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 13, 2001
Date of Report
(Date of Earliest Event Reported)
MERIDIAN CO. LTD
(formerly known as By George Holding Corp.)
__________________________
(Name of Small Business Issuer)
Republic of Korea 0-30257 Not Applicable
________________________ ___________ ______________________
(State or Other Jurisdiction Commission File Number I.R.S. Employer
Incorporation or Organization) Number Identification
3F Medison Venture Tower
997-4 Daechi-Dong,
Kangnam-Ku, Seoul,
Republic of Korea.
Zip Code 135-280
_________________________________________________________
(Address of Principal Executive Offices including Zip Code)
Tel No.: 82-22-194-3340 Fax No.: 82-22-194-3333
_______________________
(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 5,000 Won per share
(Title of Class)
Page 1
INFORMATION TO BE INCLUDED IN THE REPORT
Convention
In this Form 8K all references to "Korea" herein 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 Meridian Co. Ltd. par value 5000 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 references 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 31, 2001, which was 1264.6 Won 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 February
8, 2001, the noon buying rate was 1265.66 Won 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 Rate High Low
December 31 Period 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 February 6, 2001, Meridian Co. Ltd. (the
"Company"), a Korean corporation, acquired all the outstanding shares
of common stock of By George Holding, Corp. ("By George"), a
Georgia corporation, from the shareholders thereof in an exchange of an
aggregate of 68,142 shares of common stock of the Company and other
consideration of payments of certain fees and expenses. (the
"Acquisition"). Immediately following the Acquisition, ABR Meridian
(Georgia) Inc. ("Subco"), a Georgia corporation and a wholly-owned
subsidiary of the Company merged with By George (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 By George and its shareholders on February 6,
2001. The Acquisition was effective on February 9, 2001. The Merger
was approved by unanimous consent of the respective Board of
Directors of Subco and the Company on February 9, 2001. The Merger
was effective on February 12, 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 By George for reporting purposes under the
Securities Exchange Act of 1934, as amended (the "1934 Act") and
elects to report under the 1934 Act effective February 12, 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 567,853 shares of common stock, par value
5,000 Won per share, issued and outstanding prior to the Acquisition,
and 635,995 shares issued and outstanding following the Acquisition.
By George had 100 shares of common stock no par value issued and
outstanding prior and after the Acquisition.
It is anticipated that the Company will at the next meeting of its
shareholders, scheduled for February 15, 2001 seek approval from its
shareholders to forward split all of its outstanding common shares on
the basis of 10 new shares of common stock of the Company for each
issued share of common stock of the Company resulting in a total of
6,359,950 shares of common shares in the capital stock of the Company
being issued and outstanding.
Page 3
The following table sets forth certain information regarding the
beneficial ownership of the common stock of the Company as of
February 13, 2001, after taking into effect the Acquisition 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:
NAME AND ADDRESS OF AMOUNT STOCK PERCENTAGE OF
BENEFICIAL OWNER AND BENEFICIALLY CLASS
POSITION WITH THE OWNED
COMPANY
Myeong Hyeon-seong 51,244 common shares 8.15%
#997-4 Daechi-dong
Gangnam-gu, Seoul, Korea
President, CEO and Director
Park Sang-ryul 3,500 common shares 0.6%
687-6 Sangoan-ri,
Hongchun-eup, Hongchun-
kun, Kangwon-do, Korea
Director
Lee Su-rang 8,007 common shares 1.3%
#997-4 Daechi-dong
Gangnam-gu,
Seoul, Korea
Director, Manager of
Research and Development
Lee Doo-Hyun nil nil
#997-4 Daechi-dong
Gangnam-gu,
Seoul, Korea
Diector
Hee-yo Park 3,303 common shares 0.51%
#974-4 Daechi-dong
Gangnam-gu, Seoul, Korea
Officer
EZ Digital Co. Ltd 83,333 common shares 13.1%
7th Floor, Bitbil #1327-33
Seocho-dong Seocho-gu,
Seoul, Korea
Medison Co. Ltd. 125,824 common shares 19.82%
Yangdeokwon-ri 114, Nam-
myeon, Hongcheon-gun
Gangweon-do Province
Korea
All Officers and Directors 66,054 common shares 10.4%
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 By George and the Company.
In evaluating the Acquisition, By George 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. By
George determined that the consideration for the Merger was
reasonable. In evaluating By George, the Company placed a primary
emphasis on By George's status as a reporting company under Section
12(g) of the 1934 Act, as amended, and By George'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 November 9, 1994 for
the purpose of developing and manufacturing medical devices,
particularly in the Oriental and Natural medicine fields.
In July 1998, the Company completed the acquisition of Hippo
Medical Devices Land Co. Ltd. ("Hippo"), a Korean company that was
engaged in selling medical equipment. Major products that were sold by
Hippo included the Company's Life Functioning Diagnosing System and
IR-2000, electrocardiograph equipment, automatic sphygmomanometer
and body fat level measuring devices. These products were used in
various hospitals and medical clinics locally as well as
internationally. The acquisition of Hippo was a synergistic effect
whereby the sales and distribution offices of Hippo were consolidated
with the research and manufacturing divisions of the Company.
Management believed the acquisition would increase revenues, create a
stabilized sales network in Korea, and contribute to the international
competitiveness of the Company. The acquisition was accomplished by
the Company acquiring all of the issued and outstanding shares of
Hippo for consideration of the issuance of 84,000 shares of the
Company.
On August 30, 1999, the Company transferred certain assets and
liabilities relating to two product lines that it was carrying on behalf
of other companies, to Medicore Co. Ltd., a Korean company. These
product lines included the Urea Breath Test Device ("UBT") and Infra-
Red Imaging System ("IR-2000"). The transfer resulted in the release
of certain liabilities in the amount of $1,284,956. The transfer was
completed on December 31, 1999.
On November 3, 2000 the Company received clearance from the
Food and Drug Administration of the United States Public Health
Service (the "FDA") to market two of its products: the Meridian-II and
Meridian-Plus as Class 2 products in the United States.
Business of the Company
The Company is engaged in the research, development,
manufacturing and sales of medical devices for the Oriental and
Natural/Alternative Medicine markets.
The Company's products cross all the boundaries of health care
disciplines and are useful in the practice of medicine, osteopathy,
homeopathy, naturopathy, acupuncture and other complementary
disciplines. If stress or imbalance is detected in a patient, the
Company's products can identify the meridian imbalances in a person's
body and assist the practitioner in recommending a course of treatment
or therapy to alleviate the stress or to restore balance to the body's
meridian systems.
The Company currently sells four different product lines,
including Meridian, ABR-2000, LAPEX-2000 and Hemoscope Blood
Analyzer, to healthcare practitioners throughout the world. The
Meridian lines of products are computer assisted assessment and
diagnostic devices. The ABR-2000 is a stress assessment and
diagnostic device that identifies the areas of the human body that are
experiencing trauma due to the effects of stress. The LAPEX-2000 is a
semiconductor laser therapeutic device. The Hemoscope consists of a
high-powered microscope that assesses a person's blood for the
possible detection of causes of functional diseases.
Page 5
The Company's major customers are public health centers,
Oriental medicine hospitals and clinics as well as Western hospitals
and clinics. The Company is currently selling its products in Korea,
China, United States, South America and Southeast Asia.
The Company has expanded and gained an international presence
through a recent strategic acquisition. Meridian intends to expand its
sales efforts internationally through establishing additional branch
offices and sales and distribution agencies.
The Company's goal is to become a leading supplier of medical
devices to the Oriental and Natural/Alternative Medicine markets. The
Company expects to accomplish this goal by:
- - - focusing on growing market applications;
- - - maintaining technological advances in product development;
- - - developing products aimed at new markets; and
- - - establishing strategic relationships with key suppliers and
customers.
Offices of the Company
The Company's facilities are as follows:
Korean Corporate Office: 3rd Floor, Medison Venture Tower
997-4 Daechi-dong,
Kangnam-gu, Seoul,
Korea, 135-280
Tel No.: 82-22-194-3300
Fax No.: 82-22-194-3333
The Company has a 2-year renewable lease on its corporate office
space. The lease expires on July 31, 2001. The corporate office space
consists of 584.6 square meters.
Korean Factory: 687-6, Sangoan-ri, Hogchon-yup,
Hongchon-gun, Kangwon Province
Korea, 250-804
Tel No.: 82-33-434-8141
Fax No.: 82-33-434-8144
The Company owns the factory building and land. The building
consists of 1,188 square meters.
Employees of the Company
As of February 1, 2001, the Company has 39 employees; 7
employees in administration and finance; 12 employees in sales and
marketing; 11 employees in manufacturing, operations and engineering;
and 8 employees in research and development.
Assembly, Installation and Maintenance
The Company's products are assembled from purchased and
manufactured components at its factory in Kangwon Province, Korea.
Page 6
Virtually all of the components making up the Company's products
are readily available from outside domestic suppliers. Some of the
components have been designed by the Company and/or are custom
manufactured to its specifications. The Company tests and inspects
incoming parts and components. While certain components used in the
manufacturing of the Company's products are supplied by a single
vendor to obtain volume economies, secondary sources are readily
available in the event of delays in shipment.
Products of the Company
MERIDIAN LINE OF PRODUCTS
The Meridian line of products includes the Meridian-II, Meridian
Plus and Meridian Compact. These products are computer assisted
assessment and diagnostic devices, which are based on the analysis
technique, pioneered by Dr. Reinhold Voll, a German medical doctor.
Termed Electro-Acupuncture according to Voll ("E.A.V."), the
assessment process incorporates elements of Western science and
principles of traditional Chinese medicine. Practitioners use electrical,
magnetic, sonic, acoustic, microwave and infrared devices to screen for
or treat health conditions by detecting imbalances in the body's energy
field and then correcting them. E.A.V. works by measuring the
meridian lines on the hands and feet that correspond to the different
organs in the body. The purpose of E.A.V. is to establish a functional
testing of organs and tissues by measuring their respective acupuncture
points. The conductance (capacity to let the stimulation current
through) of an organ or a tissue is measured in order to discover
energetically unbalanced points knowing that the energetic equilibrium
of the human organism is altered, among other things, by the negative
ambiance influence exercised by some medications, stress, poisons,
insecticides, viruses, bacteria, harmful electromagnetic fields and
inflammations as well as certain aliments.
MERIDIAN-II
The Meridian-II is a computer assisted assessment and diagnostic
device that establishes a functional testing of organs and tissues by
measuring their respective acupuncture points and delivers a complete
computer drafted evaluation for analysis. If stress or imbalance is
detected in a patient, the Meridian-II can identify the meridian
imbalances in a person's body and also assist the practitioner in
recommending a course of treatment or therapy to alleviate the stress or
to restore balance to the body's meridian systems. This provides the
health practitioner with the ability to detect a potential health problem
and to treat it early before the problem manifests itself. The device
also allows the practitioner to monitor the progress of corrective
therapies.
The device is in the structure of a cart that includes a touch
screen monitor, computer, printer, a set of medical instruments and
supplemental parts including hand and foot electrodes.
Aspects MERIDIAN-II Description
Features -Point finder (ARC)
-MS WINDOWS 98
-Better curative effect (UPM)
-Easy operation (TOUCH SCREEN)
-Single body design
Structure -Main body: CART in exclusive use
-PC
-CPU: P-233MHz, MEMORY: 32MB, HDD: 6.4GB
-OS: WINDOWS 98, CD ROM: 40X, VGA AGP 4MB
-15 inch Colour Monitor (Speaker inside), HP 930 C
Inkjet Printer
-A set of medical instruments
-PB-Electrode: DR/R/L/ST/TS
-Cable Set
-Band: S.L. 2ea
-Parts
-Hand electrode (BAZ 2ea, CMP 1ea): 3 ea
-Foot electrodes (left, right, foot stool): 1 set
-Upper limited frequency of cable: 1set
-ARC PB: 1ea
-OPERATIONAL MANUAL: 1sheet
-MULTI TAP: 1 set
-MOUSE PAD: 1 ea
Page 7
MERIDIAN-PLUS
Similar to the Meridian-II, the Meridian-Plus is a computer
assisted assessment and diagnostic device, however, it comes in a
different design and offers a computer as an option.
Aspects MERIDIAN-PLUS Description
Features -Point finder (ARC)
-MS WINDOWS 98
-Better curative effect (UPM)
-Popular design
Structure -Main Body: CART in exclusive use
-PC: (Optional)
-CPU: PIII-667MHz, MEMORY: 128MB, HDD: 10.2GB
-OS: WINDOWS 98, CD ROM: 40X, VGA AGP 4MB
-MODEM: 56K FAX MODEM
-15 inch Color Monitor (Speaker inside), HP 930 C
Inkjet Printer
-A set of medical instruments
-PB-Electrode: DR/R/L/ST/TS
-Cable Set
-Band: S.L. each 2ea
-Parts
-Hand electrode (BAZ 2ea, CMP 1ea): 3ea
-Foot electrodes (left, right, footstool): 1set
-Upper limited frequency of cable: 1set
-ARC PB: 1ea
-OPERATIONAL MANUAL: 1sheet
-MULTI TAP: 1set
-MOUSE PAD: 1ea
MERIDIAN-COMPACT
The Meridian-Compact is a diagnostic device in the form of a
portable unit. It does not come equipped with a computer and ancillary
equipment.
Page 8
ABR-2000
The ABR-2000 is a whole body screening stress assessment and
diagnostic device that identifies the areas of the human body which are
experiencing trauma due to the effects of stress. The device traces
autonomic responsive conditions of the different types of stress-related
diseases.
The device sends a low-frequency impulse throughout the human
body and detects minute physical changes by measuring
electrophysiological responses of the autonomic nervous system.
Irregular responses may indicate areas where organs or parts of the
body are deteriorating due to stress. The patient stress analysis report
is automatically produced in 5 minutes, allowing the health practitioner
to quickly make recommendations to the patient.
The device comes equipped with a one-touch assessment and
diagnostic system and a printer.
Aspects ABR-2000 Description
Features -To diagnose the differentiation of pathological conditions
in accordance with the eight principal syndromes
-Easy to operate
-One-touch automatic system allows the beginner to
operate it easily
-A medical assistant is able to measure it for the
medical specialist
-Very Positive Response from the Patients
-Right after measurement, the results print out in real
time
-Automatic measurement in 5 minutes
-No stress, non-invasive, and comfortable diagnosis
-Print paper is reusable - available for chart storage
and patient's chart
Structure -Body: Single body
-A set of electrodes: Copper electrodes (a set of head,
hand, and foot electrodes)
-Plotter: Magnetic
-Pen: Red, blue, black
-Print paper: 300 papers
LAPEX-2000
The LAPEX-2000 is a semiconductor laser therapeutic device,
which applies a laser to the foci of the human body without damaging
the skin tissue and in turn, promotes healing of any damaged skin
tissue. The use of laser therapy facilities, among other things, increase
of blood flow, vitalization of cells and increase of protein synthesis
which can assist in the treatment of soft tissue damage, acute and
chronic joint diseases, chronic pain and improvement of circulation.
The LAPEX-2000 comes equipped with an advanced digital
semiconductor laser.
Page 9
Aspect LAPEX-2000 Description
Features -Advanced digital semiconductor laser, solid curative
effect, semi-permanent
-No other supplies are necessary
-Non-invasive laser
-Practical for small spaces, easy to move
Structure -Single Laser Probe (PW: Pulsed Wave): Trigger Point
Monitoring Function and Applying Laser to Trigger Point
-Multi Laser Probe (CW: Continuous Wave): To address the
largely affected parts
-Non-LIB/LIB Laser Probe (Intra/vascular Laser Irradiation
of Blood): Non-invasive/Invasive venous blood, easy to
operate, solid curative effect
HEMOSCOPE - BLOOD ANALYZER
The Hemoscope is a digital-based blood analysis system. The
system works by analyzing one drop of blood for conditions of red and
white blood cells, clearness and nutritive conditions, as well as
development of the immune bodies & diseases. It utilizes a powerful
microscope using phase differences and dark vision to assess a
person's blood for the possible detection of the causes of functional
diseases.
The Hemoscope comes equipped with microscope and ancillary
components, a computer, monitor, modem and printer.
Aspects Hemoscope Description
Features -It is a PC image analysis system where one drop of blood
is analysed. It shows conditions of red and white blood
cells, clearness and nutritive conditions of the blood,
development of the immune bodies & diseases, etc.
-Comparing images is not available (Select a monitor and
a microscope)
-Clinical data and normal blood analysis
-Easy to convert database
-Image edition and storage functions are available
-Image printing function
-Slider fixed
Structure -Main body
-Microscope
-Head: 3 eyes (3-way system)
-Eye lens: DIN ACH 10X(2PCS)
-Object lens: DIN ACH 10X, Iris 100X(OIL,
Achromatic)
-Stage: Angle of view (129 X 130mm), Mechanical
stage (Moving area: 35-75mm)
-Condenser: Dark Field Condenser (100x, Oil)
-Focus control: Macro-micro control coaxial
-Illuminator: 220V, 100W halogen lamp (Attached &
detached, Lamp Housing), luminous intensity
controller
-Body: Aluminium die casting
-PC
-CPU: PIII-800MHz
-MEMORY: 256MB
-HDD: 30GB
-OS: WINDOWS 98
-CCD ROM: 40X
-MODEM: 56K FAX MODEM
-17 inch Color Monitor (Speaker inside)
-HP 930 C Inkjet Printer
-S/W (Image Grabber Included)
-Microscope
-Head: 3 Eyes (3way system)
Page 10
Other Products of the Company
EMT-2000
The EMT-2000 is a medical device that provides a pulse type
electromagnetic current to the human body, which in turn, increases the
calcium density of cartilage cells in bone fractures. This device speeds
up the formation of callus in the bone as well as increases the oxygen
supply to the affected area. The use of the device speeds up the healing
process both in the area of bone regeneration but also in the
regeneration of damage soft tissue injuries.
The development of the EMT-2000 has been completed. The
product is in the process of being tested and reviewed by Korean
government health agencies, similar to the FDA in the U.S. The
Company anticipates that it will launch the EMT-2000 in the 4th quarter
of 2001.
Research and Development
It is the goal of the Company to continually make enhancements
and improvements to its products.
Proprietary Technology
The Company has 6 registered patents 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.
The Company's registered patents are as follows:
Technology Description Registration Number Date of Registration
Insulation device of meridian 144993 April-98
remedial apparatus
Diagnostic device using the 130791 November-97
electric features of the human
body
Electrode ring device for home 236277 September-99
treatment
Electrode clamp device for home 236276 September-99
treatment
Automatic detection of meridians 210233 April-99
by probe device
Medicament energy information 171667 October-98
transferring
System
Page 11
The Company relies on a combination of patent and trade secrets
to establish and protect the proprietary rights in its products. In order
to protect and support current and future development of its products,
the Company expects that it will continue to make application for
patents at the Korea Industrial Property Office.
The Company believes that the ownership of patents will be a
significant factor in contributing to 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 applications.
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 and expensive and the outcome of this litigation 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.
Regulatory Restrictions
Use of the Company's products internationally is subject to
various government regulatory requirements on a country-by-country
basis. Europe, the U.S., Canada, Australia, Japan and China each have
their own product certification systems. As a result, this has slowed
the process for the Company to expand in the world market. Even if
there are no technical difficulties, its products are directly involved
with human life, and require that the Company obtain government
approval in clinical safety of the products through various analysis and
testing procedures.
As noted below, the Meridian-II and the Meridian-Plus have
received FDA approval to be sold as Class 2 products in the U.S. The
table below includes all the regions in the world where Meridian's
products have been approved for sale.
Region Products Approved
Korea Meridian-II, Meridian Plus, Meridian Compact,
ABR-2000, LAPEX-2000, Hemoscope
China Meridian-II, ABR-2000
U.S.A. Meridian-II, Meridian Plus
South America Meridian-II, Meridian Plus, Meridian Compact,
ABR-2000, LAPEX-2000, Hemoscope
Southeast Asia, except Meridian-II, Meridian Plus, Meridian Compact,
China and Japan ABR-2000, LAPEX-2000, Hemoscope
Markets
Industry Background
The medical instruments industry is characterized by low-volume
production of various medical equipment and apparatus. It contains
components from a diverse range of industries such as electronics,
advanced materials and information technology and includes the fields
of physics, chemistry, biology and medicine. In many countries,
government support is provided in the medical instruments industry as a
priority industry. This industry tends to be technology-intensive, low
energy consuming and non-polluting.
Page 12
Industry Trends
Throughout the world, the medicine environment is changing. In
Korea, for example, the popularity of Oriental medicine is rising
rapidly. The importance of alternative medicine has been acknowledged
in Europe, North America and in Asia, and accordingly, these markets
have been expanding. As a result, the interest in Oriental medicine is
growing worldwide with the demand for Oriental medical instruments
increasing more than for general medical instruments. Therefore, as an
Oriental medical instruments manufacturer, the Company is well
positioned in an expanding market.
The Oriental and Western medical instrument markets are
classifieds as follows:
Field/Area Korea Asia West
Oriental Medicine Oriental Medicine Chinese Medicine) Oriental Medicine
(Chinese) (China) (USA)
(Hospitals & Clinics) Oriental Medicine
(Japan)
Alternative Oriental Medicine Oriental Medicine Natural Medicine
Medicine (Clinics) (Japan) (USA/Latin
Veda & Iso- America) Iso-
therapy (India) therapy (Europe/
Latin America)
Size of Industry
Korean Market
According to information obtained from the World Health
Organization in 1997 that was prepared by the Korean Institute of
Oriental Medicine ("Korean Institute"), the size of the Korean medical
instrument industry was estimated to be almost $1 billion in 2000. The
domestic medical instrument market has sustained an average annual
growth rate of approximately 12% for the past several years.
World Market
The size of the world medical instrument industry was estimated
to be $43 billion in 1999 and $45 billion in 2000, according to the
Korean Institute. Its annual average growth rate has been averaging
approximately 2.5%. Oriental medical instruments and biorhythm
recorders have approximately $5.4 billion and $4.6 billion of market
share in 2000, translating to approximately 12% and 10% of the total
world medical instrument market, respectively. It is expected that in
five years the total medical instrument market will be approximately
$51.4 billion with Oriental medical instruments and biorhythm recorder
industries having approximately 14% and 11% of the worldwide market,
respectively.
Page 13
Sales and Marketing
Target Markets
The Company's targets Western hospitals and clinics, Oriental
medicine hospitals and clinics and public health centers. The
Company's major customers are public health centers, health
examination centers, Oriental medicine hospitals and clinics and
Western hospitals and clinics.
Target Markets By Products
Section MERIDIAN ABR-2000 LAPEX-2000 Hemoscope
Oriental medicine Yes Yes Yes Yes
hospital
Oriental medicine Yes Yes Yes Yes
clinic
Internal medicine Yes Yes Yes Yes
Home doctoring Yes Yes Yes Yes
Rehabilitation medicine Yes Yes Yes Yes
Public health center Yes Yes
Examination center Yes Yes
Neurosurgery Yes Yes
Neuropsychiatry Yes Yes
Pain clinic Yes Yes
Western & Oriental Yes Yes Yes Yes
Medicine hospital
and clinic
Domestic Market
There are over 100 Oriental medicine hospitals and about 6,600
Oriental medicine clinics in Korea, among which about one third of
both are located in Seoul. The number of Oriental medicine hospitals
and clinics by region as of 1999 is as follows:
Division North South Busan, Daegu, Gwangiu, Daejeon, Gyeonggi, Total
Seoul Seoul Gyeon- Gyeon- Jeolla Chungc- Gangwon
gnam gbuk
Hospital 14 18 14 22 18 7 14 107
Clinic 1,015 1,375 1,150 838 501 651 1,059 6,589
Total 1,029 1,393 1,164 860 519 658 1,073 6,696
There are about 770 general hospitals and 17,000 general clinics
are in Korea, among which about one third of both are located in Seoul.
The number of general hospitals and clinics by region as of 1999 is as
follows:
Division North South Busan, Daegu, Gwangiu, Daejeon, Gyeonggi, Total
Seoul Seoul Gyeon- Gyeon- Jeolla Chungc- Gangwon
gnam gbuk
General
Hospital 72 110 169 79 117 75 150 772
Clinic 2,242 3,317 2,711 1,715 1,899 1,755 3,404 17,043
Total 2,314 3,427 2,880 1,794 2,016 1,830 3,554 17,815
Page 14
Before the national economic crisis of Korea, the number of
oriental hospitals increased significantly, but since 1998, the number
has remained about the same. The number of clinics has increased by
approximately 6.5% annually.
International Market
According to the Korean Institute, the number of Oriental Medical
doctors and practitioners, paramedical practitioners, Oriental hospitals
and clinics worldwide is as follow:
World Traditional Medicine (OMD/PM)
Country Medical Practitioners Hospital/ Other
Specialty Clinic Information
Korea OM (Korea) OMD 9,229 98/6,146
China OM (China) OMD 260,495 41/40/2,441
OMD/MD 8,393 (Hosp)
Vietnam OM (Vietnam) OMD 1,384 43/59/206 OM Practice
MD 5,500 (Hosp)
OM (Acupuncture) PM 20,000
Hong Kong OM (China) OMD 1,890 7,000 massage
therapy
practitioners
Taiwan OM (China) OMD 3,000 86 / 1,768
Singapore OM (China) OMD 1,200 30 / 1,000
Malaysia OM (China) OMD 2,100
Japan OM (Japan) MD 7,941 OM Practice
OM (Acupuncture) PM 131,685
OM (Massage) PM 95,365
AM (Osteopath) PM 26,221
USA Chiropractic PM 50,000
OM (China) PM 7,200
Naturopath PM 1,800
Germany Heilpraktitioner PM 50,000
India OM (Ayur Veda) PM 223,000 1,349 /8,300
Homeopath PM 145,000
Pakistan OM (Ayur Veda) PM 34,258
Homeopath PM 19,903
Notes:
OMD: Oriental Medical Doctor
PM: Paramedical Practitioner
MD: Medical Doctor
Page 15
Sales and Marketing Strategy
Domestic
The Company's domestic sales efforts focuses on the Oriental and
western hospitals as well as the Oriental and western clinics
throughout Korea. The Company has 2 sales branches in Korea and has
established a network of 5 sales and distribution agencies throughout
the country.
Besides using sales agents, the Company sells its products through
direct sales by its sales teams located at its branch offices. The
Company's direct sales force uses a team approach, which enables it to
achieve better control of the sales process and respond more rapidly to
customer needs.
Regional Market
The Company has a branch office in Taiwan and has an
established sales agent in Japan. To increase its exposure in China, the
Company is in the process of opening a branch office in Beijing, which
is expected to be completed in the 1st quarter of 2001. The Company
intends to build an agency network around its Beijing office in order to
rapidly expand the sales of its products in China. It expects to
accomplish this by subdividing China into 4 zones: Beijing, Shanghai,
Guangzhou and Sachuan.
In the Southeast Asian market, the Company is using a local-
oriented marketing strategy that is focused on the health care market of
Chinese residents. In Japan, the Company intends to target Western
doctors who are actively engaged in practicing Oriental medicine.
International Market
The Company has sold products in Iran, Africa, South America
and the United States through an international network of sales and
distribution agents. The Company is currently involved in expanding its
presence in the U.S. and is establishing relationships with several
medical instrument distributors. Furthermore, the Company is in the
process of opening a sales office in the United States, which is
expected to be completed in the first quarter of 2001.
Since 2000, the Company has been establishing new sales agents
in Central and Latin America. The Company plans to subdivide the
market into Central America-Caribbean, Latin America and Brazil in
terms of regions.
The Company is currently evaluating potential strategic
relationships with a number of companies to expand its presence in
Europe.
The list of domestic and overseas branch and agency offices is as
follows.
Company Location Company Location
Keumyang Medical Gangbuk, Seoul MACL Taiwan
True World Gangnam, Seoul SENSA Japan
Gwangju Meridian Jeola-do, Korea ZOMAR Iran
Daegu Meridian Gyeongsangbuk-do,
Daegu, Korea MEDISON DO BRAZIL Brazil
Busan Meridian Gyeongsangnam-do,
Busan, Korea ISOMED North Africa
Jejung Medical Gyeonggi-do,
Gangwon-do, Korea China Branch Beijing, China
Segang Medical Chungcheong-do, Korea
Page 16
Marketing Programs
To support the sales organization, the Company intends, when
resources are available, to devote significant resources in the building
and launching of a series of marketing campaigns both domestically and
abroad. The Company's marketing efforts will include a number of
programs, such as seminars, industry trade shows, mailings, analyst and
press tours, print and online advertising, and public relations. The
Company believes these marketing programs will result in increased
awareness of the Company's products.
The Company is currently marketing the Meridian line of products,
the ABR-2000, the LAPEX-2000 and the Hemoscope. The Company will
be marketing the EMT-2000 in the U.S. once it receives authorization
from the FDA, expected to be by the 3rd quarter of 2001.
Customer Support
The Company believes that high quality customer service and
support is critical to the successful marketing and sale of its products.
The Company intends to develop a comprehensive service and support
organization to manage customer accounts including the creation of a
customer satisfaction center. The Company plans to establish
additional service and support sites internationally commensurate with
customer needs.
Competition
Each of the markets in which the Company sells or intends to sell
its products is fragmented and highly competitive. Many of the
Company's competitors have greater financial, marketing, distribution
and technical resources than the Company. The Company believes that
ease of use, pricing, the uniqueness of the products, the significant
knowledge it has about Oriental medicine and practices as well as its
patented technology, are positive factors that enhance its competitive
position. While the success of the Company will be dependant on its
ability to compete with these competitors on both a quality and cost-
effective basis, there is no assurance that the Company will be more
successful than its competitors.
Current Status of Competition by Product
Meridian Line
The main competitors to the Meridian line include BioMeridian
International, Inc. ("BioMeridian") of the U.S. and Pitterling
Electronic GmbH ("Pitterling"), VEGA Grieshaber KG ("Vega") and
Mora Med-tronik GmbH ("Mora") from Germany. Several other small
medical instrument companies exist, however, they sell units that are
less advanced than these companies just mentioned and are not
considered to pose a competitive threat to the Company. The Company's
products have a modern design and are regarded as suitable instruments
for modern hospitals. They are just about the only manufacturer in the
Orient that develops medical instruments at the crossroads of Oriental
Medicine and Western Medicine. Although small-scaled competitors
exist in Taiwan and Japan, they didn't establish a market base in their
own domestic markets.
Description MERIDIAN-II Product of Product of Mora
Pitterling Med-tronik GmbH
Electronic GmbH
Price ($US) $12,500 $30,000 $30,000
Functions Medical diagnosis Medical diagnosis Medical diagnosis
& treatment & treatment & treatment
Pharmaceutical
Testing
Repair rate 1% 3%
Product
difference: Automatic analysis Basic diagnosis Basic diagnosis
of measurements & treatment & treatment
Automatic
combination of
waves for treatment
Personal computer
with software
Page 17
ABR-2000
Vega is the only company that is considered to offer a competitive
product to the ABR-2000. Competition is expected to increase for this
type of product in the future.
Description ABR-2000 Product of VEGA
Grieshaber KG
Price ($US) $12,500 $12,500
Functions Diagnosis of Diagnosis of
neural functions neural function
Maintenance cost None None
Repair rate 2% 5%
Auto measurement & analysis
Examination time 8 minutes 12 minutes
Detailed diagnosis using Possible Impossible
micro current
LAPEX-2000
Competitors in Korea and China primarily use gas lasers in this
type of product. There is no direct competitor for the Company's
semiconductor laser. However, in the European Union and Japan, there
are a number of companies producing laser therapy products, and they
can be potential competitors if they improve the functionality of their
products.
Description LAPEX-2000 Products of
Dae Shin Enterprise Ltd.,
Shin Woo Medical Ltd.
Price ($US) $6,700 $5,000
Functions Improving blood Improving blood
circulation circulation
Improving immune Improving immune
function function
Maintenance fee $0 $300
Repair rate 0% 2%
Replacement parts Semi-permanent Replacement of
digital semiconductor gas laser every year
Application Non-invasive, no pain Invasive, pain
Supplies expense None Yes
HEMOSCOPE
There are companies producing products similar to the
Hemoscope, however unlike the Company, they use a standard
microscope and lens.
Page 18
Description Hemoscope Products of
Dae Shin
Enterprise Ltd.
Shin Woo Medical Ltd.
Price ($US) $10,000 8,400
Functions Analysis of blood Analysis of blood
corpuscle corpuscle
Maintenance cost None None
Repair rate 0% 2%
Product Features High powered Standard microscope
microscope with and lens
high resolution lens
Analysis Software
Current Status of Competition by Region
China
Products similar to Meridian were developed by Japanese
manufacturers and were introduced into China years ago. However,
these companies failed in successfully launching its products in China.
Although gas lasers have been developed and sold, they do not match
the functionality of The Company's semiconductor laser. The
possibility for a corresponding model to the Company's products to be
developed is considered to be very low at this time.
Europe
Pitterling, Vega and Mora use E.A.V. and have a strong presence
in EU and Eastern Europe, in addition to approximately 20 small
medical instrument companies. In the laser area, about 10 small
companies compete with each other; therefore, future competition is
expected to be more severe in this region.
Central and Latin America
While German companies such as Pitterling and Vega were the
first to enter these markets, The Company executed an aggressive
marketing strategy beginning in 1998 and secured a larger market share.
It is forecasted that BioMeridian will also advance into Central and
Latin America by entering into Mexico and Puerto Rico. Therefore, the
competition in this region is expected to be more severe in the future.
USA
BioMeridian has dominated small E.A.V. companies in the U.S.
for the past 3 years and has succeeded in establishing agencies in
Germany, the United Kingdom and Australia. While BioMeridian is
considered to be the largest competitor to the Company in the U.S.,
there exist a number of smaller competitors in this region as well. End
user price of its E.A.V. product is $18,500 in the U.S., which is less
competitive to the Company's products in terms of price. Vega and
Mora distributes its products in the U.S. via Canada.
Overall Competitive Advantage
- - - The Company believes that its products have advanced functions
and are of a higher quality than imported products.
- - - The Company has 6 registered patents on it technology.
- - - The Company's core technologies are focussed on diagnosis and
medical treatment using the meridian system. Its advanced
technologies have been highly regarded in Korea and Southeast
Asia.
- - - The Company offers advanced and leading edge Oriental medicine
technologies in Korea.
- - - Since the Company is part of the Korean electronic industry,
which is considered one of the best in the world it will continue
to have access to leading technologies as they develop in Korea.
Page 19
Corporate Investments
The Company has equity investments in the following companies:
Name/Country Business Equity ownership
Meridian Asia Company Sales of medical equipment. 51%
Co. Ltd
Hong Kong
Terasource Venture Venture capital 0.16%
Capital Co. Ltd.
Seoul, Korea
True World Co. Ltd. Sales of medical equipment 47.96%
Seoul, Korea
Chunee Soft. Co. Ltd. Software development and sales 50%
Pusan, Korea
Meridian Pusan Co. Ltd. Sales of medical equipment 60%
Pusan, Korea
Medicapital Co. Ltd. Venture capital 0.15%
Seoul, Korea
(c) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the year ended December 31, 1999, the Company achieved
sales revenues of $5,469,962 that resulted in an operating loss of
$355,982 compared with sales revenues of $3,716,471 that resulted in
an operating gain of $60,242 for the year ended December 31, 1998.
The operating loss was due primarily to the increase of expenditure of
funds for administrative, research and development and general
expenses. The Company spent $911,471 on research and development in
the year ended December 31, 1999 as compared to $491,308 for the
previous year. This increase was due to the efforts expended by the
Company in bringing its products on stream. Total selling, general and
administrative expenses increased from $1,856,494 in the year ended
December 31, 1998 to $2,525,812 for the year ended December 31,
1999 due mainly to the increase in research and development and
salaries. In the same period, working capital increased from a deficit
of $452,6794 in 1999 to $2,169,483 in 2000. As of the year ended
December 31, 1999, the Company had an accumulated deficit of
$543,982.
For the 6 months ending June 30, 2000 the Company's sales
decreased to $1,593,078 with cost of goods sold decreasing to
$769,657. This was due to the country's unstable economy caused by
the currency devaluation, volatile stock markets and slowdown in
growth in the Asia-Pacific region. Research and development expenses
amounted to $267,607. The amount spent on employees wages and
salaries were $242,664, a decrease of $80,000 for the same period of
the previous year.
Page 20
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity have historically been cash
from operations, capital working lines of credit and debt and equity
financing. The Company has generated revenues for the last three years
but operations of the Company require significant amounts of cash for
operations. Therefore the Company has been forced to rely on
profitable operations and continue to seek additional debt and/ or
equity financing opportunities.
On May 7, 1998 the Company issued bonds in the aggregate amount
of $717,617. The bonds bore interest at 7% per annum and were
convertible up to including April 7, 1999 into common shares in the
capital stock of the Company at the rate of $26.91 per share (the
"Series I Bonds") 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. On May 7, 1999 the Company issued
bonds in the aggregate amount of $807,320. The bonds bear interest at
12% per annum and are convertible up to and including April 6, 2001
into common shares in the capital stock of the Company at the rate of
$22.43 per share (the "Series II Bonds"). The Series I Bonds were fully
redeemed by the Company in 2000. In August 1999 the Company raised
$180,600 by way of the sale of 17,720 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 shares
of the Company. In December 1999 the Company converted the Series II
Bonds into 53,853 shares of the Company
In August 1999 the Company transferred current assets in the
amount of $894,990 and $389,966 in goodwill to Medicore Co. Ltd, a
Korean company, for consideration of the assumption of certain
liabilities of the Company in the amount of $1,284,956.
For the year ended December 31, 1999 the Company had long-term
debt obligations with various lending institutions totaling $2,356,642
as compared to $2,042,766 for the year ended December 31, 1998. The
maturity dates of the long term debt is $286,901 in the year 2000,
$538,152 in the year 2001, $313,000 in the year 2002, $375,941 in the
year 2003 and $525,835 in the year 2004 and thereafter. The Company's
land and buildings were pledged as collateral for the Company's
capital working lines of credit with the Chohung Bank of Korea.
Since the Company currently does not generate enough revenue
from operations, the Company will have to continue to rely upon equity
and debt financing during such period. The Company anticipates that it
will continue with its ongoing research and development in order to
complete products under development. 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.
For the six months ending June 30, 2000, cash flow from
operations did not satisfy all of the Company's operational
requirements and cash commitments. The Company had sales for the six
months of $1,593,078 with a gross profit of $850,522 and an Operating
Loss of $27,101. At the end of the six month period, the Company had
working capital of $2,353,650. In the month of March 2000, the
Company raised by way of the sale of its common stock a total of
$672,900.
Subsequent Events
The Company received FDA approval on November 3, 2000 to
market two of its products in the United States.
Product development has been completed for the EMT-2000. The
product is current in the process of being reviewed and tested by the
Korean regulatory agencies. The Company anticipates that it will be
ready to launch the product in the 4th quarter of 2001.
The Company sold 41,000 shares of 47,000 shares owned in
Medicapital at a price of 5,000 won per share to net $173,643.
Page 21
The Company sold its investment in Terasource Venture Capital
through the KOSDAQ market, a total of 21,134 shares, to net $222,386.
Plan of Operation
The Company's plan of operation for the year ending December
31, 2001 anticipates the bringing to market the EMT-2000 and the
LAPEX-2000, and accordingly, increasing its employees in Korea by 7
employees. Furthermore, the Company intends to open branch offices in
Beijing and the U.S. and expects to hire 7 employees for each of these
offices.
The Company will require additional cash to implement its
business strategies, including cash for (i) payment of increased
operating expenses,(ii) expand its sales market abroad, (iii) continued
research and development and (iv) 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.
Sales are budgeted to increase from the start of the year as a
result of receipt by the Company of FDA approval of two of the
Company's products and the EMT-2000 coming on stream. The Company
now believes the Company has reached a sustainable revenue level and
is poised to achieve profitable operating results during the year 2001.
As production is being ramped up and with new products coming
on stream it is expected that overhead expenses will continue to rise.
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 Company's future operations and liquidity will be affected by
the ability of the Company to continue to sell and market its products,
compete with existing competitors and satisfy the needs of current and
future customers to the extent that profitability will be maintained.
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, and 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 form 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.
Page 22
(d) 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 upon which an
evaluation of the Company's current business and prospects can be
based, each of which must be considered in light of the risks, expenses
and problems frequently encountered by all companies in the early
stages of development.
The Company's additional funding requirements
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. Furthermore, the Company's
limited operating history leads the Company to believe that period-to-
period comparisons of the Company's 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. To the extent that
revenues do not grow at anticipated rates, the Company's business,
results of operations and financial condition would be materially and
adversely affected.
The Company anticipates that losses may continue
The Company anticipates incurring losses for the near 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. 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.
Page 23
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 currently depends on a limited number of suppliers
to manufacture certain key components and these manufactures
may not be able to satisfy its requirements that could cause the
Company's revenues to decline
The Company currently buys certain key components 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.
The Company's business model and acceptance of the Company's
products is unproven in the developing market in which the Company
operates
No assurance can be given that the Company's business model it can
sustain revenue growth or be profitable. The market for the Company's
products is 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
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, 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.
The Company's ability to attract additional financing as needed may
affect its future success
The Company may 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 favorable to it.
Page 24
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 percentage of ownership of the Company's current
stockholders to be reduced, stockholders to experience additional
dilution, and such securities may have rights, preferences or privileges
senior to those of the holders of its common stock.
The Company could incur significant amounts of indebtedness to
finance its operations. Any such indebtedness could contain covenants that
would restrict the Company's operations. There can be no assurance that
additional financing, if and when needed, will be available on terms
favorable 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.
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.
Page 25
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.
The possible issuance of additional shares may impact the value of the
Company stock
The Company is authorized to issue up to 20,000,000 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.
Market Acceptance
The viability of the Company is dependent upon the market
acceptance of its current and future products. There is no assurance
that these will attain a level of market acceptance that will allow for
continuation and growth of its 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 Labor 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 with which the
Company has no employment agreements. Loss of the services of any of
this management team and 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 involve a commitment of substantial amounts
of the Company's capital 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.
Page 26
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
The Company's products requirements may represent a small
portion of the total production of the suppliers that manufacture the
Company's components. 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
Currently a significant amount of the Company's revenue comes
from the Meridian product line that is central to the Company's growth
strategy. This line of products encounter competition and is price
sensitive. While the Company is currently developing new products,
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's operating expenses are anticipated to be relatively
fixed and therefore 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 ability 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; and
- - - increased integration with other functions.
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 designed
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, achieve design wins 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 27
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. Litigations may be necessary in the
future to enforce its 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 its business, operating results and financial condition
regardless of the outcome of the litigation.
The Company has acquired ownership 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 is 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, may be 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 a
portionof its revenues. International business activities are subject
to a number of risks, each of which could impose unexpected costs of the
Company that would have an adverse 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 28
The Company anticipates that it will have to continue to depend on
manufacturers' representatives agents, and distributors to generate
substantial amounts of its revenues
The Company anticipates that it will have to continue to rely on
manufacturers' representatives, agents, 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 being 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 operations
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
In the aggregate, ownership of the Company's shares by
management represents a large proportion of the Company's issued and
outstanding shares of common stock. These stockholders, if acting
together, may 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 U.S
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").
The sale or transfer of the Company's common stock by shareholders in
the U.S. 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) and 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.
Page 29
It is likely that shares of the Company's common stock, assuming
a market were to develop in the U.S. 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 U.S. Moreover, the Company's shares may only be sold
or transferred by the Company's shareholders in those jurisdictions in
the U.S. 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. In the event that 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.
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 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.
Page 30
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 that 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:
- - - 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;
- - - 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
labor 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 neighboring 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.
Page 31
Ownership of shares may be subject to certain restrictions under
Korean law
Prior to making an investment in 10% or more of the outstanding
shares of a Korean company, foreign investors are generally required
under Foreign Investment Promotion Law of Korea to submit a report to
a Korean bank pursuant to a delegation by the Ministry of Commerce,
Industry and Energy of Korea. Failure to comply with this reporting
requirement may result in the imposition of criminal sanctions.
Subsequent sales by such investors of its shares in such company will
also require a prior report to such bank.
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
such dividends outside Korea, such 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 amounts 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 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 for
the repatriation of interest, dividends or sales proceeds arising fro
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 U.S. 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.
Such 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.
Page 32
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 fort he issuance of the Company's shares.
Furthermore, prior to making an investment to 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. Subsequent sale by such
investor of the shares will also require a prior report to such 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, such dividends will be declared in Won. In order for the
Company to pay such dividends outside Korea, such 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 33
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 U.S. - Korea Tax Treaty, the maximum rate of
withholding on dividends paid to United States residents eligible for
treaty benefits and beneficial owners of such dividend generally is 15%
(10% if the recipient of the dividends is a U.S. 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 unless the non-
resident holder is eligible for the benefits of an applicable tax treaty
exempting such capital tax. In addition, the capital gains realized from
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 U.S.- 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 holder will
generally be subject to Korean taxation on capital gains realized on a
sale of the Company's shares at the rate of the lesser of 27.5% of the
gains or 11% of the gross sales proceeds.
Application of the U.S. - Korea Tax Treaty
Under the U.S. - 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.
Further, the reduced Korean withholding tax rate on dividends and
capital gains under the U.S. -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.
Page 34
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.
Further, 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 such 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.
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.
Page 35
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 U.S. 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 U.S. 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 a 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 our voting
stock; or
- - - persons whose "functional currency" is not the U.S. 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 "U.S. 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.
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 U.S. dollar value of the distribution
determined at the spot Won/U.S. 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
U.S. dollars will be treated as U.S. 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 U.S. financial service
providers, "financial services income." The rules governing the foreign
tax credit are complex.
Page 36
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 U.S. dollar value of the amount that a holder realizes and
his tax basis, determined in U.S. dollars, in his shares. The gain or
loss generally will be U.S. source gain or loss for foreign tax credit
purposes. Capital gain of a non-corporate U.S. 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 U.S. 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 you convert the payment into U.S. dollars
generally will be treated as U.S. source ordinary income or loss for
foreign tax credit purposes.
(e) DESCRIPTION OF PROPERTY
The Company currently has the following offices:
Korean Corporate Office: 3F Medison Venture Tower
997-4 Daechi-Dong,
Kangnam-Ku, Seoul,
Republic of Korea, 135-280
Tel No.: 82-22-194-3300
Fax No.: 82-22-194-3333
Korean Factory: 687-6, Sangoan-ri, Hogchon-yup,
Hongchon-gun, Kangwon Province
Korea, 250-804
Tel No.: 82-33-434-8141
Fax No.: 82-33-434-8144
(f) DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS AND KEY EMPLOYEES.
The following persons are the directors, executive officers,
promoters, control persons and key employees of the Company:
Name and Age Term of Office Office(s)
Myeong, Hyeon-seong (39) 1994 to present President, CEO and
# 997-4 Daechi-dong Director
Gangnam-gu, Seoul,
Korea
Park, Sang-yeul (40) 1995 to present Director
# 997-4 Daechi-dong
Gangnam-gu, Seoul,
Korea
Lee, Soo-rang (37) 1994 to present Director
# 997-4 Daechi-dong
Gangnam-gu, Seoul,
Korea
Doo-hyun Lee (37) 1999 to present Director
# 997-4 Daechi-dong
Gangnam-gu, Seoul,
Korea
Park, Hee-yo (33) 1995 to present Secretary and
# 997-4 Daechi-dong Treasurer
Gangnam-gu, Seoul,
Korea
Page 37
Hyeon-seong Myeong, President, CEO and Director
Mr. Myeong graduated from the Seoul National University in 1982
with a degree in Electronic Engineering. From 1983 to 1988 he was
Section Chief of Research for the Kumsung Company. From 1989 to
1990 he was Section Chief of Development for Serin Electronics Co.
From 1990 to 1991 Mr. Myeong was section Chief of Research of
Medison Co. Ltd. a large Korean company. From 1992 to 1993 he was
the Section Chief of the International Cooperation and Vice President
of a Joint Corporation with Russia. Since 1994 Mr. Myeong has been
the CEO and President of the Company.
Sang-yeul Park, Director of Manufacturing Affairs
Mr. Park graduated from the Konkuk University, Korea with a
degree in Electronic Engineering. From 1986 to 1992 he was the
manager of Technology for the Dony Yang Precision Company and
between 1992 and 1995 a senior researcher for Medison Co. Ltd. He
has been a director of the Company since 1995 and was appointed the
Director of Manufacturing Affairs for the Company in 2000.
Soo-rang Lee, Director, Manager of Research and Development
Mr. Lee graduated in 1990 from Seoul National University, Korea
with a degree in Electronic Engineering. Mr Lee was a senior
researcher from 1990 to 1994 for Medison Co. Ltd. He has been a
Manager of Research and Development for the Company since 1994.
Doo-hyun Lee, Director
Mr. Lee graduated in 1986 from the WonKwang University, Korea
with a degree in Computer Science. He was the Chief Manager of
Management for Medison Co. Ltd. from 1988 to 1999. In 1999 he joined
the Company as an outside Director.
Hee-yo Park, General Manager
Mr. Park was from December 1992 to February 1995 head of the
planning department in Chon Bang Corp. Since February 1995 he has
been general manager of the Company. He is also Secretary and
Treasurer for the Company.
Page 38
(g) SUMMARY AND COMPENSATION TABLE ANNUAL COMPENSATION
Name and Principal Year Salary Bonus($) Other All Other
Position Annual Compensation
Compensation($)
Myeong, Hyeon-seong,
Director, President, CEO 1998 34,000 Nil Nil Nil
1999 49,000 Nil Nil Nil
2000 49,000 Nil Nil Nil
Park, Sang-Yeaul
Director of Manufactur- 1998 Nil Nil Nil Nil
ing Affiars 1999 Nil Nil Nil Nil
2000 42,000 Nil Nil Nil
Lee, Soo-rang,
Manager of Research and 1998 30,000 Nil Nil Nil
Development 1999 43,000 Nil Nil Nil
2000 42,000 Nil Nil Nil
Lee, Don-hyun
Director 1998 Nil Nil Nil Nil
1999 Nil Nil Nil Nil
2000 Nil Nil Nil Nil
* Mr. Park received an interest free loan from the Company in the
amount of $8,500 which he fully paid off in March 2000.
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 with employees and officers.
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 and their 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.
Page 39
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 issuance under 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.
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 its 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 has 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 only 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.
Page 40
On February 23, 2000, the Company granted stock options to its
executive officers, directors and 16 employees to purchase 19,874 of
its common shares. Stock options granted to its executive officers and
directors will vest on February 23, 2003 and are exercisable until
February 22, 2007.
(h) CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no known relationship between any of the Directors and
Officers of the Company with major clients or provider of essential
products and technology.
In the event conflicts do arise the Company will attempt to
resolve any such conflicts of interest in favor of the Company. The
officers and directors of the Company are accountable to the Company
and its shareholders as fiduciaries, which requires that such officers
and directors exercise good faith in 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 Sold Number and Class of Consideration Received
Securities by Company
June 16, 1998 84,000 common shares $377,160
October 1, 1999 200,000 common shares $898,000
December 29, 1999* 53,853 common shares $808,333
March 2, 2000 30,000 common shares $672,900
* arising from conversion of Series II Bond.
All of the 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.
Page 41
(l) DESCRIPTION OF SECURITIES OF THE COMPANY
The Company is authorized to issue 2,000,000 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 8, 2001 and taking into
account the Merger, there were 635,995 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 therefore; 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.
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.
Page 42
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.
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.
Page 43
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.
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 12, 2001,
pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
SEC, the Company became the successor issuer to By George for
reporting purposes under the 1934 Act and elects to report under the
1934 Act effective February 12, 2001.
Foreign Private Issuer
As a foreign private issuer the Company will be exempt from the
rules under the 1934 Act, 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 1934 Act.
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. As a
Foreign private issuer shareholders of the Company will not receive the
same level of information on a periodic basis if the Company was a
U.S. reporting issuer.
ITEM 6. RESIGNATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The officers and directors of By George, 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.
Page 46
ITEM 7. FINANCIAL STATEMENTS.
(a) Index to Financial Statements.
Accountants' Review Report for the 6 months ended June 30, 2000
and the year ended December 31, 1999 F-1-F-3
Auditors Report for the year ended December 31, 1998 F-4-F-5
Balance Sheet as at June 30, 2000 December 31, 1999
and December 31, 1998 F-6-F-7
Statement of Income for the six months ended June 30, 2000
and for the years ended December 31, 1999 and 1998 F-8
Statement of Shareholders' Equity Deficit as at December 31, 1999
and December 31, 1998 F-9
Statement of Cash Flows for the six months ended June 30, 2000
and for the years ended December 31 1999 and
December 31, 1998 F-10-F-11
Notes to Financial Statements as of June 30, 2000
December 31, 1999 and December 31, 1998 F-12-F-27
(b) Index to Exhibits.
Copies of the following documents are filed with this Form 8K as
exhibits:
Exhibits Page
1. Certificate of Business Registration E-1
2. Articles of Incorporation (English translation only) E-2-E-8
3. Proposed new Articles of Incorporation E-9-E-20
4. Merger Agreement between the Company and By George
Capital, Inc. E-21-E-29
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.
MERIDIAN CO. LTD
(Registrant)
Dated: February 12th, 2001 By: /s/ "Hyeon-Seong Myeong" /s/
Hyeon-Seong Myeong
Chief Executive Officer
Page 47
MERIDIAN Co., Ltd.
(A Korean developing stage company)
FINANCIAL STATEMENTS
For the six months ended June 30, 2000
and the year ended December 31, 1999
with
REPORT OF INDEPENDENT ACCOUNTANTS
AND
FINANCIAL STATEMENTS
For the year ended December 31, 1998
with
REPORT OF INDEPENDENT AUDITORS
SHINHAN ACCOUNTING CORPORATION
F-1
SHINHAN ACCOUNTING CORPORATION
ACCOUNTANTS' REVIEW REPORT TO THE DITECTORS OF:
MERIDIAN Co., Ltd.
(A Korean development stage company)
We have reviewed the accompanying balance sheets of Meridian Co.,
Ltd. ("the Company") as of June 30, 2000, December 31, 1999 and the
related statements of income, accumulated deficits and cash flows for
the period 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 financial statement for the year ended December 31, 1999 were
audited by SamDuk Accounting Corporation (a Korean auditing
company) under the auditing standards generally accepted in Korean
which is not importantly different from the auditing standard generally
accepted in United State of America. It's audit opinion as of February
9, 2000 was qualified opinion.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statement, the Company's negative working
capital and deficit raises substantial doubt about its ability to continue
as a going concern. The financial statements not contain any
adjustments that might result from the outcome of this uncertainty.
F-2
- continued -
ACCOUNTANTS' REVIEW REPORT, continued
/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-3
SHINHAN ACCOUNTING CORPORATION
AUDITORS' REPORT TO THE DITECTORS OF:
MERIDIAN Co., Ltd.
(A Korean development stage company)
We have audited the accompanying balance sheet of Meridian Co.,
Ltd.("the Company") as of December 31, 1998 and the related
statement of income, accumulated deficit and cash flows for the year
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.
However, the evidence available to us was limited because we did not
observed physical inventory count. There was no other satisfactory
audit procedures that we could adopt to confirm that inventories were
properly recorded.
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.
F-4
AUDITORS' REPORT, continued
Except for any adjustments that might have found to be necessary had
we been able to obtain sufficient evidence concerning inventories, in
our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Meridian Co,. Ltd. as of
December 31, 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.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statement, the Company's negative working
capital and deficit raises substantial doubt about its ability to continue
as a going concern. The financial statements not contain any
adjustments that might result from the outcome of this uncertainty.
/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-5
MERIDIAN Co., Ltd.
(A Korean developing stage company)
BALANCE SHEET
As of June 30, 2000, December 31, 1999 and 1998
(in US dollars)
June 30, Year ended December 31,
-------- --------------------------
A S S E T S 2000 1999 1998
- - ---------------------------------- ------ --------- ---------
CURRENT ASSETS :
Cash and cash equivalents (Note 2c) $725,682 $1,405,728 $565,567
Marketable securities (Note 2d) 3,391 1,713 1,758
Accounts receivable - trade, net
(Note 2e,16) 2,382,198 1,931,499 1,112,552
Accounts receivable - other 6,291 6,624 81,542
Short-term loans-net (Note16) 382,176 68,313 15,566
Inventories (Notes 2f,4) 485,686 507,858 1,788,324
Accrued interest income 11,101 20,621 50,966
Advance payments and other 165,120 24,663 23,852
---------- ----------- ------------
Total Current Assets 4,161,645 3,967,019 3,640,127
---------- ----------- ------------
NON-CURRENT ASSETS :
Property, plant and equipment - net
Notes 2i,6,15) 1,291,149 1,260,616 1,362,684
Intangible assets - net (Note 2j) 66,189 79,271 518,509
Investment securities (Notes 2g,5) 821,862 418,382 502,332
Long-term and restricted bank
deposits (Note3) 134,571 75,700 376,875
Guarantee deposits 10,226 4,587 430,415
Long-term loans-net (Note 2h) 431,550 445,006 13,455
Deferred income tax assets
(Note 2b,12) 338,845 338,845 49,323
---------- ----------- ------------
Total Non-Current Assets 3,094,392 2,622,407 3,253,593
---------- ----------- ------------
TOTAL ASSETS $7,256,037 $6,589,426 $6,893,720
=========== ========== ============
(Continued)
F-6
MERIDIAN Co., Ltd.
(A Korean developing stage company)
BALANCE SHEET, CONTINUED
As of June 30, 2000, December 31, 1999 and 1998
June 30, December 31,
--------- ----------------------
LIABILITIES AND SHARESHOLDERS' EQUITY 2000 1999 1998
- - ------------------------------------- ----- ---------- ----------
CURRENT LIABILITIES :
Accounts payable - trade (Note16) $308,630 $571,897 1,403,261
Short-term borrowings (Note16) 1,013,515 457,031 440,308
Accounts payable - other (Note16) 102,379 249,446 808,123
Income taxes payable 67,301 125,153 2,762
Advance receipts from customers 30,882 5,777 113,941
Current portion of long-term debt
(Note 8) 354,178 89,702 870,984
Withholdings 191,556 123,335 334,951
Accrued expenses and other 26,453 175,195 118,475
---------- ----------- ----------
Total Current Liabilities 2,094,894 1,797,536 4,092,805
---------- ----------- ----------
LONG-TERM LIABILITIES :
Long-term borrowings (Note 7) 1,752,927 2,062,253 1,865,806
Convertible bonds (Note 8,9) - - -
Long-term accounting payable-other 127,327 127,327 -
Accrued severance indemnities-net
(Note 2k) 182,570 167,062 176,960
---------- ----------- ----------
Total Long-Term Liabilities 2,062,824 2,356,642 2,042,766
---------- ----------- ----------
Total Liabilities 4,157,718 4,154,178 6,135,571
---------- ----------- ----------
SHAREHOLDERS' EQUITY :
Capital stock
Common stock - par value 5,000 per share :
issued and outstanding 200 thousand shares,
284 thousand shares 538 thousand shares as of
December 31, 1997, 1998 and 1999 and 568
shares as of June 30, 2000 (Note 9) 2,546,883 2,412,330 1,273,771
Capital surplus :
Additional paid-in capital (Note 9) 1,105,113 566,900 -
Retained earnings :
Appropriated (Note 10) 257,302 235,027 81,629
Unappropriated (810,979) (779,009) (597,251)
---------- ----------- ----------
Total Shareholders' Equity 3,098,319 2,435,248 758,149
---------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $7,256,037 $6,589,426 $6,893,720
=========== =========== ==========
See accompanying Notes to Financial Statements
F-7
MERIDIAN Co., Ltd.
(A Korean developing stage company)
STATEMENT OF INCOME
For the six months ended June 30, 2000,
for the years ended December 31, 1999 and 1998
(in US dollars)
Six months Year ended
ended December 31,
June 30,
------------ -------------------
2000 1999 1998
--------- -------- ---------
SALES (Notes 2,16,17) $1,593,078 $5,469,962 $3,716,471
COST OF SALES 769,657 3,300,132 1,799,735
--------- -------- ---------
GROSS PROFIT 823,421 2,169,830 1,916,736
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 11) 850,522 2,525,812 1,856,494
--------- -------- ---------
OPERATING INCOME (LOSS) (27,101) (355,982) 60,242
--------- -------- ---------
OTHER INCOME :
Interest income 14,797 18,837 98,673
Gain on disposal of
investment securities - 1,221,485 -
Gain on disposal of
tangible assets - 22,300 -
Foreign exchange translation
gains (Note 2m) 523 15,723 4,736
Other 109,538 182,510 29,502
--------- -------- ---------
124,858 1,460,855 132,911
--------- -------- ---------
OTHER EXPENSES :
Interest expense 96,158 260,457 316,370
Donations 1,094 189,520 1,740
Foreign exchange & translation
losses (Note 2m) 301 7,236 5,647
Loss on disposal of tangible
assets 10 10,396 -
Loss from valuation of
inventories - 773,370 -
Loss on redemption of bonds - 33,438 -
Other 1,329 28,337 3,179
--------- -------- ---------
98,892 1,302,754 326,936
--------- -------- ---------
ORDINARY INCOME (LOSS) (1,135) (197,881) (133,783)
EXTRAORDINARY GAIN :
Cumulative effect of
accounting changes - - 63,942
Gain on exemption of debts - 15,434 -
EXTRAORDINARY LOSSES : - - -
--------- -------- ---------
LOSS BEFORE INCOME TAXES (1,135) (182,447) (69,841)
INCOME TAX EXPENSE (BENEFIT)
(Note 2b,12) 8,560 (154,088) 33,169
--------- -------- ---------
NET INCOME (LOSS) ($9,695) ($28,359) ($103,010)
======== =========== ==========
BASIC INCOME (LOSS) PER
SHARE (Note 2l,13) ($0.02) ($0.08) ($0.66)
======== =========== ========
See accompanying Notes to Financial Statements
F-8
MERIDIAN Co., Ltd
(A developing stage company)
Statement of Shareholders' Equity (Deficit)
For the six months ended June 30, 2000,
for the years ended December 31, 1999 and 1998
(in US Dollars)
Common Stock Capital in Retained Accumulated
Issued Excess of Earnings Shareholders'
Shares Amount Par Value (Deficit) Equity
(Deficit)
Balance at
January 1, 1998 200,000 $897,022 ($ 287,277) $ 484,410
Issuance of new shares 84,000 376,749 376,749
Net loss (103,010) (103,010)
-------- -------- --------- --------- ----------
Balance at
December 31, 1998 284,000 1,273,771 (515,622) 758,149
Issuance of new shares 200,000 897,022 897,022
Conversion of
convertible bonds 53,853 241,537 566,900 808,437
Net loss (28,359) (28,359)
-------- -------- -------- --------- ----------
Balance at
December 31, 1999 537,853 2,412,330 566,900 (543,982) 2,435,248
Issuance of new shares 30,000 134,553 538,213 672,766
Net loss (9,695) (9,695)
-------- -------- ---------- --------- ----------
Balance at June 30, 2000 567,853 $2,546,883 $1,105,113 ($553,677) $3,098,319
======== ========== ========== ========== ==========
See Accompanying Note to Financial Statements
F-9
MERIDIAN CO.,LTD.
(A Korean developing stage company)
STATEMENTS OF CASH FLOWS
For the Six months ended June 30, 2000,
for the years ended December 31, 1999 and 1998
(in US Dollars)
Six months Year ended
ended June 30, December 31,
--------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income(loss) ($9,695) ($28,360) ($103,010)
--------- ----------- ----------
Expenses not involving cash payments :
Depreciation and amortization 77,398 143,917 186,090
Provision for severance indemnities 52,127 82,384 280,167
Provision for doubtful other accounts - 8,802 -
Loss on disposition of tangible assets 10 10,396 1,392
Foreign currency translation loss - 890 -
Loss from valuation of inventories - 773,370 -
Loss on redemption of bonds - 33,438 -
Donations - 189,520 -
Other - 27,355 -
--------- ----------- ----------
Sub-total 129,535 1,270,072 467,649
--------- ----------- ----------
Income not involving cash receipts :
Cumulative effect of accounting changes - - 63,942
Foreign currency translation gain - 9,944 -
Gain on disposal and valuation of
investment securities - 1,221,485 -
Gain on disposal of tangible assets - 22,300 -
Gain on exemption of debts - 15,434 -
--------- ----------- ----------
Sub-total - 1,269,163 63,942
--------- ----------- ----------
Changes in assets and liabilities related to operating activities
Accounts receivable - trade (450,699) (818,695) (491,742)
Accounts receivable - other 333 74,918 (81,484)
Inventories 22,172 507,851 (1,312,466)
Accrued interest income 9,521 30,345 (31,072)
Advance payments and other current assets (140,456) (10,361) (6,409)
Deferred income tax assets (Note 17) - (154,088) 14,619
Accounts payable - trade (263,267) (831,364) 899,030
Accounts payable - other (147,067) (619,567) 699,345
Income taxes payable (57,851) (2,762) (11,440)
Advance receipts from customers 25,104 (126,105) 113,941
Withholdings (21,779) (153,236) 136,623
Accrued expenses and other
current liabilities (58,741) 92,063 103,699
Severance indemnity payments (36,619) (92,282) (33,236)
Long-term accounting payable-other - 127,327 -
Others - - 30,026
---------- ----------- ---------
Sub-total (1,119,349) (1,975,956) 29,434
---------- ----------- ---------
(999,509) (2,003,407) 330,131
---------- ----------- ---------
(Continued)
F-10
MERIDIAN CO.,LTD.
( A Korean developing stage company )
STATEMENTS OF CASH FLOWS, continued
For the Six months ended June 30, 2000,
for the years ended December 31, 1999 and 1998
(in US dollars)
Six months Year ended
ended June 30, December 31,
------------------------------
2000 1999 1998
-------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES :
Proceeds from disposal of
marketable securities $0 $45 $0
Proceeds from disposal of
investment securities - 1,474,704 -
Decrease in short-term loans-net - - 410,699
Decrease in long-term and
restricted bank deposits - 310,145 276,014
Decrease in long-term loans 13,455 15,815 8,095
Decrease in guarantee deposits 3,798 426,949 15,745
Proceeds from disposal of
property, plant and equipment 1,346 58,225 2,167
Proceeds from disposal of
intangible assets - 412,977 -
Acquisition of marketable securities (1,677) - (1,664)
Acquisition of property,
plant and equipment (96,205) (61,910) (545,582)
Acquisition of goodwill - - (645,439)
Acquisition of other
intangible assets - - -
Acquisition of investment securities (403,480) (169,269) (219,770)
Increase in short-term loans-net ($313,863) ($52,748) 0
Increase in long-term and
restricted bank deposits (58,872) (8,970) (101,956)
Increase in long-term loans - (636,886) (8,095)
Increase in guarantee deposits (9,437) (1,121) (413,292)
---------- ----------- ---------
(864,935) 1,767,956 (1,223,078)
---------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES :
Increase in short-term
borrowings-net 556,483 16,723 292,299
Increase in long-term
borrowings - 206,315 726,552
Increase in convertible bonds - - -
Issuance of common stock 672,766 897,022 376,749
Payment of short-term borrowings - - -
Payment of current portion
of long-term debt (22,426) (33,638) (67,277)
Payment of long-term borrowings (22,426) (9,867) (267,277)
---------- ----------- ---------
1,184,397 1,076,555 1,061,046
---------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (680,047) 841,104 168,099
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD 1,405,727 564,623 397,468
---------- ----------- ---------
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD ($680,047) $1,405,727 $565,567
========== =========== =========
See accompanying Notes to Financial Statements
F-11
MERIDIAN Co. Ltd.
(A Korean developing stage company)
NOTE TO FINANCIAL STATEMENTS
For the six months ended June 30, 2000
For the years ended December 31, 1999 and 1998
1. GENERAL
Meridian Co., Ltd. (the "Company") was incorporated in April 19,
1994 under the laws of the Republic of Korea ("Korea") and is
currently engaged in the manufacture of alternative medicine
equipment for sale in domestic and overseas markets. As of June 30,
2000, the Company's largest shareholder is Medison Co., Ltd.
("Medison") with a shareholding of 48.3% and the Company's
president is Hyeon-Seong Myeong.
The company has negative working capital and a deficit. The ability
for the Company to continue as concern is dependent upon it's
ability to obtain adequate financing to reach profitable levels of
operations. It is not possible to whether financing efforts will be
successful or if the Company will attain profitable levels of
operations
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the Company in the
preparation of the accompanying financial statements are
summarized as follows:
a. Estimates and Assumptions
The preparation of 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
b. Basis of Financial Statements
The Company maintains its statutory books of accounts in Korean
won and in accordance with Korean financial accounting standards
generally accepted in Korea. The accompanying financial
statements have been prepared on the basis of accounting principles
generally accepted in the United States of America ("U.S. GAAP").
These financial statements differ in certain respects from the
Korean statutory financial statements of the Company. The major
differences between the Korean statutory financial statements and
the accompanying financial statements as of and for the years ended
December 31, 1998 and 1999 and June 30, 2000 are described
below. Other differences were determined not to have a significant
effect on either the Company's net income or shareholders' equity.
F-12
b. Basis of Financial Statements, continued
(1) Deferred Income Taxes
Under previous Korean GAAP, the provision for income taxes was
determined based on the amount currently payable under the
Korean Corporation Income Tax Law. No deferred income taxes
were provided. However, effective January 1, 1999, Korean
GAAP was changed to require the recognition of deferred tax
assets and liabilities for the future tax consequences of operating
loss carry-forwards, tax credits and differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, in line with US GAAP.
Under US GAAP, deferred tax assets and liabilities are separated
into their current and non-current portions based on the
classification, the related asset or the related liability for
financial reporting purposes. Under revised Korean GAAP,
deferred tax assets and liabilities are presented on the balance
sheet as a single non-current net number.
The accompanying financial statements assumed to apply deferred
income taxes at first in 1998, and the cumulative effect of
accounting change was stated statements of income in 1998. And
the Company presents deferred taxes as a single non-current net
number on the balance sheet.
(2) Research and Development Costs (see Note 2)
As permitted under previous Korean GAAP, the Company began
deferring and amortizing research and development costs over five
years. In connection with a change in Korean GAAP, effective
January 1, 1999, the Company began charging research costs to
expense as incurred and deferring and amortizing development
costs over five years.
Under US GAAP, research and development costs are charged to
expense as incurred and are classified as operating expenses.
Research and development costs charged to expense under US
GAAP totaled $491 thousand, $911 thousand and $268 thousand
for the years ended December 31, 1998 and 1999 and the six
months ended June 30, 2000, respectively.
c. Cash and Cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in
banks and highly liquid investments with an original maturity of
three months or less.
F-13
d. Marketable Securities
Marketable securities consist of government bonds and are stated
at cost and are stated at cost determined on the weighted average
method. If the market value of bonds differs from their acquisition
cost, such bonds are recorded at market value.
e. Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts to
cover estimated losses on receivables that are doubtful of
collection, based on collection experience and review of the status
of outstanding receivables.
f. Inventories
Inventories are stated at the lower of cost or net realizable value,
with cost determined based on the weighted average method and
net realizable value determined based on the estimate selling
price, less estimated completion and selling costs.
g. Investment Securities
(1) Investments with 20% or more ownership interest
Investment securities of affiliated companies, in which the
Company has a 20% or more ownership interest, are carried based
on the equity method, whereby the Company's initial investment
is recorded at cost and the carrying value is subsequently
increased or decreased to reflect the Company's share of income
or loss of the investee and dividends received therefrom.
(2) Other Investments
Investment securities are stated at cost plus incidental purchase
expenses, cost being determined by the moving average method.
However, if the market values of marketable investment securities
differ from their book value, the marketable investment securities
are recorded at market value. In valuing the equity securities of
affiliated companies and unmarketable equity securities, if the
market value (marketable investment securities) or net book value
(unmarketable equity securities) declines significantly compared
to acquisition cost and is not expected to recover, the acquisition
cost is adjusted to the market value or net book value. For these
cases, the difference between the original acquisition cost and
revalued amount is charged to current operations and shown in the
invested stock reduction loss account.
F-14
g. Investment Securities,continued
Reductions in the carrying amount are reversed when there is an
increase in the value of investment, or if the reasons for the
reductions no longer exist.
h. Valuation of Receivables and Payables at Present Value
Receivables and payables arising from long-term installment
transactions, long-term cash loans/borrowings and other similar
loan/borrow transactions are stated at present value, if the
difference between nominal value and present value is material.
The difference between the nominal value and present value of
amounts receivable or payable is presented as present value
discount account and directly from the nominal value of the related
receivable or payable.
The present value account is amortized using the effective interest
rate method with such amortization included in interest income.
i. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Routine
maintenance and repairs are expensed as incurred. Expenditures
result in enhancement of the value or extension of the useful life
of the facilities involved, are capitalized.
Interest incurred on debt used for the construction of property,
plant and equipment is capitalized until such construction
activities are complete.
Depreciation is computed using the declining balance method
(except for buildings and structures which are depreciated using
the straight-line method) over the estimated useful lives (4 to 60
years) of the related assets.
j. Intangible Assets
Intangible assets, which consist of proprietary rights, are stated at
cost less amortization computed using the straight-line method
over the useful lives.
k. Accrued Severance Indemnities
In accordance with Korean labor law, all employees with more than
one year of service are entitled to receive severance indemnities,
based on length of service and
F-15
k. Accrued Severance Indemnities, continued
rate of pay, upon termination of their employment. Accruals for
severance indemnities are recorded to approximate the amount
required to be paid if all employees were to terminate at the
balance sheet date.
And the Company transferred a portion of its accrued severance
indemnities in cash to the National Pension Fund in accordance
with the National Pension Law of Korea. The payment transferred
to the National Pension Fund is offset from accrued severance
indemnities at the time when actual payment is made.
Changes in accrued severance indemnities for the years ended
December 31, 1998 and 1999 and June 30, 2000 are as follows (in
U.S. dollars):
Year ended December 31, Six months ended June 30,
------------------------ -------------------------
1998 1999 2000
-------- -------- --------
Beginning balance $68,536 $219,198 $202,709
Provision 150,662 82,384 52,127
Payments - (98,873) (40,180)
-------- -------- --------
Ending balance $219,198 $202,709 $214,656
======== ======== ========
l. 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).
F-16
m. Translation of Financial Statements and Foreign Currency
The Company and its subsidiaries maintain their accounts in
Korean won. Transactions in foreign currencies are recorded in
Korean won based on the prevailing rate of exchange at the dates
of transactions. As allowed under Korean GAAP, monetary assets
and liabilities denominated in foreign currencies are translated in
the accompanying financial statements at the Base Rates
announced by the Korean government on the balance sheet dates.
The resulting gains and losses arising from the translation or
settlement of such assets and liabilities are included in current
operations.
For the purpose of this reporting, we used the flat exchange rate
of 1,114.8 /US$1 which was announced by Korea Financial
Telecommunications & Clearings Institute as a basic rate as of
June 30, 2000 in translation of all financial statements.
3. RESTRICTED DEPOSITS
Restricted deposits as of December 31, 1998 and 1999 and June 30,
2000 are as follows (in U.S. dollars):
December 31, June 30,
-------------- ---------
1998 1999 2000
------- ------ ------
Guarantee deposits for checking accounts $5,651 $2,960 $5,651
======= ====== ======
4. INVENTORIES
Inventories as of December 31, 1998 and 1999 and June 30, 2000 are
as follows (in U.S. dollars):
December 31, June 30,
---------------- ----------
1998 1999 2000
------ ----- -------
Merchandise $1,156,634 $309,218 $307,782
Finished goods 407,620 72,582 58,290
Work in-process 88,472 39,558 43,131
Raw materials 135,598 86,501 76,483
---------- -------- --------
$1,788,324 $507,858 $485,686
========== ======== ========
F-17
5. INVESTMENT SECURITIES
Investment securities and investments in affiliates as of December
31, 1998 and 1999 and June 30, 2000 are as follows (in U.S.
dollars):
Ownership in percentage December 31, June 30,
----------------------- ------------ ---------
Dec. 31, June 30,
1999 2000 1998 1999 2000
-------- --------- ----- ----- -------
(Investment securities)
Terasource Venture Cap.Co. 0.66 0.66 $269,107 $152,780 $152,780
Medicapital Co., Ltd. 1.16 1.16 210,800 210,800 210,800
Medichems Co., Ltd. - - 22,426
------- ------- -------
Sub-total 502,332 363,580 363,580
------- ------- -------
(Investment in affiliate)
Meridian Asia Co., Ltd. 51.0 51.0 54,802 54,802
True world Co., Ltd. - 48.0 215,106
Chuneesoft Co., Ltd. - 50.0 134,553
Pusanmeridian Co., Ltd. - 60.0 53,282
------- ------- -------
Sub-total - 54,802 458,282
------- ------- -------
Total $502,332 $418,382 $821,862
======== ======== ========
The equity method in 1999 and 2000 has not been applied because of
the minor amount of investment securities which the Company has a
20% or more ownership. The net asset values of the above companies
as of these years are as follows:
December 31, June 30,
------------------ ---------
1998 1999 2000
------- ------- -------
(Investment securities)
Terasource Venture Capital Co., Ltd. $299,531 $389,780 $611,986
Medicapital Co., Ltd. 193,777 250,739 187,558
Medichems Co., Ltd. 22,426
------- ------- -------
Sub-total 515,733 640,519 799,544
------- ------- -------
(Investment in affiliate)
Meridian Asia Co., Ltd. 54,802 54,802
F-18
5. INVESTMENT SECURITIES, continued
True world Co., Ltd. 100,898
Chuneesoft Co., Ltd. 85,636
Pusanmeridian Co., Ltd. 211,238
------- ------- -------
Sub-total - 54,802 452,374
------- ------- -------
Total $515,733 $695,321 $1,252,18
======== ======== =========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1998 and 1999 and
June 30, 2000 are as follows (in U.S. dollars):
Useful
Lives December 31, June 30,
(years) 1998 1999 2000
-------- ------- --------- -------
Land - 506,951 506,951 506,951
Buildings and structures 20-40 622,294 622,294 622,294
Machinery and equipment 8 44,596 44,596 44,596
Vehicles 5 52,612 38,012 49,546
Tools, furniture and fixtures 4-8 504,731 484,077 555,190
--------- --------- ---------
1,731,184 1,695,930 1,778,577
Less accumulated depreciation 368,501 435,314 487,428
--------- --------- ---------
$1,362,684 $1,260,616 $1,291,149
========= ========= =========
As of June 30, the Company's land and buildings is pledged as
collateral for the Company's lines of credit totaling $321 thousand
with KookMin Bank.
7. LONG-TERM BORROWINGS
Long-term borrowings denominated in Korean won as of December
31, 1998 and 1999 and June 30, 2000 are as follows (in U.S.
dollars):
F-19
7. LONG-TERM BORROWINGS, continued
Final Annual December 31, June 30,
Maturity Interest ---------------------------
Lender Year rate (%) 1998 1999 2000
------------------------- ------ --------- ------ ------ -------
Kookmin Bank 2005 8.0 $321,134 $321,134 $321,134
Chohung Bank 03 to 06 8.25 1,499,821 1,499,821 1,499,821
Peace Bank of Korea 2008 6.0 44,851 34,984 34,984
Small and Med. Industry
Promotion 2002 8.0 269,107 156,978
Shinhan Bank 2001 4.0 26,911 26,911
--------- --------- ---------
Total 1,865,806 2,151,957 2,039,828
Less portion due within one year - 89,702 286,901
---------- ---------- ----------
Long-term portion $1,865,606 $2,062,255 $1,752,927
========== ========== ==========
The future scheduled maturities of long-term borrowings at June 30,
2000 are as follows:
Years ending
June 30, in US Dollars
--------------- -----------------
2000 $286,901
2001 538,152
2002 313,000
2003 375,941
2004 and thereafter 525,835
----------
$2,039,829
==========
8. CONVERTIBLE BONDS PAYABLE
Convertible bonds issued in 1997 and 1999 consist of the following:
F-20
8. CONVERTIBLE BONDS PAYABLE, continued
1998 1999
----------------- -------------------
(1) Name of bonds 1st convertible bonds 2nd convertible bonds
(2) Type of bonds Non-guaranteed Non-guaranteed
convertible bonds Convertible bonds
(3) Par value $717,617 $807,320
(4) Issue value 100% of par value 100% of par value
(5) Interest rates 7% per annum 12% per annum
(6) Issue date May 7, 1997 May 6, 1999
(6) Maturity date May 7, 1999 May 6, 2001
(7) Conversion period From June 8, 1997 From June 7, 1999
to one month prior to one month
to maturity prior to maturity
(8) Conversion price $26.91 per share $22.43 per share
9. SHARE CAPITAL
(a) At April 19, 1998, the Company has 200,000 shares common
stocks issued and outstanding at par value $4.49 with 440,000
shares authorized capital stocks.
(b) On June 16, 1998, the Company issued 84,000 shares new
common stocks at par value $4.49.
(c) On September 27, 1999, the Company amended its authorized
common stock from 440,000 shares to 2,000,000 shares. (par
value $4.49)
(d) On October 1, 1999, the Company issued 200,000 shares new
common stocks at par value $4.49.
(e) On December 29, 1999, the Company converted the convertible
bonds to common stock and issued 53,853 shares new common
stocks at $15.01. (par value $4.49)
(f) On March 2, 2000, the Company issued 30,000 shares common
stocks (par value $4.49) at $22.43.
F-21
10. RETAINED EARNINGS
The details of appropriated retained earnings as of December 31,
1998 and 1999 and June 30, 2000 are as follows (in U.S. dollars):
December 31, June 30,
1998 1999 2000
-------- ---------- ---------
Reserve for business rationalization $81,629 $235,027 $257,302
In accordance with the Tax Exemption and Reduction Control Law,
the amount of tax benefit associated with certain tax exemptions
and tax credits must be appropriated as a reserve for business
rationalization. The reserve for business rationalization may not be
utilized for cash dividends, but may only be used to offset a future
deficit, if any, or may be transferred to capital stock.
11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The details of selling, general and administrative expenses for the
years ended December 31, 1998 and 1999 and for the six months
ended June 30, 2000 are as follows (in U.S. dollars):
Year ended December 31, Six months ended
1998 1999 June 30, 2000
--------- -------- -------------
Salaries $555,144 $645,777 $242,664
R & D costs 491,308 911,471 267,607
Depreciation 51,064 33,180 22,535
Amortization 129,505 26,261 13,082
Advertising 92,566 86,157 29,128
Others 744,739 822,966 275,506
---------- ---------- --------
$1,856,494 $2,525,812 $850,522
========== ========== ========
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, and (b) tax credit carry-forwards.
F-22
12. INCOME TAXES, continued
The tax effects of each type of temporary difference and carry-
forward that gave rise to a significant portion of the deferred tax
assets and liabilities as of December 31, 1998, 1999 are as follows
(in U.S. dollars):
Year ended December 31,
1998 1999
------------ ------------
Provision for severance indemnities $26,878 $31,092
Depreciation 382 382
Accrued interest income (15,698) (6,351)
Amortization (163,556)
Loss from valuation of inventories 238,198
Present value discount 58,372
Others 1,042 1,042
Tax credit carry-forwards 36,719 179,666
------- --------
Total $49,323 $338,845
======= ========
The provision for income taxes for the years ended December 31,
1998 and 1999 consist of the following (in US dollars):
Year ended December 31,
1998 1999
-------------- ---------------
Current payable $18,550 $135,434
Deferred 14,619 (289,522)
------- ----------
Income tax expense (benefit) $33,169 ($154,088)
======= ==========
13. BASIC LOSS PER COMMON SHARE
Net income per common share for 1998 and 1999 and the six months
ended June 30, 2000 are computed as follows (in U.S. dollars,
except for share data):
F-23
13. BASIC LOSS PER COMMON SHARE, continued
Year ended December 31, Six months
ended June 30,
1998 1999 2000
--------------- ---------- ------------
Net loss ($103,010) ($28,359) ($9,695)
Weighted average number of
Common shares 245,500 334,853 557,853
------- ------- -------
Basic loss per
common share ($0.42) ($0.08) ($0.02)
======= ======= =======
Net income (loss) per common share on dilutive effect of the
convertible bonds for 1998 is computed as follows:
1998
-----------
Net income(loss) ($52,776)
Weighted average number of
Common shares 272,167
----------
Net income per common share ($0.19)
==========
14. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company has provided two blank checks
to ShinHan Bank and one check to NaRa Bank as collateral. The
Company is currently uncertain what its ultimate liability will be on
the above commitments and has not accrued any related liability in
its financial statements as of December 31, 1999.
15. INSURANCE
At June 30, 1999, certain of the Company's assets are insured with
local insurance companies as follows (in U.S. dollars):
Asset Risk Book value Coverage
- - ---------------- -------------- ---------------- ----------
Property, plant Fire and comprehensive $1,768,474 $877,287
and Equip. Liability
F-24
15. INSURANCE, continued
In addition to the above insurance, the Company carries
compensation insurance for employees' injury, general insurance for
vehicles, medical insurance for employees, etc.
16. RELATED PARTY TRANSACTIONS
The Company's transaction and account balances with related parties
for the years ended December 31, 1998 and 1999 and June 30,2000
are summarized as follows (in thousands of U.S. dollars):
Year ended December 31, Six months ended June 30,
1998 1999 2000
---------- --------- ------------
Transactions
Sales to:
Medison Co., Ltd. $477,913 $73,393 $ -
Medicapital Co., Ltd. 109,437 764,674 34,403
Medison In Corporation 43,615 198,164
Medison Do Brazil 41,348 33,647 43,615
True world Co., Ltd. 304,734
Pusanmeridian Co., Ltd. 456,046
Purchases from:
Medison Co., Ltd. 84,913
Account Balances
Accounts receivable-trade:
Medison Co., Ltd.
Medicapital Co., Ltd. 109,437 34,403
Medison In Corporation 43,615 193,550 4,858
Medison Do Brazil 41,348 27,322 61,985
F-25
16. RELATED PARTY TRANSACTIONS, continued
True world Co., Ltd. 251,455
Pusanmeridian Co., Ltd. 350,370
Short-term loans:
Medison Co., Ltd.
True world Co., Ltd. 103,660
Accounts payable-trade:
Medicapital Co., Ltd 54,637
Medichems Co., Ltd. 6,631
Medison Co., Ltd 3,514 3,514 3,514
Account payable-other:
Medison Co., Ltd 219,858 116,977 172,508
Medicapital Co., Ltd. 89,792
Short-term borrowings:
Medison Co., Ltd. 184,980 85,193
Medicapital Co., Ltd. 2,944
17. SALES
The Company's amount of domestic sales and export for the years
ended December 31, 1998 and 1999 and June 30,2000 are
summarized as follows (in U.S. dollars):
December 31, June 30,
1998 1999 2000
---------- --------- -----------
Export
U.S.A. $105,784 $264,334 $44,133
South America 82,696 33,646 64,321
South Asia 8,827 177,480
China 9,422 241,084
Japan 23,094
F-26
17. SALES, continued
Other 19,804 36,073 7,923
---------- ---------- ----------
Export total 226,533 775,713 116,417
---------- ---------- ----------
Domestic sales 3,489,938 4,694,249 1,476,661
---------- ---------- ----------
Total $3,716,471 $5,469,962 $1,593,078
========== ========== ==========
18. UNCERTAINTIES IN BUSINESS ENVIRONMENT
The Asia Pacific region, including Korea, has been experiencing
significant economic difficulties. These economic difficulties have
affected virtually all Korean businesses in some form or another.
There has been an overall contraction of the economy and the
financial markets are being restructured which is having an effect
on the ability of companies to obtain funds. The impact of this
situation will continue into the foreseeable future and it is currently
uncertain what the resulting effect will be on the future operations
and financial position of the Company. The ultimate outcome of this
matter cannot presently be determined.
F-27
EXHIBIT 1
CERTIFICATE OF BUSINESS REGISTRATION
Certificate of Business Registration
(Corporation)
Registration No. : 223-81-02444
Name of Corporation: MERIDIAN CO., LTD.
President: Hyeon-Seong Myeong
Date of Establishment: Nov. 9, 1994
Corporation Registration Number: 145211-0001750
Address of Corporation:
687-6, Sangohan-Rj, Hongchun-Eup, Hongchun-Kun, Kangwon-Do
Address of Head office:
687-6, Sangohan-Ri, Hongchun-Eup, Hongchun-Kun, Kangwon-Do
Category of business: Manufacturing Product category: Medical Equipment
Service Engineering Service
Reason of Issue: Revision
E-1
EXHIBIT 2
ARTICLES OF INCORPORATION
Articles of Incorporation
Incorporated on April 19, 1994
Revised on September 29, 1994
Revised on March 20, 1998
Revised on June 16, 1998
Revised on October 1, 1999
Revised on February 23, 2000
Meridian Co. Ltd.
Chapter 1. General Provisions
Article 1. Name
The name of the company shall be Meridian Co. Ltd." (hereinafter
called the Company).
Article 2. Purpose
The Company shall conduct the following business activities:
(1) Manufacture and sales of medical devices;
(2) Manufacture and sales of electronic devices;
(3) Offer agent;
(4) Export and import;
(5) Technical services for medical and electronic devices;
(6) Lease of realty;
(7) Distribution;
(8) Sales of medicines;
(9) Manufacture, service and sales of software; and
(10) Other businesses related to those mentioned above.
Article 3. Location of the Head Offices and Branches
(1) The head office of the Company shall be located in Gangweon-do
Province.
(2) Branches may be established elsewhere by resolution of the Board
of Directors of the Company.
Article 4. Public Notices
Public notices by the Company shall be given through the Daily
Economic Newspaper and a daily newspaper published in Seoul.
Chapter II. Shares
Article 5. Total Number of Shares to be issued
The total number of shares which the Company is authorized to issue
is 2,000,000 shares.
Article 6. Par Value
The par value of each share shall be 5,000 Korean Won.
Article 7. Total Number of Shares to be issued at the Time of
Incorporation
The Total number of shares to be issued by the Company at the time of
incorporation shall be 10,000 shares.
Article 8. Types of Shares
(1) All shares to be issued by the Company shall be common stock and
non-voting preferred stock, both of which shall be in registered form.
(2) The total number of non-voting preferred shares Authorized to be
issued by the Company is 5,000 shares.
(3) With respect to the non-voting preferred shares the dividends
payable thereon shall be at least two (2) percent greater than the
dividends on common shares par value.
(4) As regards the dividends on preferred shares mentioned in
Paragraph (3), if the dividends on common shares are
not paid, the dividends on preferred shares may not be paid.
E-2
(5) If the dividends on preferred shares as set forth herein are not
paid for any fiscal year, the preferred shares shall be deemed to have
voting rights from the General Meeting of Shareholders immediately
following the General Meeting of Shareholders at which the resolution
not to pay such dividends on preferred shares was adopted to the end of
the General Meeting of Shareholders at which the resolution to pay such
dividends on preferred shares is adopted.
Article 9. Types of Share Certificates
Share certificates shall be issued in eight (8) denominations of one (1),
five (5), ten (10), fifty (50), one-hundred (100), five-hundred (500),
one-thousand (1,000), and ten-thousand (10,000) shares.
Article 10. Non-issuance of Share Certificates
(1) Shareholders may report the intention that they will not bear share
certificates as regards a part or all of the shares held by them to the
Company with the attachment of such share certificates.
(2) In case of the report mentioned above, the Company shall, without
delay, state the intention that it will not issue share certificates to such
shares in the directory of shareholders, and notify the shareholder who
reported of the fact.
Article 11. Preemptive Rights
(1) In case of the issuance of new shares, the Company shall allocate
any new shares to in proportion to the number of shares held by each
shareholder.
(2) In issuing new shares, the company may issue part thereof or all
thereof at the market price, and the issue price is pursuant to a
resolution of the Board of Directors. In this case, notwithstanding
Paragraph (1), new shares issued at the market price may be subscribed
in accordance with the Securities Exchange Act or be delivered to a
(3) Notwithstanding Paragraph (1), in case new shares are issued by
public offering, the resolution of preemptive rights and other
particulars necessary for issuing new shares are pursuant to a
resolution of the Board of Directors
(4) In case shareholders abandon or lose preemptive rights, pursuant to
a special resolution by the Board of Directors, new shares may be -
issued and allocated to persons other than existing shareholders.
(5) Disposal of odd-lots occurring upon allocation of new shares is
pursuant to a special resolution by the Board of Directors.
(6) Employee Stock Ownership Association: Employee Stock Ownership
Association may be organized in accordance with the policy of the
Company and the agreement with the Employee Stock Ownership
Association; provided that the preferred offering of the Employee Stock
Ownership Association be not more than twenty-hundredths of
subscribed shares or sold shares.
Article 11-2. Record Date of Dividend Pay-out of New Shares
In case the Company issues new shares by means of capital increase
with consideration, increase of capital stock without consideration and
share dividend, as regards dividends on new shares, such shares will
be deemed to have been issued at the end of the fiscal year immediately
preceding the fiscal year during which new shares are issued.
Article 11-3. Stock Option (1) The Company may, by special resolution
of the General Meeting of Shareholders, grant its stock option to
members of the Board and the Staff in accordance with the provisions
of Article 189-4 of the Securities Exchange Act; provided that issues to
be subscribed by execution of the stock option be not more than fifteen-
hundredths of total shares already issued by the Company. However, the
persons mentioned in the following shall be excluded
1. The shareholder who has the largest number of shares of the
Company and persons who are regarded as the relevant persons
with special interest to that shareholder (who is referred to in Paragraph
(2) of Article 10-3 of the Presidential Decree of the Securities Exchange Law.
The same hereinafter).
2. Major shareholders (who are set forth in Article 188 of the
Securities Exchange Law. The same hereinafter) and persons who are
regarded as the relevant persons with special interests to those
shareholders.
3. Persons who become major shareholders by execution of Stock
Option.
(2) The shares to be delivered upon execution of Stock Option (the
shares to be the basis of calculation of the difference between the
exercise price of Stock Option and the current price, in case cash or
treasury stocks are delivered for the difference) shall be registered
common shares.
(3) The number of persons who may have Stock Option shall not be one
hundred percent of total members in office, and Stock Option per caput
shall not be more than ten-hundredths of total issued shares of the
Company.
(4) The purchase price per share upon the execution of Stock Option,
or the exercise price to be adjusted after Stock Option has been vested,
must not less than each price as set forth in the followings:
1. The higher one of the prices in the followings, in case of issuing
and delivering new shares;
a) The current price of shares concerned, which is valued on the basic
date of a vesting day of Stock Option in accordance with Subparagraph
1 of Paragraph (2) of Article 84-9 of the Presidential Decree to the
Securities Exchange Act;
b) The par value of shares concerned.
E-3
2. The current price of shares concerned, which is valued in
accordance with the provision prescribed in Clause a) of Subparagraph
1 of Paragraph (4) above, in the cases other than mentioned in
Subparagraph 1 of Paragraph (4) above.
(5) Stock Option may be exercised within seven (7) days from the first
day coming after three (3) years have passed since the date of special
resolution mentioned in Paragraph (1) above.
(6) Persons with Stock Option shall have been in office for two (2)
years or more from the date of special resolution mentioned above in
Paragraph (1) to exercise Stock Option. But provided that the persons
with Stock Option die within two (2) years from the date of special
resolution mentioned in Paragraph (1) above, or retire from office on
reaching retirement age, or resign out of the liability that does not
belong to themselves, they may exercise Stock Option during the
period.
(7) The Provisions of Article 11-2 shall be applied, mutatis mutandis,
in respect of dividends on the new shares issued upon exercise of Stock
Option. (8) The Company may, by resolution of the Board of Directors,
withdraw Stock Option in the following cases:
1. If the persons with Stock Option retire or resign voluntarily;
2. If the persons with Stock Option inflict any striking material loss
to the Company by wilful misconduct or mistake;
3. If it comes under the terms of withdrawal prescribed in the
contract of Stock Option.
Article 12. Registration of Transfer
(1) In requesting registration of transfer as regards the shares of the
Company, the request provided by the Company bearing name and seal
or signature, with the attachment thereto of share certificates, shall be
submitted.
(2) In case of acquiring shares except for the reason of transfer, on the
request of the Company, along with the request in Paragraph (1),
documents and share certificates proving the reason shall be submitted.
Article 13. Agent for the Registration of Transfer
(1) The Company may appoint a transfer agent.
(2) The appointment of a transfer agent and the place and scope of
business of the transfer agent shall be determined by the Board of
Directors and publicly notified.
(3) The register of shareholders of the Company or one copy of
registers shall be kept in the agency office, and the Company shall have
an agent attend to the registration J shares, the creation and
cancellation of pledges, the indication and cancellation of trusted
assets, the issuance of share certificates, the receipt of reports and any
other matters relating shares. (4) Specific procedures of matters
mentioned above in Paragraph (3) shall be in accordance with
regulations relating to agency for the registration of transfer of
securities by an agent
Article 14. Report of Addresses, Names and Seals of Shareholders
(1) Shareholders and registered pledgees shall report to the Company
of the transfer agent mentioned in Article 13 their respective names,
addresses and seals.
(2) Shareholders and registered pledgees who reside in foreign
countries shall report their respective addresses to which and agents
to whom notices may be given in Korea.
(3) Any changes in the items stated in Paragraphs (1) and (2) shall
also be reported.
(4) In the absence of the transfer agent, shareholders and registered
pledgees shall report to the Board of Directors their respective names,
addresses and seals.
Chapter III. General Meeting of Shareholders
Article 16. Convention of General Meeting of Shareholders
(1) The General Meeting of Shareholders of the Company shall consist
of an ordinary General Meeting of Shareholders and an extraordinary
General Meeting of Shareholders.
(2) The ordinary General Meeting of Shareholders shall be held within
three months after the end of each fiscal year and the extraordinary
General Meeting of Shareholders shall be held at such other times as
are deemed necessary.
E-4
Article 17. Right of Convening
(1) The Representative Director is entitled, by the resolution of the
Board of Directors, to convening of a General Meeting of
Shareholders, except as otherwise provided in mandatory provisions of
the applicable laws or regulations.
(2) In the event that the Representative Director is absent or fails to
serve, Paragraph (2) of Article 33 hereof shall be applied.
Article 18. Notices
(1) In convening a General Meeting of Shareholders, written notice,
stating the date, time and place of the meeting and the agenda for
such Meeting, shall be dispatched at least two (2) weeks prior to the
date set for such Meeting. However, in case that the notice has not
arrived at the address of a shareholder on the directory of
shareholders more than three years, the Company may not notify the
shareholder of the convention of General Meeting.
(2) With respect to shareholders holding not more than 1% of the
total number of issued and outstanding voting shares, the notice may
be replaced by giving at least two (2) week advance public notice
with respect to the convening of and agenda for the Meeting at least
twice in the Daily Economic Newspaper and a daily newspaper
published in Seoul.
Article 19. Place of Convening
The place of convening of the General Meeting of Shareholders shall
be determined by the Board of Directors.
Article 20. Chairman
(1) The chairman of the General Meeting of Shareholders shall be the
Representative Director.
(2) In the event that the Representative Director is absent or fails to
serve, Paragraph (2) of Article 33 hereof shall be applied.
Article 21. Maintenance of Order by the Chairman
The Chairman of the General Meeting of Shareholders may order those
who try to obstruct proceedings of disturbing public order to stop or
cancel their speeches or so leave the hall. The persons so ordered
shall comply with the chairman's instructions.
Article 22. Voting Rights of Shareholders
Each shareholder shall have one (1) voting right for each share he
owns.
Article 23. Restrictions on Voting Rights of Shares
In case the Company, its parent or subsidiary company have other
company's shares more than one-tenth of total issued shares, the
shares of the Company which are owned by such other company shall
not be vested with voting rights.
Article 24. Lack of Unity in Exercising Voting Rights
(1) Any shareholder who has two (2) or more voting rights and wants
to exercise them for different voting, 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 voting
rights.
Article 25. Exercise of Voting Right by Proxy
(1) Shareholders may exercise their voting rights by proxy.
(2) The proxy holder mentioned in Paragraph (1) shall submit a
document establishing his authority (power of attorney) before the
opening of the General Meeting of Shareholders.
Article 26. Quorum and Adoption of Resolutions
All resolutions of general meetings of shareholders, except as
otherwise provided by the relevant laws and regulations, shall be
adopted if the approval of a majority vote of the shareholders present
at such meeting is obtained and such majority also represents at least
one-fourth (114) of the total number of shares issued and outstanding.
Article 27. Preparation of Minutes
The course of the proceedings of a General Meetings of Shareholders
and the results thereof shall be recorded in minutes which shall bear
the name and seal or signature of the chairman, and shall be kept at
the Company's head office and branches.
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Chapter IV. Director, Board of Directors and Auditor
Article 28. Number of Directors and Auditors
(1) The number of Directors of the Company shall be between three
(3) and ten (10).
(2) The number of Auditors shall be between one (1) and two (2).
Article 29. Election of Directors and Auditors
(1) The Directors and the Auditors shall be elected at the General
Meeting of Shareholders.
(2) The Directors and the Auditors shall be elected by the affirmative
vote of a majority of the voting shares of the shareholders present,
which shall represent at least one-fourth of the voting shares of the
Company then issued and outstanding. However, the shareholder
having more than three hundredths (31100) of the voting shares issued
and outstanding except shares not having voting rights to the election
of auditors, may not exercise voting rights with regard to such shares.
Article 30. Term of Office of Directors and Auditors
(1) The term of office of the Directors shall be three (3) years.
However, in case the term of office expires before the Ordinary
General Meeting of Shareholders as regards the final accounting
period, the term of office may be extended to the end of the General
Meeting.
(2) The term of office of the Auditors shall be completed at the
close of the Ordinary General Meeting with respect to the fiscal
year which is the last to end within three (3) years after taking office.
Article 31. Supplementary Election of Director and Auditor
(1) In the event of any of the absence or inability to perform the duties
as a Director or Auditor, a General Meeting of Shareholders shall fill
the vacancy. However, in case the number of remains satisfies the
requirement mentioned in Article 28 hereof and such vacancy does not
cause any difficulties in the operation of the business, the appointment
through supplementary election may be suspended.
(2) The term of office of the Director or the Auditor appointed by the
supplementary election shall be the remaining term of office.
Article 32. Election of the Representative Director etc.
By resolution of the Board of Directors, the company may appoint a few
Representative Directors, Senior Managing Directors and Managing
Directors.
Article 33. Duties of Directors
(1) The Representative Director shall represent the Company and
supervise the affairs of the Company.
(2) The Senior Managing Director, the Managing Director and the
Director shall assist the Representative Director, and conduct the
business of the Company in accordance with those determined by the
Board of Directors. In the event that the President cannot perform his
duties, one of the standing directors shall act for the President in such
order of priority as prescribed in this Paragraph.
Article 34. Duties of Auditors
(1) The Auditor shall examine the accounting and financial records of
the Company.
(2) The Auditor may attend at the Board of Directors and express his
opinion thereat.
(3) The Auditor may request to convene an Extraordinary General
Meeting of Shareholders by submitting a written request specifying the
agenda of the meeting and the reason for the meeting.
Article 35. Inspection Book
The Auditor shall record the procedure of the inspection and the result
thereof in the inspection book, which shall bear the names and seals or
signatures thereon of the Auditor who has carried out the inspection.
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Article 36. Constitution and Convening of Meeting of the Board of
Directors
(1) The Board of Directors shall consist of all the Directors and shall
resolve principal matters relating to the business of the Company.
(2) The Representative Director or any Director who has been
authorized by the Board of Directors shall convene the Board of
Directors by giving notice to each of the Directors and the Auditor at
least five (5) days prior to the scheduled Meeting date; provided,
however, that all the Directors and Auditors are unanimous, the
procedure of convening may be omitted.
Article 37. Matters for Resolution
(1) All resolutions taken at a Meeting of the Board of Directors shall
be adopted by both the presence of the majority of Director's and the
affirmative vote of a majority of the Directors present.
(2) The chairman of the Board of Directors shall have the right to
convene a Meeting of the Board of Directors in accordance with the
provision of Paragraph (2) of Article 36 hereof.
(3) Any Director having a special interest with respect to the
resolution shall not exercise his voting right.
Article 38. Minutes of the Meeting
The course of the proceedings of the Meetings of the Board of Directors
and the results thereof shall be recorded in minutes which shall bear
the name and seal or signature of the Directors and the Auditor, and
shall be kept at the Company's head office.
Article 39. Remuneration and Severance Allowances for Directors and
Auditors
(1) The remuneration for Directors and Auditors shall be determined by
a resolution of the General Meeting of Shareholders.
(2) The payment of the severance allowances for Directors and
Auditors shall be in accordance with the rule of payment of the several
allowances for officers determined by a resolution of the General
Meeting of Shareholders.
Article 40. Consultants and Advisers
The Company shall have a few consultants and advisers by the
resolution of the Board of Directors.
Chapter V. Accounting
Article 41. Fiscal Year
The fiscal year of the Company shall commence on each January 1 and
shall end on December 31 of the same year.
Article 42. Preparation and Keeping of Financial Statements
(1) The Representative Director of the Company shall prepare and
submit to the Ordinary General Meeting of Shareholders, no later than
six (6) weeks before the date set for an Ordinary General Meeting of
Shareholders, the following documents and supplementary schedules
thereto and a business report, following approval thereof by the
Auditor:
1. A balance sheet;
2. A statement of profit and loss; and
3. A statement of appropriation of retained earnings or statement of
disposition of deficit.
(2) The Auditor shall submit an audit report to the Director within four
(4) weeks from the date of receiving the documents in Paragraph (1).
(3) From one (1) week before the day set for the ordinary General
Meeting of Shareholders, the Auditor shall keep the documents set forth
in Item 1 through 3 of Paragraph (1) above together with the business
report and audit report at the head office for five (5) years and shall
keep copies of such documents and reports at each branch for three (3)
years.
(4) The Company shall, without delay, give public notice of the balance
sheet and the opinions of external auditors when the documents set forth
in Item 1 through 3 of Paragraph (1) above are approved by the General
Meeting of Shareholders.
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Article 43. Disposition of Profit
Profit (including surplus profit) for any fiscal year shall be disposed
of as follows:
1. Legal reserves for profit;
2. Other legal reserves;
3. Dividends;
4. Discretionary reserves;
5. Other dispositions of surplus profit; and
6. Carrying forward as surplus profit.
Article 44. Dividends
(1) Dividends may be paid in cash or shares. However, dividends paid
in shares shall not exceed the value corresponding to one-half of total
dividends.
(2) Dividends referred to in Paragraph (1) shall be paid to the
shareholders and registered pledgees whose names appear in the
shareholders' register of the Company as of the last day of each fiscal
year.
Article 45. Negative Prescription for the Right to Claim Payment of
Dividends
(1) Any rights to dividends shall be extinguished by prescription unless
exercised for five (5) years.
(2) Dividends to which-rights has extinguished pursuant to Paragraph
(1) above shall revert to the Company.
Article 46. Issuance of Convertible Bonds
(1) The Company may issue convertible bonds to persons other than
existing shareholders up to a total par value of one billion
(1,000,000,000) Won.
(2) The convertible bonds mentioned in Paragraph (1) may be issued on
the condition certain portion of par value of the convertible bonds as
determined by,4pe Boar& shall be converted into shares.
(3) The shares to be issued upon conversion shall be common shares.
The conversion price shall be decided by the Board of Directors at the
time of issuance of convertible bonds; provided that the conversion
price shall not be less than the par value of each share.
(4) The period during which bondholders may exercise their conversion
rights shall commence from three (3) months after the issuance date of
the convertible bonds and end on the day immediately preceding the
redemption date thereof; provided that the Board of Directors may
adjust the conversion period within the above foregoing period by its
resolution.
(5) In regard to the payment of dividends for the shares which were
issued upon conversion and to the payment of interest on the
convertible bonds, such shares will be deemed to have been issued at
the end of the fiscal year during which the conversion is exercised.
ADDENDUM
These Articles of Incorporation shall be effective form April 19, 1994.
ADDENDUM
These Articles of Incorporation shall be effective form September 29,
1994.
ADDENDUM
These Articles of Incorporation shall be effective form March 20,
1998.
ADDENDUM
1. These Articles of Incorporation shall be effective form June 16,
1998. 2. The revised paragraphs in Article 11 -2 shall be effective
from the business year after the day of the revision of these Articles of
Incorporation.
ADDENDUM
These Articles of Incorporation shall be effective form October 1,
1999.
ADDENDUM
These Articles of Incorporation shall be
effective form February 23, 2000.
E-8
EXHIBIT 3
PROPOSED REVISED ARTICLES OF INCORPORATION
CHAPTER I
GENERAL PROVISIONS
Article 1. Company Name
The name of the Company shall be expressed as "Chusik Hoesa
Meridian", which shall be expressed in English as "Meridian Co., Ltd."
(hereinafter referred to as the "Company").
Article 2. Objectives
The objectives of the Company shall be as follows:
(1) Manufacture and sales of medical devices;
(2) Manufacture and sales of electronic devices;
(3) Offer agent;
(4) Export and import;
(5) Technical services for medical and electronic devices;
(6) Lease of real property;
(7) Distribution;
(8) Sales of medicines;
(9) Manufacture, service and sales of software; and
(10) All other activities or businesses which are related to the
attainment and continuation of the objectives mentioned above.
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Article 3. Location of Head office and Branches
The head office of the Company shall be located in Gangwon-do,
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 Maeil Economic
Newspaper.
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 two million (2,000,000) 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 ten thousand (10,000) shares.
Article 7. Par Value
The par value of each share shall be five thousand (5,000) 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;
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(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.
(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);
E-11
(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.
(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.
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(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
(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.
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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.
(2) An agent, the place of conducting the registration of transfer of
shares and the scope of the registration of transfer of shares shall
be provided by the resolution of the Board of Directors and a
public notice of the same items shall be given.
(3) The register of shareholders of the Company or a copy thereof
shall be kept in the transfer agent's place of conducting the
registration of transfer of shares, and the Company shall have the
transfer agent attend to the registration of transfer of shares, the
creation and cancellation of pledges, the indication and
cancellation of trusted assets, the issuance of share certificates,
the receipt of reports and any other matters relating to shares.
Article 14. Report of Addresses, Names and Seals or Specimen
Signatures of Shareholders
(1) Shareholders and registered pledges and any of their attorneys-in-
fact shall report to the transfer agent their names, addresses, and
seals or specimen signatures.
(2) Any change in the items set forth in Paragraph (1) shall also be
reported according to the same reporting procedure.
Article 15. Record Date
(1) The shareholders registered on the register of shareholders as of
December 31 of each year shall be entitled to exercise the rights of
shareholders at the Ordinary General Meeting of Shareholders for
the relevant fiscal year.
(2) In case that it is deemed necessary to convene an Extraordinary
General Meeting of Shareholders or for any other reasons, the
Company may fix those shareholders registered on the register of
shareholders as of the date designated by the resolution of the
Board of Directors as those entitled to exercise the rights of
shareholders; provided, however, that the Company shall give a
public notice thereof two (2) weeks in advance.
CHAPTER III
BONDS
Article 16. Issuance of Convertible Bonds
(1) The Company may issue convertible bonds within the limit of its
aggregate face amount not exceeding ____________ (___________)
Korean Won to persons other than the shareholders by the resolution
of the Board of Directors in one of the following cases:
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(a) In case that the Company issues convertible bonds through a
public offering;
(b) In case the Company issues convertible bonds for foreign direct
investments in accordance with the Foreign Investment
Promotion Act as needed for business purposes; or
(c) In case the Company issues convertible bonds to another
company with which the Company forms or intends to form a
business alliance relationship for the purpose of technology
transfer.
(2) Convertible bonds mentioned in Paragraph (1) may, by the
resolution of the Board of Directors, be issued with their
conversion rights limited to only a portion of their face amount.
(3) The shares to be issued upon exercise of conversion rights shall be
common shares, and the conversion price, which shall not be less
than the par value of the shares, shall be determined by resolution
of the Board of Directors at the time of issuance of the convertible
bonds.
(4) The period during which the conversion rights can be exercised
shall be from the date one (1) month after the issuance date until
the date immediately preceding the redemption date. However, the
same period may be adjusted by the resolution of the Board of
Directors to the extent not exceeding the original period.
(5) In case that the convertible bonds are converted into shares,
Article 12 (Calculation of Dividend for New Shares) shall be
applicable to the payment of interest on the convertible bonds.
Article 17. Issuance of Bonds with Warrants
(1) The Company may issue bonds with warrants within the limit of
its aggregate face amount not exceeding ____________
(___________) Korean Won to persons other than the shareholders
by the resolution of the Board of Directors in one of the cases
referred to in Article 16 (1).
(2) The warrants may be exercised in an amount determined by
resolution of the Board of Directors to the extent not exceeding
the aggregate face amount of the bonds with warrants.
(3) The shares to be issued upon exercise of the warrants shall be
common shares, and the issuing price, which shall not be less than
the par value of the shares, shall be determined by resolution of
the Board of Directors at the time of issuance of the bonds with
warrant.
(4) The period during which the warrants can be exercised shall be
from the date one (1) month after the issuance date until the date
immediately preceding the redemption date. However, the same
period may be adjusted by the resolution of the Board of
Directors to the extent not exceeding the original period.
Article 18. Provisions applicable to the Issuance of the Bonds
Article 13 (Transfer Agent) and Article 14 (Report of Addresses,
Names and Seals or Specimen Signatures of Shareholders) shall be
applied to the cases of issuance of bonds.
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CHAPTER IV
GENERAL MEETING OF SHAREHOLDERS
Article 19. Types and Time of Holding of General Meetings
(1) The General Meetings of Shareholders of the Company shall be
ordinary or extraordinary.
(2) The Ordinary General Meeting of Shareholders shall be held
within three (3) months after the end of each fiscal year. The
Extraordinary General Meeting of Shareholders may be convened
on a need basis.
Article 20. Person to Convene
(1) Except as otherwise provided by the law, the General Meetings of
Shareholders shall be convened by the Representative Director in
accordance with the resolution of the Board of Directors.
(2) In the event of absence of the Representative Director, a Director
designated in advance by the Board of Directors may convene the
General Meeting of Shareholders.
Article 21. Notice of Meeting
Written notice of each General Meeting of Shareholders of the Company
stating the date, time, and place of the Meeting and the purpose for
which the Meeting has been called with the enclosures of the form and
reference materials necessary for the exercise of vote in writing shall
be dispatched via registered regular mail to shareholders who are
residents of Korea and via registered airmail or facsimile message to
all other shareholders at least fourteen (14) days prior to the date set
for such Meeting. The shareholders may act only with respect to
matters set forth in said written notice at any General Meeting of
Shareholders.
Article 22. Place of Meeting
The General Meetings of Shareholders shall be held at the place where
the Company's head office is located, but may be held in its vicinities
as deemed necessary.
Article 23. Presiding Officer
(1) The Representative Director shall preside at the General Meetings
of Shareholders.
(2) In the event of absence of the Representative Director, a Director
designated in advance by the Board of Directors shall preside at
the Meeting.
Article 24. Presiding Officer's Authority to Keep Order
(1) The Officer who presides at the General Meeting of Shareholders
may order any person to cease making any statements or leave the
place of the Meeting if he determines that such person is
deliberately making such statements disturbing the order of the
proceedings at the Meeting.
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(2) The Presiding Officer at the General Meeting of Shareholders may
place restrictions on length of time and frequency of statements
made by shareholders, if deemed necessary for orderly proceedings
at the Meeting.
Article 25. Right to Vote
In all matters, each shareholder shall have one (1) vote for each share
registered in the name of such shareholder.
Article 26. Limitation of Right to Vote due to Cross-shareholding
In case the Company alone, together with its subsidiary company, or its
subsidiary company alone holds more than one tenth of the total issued
and outstanding shares in another company, the shares of the Company
held by such another company shall not be entitled to vote.
Article 27. Inconsistent Exercise of Rights to Vote
(1) A shareholder with two or more rights to vote desiring to exercise
his votes in disunity shall notify the Company in writing of his
intention of so doing and the reasons therefore three (3) days prior
to the day set for the Meeting.
(2) The Company may refuse to allow so desiring shareholder to
exercise his votes in disunity. However, the Company may not do
so towards a shareholder holding the shares in trust or otherwise in
behalf of others.
Article 28. Exercise of Right to Vote
(1) Shareholders may exercise their voting rights in writing without
personal attending at the General Meeting of Shareholders.
(2) Shareholders desiring to exercise their votes in writing shall
submit the form necessary for exercise of votes to the Company
within one (1) day prior to the day set for the Meeting after filling
out all necessary items.
(3) A shareholder may exercise his vote by proxy. In this case, the
proxy holder must file with the Company a document (proxy)
evidencing his power of representation before each General
Meeting of Shareholders commences.
Article 29. Methods of Resolutions
Except as otherwise provided by the law or these Articles of
Incorporation, resolutions of the General Meeting of Shareholders shall
be adopted by a majority of votes present at the Meeting, which shall
represent at least one fourth of the total issued and outstanding shares
of the Company.
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Article 30. Minutes
The substance of the proceedings at the General Meeting of
Shareholders and the results thereof shall be recorded in the minutes of
the Meeting, which shall bear the names and seals of the Presiding
Officer and of the Directors present at the Meeting and shall be
preserved in the Company's head office and branch office.
CHAPTER V
DIRECTORS AND AUDITORS
Article 31. Number of Directors and Auditor
The Company shall have not less than three (3) but not exceeding ten
(10) Directors and one (1) or two (2) Auditor.
Article 32. Election
(1) The Directors and the Auditor shall be elected at the General
Meeting of Shareholders.
(2) In case that two (2) or more Directors are elected, the cumulative
voting under Article 382-2 of the Commercial Code shall not be
applicable.
(3) Any shareholder who holds more than three hundredths of the total
issued and outstanding shares with voting rights may not exercise
his votes in respect of the excess shares beyond the said limit in
the election of the Auditor.
Article 33. Term of Office
The term of office of Directors and Auditor shall expire at the close of
the third Ordinary General Meeting of Shareholders held with regard to
settlement of accounts subsequently to their assumption of office.
Article 34. Vacancy
(1) In case of any vacancy in the office of Director or Auditor as set
forth by the law or in these Articles of Incorporation, a substitute
Director or Auditor shall be elected at the General Meeting of
Shareholders.
(2) The term of office of a Director or Auditor so elected shall be for
the remainder of the term of office of the predecessor.
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Article 35. Duties of Directors
(1) The Directors shall perform their duties faithfully in accordance
with the law and these Articles of Incorporation.
(2) The Directors shall use the duty of care of a good manager for the
good of the Company in performance of their duties.
(3) The Directors shall not use or cause a third party to use the
confidential information of the Company they came to possess
during their term of office.
Article 36. Duties of Auditor
(1) The Auditor shall audit the accounting and the business of the
Company.
(2) The Auditor may demand the Board of Directors to convene an
Extraordinary General Meeting of Shareholders by presenting a
written statement stating the proposed subject matters of the
Meeting and the reasons for the convening.
(3) The Auditor shall not use or cause a third party to use the
confidential information of the Company he came to possess during
their term of office.
Article 37. Remuneration and Severance Pay for Directors and Auditor
(1) The remuneration of the Directors and the Auditor shall be
determined by the resolution at the General Meeting of
Shareholders.
(2) The severance pay of the Directors and the Auditor shall be
determined by the Senior Officers Severance Pay Regulations to be
adopted by the resolution of the General Meeting of Shareholders.
Article 38. Representative Director
One (1) Director shall be appointed as the Representative Director by
the resolution of the Board of Directors.
Article 39. Authority of Representative Director
The Representative Director shall represent the Company and manage
the business of the Company within limitations established by these
Articles of Incorporation, by the resolution at a General Meeting of
Shareholders or by the resolution of Board of Directors.
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CHAPTER VI
BOARD OF DIRECTORS
Article 40. Authority of Board of Directors
The Board of Directors of the Company shall consist of all the
Directors. Except as otherwise provided by the law or these Articles
of Incorporation, the Board of Directors shall decide by the resolution
all important matters relating to the management of the business of the
Company including the establishment of the basic corporate policies
and other matters prescribed by the law or by these Articles of
Incorporation.
Article 41. Convention
Meetings of the Board of Directors may be convened from time to time
by the Representative Director or any Director who has been authorized
by the Board of Directors by giving written notices stating the date,
time, and place of the meeting and the purposes for which the Meeting
has been called to each of the Directors and the Auditor at least three
(3) days prior to the date set for the Meeting. However, the procedure
for convention may be omitted with the prior written consent of all the
Directors and the Auditor.
Article 42. Place of Meeting
All Meetings of the Board of Directors may be held at the place where
the Company's head office is located or such other place as may be
determined by the officer convening said meetings.
Article 43. Presiding Officer
(1) The Representative Director shall preside at the Meeting of the
Board of Directors.
(2) In the event of absence of the Representative Director, a Director
designated in advance by the Board of Directors shall preside at
the Meeting.
Article 44. Methods of Resolution
(1) Resolutions of the Board of Directors shall be adopted by a
majority of the Directors present at the Meeting where a majority of
all Directors in office are present.
(2) The Board of Directors may allow all Directors to take part in the
adoption of a resolution by means of a communication system of
transmitting and receiving visual images and sounds simultaneously
without personal attendance of all or a part of all Directors. In
this case, the relevant Directors shall be deemed to have attended
the Meeting.
(3) Any Director who has an interest in the matter being decided by the
Board of Directors shall not exercise his vote for that particular
matter.
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Article 45. Minutes
The substance of the proceedings at a meeting of the Board of
Directors, the results thereof, the names of the dissenting Directors,
and the reasons thereof shall be recorded in the minutes of the Meeting,
which shall bear the names and seals of the Directors and Auditor
present at the Meeting and shall be preserved in the Company's records.
CHAPTER VII
ACCOUNTING
Article 46. Fiscal Year
(1) The fiscal year of the Company shall commence on January 1 and
end on December 31 of each year.
(2) The first fiscal year of the Company shall commence with the date
of the registration of incorporation of the Company and end on the
following December 31.
Article 47. Financial Statements and Business Report
(1) The Representative Director shall prepare a business report and
the following financial documents, together with supplementary
schedules, for each fiscal period, shall obtain an approval thereof
from the Auditor six (6) weeks before the day set for the Ordinary
General Meeting of Shareholders, and shall submit the same to the
shareholders at the Ordinary General Meeting of Shareholders:
(a) A balance sheet;
(b) A profit and loss statement; and
(c) A statement of appropriation of retained earnings or
statement of disposition of deficit.
(2) The Auditor shall submit an audit report to the Representative
Director within one (1) week prior to the day set for the Ordinary
General Meeting of Shareholders.
(3) The Representative Director shall keep on file the documents set
forth in Paragraph (1), supplementary schedules, the business
report, and the audit report at the head office for five (5) years
and copies thereof at branch offices for three (3) years, beginning
from one (1) week before the day set for the Ordinary General
Meeting of Shareholders.
(4) The Representative Director shall without delay publish a public
notice of the balance sheet of the Company as soon as it obtained
an approval of the documents set forth in Paragraph (1) above at
the Ordinary General Meeting of Shareholders.
Article 48. Disposition of Profit
(1) The Company shall dispose of the retained earnings before
appropriation of the Company for each fiscal year in the following
order of priority:
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(a) Legal reserves for profit;
(b) Other legal reserves, if any, required by applicable law;
(c) Dividends;
(d) Discretionary reserves; and
(e) Other dispositions.
Article 49. Distributions of Profit
(1) Dividends may be paid out in cash or stock.
(2) Dividends shall be paid to the shareholders or the registered
pledgees who have been duly entered in the register of
shareholders as of the end of each fiscal year.
Article 50. Claim for Payment of Dividends
(1) Any claim for payment of dividends expires unless it is exercised
within five (5) years from the date of the resolution of the General
Meeting of Shareholders declaring such dividends.
(2) The dividends for which the statute of limitation for a claim
therefore ran out as set forth in the preceding Paragraph (1) shall
belong to the Company.
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EXHIBIT 4
COPY OF MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER between By George Holding
Corp., a US corporation ("BGHC"), MERIDIAN CO. LTD. a Korean
corporation ("Meridian") and ABR MERIDIAN (GEORGIA) INC., a
Georgia corporation and a wholly owned subsidiary of Meridian (the
"Sub"), BGHC, Meridian 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 "Commission"), Meridian
will elect to become the successor issuer to BGHC 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. BGHC 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 BGHC and the Sub pursuant to
the Georgia Business Corporation Act; and
2.2. Execution and filing by BGHC and the Sub of Articles of
Merger with the Department of State of the State of Georgia in
accordance with the Georgia Business Corporation Act.
3. TIME OF FILINGS. The Articles of Merger shall be filed with
the Department of State of the State of Georgia 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 " ABR Meridian (Texas) Corp."
unless changed by the Sub.
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9. CONVERSION. The mode of carrying the Merger into effect and
the manner and basis of converting the shares of BGHC into shares of
Meridian are as follows:
9.1. The aggregate number of shares of BGHC 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 68,142 shares of Meridian Common Stock (the
"Meridian Shares") adjusted by any increase for fractional shares and
reduced by any Dissenting Shares (defined below).
The Meridian 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, if applicable, 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 635,995 shares
of Meridian Common Stock issued and outstanding, subject to such
adjustments, held as follows: 68,142 common shares held by the former
shareholders of BGHC and 567,853 common shares held by the other
shareholders of Meridian
9.3. All outstanding Common or Preferred Stock of BGHC 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 BGHC Common Stock that is owned by BGHC as
treasury stock shall, by virtue of the Merger and without any action on
the part of BGHC, be retired and cancelled as of the Merger Date.
9.5. Each certificate evidencing ownership of shares of Meridian
Common Stock issued and outstanding on the Merger Date or held by
Meridian in its treasury shall continue to evidence ownership of the
same number of shares of Meridian Common Stock.
9.6. Meridian Common Stock shall be issued to the holders of
BGHC Common Stock in exchange for their shares as provided by
BGHC.
10. EXCHANGE OF CERTIFICATES. As promptly as practicable
after the Merger Date, each holder of an outstanding certificate or
certificates theretofore representing shares of BGHC 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 Meridian Common Stock into which the shares of BGHC
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.
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11. UNEXCHANGED CERTIFICATES. Until surrendered, each
outstanding certificate that prior to the Merger Date represented BGHC
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
Meridian Common Stock into which it was converted. No dividend or
other distribution payable to holders of Meridian Common Stock as of
any date subsequent to the Merger Date shall be paid to the holders of
outstanding certificates of BGHC 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 therefore 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 Meridian Common Stock represented thereby.
12. EFFECT OF THE MERGER. On the Merger Date, the separate
existence of BGHC 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 BGHC. BGHC
represents and warrants that:
13.1. CORPORATE ORGANIZATION AND GOOD STANDING.
BGHC is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Georgia, 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. BGHC 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. BGHC 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. BGHC's authorized capital stock consists
of 1,000 shares of Common Stock, no par value, of which 100 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 BGHC Common Shares
issued or committed to be issued.
13.7. CORPORATE AUTHORITY. BGHC 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. BGHC has no subsidiaries.
13.9. LITIGATION. There is not, to the knowledge of BGHC, any
pending, threatened, or existing litigation, bankruptcy, criminal, civil,
or regulatory proceeding or investigation, threatened or contemplated
against BGHC or against any of its officers.
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13.10. CONTRACTS. BGHC 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 BGHC 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.
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 BGHC is
subject or by which BGHC is bound.
14. REPRESENTATIONS AND WARRANTIES OF MERIDIAN.
Meridian represents and warrants that:
14.1. CORPORATE ORGANIZATION AND GOOD STANDING.
Meridian 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. Meridian's authorized capital stock
consists of 2,000,000 shares of Common Stock, Won 5,000 par value, of
which 567,853 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. Meridian 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. Meridian 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 Meridian 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 Meridian
or the Sub is subject or by which Meridian or the Sub is bound.
15. CONDUCT OF BGHC PENDING THE MERGER DATE. BGHC
covenants that between the date of this Agreement and the Merger Date:
15.1. No change will be made in BGHC's Certificate of
Incorporation or bylaws.
15.2 BGHC 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.
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15.3. BGHC 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 MERIDIAN PENDING THE MERGER DATE.
Meridian covenants that between the date of this Agreement and the
Merger Date:
16.1. No change will be made in the Meridian's Articles of
incorporation or bylaws.
16.2. Meridian 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 BGHC.
BGHC'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 BGHC:
17.1.MERIDIAN'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Meridian 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. MERIDIAN AND THE SUB'S COVENANTS. Meridian 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
Meridian 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 MERIDIAN. Meridian 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 Meridian:
18.1. BGHC'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of BGHC 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. BGHC'S COVENANTS. BGHC 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
BGHC 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, Meridian,
BGHC 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.
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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, BGHC shall deliver to the Exchange Agent in
satisfactory form, if not already delivered to Meridian:
(i) A list of the holders of record of the shares of BGHC 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 Meridian 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 BGHC 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
BGHC to be exchanged hereunder or, where any such certificate is not
delivered, an affidavit of lost certificate or other reason for
non-delivery.
20.4. At the Closing, Meridian shall deliver to the Exchange Agent
in satisfactory form, if not already delivered to BGHC:
(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 Meridian 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 Meridian(the "Meridian Certificates")
to be delivered to the shareholders of BGHC 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) $50,000US to Penn Capital Canada Ltd. or its nominee for
syndication services.
20.5 RELEASE OF CONSIDERATION. Upon filing of the Articles of
Merger and Certificate of Merger, the Exchange Agent is expressly
authorized to:
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(i) deliver the BGHC Certificates to Meridian;
(ii) deliver the Meridian Certificates to the BGHC Shareholders; and
(iii) deliver $50,000US 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"), Meridian will elect to become the successor issuer to
BGHC 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 herebyirrevocably 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 Georgia, 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.
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.
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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, Meridian will elect to
become the successor issuer to BGHC for reporting purposes under the
Securities Exchange Act of 1934.
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 BGHC, to: c/o Maitland & Company
700 625 Howe Street
Vancouver BC Canada
If to Meridian and the Sub , to: 103-608 Buchon - Technopark
Samjung Dong, Ojung-Ky,
Buchon, Kyonggi, Korea
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25. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Georgia.
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 February 7, 2001.
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
BETWEEN BY GEORGE CAPITAL, INC, MERIDIAN CORP. AND
ABR MERIDIAN (GEORGIA) CORP.
IN WITNESS WHEREOF, the parties have executed this Agreement.
BY GEORGE HOLDING CORP.
By: /s/ John Mackay /s/
-------------------------------
JOHN MACKAY, President
MERIDIAN CORP.
By: /s/Hyeon-Seong Myeong/s/
-------------------------------
HYEON-SEONG MYEONG, President
ABR MERIDIAN (GEORGIA) INC.
By: /s/Hyeon-Seong Myeong/s/
-------------------------------
HYEON-SEONG MYEONG, Presiden
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