policies,
continued
(d) Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts based on an
analysis of the collectibility of outstanding account balances.
(e) Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers time
deposits that have maturity of three months or less from date of purchase
to be cash equivalents.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of tangible
assets are provided using a declining balance method over the following
estimated useful lives:
Years
Machinery and equipment 4
Other tangible assets 4
Expenditures that prolong the useful lives or enhance the value of fixed
assets are capitalized, while expenditures incurred for routine
maintenance are expensed in the year in which they are incurred.
(g) Intangibles
Intangible assets are stated at costs directly deducted amortization.
Amortization of intangible assets are provided using straight-line method over
the following useful lives:
Years
Software development costs 5
Other intangibles (Patents, etc.) 10-5
(h) Research and development costs
Research and development costs are charged to operation as incurred.
Research and development costs are $153,269 as of December 31, 1999 ($38,433 in
1998).
F-9
2. Basis of Financial Statements and Summary of Significant Accounting
Policies, continued
(i) Severance and retirement benefits
The Company has made contract to include severance payments in annual
salaries with all directors and employees, so has not made allowance for
severance and retirement benefits.
In accordance with the Korean National Pension Law, the Company
prepays a portion of its severance and retirement benefits obligation to
the Korean National Pension Corporation at the rate of three percent of
payroll expenses. Such prepayments amounting to $985 as of December 31, 1999
($985 in 1998) are debited as other current assets. In accordance with a
revision in the Korean National Pension Law effective from April 1, 1999, these
prepayments were no longer required after the effective date.
(j) Income taxes
Under SFAS No.109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on difference between financial reporting and tax bases
of assets and liabilities and are measured using the enacted marginal tax
rates and laws that will be in effect when the differences are expected to
reverse.
(k) Earnings (loss) per common share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (SFAS 128), which
established new standards for computing and presenting earnings per
share effective for fiscal years ending after December 15, 1997.
With SFAS 128, primary earnings per share is replaced by basic
earnings per share, which is computed by dividing income available
to common shareholders by the weighted average number of shares
outstanding for the period. In addition, SFAS 128 requires the
presentation of diluted earnings per share, which includes the
potential dilution that could occur if dilutive securities were
exercised or converted into common stock. The computation of
diluted EPS does not assume the conversion or exercise of securities
if their effect is anti-dilutive. Common equivalent shares consist of
the common shares issuable upon the conversion of the convertible
loan notes and special warrants (using the if-converted method) and
incremental shares issuable upon the exercise of stock options and
share purchase warrants ( using the treasury stock method).
3. Transactions with stockholders
Other receivable is short-term loan to Joseph Kim who is the president
and major shareholder of the Company. The amount of other receivable
as of December 31, 1999 and 1998 is as follows:
1999 1998
-------- --------
Other receivable $575,496 $520,283
========= ========
F-10
4. Short-term borrowings
Short-term borrowings at December 31, 1999 and 1998 consisted of the following:
1999 1998
--------- -------
HanIl Bank $19,832 $96,176
KukMin Bank - 49,875
BoRam Bank 40,546 19,119
Industrial Bank of Korea 8,814 8,313
HaNa Bank 132,217 -
0ther financial institutions 68,162 64,281
Stockholders 118,554 111,805
--------- --------
Balance at end of year $388,125 $349,569
========= ========
5. Long-term borrowings
Long-term borrowings at December 31, 1999 and 1998 consisted of the following:
1999 1998
---------------- ----------------
Rate Amounts Rate Amounts
------ -------- ----- --------
Industrial Bank of Korea 11.5-4% $79,330 16-14.5% $74,812
KukMin Bank 4 8,814 4 8,313
HanIl Bank 8 79,330 11.5-8 103,907
BoRam Bank 8.5 101,366 8.5 133,832
--------- ---------
$268,840 $320,864
========= ========
6. Income Taxes
The Company is subject to corporate income tax and resident surtax
normally at an aggregate rate of 17.6% on taxable income up to
W100,000,000 and 30.8% on taxable income over W100,000,000.
At December 31, 1999, the Company has net operating loss
carryforwards of $480,339 ($159,215 in 1998) for income tax purposes.
It is expected that the Company could not realize
a tax benefit from such net operating loss carryforwards before their
expiration in 2004 (2003 for 1998), a valuation allowance of $147,944
($49,038 in 1998) has been recognized to offset the deferred tax assets
related to these loss carryforwards and other temporary differences.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purpose. Significant components of the Company's deferred tax assets
as of December 31, 1999 and 1998 are as follows:
1999
Current Non-current Total 1998
------- ----------- ------- ------
Deferred tax assets
Accrued income $ - $ - $ - $ -
Net operating loss
Carry forwards 147,944 147,944 49,038
Total deferred tax asset
(liability) - 147,944 147,944 49,038
Valuation allowance for
Deferred tax asset - (147,944) (147,944) (49,038)
------- ----------- ------- --------
Net deferred tax asset $ - $ - $ - $ -
7. Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended
December 31, 1999 and 1998 consist of following (in US$):
1999 1998
------- -------
Directors' salaries $49,543 $23,060
Employee wages and salaries 28,685 98,896
F-11
7. Selling, general and administrative expenses, continued
Bonuses 1,430 2,998
Severance payment 6,645 2,998
Other employee benefits 24,341 10,662
Travel 21,299 16,382
Entertainment 6,150 1,434
Communications 11,850 4,537
Utilities 1,908 1,742
Taxes and dues 9,905 5,136
Depreciation 62,859 92,267
Rent 7,570 6,918
Repair and maintenance 9,294 16,608
Insurance 3,528 3,394
Research and development 153,269 38,433
Transportation 313 25
Education and training 3,683 6,108
Books and printing 2,297 1,007
Supplies 8,601 16,060
Commissions 36,508 7,459
Advertising 43,029 12,202
Amortization 12,074 8,506
Others 47 18
-------- --------
Total Selling, general and
administrative expenses $504,828 $375,697
======== ==========
8. 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, short-term loans receivable, short-term
borrowings, and long-term borrowings
The carrying amount approximates fair value because of the short-term
maturity of those instruments.
F-12
The estimated fair values of the Company's financial instruments at
December 31, 1999 and 1998 are summarized as follows:
1999 1998
---------------------- ---------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- ------- -----------
Cash and cash equivalents $104,452 $104,452 $11,292 $11,292
Short-term borrowings 388,125 388,125 349,569, 349,569
Long-term borrowings 268,840 268,840 320,864 320,864
9. Share capital
(a) On March 7, 1996, the Company issued 10,000 shares common
stocks at par value $2.95 with 200,000 shares authorized capital stocks.
(b) On August 27, 1999, the Company issued 17,720 shares common stocks (par
value $4.20) at $10.50.
(c) On September 1, 1999, the Company converted the additional paid-in capital
to common stock and issued 26,564 shares common stocks (par value $4.22).
(d) On November 10, 1999, the Company issued 29,760 shares common stocks (par
value $4.22) at $10.56.
(e) On November 15, 1999, the Company converted the additional paid-in capital
to common stock and issued 44,636 shares common stocks (par value $4.28).
(f) On December 24, 1999, the Company issued 71,320 shares common stocks (par
value $4.41) at par value.
(g) On December 28, 1999, the Company issued 12,061 shares common stocks (par
value $4.40) at par value.
10. Basic loss per share
The Company does not issue any diluted securities as of December 31, 1999 and
1998. The Company's basic loss per share for the year ended December 31, 1999
and 1998 is as follows:
1999 1998
--------- --------
Net loss $480,339 $159,215
Weighted average number of shares
Outstanding during the year / 56,657 / 10,000
---------- ---------
Basic loss per share $8.48 $15.92
========== =========
11. Risk and uncertainties
The Asia-Pacific region, including the Republic of Korea, is experiencing
severe economic difficulties relating to currency devaluation, volatile
stock markets and slowdown in growth. The recoverability of the
Company's assets and ability of the Company to pay its debts as they
mature are dependent to a large extent on the efficacy of the fiscal
measures and other actions, beyond the Company's control, undertaken to
achieve economic recovery. The Company is exposed to credit loss in the
event of nonperformance by financial institutions with which it conducts
business. The Company minimizes exposure to such risk, however, by
dealing only with major Korean banks and financial institutions.
F-13
SINTEC Co., Ltd.
FINANCIAL STATEMENTS
For the Year ended September 30, 2000
with
REPORT OF INDEPENDENT ACCOUNTANTS
Shinhan Accounting Corporation
F-14
SHINHAN ACCOUNTING CORPORATION
ACCOUNTANTS' REVIEW REPORT TO THE DITECTORS OF:
SINTEC Co., Ltd.
(A Korean development stage company)
We have reviewed the accompanying balance sheet of Sintec Co., Ltd.
("the Company") as of September 30, 2000, and the related statements of
income, accumulated deficit and cash flows for nine months then ended,
in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management the Company.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for
them to be in conformity with accounting principles generally accepted in
the United States of America.
The attached financial statements for the year of 1999 and 1998 were
audit by us. Our audit opinions for them were unqualified.
/s/SHINHAN ACCOUNTING CORPORATION/s/
Certified Public Accountant
Republic of Korea
December 23, 2000
Il-Heung bldg. Suite #8
126-1 ChungMu-Ro 4Ka, Chung-Ku
Seoul, Korea
F-15
SINTEC Co., Ltd.
BALANCE SHEET
As of September 30, 2000, December 31, 1999 and 1998
(in US Dollars)
Amounts
------------------------------------
Assets Sep. 30, 00 1999 1998
- --------------------------------- ------------------------------------
Current assets:
Cash and cash equivalents (Notes 2(e), 8) $ 4,883 104,452 11,292
Account receivable (Note 2(d)) 12,750 8,651 6,241
Other receivable 190,135 575,496 520,283
Advance payments 94,066 82,708 12,469
Prepaid expenses 197 - 1,620
Inventories (Note 2(f)) 254,266 - -
Other current assets 8,307 11,857 -
-------- -------- -------
Total current assets 564,604 783,164 551,905
Property, plant and equipment (Note 2(g))
Building and structure 904,771 - -
Machinery and equipment 227,942 175,615 58,433
Tools and and transportation equipment 293,855 29,713 33,669
Furniture and fixtures 181,641 88,394 66,312
Less : accumulated depreciation 376,268 202,857 131,733
---------- -------- -------
Total Property, plant and equipment,net 1,231,941 90,865 126,681
Other non-current assets :
Long-term bank deposits 28,464 26,137 24,665
Guarantee deposits 6,005 3,085 15,308
Intangibles (Note 2(h)) 85,285 50,433 40,997
----------- -------- -------
Total other non-current assets 119,754 79,655 80,970
----------- -------- -------
Total assets $ 1,916,299 953,684 759,556
============= ======== =======
F-16
(Continued)
See accompanying notes
Sintec Co. Ltd.
Balance Sheet (Cont'd)
As of September 30, 2000, December 31, 1999 and 1998
Amounts
----------------------------------
Liabilities and Stockholders' Equity Sep. 30, 00 1999 1998
- --------------------------------- -------------- ---------- --------
Current liabilities:
Trade payable $ 685 - 145,532
Other accounts payable 26,932 7,623 8,392
Withholdings 1,897 9,069 23,794
Short-term borrowings (Notes 5, 8) 488,852 388,125 349,569
--------- ---------- --------
Total current liabilities 518,366 404,817 527,287
Long-term borrowings (Notes 6, 8) 714,798 268,840 320,864
Commitments
Stockholders' equity :
Common stock - W5,000 par value, 20,000,000 shares
authorized 236,811 shares issued and
outstanding (Note 9) 1,018,688 907,807 29,485
Additional pair-in catital (Note 9) 997,933 - -
---------- ---------- ------
Total paid-in capital 2,016,621 907,807 29,485
Accumulated deficit 1,359,178 620,766 140,427
Capital adjustment (13,877) (12,720) -
Cumulative translation adjustment
(Note 2(b)) 39,567 (5,706) 22,348
----------- --------- --------
Total stockholders' equity 683,135 280,027 (88,594)
----------- ---------- --------
Total liabilities and stockholders' equity $1,916,299 953,684 759,556
=========== ========== ========
See accompanying notes
F-17
SINTEC Co., Ltd.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
For the nine months ended September 30, 2000, years ended
December 31, 1999 and 1998
(in US Dollars)
Amounts
----------------------------------
2000 1999 1998
------- ------------ -----------
Net sales: $ 21,831 116,055 715,948
----------- ------- -------
Product sales 11,522 - -
Good sales - 30,533 467,447
Software development fees 10,279 85,522 248,501
Costs and expenses: 720,996 533,427 791,804
----------- ------- -------
Cost of goods sold 15,326 28,599 416,107
Selling and administrative expenses
(Note 7) 705,670 504,828 375,697
Operating loss (699,165) (417,372) (75,856)
Other income (expenses):
Interest income 1,248 1,186 61
Interest expense (40,495) ( 88,305) (73,154)
Other, net 24,152 (10,266)
----------- -------- -------
(39,247) (62,967) (83,359)
----------- -------- --------
Loss before income taxes (738,412) (480,339) (159,215)
Provision for Income taxes
(Notes 2(j), 6) - - -
----------- -------- --------
Net loss (738,412) (480,339) (159,215)
Accumulated surplus(deficit) at
beginning of year (620,766) (140,427) 18,788
Accumulated deficit at
end of year $(1,359,178) (620,766) (140,427)
============ ========= ===========
Basic loss per share (Note 9) $ 15.92 8.48 3.23
============ ========= ===========
See accompanying notes
F-18
SINTEC Co., Ltd.
Statement of Shareholders' Equity (Deficit)
For the nine months ended September 30, 2000
(in US Dollars)
Common Stock Issued
---------------------
Shares Amount Capital Retained Capital Accumulated
in Earnings Transl- Sharehold-
Excess (Deficit) ation ers' Equity
of Par Adjust- (Deficit)
Value ments
------- -------- --------- --------- ------- -----------
Balance January 1, 1998 10,000 29,485 18,788 48,273
Net loss (159,215) 22,348 (136,867)
------- ------- ------- ---------- ------- ----------
Balance December 31, 1998 10,000 29,485 - (140,427) 22,348 (88,594)
------- ------- ------- ----------- ------- ---------
Balance January 1, 1999 10,000 29,485 (118,079) (88,594)
Private placement 130,861 567,816 300,173 867,989
Stock split (dividend) 71,200 310,506 (300,173) (10,333) -
Net loss (480,339) (19,029) (499,368)
------ ------- -------- ---------- ------- ----------
Balance December
31, 1999 212,061 907,807 - (620,766) (29,362) 280,027
------ ------- ------- ---------- ------- ----------
Balance January 1, 2000 212,061 907,807 (620,766) 287,041
Private placement 24,750 110,881 997,933 1,108,814
Net loss (738,412) 25,692 (712,720)
------ ------- -------- ---------- ------- ----------
Balance September
30, 2000 236,811 1,018,688 997,933 (1,359,178) 25,692 683,135
------- -------- ------- ---------- ------ ---------
See accompanying notes
F-19
SINTEC Co., Ltd.
STATEMENT OF CASH FLOWS
Years ended September 30, 2000, December 31, 1999 and 1998 (in US Dollars)
Amount
---------------------------------
Cash flows from operating activities: 2000 1999 1998
------------ -------- --------
Net loss $(738,412) (480,339) (159,215)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 164,738 62,859 92,267
Loss form disposal of transportation equipment - 3,137 -
Amortization 6,838 12,074 8,117
Effect of exchange rate changes on cash balance 74,090 4,071 10,512
Changes in assets and liabilities:
Decrease(Increase) in accounts receivable (3,934) (1,940) 183,787
Decrease (Increase) in other receivable 394,086 (22,711) (481,107)
Increase in advance payments (9,878) (66,309) (11,530)
Decrease (Increase) in prepaid expenses (196) 1,639 284
Increase in inventiries (253,405) - -
Increase (Decrease) in other current assets 3,745 (11,315) -
Decrese(Increase) in trade payable 683 (147,263) 130,405
Increase (Decrease) in withholdings (7,306) (17,621) 18,524
-------------------------------
Total adjustments 369,461 (183,379) (48,741)
-------------------------------
Net cash provided by operating activities (368,951) (663,718) (207,956)
Cash flows from investing activities:
Increase in guarantee deposits (2,856) (1,659) (817)
Decrease in guarantee deposits - 14,205 -
Acquisition of building (901,706) - -
Acquisition of machinery and equipment (49,089) (7,268) (70,717)
Acquisition of furniture and fixtures (91,390) (17,252) (26,611)
Disposal of tools and transportation equipment (262,729) 2,578 -
Increase in software and development costs - - (39,203)
Increase in intangibles (40,692) (18,717) (5,994)
-------------------------------
Net cash used in investing activities (1,348,462) (28,113) (143,342)
Cash flows from financing activities:
Increase (Decrease) in other accounts payable 19,111 (1,217) (13,194)
Increase in short-term borrowings, net 93,621 16,652 284,822
Increase (Decrease) in long-term bank deposits (3,115) (2,355) (22,808)
Decrease in long-term bank deposits 1,251 2,372 -
Decrease(Increase) in long-term borrowings, net 399,093 (68,133) 93,008
Capital adjustments (931) (12,138) -
Issuance of common stock 1,108,814 849,810 -
-------------------------------
Net cash provided by financing activities 1,617,844 784,991 341,828
-------------------------------
Net Increase in cash and cash equivalents (99,569) 93,160 (9,470)
Cash and cash equivalents at beginning of the year 104,452 11,292 20,762
Cash and cash equivalents at end of the year $ 4,883 104,452 11,292
===============================
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes - 2,198 1,529
===============================
Cash paid during the year for interest $ 40,495 88,305 73,154
===============================
See accompanying notes
F-20
SINTEC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
1. Organizations and Business
SINTEC Co. Ltd. (the "Company") was incorporated in March 7,
1996 under the law of the Republic of Korea. The Company is currently
engage in developing and applying the face (image) recognition
technology and manufacturing the surveillance camera with
face and iris recognition.
2. Basis of Financial Statements and Summary of Significant Accounting
Policies
(a) Basis of financial statements
The Company maintains its books of accounts in accordance with
accounting principles generally accepted in the Republic of Korea
("Korean GAAP"). The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America ("U.S. GAAP"), which do not significantly
differ from the Company's statutory books and financial statements
prepared in accordance with Korean GAAP.
(b) Translation of financial statements and foreign currency
The accompanying financial statements have been translated into U.S.
dollars in accordance with SFAS No.52. All assets and liabilities are
translated at the current exchange rates at the date of translation. The
exchange rate applied as of September 30, 2000 was $1,115/US$1.
Elements of income are translated at weighted average exchange rates for
the period. The exchange rate applied for the year 2000 was
$1,118.79/US$1. Equity accounts other than accumulated deficits are
translated at historical exchange rates. The resulting translation
adjustment is recognized as a component of other comprehensive income.
The company maintains its books of accounts in Korean won. Transactions
involving foreign currencies are recorded in the accounts at the exchange
rate prevailing at the time the transactions are made. Assets and
liabilities denominated in foreign currencies are translated into Korean
won at exchange rates in effect at year-end. The resulting foreign
currency exchange gains/losses are credited/charged to current operations.
The exchange rates used here were published by Korea Exchange Bank as
basic rate.
(c) Use of estimates
The preparation of the financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosure of contingent assets
and liabilities at the date of financial statements and the reported amounts
of revenues and expenses during the reported period. Actual results could
differ from those estimates.
F-21
2. Basis of Financial Statements and Summary of Significant Accounting Policies,
continued
(d) Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts based on an
analysis of the collectibility of outstanding account balances.
(e) Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers time
deposits that have maturity of three months or less from date of purchase
to be cash equivalents.
(f) Inventories
Inventories are stated at actual cost determined by the average cost
method, except for materials in transit that are stated at cost determined by
specification method.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of tangible
assets are provided using a declining balance method over the following
estimated useful lives:
Years
Machinery and equipment 4
Other tangible assets 4
Expenditures that prolong the useful lives or enhance the value of fixed
assets are capitalized, while expenditures incurred for routine
maintenance are expensed in the year in which they are incurred.
(h) Intangibles
Intangible assets are stated at costs directly deducted amortization.
Amortization of intangible assets are provided using straight-line method over
the following useful lives:
Years
Software development costs 5
Patents 10-5
(i) Research and development costs
Research and development costs are charged to operation as incurred.
Research and development costs are $199,661 as of September 30, 2000.
F-22
2. Basis of Financial Statements and Summary of Significant Accounting
Policies, continued
(j) Severance and retirement benefits
The Company has made contract to include severance payments in annual
salaries with all directors and employees, so has not made allowance for
severance and retirement benefits.
In accordance with the Korean National Pension Law, the Company
prepays a portion of its severance and retirement benefits obligation to
the Korean National Pension Corporation at the rate of three percent of
payroll expenses. Such prepayments amounting to $1,062 as of September
30, 2000 are debited as other current assets. In accordance with a revision
in the Korean National Pension Law effective from April 1, 1999, these
prepayments were no longer required after the effective date.
(k) Income taxes
Under SFAS No.109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on difference between financial reporting and tax bases
of assets and liabilities and are measured using the enacted marginal tax
rates and laws that will be in effect when the differences are expected to
reverse.
3. Transactions with stockholders
Among the short-term borrowings, the amount of $140,870 was borrowed
from Joseph Kim who is president and major stockholders of the
Company.
4. Inventories
Inventories at September 30, 2000 consisted of following:
Amounts
--------
Finished products $192,429
Raw materials 61,837
--------
Total $254,263
F-23
5. Short-term borrowings
Short-term borrowings at September 30, 2000 consisted of the following:
2000
--------------
Joseph Kim (CEO) $140,870
Industrial Bank of Korea 89,686
HaNa Bank 258,296
---------------
Balance at end of year $488,852
===============
6. Long-term borrowings
Long-term borrowings at September 30, 2000 consisted of the following:
Rate Amounts
----------- ---------
The Korea Development Bank 3.7% $625,112
HanVit Bank 8 89,686
---------
Balance at end of year $714,798
=========
7. Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended
September 30, 2000 are as follows (in US$) :
2000
-------
Directors' salaries $38,836
Employee wages and salaries 59,624
Bonuses 11,319
Other employee benefits 18,957
Travel 50,689
F-24
7. Selling, general and administrative expenses, continued
Entertainment 9,856
Communications 11,653
Utilities 2,361
Taxes and dues 9,259
Depreciation 52,978
Rent 5,889
Repair and maintenance 663
Insurance 5,754
Research and development 199,661
Transportation 27,510
Education and training 1,134
Books and printing 1,632
Supplies 6,246
Commissions 99,031
Advertising 61,557
Amortization 13,687
Others 17,374
--------
Total Selling, general and
administrative expenses $705,670
========
8. 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, short-term loans receivable, short-term
borrowings, and long-term borrowings
The carrying amount approximates fair value because of the short-term
maturity of those instruments.
F-25
The estimated fair values of the Company's financial instruments at
September 30, 2000 are summarized as follows:
2000
-------------------------------------------
Carrying amount Estimated fair value
------------------ ----------------------
Cash and cash equivalents $4,883 $4,883
Short-term borrowings 347,982 347,982
Long-term borrowings $714,798 $714,798
9. Share capital
(a) On March 18, 2000, the Company issued 11,700 shares common stock (par value
$4.47 Won) at $44.73.
(b) On June 14, 2000, the Company issued 13,050 shares common stock (par value
$4.49) at $44.86.
10. Basic loss per share
The Company does not issue any diluted securities as of September 30,
2000. The Company's basic loss per share for the year ended September
30, 2000 is as follows:
Net loss $738,412
Weighted average number of shares
Outstanding during the year /225,624
----------
Basic loss per share $3.27
==========
11. Risk and uncertainties
The Asia-Pacific region, including the Republic of Korea, is experiencing
severe economic difficulties relating to currency devaluation, volatile
stock markets and slowdown in growth. The recoverability of the
Company's assets and ability of the Company to pay its debts as they
mature are dependent to a large extent on the efficacy of the fiscal
measures and other actions, beyond the Company's control, undertaken to
achieve economic recovery. The Company is exposed to credit loss in the
event of nonperformance by financial institutions with which it conducts
business. The Company minimizes exposure to such risk, however, by
dealing only with major Korean banks and financial institutions.
F-26
EXHIBIT 1
CORPORATE CHARTER AND ARTICLES OF INCORPORATION
BUSINESS REGISTRATION CERTIFICATE
(FOR LEGAL ENTITY)
REGISTRATION CERTIFICATE NO.: 139-81-26215
COMPANY NAME: SINTEC CO., LTD. REPERSENTATIVE: Woon-yong,
KIM. DATE OF ESTABLISHMENT: April 01, 1996. REGISTRATION NO.
OF COMPANY: 120111 - 0130526. BUSINESS LOCATION :
Buchon Technopark 103-608, Samjong-dong, 364, Ojung-gu,
Buchon City, Kyongi-do. HEAD OFFICE : Buchon Techonopark 103-608,
Samiong-dong, 364, Ojung-gu, Buchon City, Kyongi-do SCOPE OF
BUSINESS : Service, Manufacturing, Wholesale. ITEM OF
BUSINESS Development of Software and its Peripherals.
REASON FOR ISSUE Transfer of Office Location.
OTHER SPECIAL REGISTRATION:
JUNE 9, 2000
BUCHON TAX OFFICE,
OFFICER/Sealed/
E-1
Exhibit 2
ARTICLES OF INCORPORATION
SINTEC CO. LTD.
ACT 1. GENERALS.
ARTICLE 1. (Company Name)
The name of the Company is SINTEC CO. LTD.
ARTICLE 2. (Purpose)
4372:
Main objectives to be pursued by the Company on its incorporation are;
1. Software development, manufacturing, wholesale and retail. 2.
Manufacturing and sales of computer and peripherals. 3. Other
additional services relating to the businesses above mentioned.
E-2
ARTICLE 3. (Location of Head Office and Branch)
G1) The registered head office of the Company will be located in
Inchon City, the Republic of Korea (2) The Company may establish its
branch office, liason office, or subsidiary both abroad and in Korea it
is required.
ARTICLE 4. (Public Notice)
Notices shall be given by the Kyungin Daily Newspaper issued in
Seoul Metropolitan City.
ACT 2. STOCKS.
ARTICLE 5. (Total Number of Stocks To Be Issued)
The authorized number of stocks to be issued are 200,000(Two Hundred
Thousand).
ARTICLE 6. (Par Value) Par value of each stocks is 5,000 Korean
WON.
ARTICLE 7. (Total Number of Stocks at the time of Establishment)
The share capital of the Company at the time of establishment shall be
52,300.
ARTICLE 8. (Stock and its Kind)
The stocks of the Company shall be common and registered.
ARTICLE 9. (Kind of share Certificates)
The stocks of the Company shall be consisted of one share certificate,
five sharescertificates, ten shares certificates, one hundred share
certificates, five hundred shares certificates, one thousand shares
certificates, ten thousand shares certificates. (Total 8 Kinds)
ARTICLE 10. (Pre-emptive Rights)
(1) Every stockholders of the Company has the pre-emptive rights for
the stocks to be issued new, according to his individual proportion
of the Company's stocks.
But if any shareholder gives up his pre-emptive rights or if there is
any odd lot stocks, the board of directors of the Company shall decide
its disposal.
(2) In spite of the (1) of ARTICLE 10 and for the following purposes,
the Company may assign its new stocks to any third party by the
resolution of the board of directors.
1. In case that the Company offers new stocks or allows underwriters to
subscribe for new stocks according to the regulations of the Stock
Exchange Law.
2. In case of the Company's allocation, by priority, of its new stocks to
the members of the Association of "My Company's Stocks" which are
owned by employees of the Company.
3. In case of the Company's allocation of its new stocks to foreign
investor/investors who is/are authorize d/registere d to invest in Korea
according to the regulation of the Foreign Investment and Promotion
Law.
E-3
4. In case of the Company's allocation of its new stocks to any
institutional investors or venture capitalist according to the Number 3
of the Article 23 of the Enforcement Ordinance of the Corporate Tax
Law, within the scope of 50 percent of the total number of stocks issued
by the Company.
5. In case of the Company's allocation of its new stocks to the holder of
stock option on the basis of the regulation of the Stock Exchange Law.
ARTICLE 10. (Stock Option)
(1) The Company may grant its stock option, within the scope of
15/100(fifteen one hundredth) of the total number of issued stocks of the
Company, to its directors and officers, by the resolution of the general
meeting and on the basis of the regulation of the Stock Exchange Law.
But any of the following conditions shall be exempted.
1. Shareholders at the time of the Company's incorporation and the
persons interested. (persons interested who are regulated by the Stock
Exchange Law, Article 10-3, and the Number3.)
2. Major shareholder and the persons concerned. (Major shareholders
and the persons concerned who are regulated by the Article 188 of the
Stock Exchange Law.)
3. Persons who become major shareholders by exercising their stock
option
(2) Stocks to be allocated by the exercising of stock option shall be
common and registered. ( Stocks which can be the caculation-base in case
that the Company pays for the difference between exercising price and
current price by means of cash or stock.)
(3) The number of directors and officers whom stock option can be
granted shall not exceed 95/100 (Ninety five one hundredth) of the total
number of directors and officers, and the stock option which can be
granted each director and officer shall not exceed 10/100(Ten one
hundredth) of the total number of issued stocks.)
(4) The stock option price per each stock shall be the average closing
price for the period of last three months before starting from the date of
resolution of the general meeting mentioned in number "(1)" of this
Article.
(5) The stock option price shall be the face-value if above-mentioned
price be lower than face-value.
(6) The stock option can be exercised from three years after until five
years before the date of the general meeting's resolution.
(7) The stock option may be cancelled by the resolution of the board of
directors in each of the following case.
1. In case that any director and officer who is granted stock option by the
Company resigns intentionally within three years from the date of his/her
office.
2. In case that any director and officer is retired by force or by penalty
due to his/her intentional or serious faults and damages thereby incurred.
3. In case of any reason for cancellation which is regulated according
to the stock option contract.
E-4
ARTICLE 10. (Record Date of Dividend Payout)
In case of the Company's free issue of new stocks, issue of new stocks
to be purchased and dividend, the record date of dividend payout
shall be the one in the year just before the year when the new stocks are
issued.
ARTICLE 11. (Payment for Stocks)
Every underwriter shall lose his right if he fails to pay until the date of
payment for his portion of the capital represented by his share/shares,
and the damage for the payment failure may be claimed by the resolution
of the board of directors of the Company.
ARTICLE 12. (Agent for the Transfer of the Name)
(1) The Company may appoint its transfer agent.
(2) The transfer agent, its office space and the scope of its mission shall
be decided and noticed public by the resolution of the board of directors.
(3) The Company shall keep its list or copy of the list of stock holders at
the office of transfer agent, making the transfer agent treat the transfer
of name, registration or cancellation of the right of pledge, manifestation
or cancellation of the trusted property, issuance of stock certificates,
acceptance of registration, and other works relating to stocks.
(4) The working procedure mentioned in above (3) shall be made
according to the regulation relating to transfer agency's business.
ARTICLE 13. (Registration of the Shareholder's Address, Name and Seal
or Signature)
(1) Shareholder and pledger shall register his/her name, address, and seal
or signature to the transfer agent above mentioned in ARTICLE 12.
(2) Shareholder's and the registered pledgers who are residing abroad
shall nominate their proxy and place so that any notice can be delivered to.
(3) Any change in the above number "(1)" and "(2)" shall be also
registered.
ARTICLE 14. (Closing of the Shareholder's List and Basic Date)
(1) The shareholder who is entitled to his/her right at the time of general
meeting for the year's, settlement term shall be registered starting from
the lst of January of every year.
(2) The shareholder who is entitled to his/her right at the time of general
meeting for the year's settlement term shall be registered at the
shareholder's list as of the 31st of December every year.
(3) The Company, by the resolution of the board of directors, may
suspend the change of the shareholders' list, if it is necessary for the
extraordinary general meeting or others, setting the suspension period
not longer than three months, or may set the specific date on which the
registered shareholder or pledgers are entitled to their rights.
The board of directors, if necessary, may both suspend the
change of shareholder's list and fix the basic date together.
The Company shall, in this case, give the public notice two
weeks prior to the starting date of the period or the basic date.
E-5
ACT 3. DEBENTURE.
ARTICLE 15. (Issue of the Convertible Debenture)
(1) The Company may issue its convertible debenture the face value of
which does not exceed 1,000,000,000 Won for anyone other than the
Company's shareholder.
The board of directors may issue, in case of the above "x", the convertible
debenture under the condition that the convertible right be granted only
for one part of the issued debentures.
(3) The stocks to be issued in exchange for the pre-emptive right shall be
common and the price shall be the same as face value or more than face
value and shall be decided by the board of directors.
(4) The period during which the convertible right can be exercised shall
be from the date after which six months pass since the debenture's issuance
and until the date just before its mature day the board of directors may,
by its resolution, adjust the period for exercising of the pre-emptive right.
(5) As for the dividend for stocks which are issued for convertible right
and as for the payment of interests for the convertible debenture, the
ARTICLE 10.3 shall be applied.
ARTICLE 16. (Issue of Bond with Subscription Warrant)
(1) The Company may issue its bond with subscription warrant at the
amount not exceeding 1,000,000,000 WON for anyone other than the
Company's shareholders.
(2) The amount which can be claimed by the pre-emptive right may be
decided by the board of directors within the scope not exceeding the
face value of the bond.
(3) The stocks to be issued in exchange for the pre-emptive right shall be
common, and the issued price shall be same as or more than face value,
which shall be decided by the board of directors.
(4) The period during which the pre-emptive right can be exercised shall
be from the date after which one month pass since the issuance of the bond,
and shall be until the date just before its maturity day.
(5) As for the dividend for stocks which are issued for pre-emptive
right, the ARTICLE 10.3 shall be applied.
ARTICLE 17. ( Regulations relating to the Issuance of Debenture)
The regulations of ARTICLE 11 and ARTICLE 12 shall be applied in case
of the issuance of debenture.
ACT 4. GENERAL MEETINGS OF SHAREHOLDERS.
ARTICLE 18. (Time of Summon)
The Company's general meeting shall be the regular general meeting and
extraordinary general meeting.
The regular general meeting shall be summoned within three months
starting from the date next to the last day of every fiscal year, and the
extraordinary general meeting shall be convened when it is required.
E-6
ARTICLE 19. (Right to Summon)
(1) Save as otherwise expressly provided in the Laws or other Acts, the
representative director (president) shall, according to the resolution of
the Board of Directors, summon the general meeting.
(2) When the representative director (president) is not present, the
ARTICLE 34 and the ARTICLE 34.2. shall be applied.
ARTICLE 20. (Summon and Public Notice)
(1) The notice to summon for the general meeting shall be sent, in
written,
to shareholders two weeks prior to the date of general meeting and
include its time, place and purpose.
(2) The notice to shareholder who has the same as or less than 1/100(one
hundredth) of the total issued shares may be substituted with the public
notice of more than two times on the Daily Economic Newspaper and the
Korea Economic Daily, advising its summon and purpose two weeks prior
to the date of general meeting.
ARTICLE 21. (Place)
The general meeting shall be held in the place where the head office is
located, but may be held in other place if it is required the date just
before its mature day.As for the divident for stocks which are issued
for pre-emptive right, the ARTICLE 10.3 shall be applied be applied.
ARTICLE 22. (Chairman)
(1) The representative director (president) shall be the chairman of the
general meeting.
(2) When the representative director(president) is not present, the
ARTICLE 34.2. shall be applied.
ARTICLE 23. (Chairman's Right to Preserve Order)
(1) The chairman of the general meeting of shareholders may be entitled
to order anyone to stop, cancel or walk out of the room if he/she in the
meeting may intentionally speak or act to disturb the order.
(2)The chairman of the general meeting may, if it is required, limit the
time and number of shareholder's speech for smooth proceeding of the
meeting.
ARTICLE 24. (The Voting Right)
The shareholders shall have one voting right for one stock. But the voting
right in case of new issuance of stocks may be decided separately, and the
voting right for the new stocks which are issued on the basis of priority
in dividend may be none or one voting right for two shares. In this case
it shall be written on the securities(stock).
ARTICLE 25. (Look of Unity in Exercising Voting Right)
(1) Any shareholder who has voting rights more than two and wants to
exercise them for different voting, he shall advise, in written, his
intention and reason three days prior to the date of meeting to the
Company.
(2)The Company may reject the shareholder's lack of unity in voting
rights. But if any shareholder has underwritten or been trusted for other
shareholders, he can be accepted with his lack of unity in his voting
rights.
E-7
ARTICLE 26. (Acting Power of Proxy)
(1) The shareholder of the Company may exercise his voting right through
his proxy with his power of attorney.
(2) The proxy mentioned in A(1)" shall submit a certificate(power of
attorney) to the Company prior to the commencement of the general
meeting.
ARTICLE 27. (Decision of the General Meeting of Shareholders)
Save as otherwise expressly provided in the Laws or other Acts,
questions arising atthe meeting shall be decided by a majority of votes of the
present shareholders, who have one fourth or more of the Company's total stocks
issued.
ARTICLE 28. (Memorandom of General Meeting)
The memorandom of general meeting shall be, with all the details of the
meeting written on, signed by chairman and the directors attended, and
shall be kept both at head office and at branch office.
ACT 5. DIRECTOR - BOARD OF DIRECTORS - AUDITOR.
ARTICLE 29. (Number of Director and Auditor)
(1) The number of director of the Company shall be three or more and
five or less. 2 The number of auditor of the Company shall be one.
ARTICLE 30. (Election of Directors and Auditor)
Director and auditor shall be elected at the general meeting of
shareholders.Director and auditor shall be elected by the majority votes of the
present shareholders, who have one fourth or more of the total shares issued.
But in case of the election of auditor, any shareholder who has more than
3/100(three one hundredth) of total shares issued, excluding those which
have not voting rights, shall not exercise his voting right for the part of
stocks exceeding 3/100 (three one hundredth) of total stocks issued.
ARTICLE 31. (Term of Office of Director and Auditor)
(1) The term of office of directors shall be until the last day of the
general meeting which is held, for the last accounting period, within three
years since their assumption of office.
(2) The term of office of the auditor shall be until the last day of the
general meeting which is held, for the last accounting period, within
three years since his/her assumption of office.
ARTICLE 32. (Supplementary Election of Director and Auditor)
If any vacancy occurs, the director or the auditor shall be elected at the
general meeting. But if it fulfils the ARTICLE 29 and is not required, the
Company may not elect supplementary director or auditor.
ARTICLE 33. (Election of the Representative Director)
The Company shall elect its representative director, executive managing
director and managing director by the resolution of the board of
directors.
E-8
ARTICLE 34. (Duty of the Directors)
The representative director shall represent the Company and control the
Company's overall business.
The executive managing director and managing director shall assist the
representative director and execute their duties which are assigned
according to the resolution of the board of directors, and if the
representative director is not present any one who is the next ranker
shall act for him.
ARTICLE 34.2. (The Duty of Director to Report)
The directors shall report to the auditor if they find any facts which may
seriously damage the Company.
ARTICLE 35. (The Duty of the Auditor)
(1) The auditor of the Company shall audit the accounting and its works.
(2) The auditor may attend the board of directors and express his opinion.
(3) The auditor may summon extraordinary meeting of the board of
directors by submitting, in written, the request letter which includes
the purpose and reason of the meeting.
(4) The auditor may, if it is required for his/her execution of duty, ask
the company's subsidiary its operational report. The auditor may audit the
status of properties and business of the subsidiary if the subsidiary does
not report immediately or it is required for him/her to check the report
of the subsidiary.
ARTICLE 36. (Memorandom of the Auditor)
The auditor may record the way of execution of auditing and its result on
the memorandum with his/her seal or signature on it.
ARTICLE 37. (Constitution and Summon of the Board of Directors)
(1) The board of directors shall be constituted by the directors of the
Company and resolute the major business of the Company
(2) The representative director or the director if he/she is specifically
appointed for the duty, shall summon the board of director.
ARTICLE 38. (Resolution)
(1) Any bill at the -meeting of the board of directors shall be passed by a
majority of votes of the present directors.
(2) The chairman of the board of directors shall be the one who is
regulated in the ARTICLE 37, number "V and has the right to summon the meeting.
(3) Any one who has specific interests in a bill shall not exercise his/her
right of voting right in that bill.
ARTICLE 39. (Memorandorn of Board of Directors)
The memorandum of the board of directors shall be made and signed by
the chairman, directors and auditor who attend the meeting, and shall be kept
in the head office of the Company.
E-9
ARTICLE 40. (Salary and Retirement Grants of Directors and Auditor)
(1) The salary of the directors and auditor shall be decided by the
resolution of the general meeting. The retirement grants of the
directors and auditor shall be according to the Company's
related regulation which is resoluted in the general meeting.
ARTICLE 41. (Consultant and Advisor)
The Company may appoint a few consultant and advisor by the resolution
of the board of directors.
ACT 6. ACCOUNTING.
ARTICLE 42. (Fiscal Year)
The fiscal year of the Company shall be from the 1st of January until the
31st of December.
ARTICLE 46. (Expiration of the Right of Dividend Claim)
(1) The right to claim dividend shall be expired if it is not exercised for
five years from the date when it is noticed to shareholder or pledgers.
(2) The dividend which is kept unpaid after its expiration date as
mentioned in -(1)" of this Article shall be returned to the Company.
ACT 7. OTHERS.
ARTICLE 47. (Bylaws)
The Company may establish its bylaws and detailed regulations, if it is
necessary for the Company's operation and management, by the resolution
of the board of directors.
ARTICLE 48. (Others)
Other articles which are not regulated in this Articles shall be applied
according to the resolution of the general meeting, the Commercial Law
and other related regulations.
SUPPLEMENTARY CLAUSE.
1. (Effective Date) This Articles of Incorporation shall be effective from
June, 1999.
2. (Applicable Cases concerning the Convertable Debentures and Bond
with Subscription) The amended clause of the Article 15 and the Article
16 shall be applied to those which are issued after the effective date of
this Articles of Incorporation.
3. (Applicable Cases concerning the Record Date of Dividend Payout)
The Article 10.3. shall be applied after the Company is enlisted and
opened to the public through securities exchange market.
E-10
AMENDMENT OF PART OF THE ARTICLES OF
INCORPORATION.
THE FOLLOWING AMENDMENT WAS MADE TO ARTICLE 5 OF THE
ARTICLES OF INCORPORATION OF SINTEC CO. LTD. EFFECTIVE
DECEMBER 27, 1999.
ARTICLE 5 .(Total number of stocks to be Issued by the Company) The
total number of stocks to be issued by the Company shall be 50,000,000
stocks and par value of 200 Won.
//s// Sintec Co. Ltd. //s//
--------------------------
SINTEC CO. LTD.
E-11
Exhibit 3
Proposed new Articles of Incorporation
ARTICLES OF INCORPORATION
OF
SINEC CO. LTD.
CHAPTER I
GENERAL PROVISIONS
Article 1. Company Name
The name of the Company shall be expressed as "Chusik Hoesa
________",
which shall be expressed in English as "SINTEC CO. LTD." (hereinafter
referred to as the "Company").
Article 2. Objectives
The objectives of the Company shall be as follows:
(1) To manufacture, sell, lease and service computers and peripheral
devices;
(2) To develop, manufacture and sell software and programs;
(3) Export and import;
(4) To develop, manufacture and sell optical instruments;
(5) To develop, manufacture and sell image processors;
(6) To develop, manufacture and sell security equipments; and
(7) any and all acts, things, business and activities which are related,
incidental or conducive directly or indirectly to the attainment of the
foregoing objectives. (To conduct all other activities or businesses
which are related to the attainment and continuation of the objectives
mentioned above.)]
Article 3. Location of Head office and Branches
The head office of the Company shall be located in [ , Republic of
Korea]. Branches, liaison offices, other offices or subsidiary may be
established elsewhere by resolution of the Board of Directors of the
Company.
Article 4. Method of Giving Public Notices
Public notice shall be given by publishing the notice in Kyungin Ilbo, a
daily Korean language newspaper published in the Seoul Special City.
The Company may give public notice through the Daily Electronics
Newspaper which is a daily Korean language newspaper published
in the Seoul Special City in case that the Kyungin Ilbo is not available
because of events of force majeure.
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CHAPTER II
SHARES
Article 5. Total Number of Authorized Shares
The total number of shares which the Company is authorized to issue
("Authorized Shares") shall be ___________ (___________) shares.
Article 6. Number of Shares Issued at Incorporation
The number of shares to be issued at the time of incorporation of the
Company shall be ___________ (___________) shares.
Article 7. Par Value
The par value of each share shall be ___________ (___________) Korean
Won.
Article 8. Class of Shares and Types of Share Certificates
(1) The shares to be issued by the Company shall be common and
registered.
(2) Share certificates of the Company shall be consisted of eight (8)
denominations: those of one (1) share, five (5) shares, ten (10) shares,
fifty (50) shares, one hundred (100) shares, five hundred (500) shares,
one thousand (1,000) shares and ten thousand (10,000) shares.
(3) The Company shall not adopt the non-bearing of Share Certificates
under Article 358-2 of the Commercial Code.
Article 9. Pre-emptive Rights
(1) The shareholders shall have pre-emptive rights to the shares to be
newly issued by the Company in proportion to the number of shares
held by each shareholder.
(2) Notwithstanding the provision of Paragraph (1), new shares may be
allocated to persons other than the shareholders in the following cases:
(a) In case that the Company offers new shares or allows
underwriters to underwrite new shares in accordance with Article
2 and Article 8 of the Securities Exchange Act;
(b) In case that the Company issues new shares through a public
offering by the resolution of the Board of Directors in
accordance with Article 189-3 of the Securities Exchange Act;
(c) In case that the Company issues new shares through exercises of
stock options in accordance with Article 16-3 of the Venture
Company Promotion Special Measures Act;
(d) In case that the Company issues new shares for the purpose of
listing or registration on or with a foreign securities exchange
or market;
(e) In case the Company issues new shares for foreign direct
investments in accordance with the Foreign Investment
Promotion Act as needed for business purposes, including but
not limited to improvement of the financial structure;
(f) In case the Company issues new shares to another company with
which the Company forms or intends to form a business alliance
relationship; or
(g) In case the Company issues new shares for consideration for the
acquisition of the shares or assets of another company or the
assets of a person.
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(3) Any shares unsubscribed due to a waiver or failure to exercise of pre-
emptive rights by shareholders, or any fractional shares arising in the
process of allocation of new shares shall be dealt with by the
resolution of the Board of Directors.
Article 10. Public Offerings
(1) The Company may issue new shares through a public offering by the
resolution of the Board of Directors in accordance with Article 189-3
of the Securities Exchange Act; provided, however, that such newly
issued shares shall not exceed thirty hundredths of the total issued and
outstanding shares of the Company.
(2) The type, number and the issuing price, etc. of the shares to be newly
issued through a public offering shall be determined by the resolution
of the Board of Directors; provided, however, that the issuing price of
such new shares shall be not less than the price set forth in Article 84-
5 of the Enforcement Decree of the Securities Exchange Act.
Article 11. Stock Options
(1) By the special resolution of the General Meeting of Shareholders, the
Company may grant stock options provided for in Article 16-3 of the
Venture Company Promotion Special Measures Act to those among the
following persons who have contributed or has capabilities to
contribute to the establishment, management or technological
innovations of the Company within the limit not exceeding fifty
hundredths of the total issued and outstanding shares of the Company:
(a) The Directors, the Auditor or other employees of the Company;
(b) Any of the following persons with the technological or managerial
capabilities:
(i) Faculty members of a university (including community
colleges and industrial colleges) (including
researchers at a research institute at such university);
(ii) Researchers at a research institute established by the
National or Local Government;
(iii) Researchers at a research institute funded by the
National Government;
(iv) Practicing lawyer, certified public accountant, patent
agent, management supervisor, technology supervisor, or tax
agent; or
(v) Researchers at a science or industrial technology research
institute, which is a non-profit legal entity;
(c) Universities;
(d) Research institutes established by the National or Local
Government;
(e) Research institutes funded by the National Government;
(f) Specialized production technology research institutes; or
(g) Science or industrial technology research institutes.
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(2) Notwithstanding the provisions of Paragraph (1) above, the Company
shall not grant stock options to any of the following persons:
(a) The largest shareholder of the Company (as set forth in Item
2 of Article 54-5 (4) of the Securities Exchange Act;
hereinafter the same meaning) and his specially interested
persons (as set forth in Article 10-3 (2) of the Enforcement
Decree of the Securities Exchange Act; hereinafter the same
meaning). Provided, however, that those who become such
specially interested persons by taking the office of the
Directors or Auditors of the Company (including the non-
standing Directors or Auditors of an affiliated company of the
Company) shall be excluded;
(b) Major shareholders of the company (as set forth in Article 188
of the Securities Exchange Act; hereinafter the same meaning)
and their specially interested persons. Provided, however, that
those who become such specially interested persons by taking
office of the Directors or Auditors of the Company (including
the non-standing Directors or Auditors of an affiliated company
of the Company) shall be excluded; or
(c) Persons who would become major shareholders by exercise
of stock options.
(3) The Company shall not grant stock options for such number of shares
exceeding ten hundredths of the total issued and outstanding shares of
the Company to any one (1) Director, Auditor or employee of the
Company.
(4) The Company may cancel the grant of stock options by the resolution
of the Board of Directors in any of the following cases:
(a) When the stock option holder has resigned voluntarily from the
Company after his receipt of stock options;
(b) When the stock option holder has caused a material damage to the
Company by negligence or willful misconduct; or
(c) When any of the conditions for cancellation in the stock option
agreement has occurred.
(5) The Company shall grant stock options by either of the following
manners:
(a) Delivery of shares newly issued at the exercise price per stock
options or treasury shares; or
(b) Payment in cash or stock for the amount obtained by deducting the
exercise price per stock options from the market price of the
shares.
(6) Stock options may be exercised for seven (7) years from the date
immediately following the period of three (3) years after the date of
the special resolution of the General Meeting of Shareholders referred
to in Paragraph (1) above.
(7) Stock option holders shall be entitled to exercise his stock options
only after having served in the Company for two (2) years after the
date of the special resolution of the General Meeting of Shareholders
referred to in Paragraph (1) above. Provided, however, that those who
die, or retire from office upon reaching retirement age, or resign from
office for reasons not attributable to themselves within two (2) years
after the date of the special resolution of the General Meeting of
Shareholders referred to in Paragraph (1) above may exercise stock
options during the applicable exercise period.
(8) The exercise price per share upon the exercise of stock options shall
not be less than the price set forth in each of the following items;
provided, however, that the same shall apply when the exercise price
has been adjusted after the grant of stock options:
(a) The higher of the following prices in case of issuance and delivery
of new shares;
(i) The market price of shares valued as of the date of the grant
of stock options in accordance with Item 1 of Article 84-9 (2)
of the Enforcement Decree of the Securities Exchange Act; or
(ii) The par value of shares concerned; or
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(b) The market price of shares valued in accordance with Sub-
paragraph (a) (i) above in all cases other than Sub-paragraph (a)
above.
(9) Article 12 shall be applied, mutatis mutandis, in respect of dividends
on the new shares issued by exercise of stock options.
Article 12. Calculation of Dividend for New Shares
For the purpose of calculation of dividend to be paid on the new shares
which were issued during a given fiscal year, the issuance, underwriting
or subscription for the same new shares shall be deemed to have been made
at the end of the fiscal year immediately preceding the fiscal year during
which the same new shares were issued, underwritten or subscribed.
Article 13. Transfer Agent
(1) The Company shall appoint a transfer agent to attend to the
registration of transfer of shares on the register of shareholders.
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Exhibit 4
Merger Agreement between the Company and Captex Capital, Inc.
AGREEMENT AND PLAN OF MERGER between CAPTEX CAPITAL,
INC., a Texas corporation ("Captex"), SINTEC CO. LTD. a Korean
corporation ("Sintec") and SINTEC (TEXAS) CORP., a Texas corporation
and a wholly owned subsidiary of Sintec (the "Sub"), Captex, Sintec and
the Sub being sometimes referred to herein as the "Constituent
Corporations."
WHEREAS, the board of directors of each Constituent Corporation
deems it advisable that the Constituent Corporations merge into a single
corporation (the "Merger") and upon completion of the Merger, pursuant
to Rule 12g-3(a) of the General Rules and Regulations of the Securities
and Exchange Commission (the ACommission@), Sintec will elect to
become the successor issuer to Captex for reporting purposes under the
Securities Exchange Act of 1934.
NOW, THEREFORE, in consideration of the premises and the
respective mutual covenants, representations and warranties herein
contained, the parties agree as follows:
1. SURVIVING CORPORATION. Captex shall be merged with and
into the Sub which shall be the surviving corporation in accordance with
the applicable laws of its state of incorporation.
2. MERGER DATE. The Merger shall become effective (the "Merger
Date") upon the completion of:
2.1. Adoption of this agreement by Captex and the Sub pursuant to
the General Corporation Law of Texas; and
2.2. Execution and filing by Captex and the Sub of Articles of Merger
with the Department of State of the State of Texas in accordance with the
Corporation Law of Texas.
3. TIME OF FILINGS. The Articles of Merger shall be filed with the
Department of State of the State of Texas upon the approval, as required
by law, of this agreement by the Constituent Corporations and the
fulfilment or waiver of the terms and conditions herein.
4. GOVERNING LAW. The surviving corporation shall be governed
by the laws of the State of incorporation of the Sub.
5. CERTIFICATE OF INCORPORATION. The Articles of Incorporation
of the Sub shall be the Articles of Incorporation of the surviving
corporation from and after the Merger Date, subject to the right
of the Sub to amend its Articles of Incorporation in accordance
with the laws of the State of its incorporation.
6. BYLAWS. The Bylaws of the surviving corporation shall be the
Bylaws of the Sub as in effect on the date of this agreement.
7. BOARD OF DIRECTORS AND OFFICERS. The officers and
directors of the Sub, or such other persons as shall be selected by it,
shall be the officers and directors of the surviving corporation following
the Merger Date.
8. NAME OF SURVIVING CORPORATION. The name of the
surviving corporation will continue as "Sintec (Texas) Corp." unless
changed by the Sub.
9. CONVERSION. The mode of carrying the Merger into effect and
the manner and basis of converting the shares of Captex into shares of
Sintec are as follows:
9.1. The aggregate number of shares of Captex Common Stock issued
and outstanding on the Merger Date shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into
an aggregate of 888,050 shares of Sintec Common Stock (the "Sintec
Shares") adjusted by any increase for fractional shares and reduced by
any Dissenting Shares (defined below).
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The Sintec Shares will be issued pursuant to Section 4(2) of the
Securities Act of 1933, Regulation S of the Securities Act of 1933,
and/or Rule 506 of the General Rules and Regulations of the Securities
and Exchange Commission and will be restricted as to transferability
pursuant to Rule 144 thereof, and will bear substantially the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933 (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE ACT."
9.2. Upon completion of the Merger, there shall be 7,768,325 shares of
Sintec Common Stock issued and outstanding, subject to such
adjustments, held as follows: 888,050 common shares held by the former
shareholders of Captex and 6,880,275 common shares held by the other
shareholders of Sintec. The holders of the Sintec Shares agree to give
Sintec the first right of refusal to purchase the Sintec Shares. In the
event any holder of Sintec Shares decides to sell all or a portion of his
Sintec Shares (the ASelling Shares@) he will, before so disposing of the
Selling Shares, advise Sintec in writing (the ANotice@) of his intention
to sell and Sintec shall have the right for a period of 48 hours from
receipt of the Notice to purchase the Selling Shares. The purchase price
for the Selling Shares shall be the average of the closing price of the
Common Shares of Sintec for the 4 trading days prior to the date of the
Notice and Sintec shall purchase the same within 7 days of electing to
exercise its right of first refusal.
9.3. All outstanding Common or Preferred Stock of Captex and all
warrants, options or other rights to its Common or Preferred Stock shall
be retired and cancelled as of the Merger Date.
9.4. Each share of Captex Common Stock that is owned by Captex as
treasury stock shall, by virtue of the Merger and without any action on
the part of Captex, be retired and cancelled as of the Merger Date.
9.5. Each certificate evidencing ownership of shares of Sintec
Common Stock issued and outstanding on the Merger Date or held by
Sintec in its treasury shall continue to evidence ownership of the same
number of shares of Sintec Common Stock.
9.6. Sintec Common Stock shall be issued to the holders of Captex
Common Stock in exchange for their shares as provided by Captex.
9.7. The shares of Sintec Common Stock to be issued in exchange for
Captex Common Stock hereunder shall be proportionately reduced by any
shares owned by Captex shareholders who shall have timely objected to
the Merger (the "Dissenting Shares") in accordance with the provisions
of the General Corporation Law of Texas, as provided therein.
10. EXCHANGE OF CERTIFICATES. As promptly as practicable after
the Merger Date, each holder of an outstanding certificate or certificates
theretofore representing shares of Captex Common Stock (other than
certificates representing Dissenting Shares) shall surrender such
certificate(s) for cancellation to the party designated herein to handle
such exchange (the "Exchange Agent"), and shall receive in exchange a
certificate or certificates representing the number of full shares of Sintec
Common Stock into which the shares of Captex Common Stock the holder
represented by the certificate or certificates so surrendered shall have
been converted. Any exchange of fractional shares will be rounded up to
the next highest number of full shares.
11. UNEXCHANGED CERTIFICATES. Until surrendered, each
outstanding certificate that prior to the Merger Date represented Captex
Common Stock (other than certificates representing Dissenting Shares)
shall be deemed for all purposes, other than the payment of dividends or
other distributions, to evidence ownership of the number of shares of
Sintec Common Stock into which it was converted. No dividend or other
distribution payable to holders of Sintec Common Stock as of any date
subsequent to the Merger Date shall be paid to the holders of outstanding
certificates of Captex Common Stock; provided, however, that upon
surrender and exchange of such outstanding certificates (other than
certificates representing Dissenting Shares), there shall be paid to the
record holders of the certificates issued in exchange therefor the amount,
without interest thereon, of dividends and other distributions that would
have been payable subsequent to the Merger Date with respect to the
shares of Sintec Common Stock represented thereby.
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12. EFFECT OF THE MERGER. On the Merger Date, the separate
existence of Captex shall cease (except insofar as continued by statute),
and it shall be merged with and into the Sub. All the property, real,
personal, and mixed, of each of the Constituent Corporations, and all
debts due to either of them, shall be transferred to and vested in the Sub,
without further act or deed. The Sub shall thenceforth be responsible and
liable for all the liabilities and obligations, of each of the Constituent
Corporations, and any claim or judgment against either of the Constituent
Corporations may be enforced against the Sub.
13. REPRESENTATIONS AND WARRANTIES OF CAPTEX. Captex
represents and warrants that:
13.1. CORPORATE ORGANIZATION AND GOOD STANDING.
Captex is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas, and is qualified to do
business as a foreign corporation in each jurisdiction, if any, in which its
property or business requires such qualification.
13.2. REPORTING COMPANY STATUS. Captex has filed with the
Securities and Exchange Commission a registration statement on Form
10-SB which became effective pursuant to the Securities Exchange Act of
1934 and is a reporting issuer pursuant to Section12 (g) thereunder.
13.3. REPORTING COMPANY FILINGS. Captex has filed and is
current on all reports required to be filed by it pursuant to Section13 of
the Securities Exchange Act of 1934.
13.4. CAPITALIZATION. Captex's authorized capital stock consists
of 50,000,000 shares of Common Stock, $.001 par value, of which
5,000,000 shares are issued and outstanding.
13.5. ISSUED STOCK. All the outstanding shares of its Common
Stock are duly authorized and validly issued, fully paid and
non-assessable.
13.6. STOCK RIGHTS. There are no stock grants, options, rights,
warrants or other rights to purchase or obtain Captex Common Shares
issued or committed to be issued.
13.7. CORPORATE AUTHORITY. Captex has all requisite corporate
power and authority to own, operate and lease its properties, to carry on
its business as it is now being conducted and to execute, deliver, perform
and conclude the transactions contemplated by this agreement and all
other agreements and instruments related to this agreement.
13.8. SUBSIDIARIES. Captex has no subsidiaries.
13.9. LITIGATION. There is not, to the knowledge of Captex, any
pending, threatened, or existing litigation, bankruptcy, criminal, civil, or
regulatory proceeding or investigation, threatened or contemplated
against Captex or against any of its officers.
13.10. CONTRACTS. Captex is not a party to any material contract
not in the ordinary course of business that is to be performed in whole or
in part at or after the date of this agreement.
13.11.TAX RETURNS. All required tax returns for federal, state,
county, municipal, local, foreign and other taxes and assessments have
been properly prepared and filed by Captex for all years for which such
returns are due unless an extension for filing any such return has been
filed. Any and all federal, state, county, municipal, local, foreign and
other taxes and assessments, including any and all interest, penalties and
additions imposed with respect to such amounts have been paid or
provided for.
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13.12. NO VIOLATION. Consummation of the Merger will not
constitute or result in a breach or default under any provision of any
charter, bylaw, indenture, mortgage, lease, or agreement, or any order,
judgment, decree, law, or regulation to which any property of Captex is
subject or by which Captex is bound.
14. REPRESENTATIONS AND WARRANTIES OF SINTEC. Sintec
represents and warrants that:
14.1. CORPORATE ORGANIZATION AND GOOD STANDING. Sintec
is a corporation duly organized, validly existing, and in good standing
under the laws of Korea and is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification.
14.2. CAPITALIZATION. Sintec's authorized capital stock consists of
20,000,000 shares of Common Stock, Won 200 par value, of which
6,880,275 shares are issued and outstanding.
14.3. ISSUED STOCK. All the outstanding shares of its Common
Stock are duly authorized and validly issued, fully paid and
non-assessable.
14.4. CORPORATE AUTHORITY. Sintec has all requisite corporate
power and authority to own, operate and lease its properties, to carry on
its business as it is now being conducted and to execute, deliver, perform
and conclude the transactions contemplated by this Agreement and all
other agreements and instruments related to this agreement.
14.5. TITLE. Sintec has good and marketable title to all the real
property and good and valid title to all other property included in its
most recent financial statements. The properties of Sintec are not subject
to any mortgage, encumbrance, or lien of any kind.
14.6. NO VIOLATION. Consummation of the Merger will not
constitute or result in a breach or default under any provision of any
charter, bylaw, indenture, mortgage, lease, or agreement, or any order,
judgment, decree, law, or regulation to which any property of Sintec or
the Sub is subject or by which Sintec or the Sub is bound.
15. CONDUCT OF CAPTEX PENDING THE MERGER DATE. Captex
covenants that between the date of this Agreement and the Merger Date:
15.1. No change will be made in Captex's Certificate of Incorporation
or bylaws.
15.2 Captex will not make any change in its authorized or issued
capital stock, declare or pay any dividend or other distribution or issue,
encumber, purchase, or otherwise acquire any of its capital stock other
than as provided herein.
15.3. Captex will use its best efforts to maintain and preserve its
business organization, employee relationships, and goodwill intact, and
will not enter into any material commitment except in the ordinary course
of business.
16. CONDUCT OF SINTEC PENDING THE MERGER DATE. Sintec
covenants that between the date of this Agreement and the Merger Date:
16.1. No change will be made in the Sintec's Articles of incorporation
or bylaws.
16.2. Sintec will use its best efforts to maintain and preserve its
business organization, employee relationships, and goodwill intact, and
will not enter into any material commitment except in the ordinary course
of business.
17. CONDITIONS PRECEDENT TO OBLIGATION OF CAPTEX.
Captex's obligation to consummate the Merger shall be subject to
fulfillment on or before the Merger Date of each of the following
conditions, unless waived in writing by Captex:
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17.1.SINTEC'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Sintec set forth herein shall be true and
correct at the Merger Date as though made at and as of that date, except
as affected by transactions contemplated hereby.
17.2. SINTEC AND THE SUB'S COVENANTS. Sintec and the Sub
shall have performed all covenants required by this agreement to be
performed by them on or before the Merger Date.
17.3. APPROVAL. This agreement shall have been approved by Sintec
and the Sub in such manner as is required by law including all
appropriate action by directors and, if required, by shareholders.
18. CONDITIONS PRECEDENT TO OBLIGATION OF THE SUB AND
SINTEC. Sintec and the Sub's obligation to consummate the Merger shall
be subject to fulfilment on or before the Merger Date of each of the
following conditions, unless waived in writing by Sintec:
18.1. CAPTEX'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Captex set forth herein shall be true
and correct at the Merger Date as though made at and as of that date,
except as affected by transactions contemplated hereby.
18.2. CAPTEX'S COVENANTS. Captex shall have performed all
covenants required by this agreement to be performed by it on or before
the Merger Date.
18.3. APPROVAL. This Agreement shall have been approved by
Captex in such manner as is required by law including all appropriate
action by directors and, if required, by shareholders.
19. ACCESS. From the date hereof to the Merger Date, Sintec, Captex
and the Sub shall provide each other with such information and permit
each other's officers and representatives such access to its properties and
books and records as the other may from time to time reasonably request.
If the Merger is not consummated, all documents received in connection
with this agreement shall be returned to the party furnishing such
documents, and all information so received shall be treated as
confidential.
20. CLOSING.
20.1. The transfers and deliveries to be made pursuant to this
agreement (the "Closing") shall be made by and take place at the offices
of the Exchange Agent or other location designated by the Constituent
Corporations without requiring the meeting of the parties hereof. All
proceedings to be taken and all documents to be executed at the Closing
shall be deemed to have been taken, delivered and executed
simultaneously, and no proceeding shall be deemed taken nor documents
deemed executed or delivered until all have been taken, delivered and
executed.
20.2. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission required by this agreement or
any signature required thereon may be used in lieu of an original writing
or transmission or signature for any and all purposes for which the
original could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission or original
signature.
20.3. At the Closing, Captex shall deliver to the Exchange Agent in
satisfactory form, if not already delivered to Sintec:
(i) A list of the holders of record of the shares of Sintec Common
Stock being exchanged, with an itemization of the number of shares held
by each, the address of each holder, and the aggregate number of shares
of Captex Common Stock to be issued to each holder;
(ii) Evidence of the execution and adoption of this Agreement in
such manner as is required by law including all appropriate action by
directors and, if required, by shareholders;
(iii) Certified copies of the resolutions of the board of directors of
Captex authorizing the execution of this agreement and the consummation
of the Merger;
(iv) Any document as may be specified herein or required to satisfy
the conditions, representations and warranties enumerated elsewhere
herein; and
(v) The shares certificates for the outstanding Common Stock of
Captex to be exchanged hereunder or, where any such certificate is not
delivered, an affidavit of lost certificate or other reason for
non-delivery.
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20.4. At the Closing, Sintec shall deliver to the Exchange Agent in
satisfactory form, if not already delivered to Captex:
(i) A list of its shareholders of record;
(ii) Evidence of the execution and adoption of this Agreement in
such manner as is required by law including all appropriate action by
directors and, if required, by shareholders;
(iii) Certified copies of the resolutions of the board of directors of
Sintec authorizing the execution of this agreement and the consummation
of the Merger;
(iv) Any document as may be specified herein or required to satisfy
the conditions, representations and warranties enumerated elsewhere
herein;
(v) the share certificates of Sintec (the "Sintec Certificates") to be
delivered to the shareholders of Captex hereunder, in proper names and
amounts, as instructed by the Exchange Agent, and bearing legends, if
any, required and appropriate under applicable securities laws; and
(vi) $100,000US (or shares of Sintec equivalent to that amount) to
Penn Capital Corp. or its nominee.
20.5 RELEASE OF CONSIDERATION. Upon filing of the Articles of
Merger and Certificate of Merger, the Exchange Agent is expressly
authorized to:
(i) deliver the Captex Certificates to Sintec;
(ii) deliver the Sintec Certificates to the Captex Shareholders; and
(iii) deliver $100,000US or its stock equivalent to Penn Capital
Corp.
21.ASSUMPTION OF REPORTING OBLIGAGTIONS. Upon effectiveness
of the Merger, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission (the
'commission'), Sintec will elect to become the successor issuer
to Captex for reporting purposes under the Securities Exchange
Act of 1934.
22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Constituent Corporations set out
herein shall survive the Merger Date.
23. ARBITRATION.
23.1. SCOPE. The parties hereby agree that any and all claims (except
only for requests for injunctive or other equitable relief) whether
existing now, in the past or in the future as to which the parties or any
affiliates may be adverse parties, and whether arising out of this
agreement or from any other cause, will be resolved by arbitration before
the American Arbitration Association within the District of Columbia.
23.2. CONSENT TO JURISDICTION, SITUS AND JUDGMENT. The
parties hereby irrevocably consent to the jurisdiction of the American
Arbitration Association and the situs of the arbitration (and any requests
for injunctive or other equitable relief) within the District of Columbia.
Any award in arbitration may be entered in any domestic or foreign court
having jurisdiction over the enforcement of such awards.
23.3. APPLICABLE LAW. The law applicable to the arbitration and
this agreement shall be that of the State of Texas, determined without
regard to its provisions which would otherwise apply to a question of
conflict of laws.
23.4. DISCLOSURE AND DISCOVERY. The arbitrator may, in its
discretion, allow the parties to make reasonable disclosure and discovery
in regard to any matters which are the subject of the arbitration and to
compel compliance with such disclosure and discovery order. The
arbitrator may order the parties to comply with all or any of the
disclosure and discovery provisions of the Federal Rules of Civil
Procedure, as they then exist, as may be modified by the arbitrator
consistent with the desire to simplify the conduct and minimize the
expense of the arbitration.
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23.5. RULES OF LAW. Regardless of any practices of arbitration to
the contrary, the arbitrator will apply the rules of contract and other law
of the jurisdiction whose law applies to the arbitration so that the
decision of the arbitrator will be, as much as possible, the same as if the
dispute had been determined by a court of competent jurisdiction.
23.6. FINALITY AND FEES. Any award or decision by the American
Arbitration Association shall be final, binding and non-appealable except
as to errors of law or the failure of the arbitrator to adhere to the
arbitration provisions contained in this agreement. Each party to the
arbitration shall pay its own costs and counsel fees except as specifically
provided otherwise in this agreement.
23.7. MEASURE OF DAMAGES. In any adverse action, the parties
shall restrict themselves to claims for compensatory damages and\or
securities issued or to be issued and no claims shall be made by any party
or affiliate for lost profits, punitive or multiple damages.
23.8. COVENANT NOT TO SUE. The parties covenant that under no
conditions will any party or any affiliate file any action against the other
(except only requests for injunctive or other equitable relief) in any
forum other than before the American Arbitration Association, and the
parties agree that any such action, if filed, shall be dismissed upon
application and shall be referred for arbitration hereunder with costs and
attorney's fees to the prevailing party.
23.9. INTENTION. It is the intention of the parties and their
affiliates that all disputes of any nature between them, whenever arising,
whether in regard to this Agreement or any other matter, from whatever
cause, based on whatever law, rule or regulation, whether statutory or
common law, and however characterized, be decided by arbitration as
provided herein and that no party or affiliate be required to litigate in
any other forum any disputes or other 0matters except for requests for
injunctive or equitable relief. This Agreement shall be interpreted in
conformance with this stated intent of the parties and their affiliates.
23.10. SURVIVAL. The provisions for arbitration contained herein
shall survive the termination of this agreement for any reason.3
24. ASSUMPTION OF REPORTING OBLIGAGTIONS. Upon effectiveness of the
Merger, pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Commission, Sintec will elect to become the successor issuer to Capstra for
reporting purposes under the Securities Exchange Act of 1934.
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25. GENERAL PROVISIONS.
25.1. FURTHER ASSURANCES. From time to time, each party will
execute such additional instruments and take such actions as may be
reasonably required to carry out the intent and purposes of this
agreement.
25.2. WAIVER. Any failure on the part of either party hereto to
comply with any of its obligations, agreements, or conditions hereunder
may be waived in writing by the party to whom such compliance is owed.
25.3. BROKERS. Each party agrees to indemnify and hold harmless
the other party against any fee, loss, or expense arising out of claims by
brokers or finders employed or alleged to have been employed by the
indemnifying party.
25.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered in
person or sent by prepaid first-class certified mail, return receipt
requested, or recognized commercial courier service, as follows:
If to Captex, to: c/o Maitland & Company
700 625 Howe Street
Vancouver BC Canada
If to Sintec and the Sub , to: 103-608 Buchon - Technopark
Samjung Dong, Ojung-Ky,
Buchon, Kyonggi, Korea
25. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
26. ASSIGNMENT. This Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by either party of its rights under
this agreement without the written consent of the other party shall be
void.
27. COUNTERPARTS. This agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument. Signatures sent by facsimile transmission shall be
deemed to be evidence of the original execution thereof.
28. EXCHANGE AGENT AND CLOSING DATE. The Exchange Agent
shall be Maitland & Company, Vancouver BC.. The Closing shall take
place upon the fulfilment by each party of all the conditions of Closing
required herein, but not later than 15 days following execution of this
Agreement unless extended by mutual consent of the parties.
29. REVIEW OF AGREEMENT. Each party acknowledges that it has
had time to review this Agreement and, as desired, consult with counsel.
In the interpretation of this agreement, no adverse presumption shall be
made against any party on the basis that it has prepared, or participated
in the preparation of, this Agreement.
30. SCHEDULES. All schedules attached hereto, if any, shall be
acknowledged by each party by signature or initials thereon.
31. EFFECTIVE DATE. This effective date of this agreement shall be
January, 24, 2001.
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
BETWEEN CAPTEX CAPITAL, INC, SINTEC CO. LTD. AND SINTEC
(TEXAS) CORP.
IN WITNESS WHEREOF, the parties have executed this Agreement.
CAPTEX CAPITAL, INC.
By: /s/ John Mackay /s/
-------------------------------
JOHN MACKAY, President
SINTEC CO. LTD.
By: /s/ Woon Yong Kim /s/
-------------------------------
WOON YONG (Joseph) KIM, President
SINTEC (TEXAS) CORP.
By: / s/Woon Yong Kim/s/
-------------------------------
WOON YONG (Joseph) KIM, President
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