SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended: July 31, 2003
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from:
Commission File No. 2-96510-NY
DG LIQUIDATION, INC.
(Name of registrant as specified in its charter)
New Jersey 11-2269958
(State of other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
c/o Med-Care, Building #3, 3535 Route 66, Neptune, NJ 07753
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (732) 918-7555
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
------------------- ----------------
None None
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $1.00 per share
1
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Act") during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [ ]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
There is no trading market and therefore no market value for the
registrant's voting common equity securities.
Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date:
As of July 14, 2004 there were 9,274,863 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
PART I
ITEM 1. BUSINESS.
General
DG Liquidation, Inc. (formerly known as "Drug Guild Distributors,
Inc.", and sometimes referred to as the "Company" or the "Registrant"), was
previously engaged in wholesale distribution of a wide variety of products
almost exclusively to drugstores and health and beauty product stores primarily
in the State of New Jersey and the Greater New York City metropolitan area.
Since the sale of assets to Neuman Health Services, Inc. and Neuman
Distributors, Inc. in July 1997, the Company has been operating under a
liquidation plan and its financial reporting is now made in accordance with the
liquidation basis of accounting. Therefore, all discussions in this annual
report relate to the Company in liquidation.
Asset Sale
On July 3, 1997, the Company sold substantially all of its operating
assets, subject to substantially all of the Company's liabilities, to Neuman
Health Services, Inc. and Neuman Distributors, Inc. (collectively "Neuman"),
wholesale distributors of pharmaceuticals and health and beauty products. A Plan
of Complete Liquidation (the "Liquidation Plan") was approved by the holders of
a majority of the Company's outstanding shares of common stock on June 27, 1997.
The Liquidation Plan provided for: (1) sale of the Company's operating assets,
(2) payment of or provision for all of the Company's remaining liabilities and
obligations, (3) payment of $100 per share to holders of preferred stock prior
to any amount distributed to the common stockholders and (4) the dissolution of
the Company.
The purchase price was composed of $4,000,000 in cash paid on closing,
an unsecured $1,000,000 non-interest bearing promissory note due in August 2001,
and an adjustable value promissory note recorded at $10,646,000 payable in
quarterly installments over four years and collateralized by a standby letter of
credit. Neuman also agreed to assume and to pay, perform or discharge certain
specified liabilities of the Company, including leases, trade accounts payable,
accrued expenses as reflected on the closing balance sheet, the collective
bargaining agreement with the union local representing former employees,
expenses incurred in the ordinary course of business, bank debt and long term
notes. However, Neuman did not assume severance or termination payments, worker
compensation claims, liability for any federal, state or local taxes,
environmental claims, undisclosed or contingent liabilities, penalties, Drug
Enforcement Administration fines or liabilities with respect to the preferred
stock of the Company.
The adjustable value note provided for interest at a rate determined
quarterly equal to the higher of 1% plus the 180-day London Interbank Offered
Rate or the rate specified for U.S. Treasury Notes with maturity equal to the
remaining term of the note, but no lower than the Federal rate as disseminated
by the Internal Revenue Service from time to time. Payments on the adjustable
value promissory were made by Neuman until May 2000, when Neuman defaulted in
making the required payments. The Company received $7,084,000 from the standby
letter of credit as result of Neuman's default.
3
In connection with the sale, the Company received an option in favor of
the Company's stockholders to purchase, under certain conditions, an aggregate
of 10% of Neuman shares to be made available in a public offering in the event
Neuman filed a registration statement with the Securities and Exchange
Commission prior to July 3, 2001, at a price equal to 85% of the per share
public offering price. Since no registration statement was been filed by Neuman
prior to July 3, 2001, the option lapsed.
The asset purchase agreement provided that the purchase price was
subject to adjustment based upon a final valuation of the assets and liabilities
sold. The terms of sale also provided that Neuman had one year from the date of
purchase to return to the Company any accounts receivable balances which had not
then been collected and reduce the amount of the adjustable note by such
uncollected balances.
On or about July 1, 1998, Neuman proposed to reassign to the Company
uncollected accounts receivable of four customers which accounted for
approximately $1,486,000. The Company rejected Neuman's proposal and claimed
that, pursuant to the provisions of the asset purchase agreement, it was
entitled to receive the full amount of the pre-acquisition balance due of
$1,486,000 out of a pending payment by a major pharmaceutical retail chain to
Neuman of approximately $2,500,000. This disagreement between Neuman and the
Company was ended by Neuman's bankruptcy in 2000 (see below) and the uncollected
accounts receivable of $1,486,000 were not reassigned to the Company.
On April 6, 2000, Neuman filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code. As a result, the Company wrote off the then
$880,000 carrying value of Neuman's unsecured promissory note as uncollectible.
Neuman's bankruptcy petition constituted an "event of default" under the terms
of the secured adjustable value promissory note. By reason of Neuman's default,
and on May 22, 2000, the Company made a drawing on the standby letter of credit
which collateralized the note. On May 25, 2000, the Company received $7,084,000,
of which $2,794,000 represented the carrying value of the adjustable rate note,
$102,000 represented accrued interest thereon through such date and $4,188,000
represented additional proceeds.
Within the ninety-day period prior to the filing of the Neuman
bankruptcy petition, the Company had received $885,000 of quarterly payments
from Neuman in connection with the adjustable value note. Subsequent to the
filing of the Neuman bankruptcy petition, the Chapter 11 Trustee filed a
complaint against the Company in the Bankruptcy Court seeking to recover the
$885,000 as a preference payment. The Company filed an answer including defenses
against the Trustee's claims and filed a motion for summary judgment. October
20, 2000, the Company also filed a general unsecured claim against the Neuman
bankruptcy estate which reflected $7,657,000 due from Neuman on the adjustable
value note at March 31, 2000, including $576,000 of additional accrued interest
through such date based on the increased amount of the note, prior to the
receipt of the $7,084,000 letter of credit proceeds, leaving a balance of
$573,000 due the Company. In addition, the Company filed a claim for $1,000,000
in connection with the unsecured note.
4
On September 24, 2002, a settlement agreement was entered into pursuant
to which the Company and the Trustee released each other from all pre-petition
or post-petition claims, except that the Company was entitled to receive
distribution from the bankruptcy estate with respect to its unsecured claims,
referred to above, which were allowed in full. The settlement agreement was
approved by the Bankruptcy Court on October 9, 2002. See Note A-2 to the
financial statements with respect to the recording of $4,188,000 as additional
gain.
As of the date of this report, no additional distribution has been
made to the Company from the Neuman bankruptcy estate and there is no assurance
that any additional distributions will be made in the future.
Employees
The Company has oral consulting agreements with its President, Harold
Blumenkrantz, and a director, Michael Katz, and a written consulting agreement
with Jay Reba, its former Vice President-Finance, for the purpose of
implementing the Liquidation Plan. The terms of the consulting agreement with
Mr. Blumenkrantz provided for his part-time employment on a month-to-month basis
for a consulting fee of $5,000 per month, plus reasonable and customary
expenses. Mr. Blumenkrantz ceased collecting his consulting fee after July 31,
2001. Michael Katz received a consulting fee of $1,000 per month for assistance
in liquidation activities until the end of April 2002. The written consulting
agreement with Mr. Reba is dated June 4, 1998, and provided for his consulting
services for a minimum of three months, and on a month-to-month basis
thereafter, for a consulting fee of $11,400 per month (beginning in January
1999), plus reasonable and customary expenses and a severance payment of
$34,200. Mr. Reba's consulting agreement terminated August 31, 1999. He was
thereafter engaged by the Company on a month-to-month basis to render limited
consulting services for a fee of $2,750 per month from September 1, 1999 until
April 30, 2002. His current engagement by the Company provides for payment to
him of $125 per hour, plus expense reimbursement, for work he is asked to
perform.
Competition.
Competition is no longer a material factor for the Company, since it is
engaged only in implementing its Liquidation Plan and is not actively engaged in
business as a going concern.
ITEM 2. PROPERTIES.
The Company occupies office space, on a month-to-month basis, in the
offices of its President, Harold Blumenkrantz, in Neptune, New Jersey and in
Boca Raton, Florida, at an annual cost, including telephone service, photocopies
and postage, of $1,200.
5
ITEM 3. LEGAL PROCEEDINGS.
DG Liquidation, Inc. v. Anchin, Block & Anchin, LLP.
- ---------------------------------------------------
On March 3, 1998, the Company filed a complaint in New York County
Supreme Court against its former auditors, Anchin, Block & Anchin, LLP (the
"Anchin Firm"), seeking to recover damages for professional malpractice, breach
of fiduciary duty and breach of contract exceeding $16,000,000 in connection
with inventory defalcations during the period of October 1992 through May 1996.
The Anchin Firm had previously acted in the capacities of financial advisors,
auditors and accountants for the Company for a continuous period beginning in
1977 and ending on July 2, 1996.
On April 30, 1998, the Anchin Firm filed an answer denying the material
allegations, and commenced a third-party lawsuit against members of the
Company's Executive Committee during the period of January 1990 through May 31,
1996, and the Company's corporate attorneys, alleging that if the Company was
successful in its claims against the Anchin Firm, then these third-party
defendants should be held liable for the losses to the Company by reason of an
alleged failure to reasonably perform their respective fiduciary duties. On
October 27, 1998, the court dismissed all of the third-party claims against the
Company's corporate attorneys and the Anchin Firm withdrew its claims against
the former members of the Executive Committee.
The Company's claims against the Anchin Firm were tried before a jury in
Supreme Court, New York County in October and November 2002, which resulted in a
verdict in favor of the Company. Judgment in favor of the Company and against
the Anchin Firm was entered in Supreme Court, New York County on February 4,
2003. The judgment was paid in full on May 16, 2003 in the total sum of
$297,000. See Note E-1 to the financial statements.
Claim of Daniel Kantor
Mr. Kantor is a former director of the Company who owns or controls
approximately 134,000 shares of the Company's common stock. In October 1996, the
Company received a letter from an attorney for Mr. Kantor alleging mismanagement
of the Company and requesting additional information. In June 1997, the
attorney, acting on behalf of Mr. Kantor and other stockholders who appear to be
related to Mr. Kantor, asked for copies of the Company's financial statements
over the past three years, which the Company supplied. As of the date of this
report, no other action has taken place with regard to this matter.
Michael's Pharmacy and Michael Scicutella v. Drug Guild Distributors, Inc., et
al.
The plaintiff, a customer of Drug Guild, initiated this lawsuit in
February 1997 in the United States District Court for the District of New
Jersey, alleging that the Company has conspired with co-defendant wholesalers,
McKesson Corp., Cardinal Health Company, W. Daly, Inc. and Remo Drug Corp. to
deny credit to the plaintiff that was allegedly due to it, amounting to an
alleged "group boycott" in violation of the federal Sherman Anti-trust Act and
New Jersey's Anti-trust Act, as well as an alleged breach of an implied covenant
of good faith and fair dealing, and tortious interference with the plaintiff's
contracts.
6
The plaintiff asked for preliminary and permanent injunctions as well as
a money judgment against each defendant for what were described as actual,
compensatory, punitive and trebled damages, attorney's fees and costs, and such
other relief as the court found appropriate. The court denied the plaintiff's
requests for a preliminary injunction. The Company filed an answer denying all
of the material allegations of the complaint, setting forth various affirmative
defenses, alleging a counterclaim against the plaintiff for approximately
$48,000 owed to the Company, and asked for a dismissal of the complaint.
The defendants, including the Company, made motions for summary
judgment seeking dismissal of all of the plaintiff's claims. The Company also
asked for summary judgment on its counterclaim. On August 12, 2002, all of the
claims were formally dismissed by the court.
The Company has been a party to several other pending legal actions,
principally motor vehicle accidents involving vehicles owned or operated by the
Company, and other claims, including products liability, for which the Company
is covered by insurance. The results of these various lawsuits and claims will
not materially affect the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fiscal year ended July 31, 2003 through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no existing public market for any of the Company's securities.
As of July 14, 2004, there were approximately 366 holders of record of
the Company's common stock, and all of the Company's preferred stock has been
redeemed.
The Company has never paid a cash dividend and does not expect to pay
cash dividends in the future. As of the date of this report, liquidation
payments have been made to preferred stockholders ($2,262,000) and common
stockholders ($15,785,000, with a reserve of $39,000 for certain stockholders
who could not be located), and additional liquidation payments will be made to
the Company's common shareholders in accordance with the provisions of the
Liquidation Plan.
ITEM 6. SELECTED FINANCIAL DATA
This table has been omitted because the Company's financial reporting
is now being made on the liquidation basis of accounting. See Item 8 - Financial
Statements and Supplementary Data.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since July 1, 1997, the Company has been operating under the
Liquidation Plan and its financial reporting is being made in accordance with
the liquidation basis of accounting. Therefore, the following discussion relates
to the financial statements presented on a liquidation basis.
Statement of Net Assets in Liquidation
Pursuant to the Liquidation Plan, the Company sold substantially all of
its operating assets on July 3, 1997, subject to substantially all of the
Company's liabilities, for an aggregate price of $4,000,000 in cash paid at the
closing, an unsecured, non interest bearing promissory note for $1,000,000 due
August 2001 and an adjustable value promissory note recorded for $10,646,000
payable over four years with interest at 1% above the 180-day Libor rate and
collateralized by an irrevocable standby letter of credit. The $1,000,000
promissory note was recorded at its then present value of approximately
$766,000. The purchase price was subject to additional adjustment based on the
final valuation of the assets and liabilities sold. In addition, the buyer had
the right to return any receivables not paid after one year from the sale. As of
July 31, 2002, the Company had collected an aggregate total of $12,063,000 of
payments made on the adjustable rate promissory note, of which $10,646,000 was
applied to notes receivable and the remaining $1,417,000 to interest. In the
year ended July 31, 2000, the Company wrote off the carrying value of $880,000
of the unsecured promissory note.
The Company set aside as accrued and estimated liquidation expenses an
amount believed to be adequate for payment of all expenses and other known
liabilities as well as likely and quantifiable contingent obligations, including
potential tax obligations. In the event this accrued and estimated liquidation
expense is not adequate for payment of the Company's expenses and liabilities,
each stockholder could be held liable for pro rata payments to creditors in an
amount not to exceed the stockholder's prior distributions from the Company. The
Company has therefore adopted a conservative policy of retaining sufficient
assets to insure against any unforeseen and non-quantifiable contingencies.
Statement of Changes in Net Assets in Liquidation
As of July 31, 2003, the Company had net assets in liquidation of
$2,442,000. This represented an increase in estimated liquidation value of
assets over liabilities of $957,000 from the net assets at July 31, 2002. This
increase was mainly attributed to the additional gain on sale of assets of
$2,513,000, net of $1,675,000 income taxes. This was reduced by a liquidating
distribution to common shareholders of $1,856,000. The increase in net assets
also included interest income of $37,000, collection of accounts receivable
previously written off of $342,000 and by decreased other expenses of $16,000.
In addition, the net proceeds from the judgment against Anchin was $6,000 net of
expenses of $291,000. The provision for income taxes related to the increase in
net assets was $1,777,000.
8
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the index constituting a part of Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision of the
Company's management, the President and Chief Executive Officer and Secretary,
Treasurer, Principal Financial and Accounting Officer. Based upon that
evaluation, the Company's President, Chief Executive Officer and Principal
Financial and Accounting Officer have concluded that the Company's disclosure
controls and procedures are currently effective in timely alerting them to
material information relating to the Company required to be included in the
Company's periodic SEC filings.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
Company reports filed under the Act is accumulated and communicated to
management, which consists only of the Company's President and Chief Executive
Officer and Secretary, Treasurer, Principal Financial and Accounting Officer, to
allow timely decisions regarding required disclosures.
Changes in Internal Controls.
There have been no changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In connection with adoption of the Liquidation Plan in June 1997, the
Company's shareholders approved elimination of staggered terms for members of
the Board of Directors and reduced the number of members from 34 to 7.
The following individuals served as directors and executive officers
of the Company during the fiscal year ended July 31, 2003:
Name Age Position
---- --- --------
Harold Blumenkrantz 70 President, Chief Executive Officer and Director
Alfred Hertel 79 Chairman of the Board and Director
Michael Katz 69 Vice President and Director
Gerald Koblin 71 Secretary, Treasurer, Chief Accounting and
Financial Officer and Director
Paul Emanuel 82 Director
Ernest Wyre 84 Director
The Company's officers hold office until the next annual meeting of the
Company's Board of Directors and until their respective successors are elected.
Harold Blumenkrantz has been a member of the Executive Committee of the
Company's Board of Directors for more than the past five years and was appointed
President in June 1997. He has been a principal of West End Family Pharmacy,
Inc., Long Branch, New Jersey, since 1962.
Alfred Hertel has been an officer and director of the Company and an
officer and a principal shareholder of Oakland Drug Inc., located in Oakland,
New Jersey, for more than the past five years.
Michael Katz was principal of Katz Drug, Brooklyn, New York and is now
retired. Mr. Katz has been a director of the Company since 1976 and a vice
president of the Company since June 1997.
Gerald Koblin has been a principal of Koblin Pharmaceuticals, Inc.,
Nyack, New York for more than the past five years. Mr. Koblin has been a
director of the Company since 1995, the Secretary and Treasurer since July 1997,
and the Chief Accounting and Financial Officer of the Company since August 1997.
Paul Emmanuel had been the owner of Town and Country Pharmacy, Inc.,
Ridgewood, New Jersey, for more than the past five years before he sold the
store in 2000. Mr. Emmanuel has been a director of the Company since 1985.
10
Ernest Wyre (deceased December 14, 2003) was a principal of Lenox
Terrace Drugstore, Inc. and Fairview Chemists, Brooklyn, New York for more than
five years prior to 1987, and since that time has been a private investor. Mr.
Wyre has been a director of the Company since 1976.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth, for the fiscal years ended July 31,
2003, 2002 and 2001, the cash compensation paid by the Company, as well as
certain other compensation paid with respect to those years, to the chief
executive officer and each of the four other most highly compensated executive
officers of the Company in all capacities in which they served.
ANNUAL COMPENSATION
Other
Name Annual All Other
and Principal Compen- Compen-
Position Year Salary Bonus sation sation
- -------------------------------------------------------------------------------------------------
Harold Blumenkrantz 2001 $60,000
President and CEO 2002 -0-
2003 -0-
All 2003 Executive Officers
as a Group (2 persons) -0-
None of the directors or members of the Executive Committee received
any direct remuneration from the Company or reimbursement for expenses, except
that Michael Katz received a consulting fee of $1,000 per month for assistance
in liquidation activities until the end of April 2002 and the Company reimburses
minor amounts of expenses on an infrequent basis.
None of the directors or members of the Executive Committee received
any direct remuneration from the Company or reimbursement for expenses, except
that Michael Katz received a consulting fee of $1,000 per month for assistance
in liquidation activities until the end of April 2002 and the Company reimburses
minor amounts of expenses on an infrequent basis.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
11
The following table sets forth certain information regarding shares of
common stock beneficially owned as of July 14, 2004, by (i) each person, known
to the Company, who beneficially owns more than 5% of the common stock, (ii)
each of the Company's directors and (iii) all officers and directors as a group:
Name and Address of Beneficial Owner Shares Beneficially Owned (1) Percentage of Stock Outstanding (1)
- ------------------------------------ ----------------------------- -----------------------------------
Sharon Sternheim, Executrix of The 492,784 5.31%
Estate of Howard Sternheim
1020 Park Avenue
New York, NY 10028
Paul Emanuel 24,480 .26%
468 Churchill Road
Teaneck, NJ 07666
Harold Blumenkrantz 36,685 .40%
7411 Orangewood Lane
Boca Raton, FL 33433
Alfred Hertel 113,358 1.22%
84 Shoreline Drive
Hilton Head Island, SC 29928
Michael Katz
3400 Galt Ocean Drive 101,196 1.09%
Apt. 1507S
Fort Lauderdale, FL 33308
Gerald Koblin
214 Jewett Road 43,997 .47%
Upper Nyack, NY 10960
Nilsa Wyre,
Executive of the Eastate of
Ernest Wyre
6613 Pullen Ct. 149,699 1.61%
Tampa, FL 33625
All Officers and Directors as a Group 469,415 5.06%
(6 persons)
(1) All of these shares are owned of record. Common Stock
12
The Company is authorized to issue up to 25,000,000 shares of common
stock, $1.00 par value each, of which 9,274,863 shares are currently issued and
outstanding. The holders of common stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders, and are entitled
to receive dividends when and if declared by the Board of Directors out of funds
legally available therefore. The common stock has no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable to
the common stock (except for the Company's right of first refusal, discussed
below). There is no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the shares of common stock
can elect all of the directors.
Holders of the common stock who are customers of the Company are
required to pledge their shares to the Company as security for their purchase of
products. All holders who intend to sell their shares are required to first
offer them to the Company (the "right of first refusal") at a purchase price
equal to the lesser of (a) the book value of the shares or (b) the greater of
cost or par value. If the Company elects to exercise its right of first refusal,
it must pay for the shares in three equal annual installments, without interest,
commencing 60 days after the offer is made.
In the event of liquidation, dissolution or winding up of the Company,
such as that being implemented the Liquidation Plan, the owners of common stock
are entitled to share all assets remaining available for distribution after the
payment of liabilities and after provision has been made for each class stock,
if any, having a preference over the common stock as such.
Preferred Stock
The Company is authorized to issue up to 250,000 shares of preferred
stock, $100 par value each. Preferred stockholders are entitled to an 8%
cumulative dividend based on par value, payable in preferred stock. Upon
liquidation of the Company, holders of the preferred stock are entitled to a
payment of $100 per share before any amounts are paid to holders of common
stock. The preferred stock is not entitled to vote and does not have any
preemptive or conversion rights.
Holders of preferred stock have the right to require the Company to
repurchase their shares at par value ($100.00) commencing five years after full
payment for the stock has been made.
The Company may call preferred stock at any time. The call price is
105% of par value if shares are called within the first year of issue, 110% of
par value within the second year, 115% within the third year, 120% within the
fourth year and 125% after four years.
A holder of shares of preferred stock desiring to sell his shares to a
third party must first offer them to the Company at the repurchase price. If the
Company elects to accept such offer, it is obligated to pay for such shares in
three equal annual installments, without interest, the first such installment to
be made 60 days after such offer.
As of July 31, 2003, there were no shares issued and outstanding.
13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has oral consulting agreements with its President, Harold
Blumenkrantz, and a director, Michael Katz, and a written consulting agreement
with Jay Reba, its former Vice President-Finance, for the purpose of
implementing the Liquidation Plan. The terms of the consulting agreement with
Mr. Blumenkrantz provided for his part-time employment on a month-to-month basis
for a consulting fee of $5,000 per month, plus reasonable and customary
expenses. Mr. Blumenkrantz ceased collecting his consulting fee after July 31,
2001. Michael Katz received a consulting fee of $1,000 per month for assistance
in liquidation activities until the end of April 2002. The written consulting
agreement with Mr. Reba is dated June 4, 1998, and provided for his consulting
services for a minimum of three months, and on a month-to-month basis
thereafter, for a consulting fee of $11,400 per month (beginning in January
1999), plus reasonable and customary expenses and a severance payment of
$34,200. Mr. Reba's consulting agreement terminated August 31, 1999. He was
thereafter engaged by the Company on a month-to-month basis to render limited
consulting services for a fee of $2,750 per month from September 1, 1999 until
April 30, 2002. His current engagement by the Company provides for payment to
him of $125 per hour, plus expense reimbursement, for work he is asked to
perform.
The Company occupies office space, on a month-to-month basis, in the
offices of its President, Harold Blumenkrantz, in Neptune, New Jersey, and Boca
Raton, Florida, at an annual cost, including telephone service, photocopies and
postage, of $1,200.
No other officer or director received any direct remuneration from the
Company or reimbursement for expenses, except that the Company reimburses minor
amounts of expenses on an infrequent basis.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT FEES
The aggregate fees billed by Eisner LLP for the annual audit and review
of the interim financial statements were approximately $17,000 and $17,000 for
the fiscal years ended July 31, 2003 and 2002, respectively.
AUDIT RELATED FEES
Eisner LLP did not render any professional services to DG Liquidation,
Inc. involving "Audit Related Fees" other than as set forth in the preceding
paragraph.
TAX FEES
Eisner LLP did not render any professional services to DG Liquidation,
Inc. during the fiscal years ended July 31, 2003 and 2002 for tax compliance,
tax advice and tax planning services.
ALL OTHER FEES
The aggregate fees billed by Eisner LLP for all other services rendered
to DG Liquidation, Inc. during the fiscal years ended July 31, 2003 and 2002,
other than audit services, were approximately $16,000 and $3,000, respectively.
These "other fees" were for services related to the Anchin lawsuit and tax
return preparation.
14
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
Schedules and Reports on Form 8-K
(a)(1) Financial Statements.
The following are filed with this report:
(i) Independent Auditors' Report.
(ii) Statement of Net Assets (liquidation basis) at July 31, 2003
and 2002.
(iii) Statement of Changes in Net Assets (liquidation basis) for the
years ended July 31, 2003, 2002 and 2001. (iv) Notes to the
Financial Statements.
(a)(2) Financial Statement Schedules:
None
(a)(3) Exhibits.
The following exhibits are filed as part of this report:
Exhibit Number Exhibit
-------------- -------
31 Rule 13(a)-15(e)/15(d)-15(e) Certifications.
32 Section 1350 Certification
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal
2003.
15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this amended Section 13 or 15(d) report to be
executed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Neptune, State of New Jersey, on July 14, 2004
DG LIQUIDATION, INC.
By: /s/ Harold Blumenkrantz
-----------------------
Harold Blumenkrantz, President
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amended report has been signed by the following person on behalf of the
Registrant and in the capacity and on the date indicated.
/s/ Harold Blumenkrantz President, Chief Executive July 14, 2004
-------------------
Harold Blumenkrantz Officer and Director
/s/ Gerald Koblin Secretary, Treasurer, July 14, 2004
--------------------------
Gerald Koblin Principal Financial and
Accounting Officer and Director
/s/ Alfred Hertel Chairman of the Board July 14, 2004
----------------------------
Alfred Hertel and Director
/s/ Michael Katz Vice President and Director July 14, 2004
---------------------------
Michael Katz
/s/ Paul Emanuel Director July 14, 2004
--------------------------
Paul Emanuel
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
DG Liquidation, Inc.
We have audited the accompanying statements of net assets (liquidation basis) of
DG Liquidation, Inc. as of July 31, 2003 and 2002 and the related statements of
changes in net assets (liquidation basis) for each of the three years in the
period ended July 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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.
As described in Note A to the financial statements, the stockholders of the
Company approved a plan of liquidation on June 27, 1997 and on July 3, 1997, the
Company sold substantially all its net assets and commenced liquidation
proceedings. As a result, the Company has changed its basis of accounting for
periods subsequent to June 30, 1997 from the going concern basis to a
liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in liquidation of DG Liquidation, Inc. as
of July 31, 2003 and 2002 and the changes in its net assets in liquidation for
each of the three years in the period ended July 31, 2003, in conformity with
accounting principles generally accepted in the United States of America applied
on the liquidation basis as described in the preceding paragraph.
Eisner LLP
New York, New York
October 24, 2003
F-1
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
STATEMENTS OF NET ASSETS
(liquidation basis)
(in thousands, except share and per share amounts)
JULY 31,
2003 2002
--------- ---------
ASSETS
Cash $ 2,653 $ 4,550
Deferred tax asset 50 1,763
Other assets 21 71
--------- ---------
2,724 6,384
LIABILITIES
Estimated liquidation expenses 125 220
Accrued expenses 48 67
Income taxes payable 40 --
Liquidating distributions payable 69 424
Deferred gain related to proceeds from letter of credit 4,188
--------- ---------
282 4,899
Commitments and contingencies (Note E)
NET ASSETS IN LIQUIDATION $ 2,442 $ 1,485
========= =========
NET ASSETS IN LIQUIDATION PER COMMON SHARE (BASED ON 9,275,000 COMMON SHARES
OUTSTANDING IN 2003 AND 2002, RESPECTIVELY) $ 0.26 $ 0.16
========= =========
See notes to financial statements F-2
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS
(liquidation basis)
(in thousands, except share and per share amounts)
YEAR ENDED JULY 31,
2003 2002 2001
---------- ---------- ----------
Net assets in liquidation - beginning of year $ 1,485 $ 102 $ 4,990
---------- ---------- ----------
Gain from life insurance policy proceeds 1,511
Additional gain - related to prior year sale of assets 4,188
Interest and other income 37 94 302
Decrease in estimated costs to be incurred during period of liquidation 33 95 6
Recovery of receivables previously written-off 342 13 80
Gain on settlement of litigation, net of legal expenses 6
Other adjustments to net assets (16) (31) (43)
---------- ---------- ----------
Increase in net assets before income taxes and items shown below 4,590 1,682 345
Provision for income taxes related to change in net assets, including
a deferred tax provision of $1,713 in 2003, $84 in 2002 and $127 in 2001 (1,777) (299) (132)
---------- ---------- ----------
Increase in net assets before items shown below 2,813 1,383 213
Liquidating distributions to common stockholders ($0.20 in 2003 and
$0.55 per share in 2001) (1,856) (5,101)
---------- ---------- ----------
Increase (decrease) in net assets 957 1,383 (4,888)
---------- ---------- ----------
Net assets in liquidation - end of year $ 2,442 $ 1,485 $ 102
========== ========== ==========
See notes to financial statements F-3
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - PLAN OF LIQUIDATION, SALE OF ASSETS AND BASIS OF PRESENTATION
[1] PLAN OF LIQUIDATION:
DG Liquidation, Inc. (the "Company"), formerly known as Drug Guild
Distributors, Inc., was a wholesale distributor of a wide variety of
products to drug stores and health and beauty aid stores located
primarily in the State of New Jersey, the greater New York City
metropolitan area and Connecticut.
A Plan of Complete Liquidation (the "Plan") was approved by the holders
of a majority of the Company's outstanding shares of common stock on June
27, 1997. The Plan provided for: (1) the sale of the Company's operating
assets, (2) the payment of or provision for all of the Company's
remaining liabilities and obligations, (3) payment of $100 per share to
the holders of preferred stock prior to any amounts distributed to the
common stockholders and (4) the dissolution of the Company.
[2] SALE OF ASSETS:
On July 3, 1997, the Company sold substantially all of its operating
assets, subject to substantially all of the Company's liabilities, to
Neuman Health Services, Inc. and Neuman Distributors, Inc. (collectively
"Neuman"), wholesale distributors of pharmaceuticals and health and
beauty products, for $4,000,000 in cash paid on closing, an unsecured
$1,000,000 noninterest bearing promissory note due in August 2001 and the
remainder in an adjustable value promissory note, recorded at
$10,646,000, payable in quarterly installments over four years and
collateralized by a standby letter of credit. The $1,000,000 promissory
note was recorded at its present value using an imputed interest rate of
6.69%. The adjustable value note provided for interest at a rate
determined quarterly equal to the higher of 1% plus the 180-day London
Interbank Offered Rate or the rate specified for U.S. Treasury Notes with
maturity equal to the remaining term of the note, but no lower than the
Federal rate as disseminated by the Internal Revenue Service from time to
time. During the year ended July 31, 1998, pursuant to the terms of the
note, interest was paid quarterly based on the principal payments
received by the Company. Subsequent thereto, interest was payable
quarterly based on the unpaid principal balance of the note.
The asset purchase agreement provided that the purchase price would be
subject to adjustment based upon a final valuation of the assets and
liabilities sold. In addition, the terms of sale provided that Neuman had
one year from the date of purchase to return to the Company any accounts
receivable balances which had not then been collected and reduce the
amount of the adjustable note by such uncollected balances (see Note
E[2]). The gain recognized on the sale was $3,683,000.
On April 6, 2000, Neuman filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code. As a result thereof, during the year
ended July 31, 2000, the Company wrote off their $880,000 carrying value
of the unsecured promissory note due from Neuman. In addition, on May 22,
2000 the Company made a drawing on the standby letter of credit and on
May 25, 2000 received $7,084,000 of which $2,794,000 represented the
carrying value of the adjustable value note, $102,000 represented accrued
interest thereon through such date and $4,188,000 represented additional
proceeds.
F-4
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - PLAN OF LIQUIDATION, SALE OF ASSETS AND BASIS OF PRESENTATION
(CONTINUED)
[2] SALE OF ASSETS: (CONTINUED)
Within the ninety-day period prior to the filing of the petition, the
Company received $885,000 from Neuman in connection with the adjustable
value note. Subsequent to the filing, the Chapter 11 Trustee filed a
complaint against the Company in the Bankruptcy Court to recover such
alleged preference payment. The Company maintained that it had defenses
against the Trustee's claims and filed a motion for summary judgment. In
addition, on October 20, 2000, the Company filed a general unsecured
claim against the bankruptcy estate which reflected that $7,657,000 was
due from Neuman on the adjustable value note at March 31, 2000, including
$576,000 of additional accrued interest through such date based on the
increased amount of the note, prior to the receipt of the $7,084,000
letter of credit proceeds, leaving a balance of $573,000 due the Company.
In addition, the Company filed a claim for $1,000,000 in connection with
the unsecured note.
On September 24, 2002, a settlement agreement, which was approved by the
Bankruptcy Court on October 9, 2002, was entered into pursuant to which
the Company and the Trustee released each other from all pre-petition or
post-petition claims, except that the Company is entitled to receive
distribution from the bankruptcy estate as to its unsecured claims
referred to above which were allowed in full. Accordingly during fiscal
2003, the Company recorded an additional gain on sale of its assets of
$4,188,000.
[3] BASIS OF PRESENTATION:
Subsequent to June 30, 1997, the Company adopted the liquidation basis of
accounting. Accordingly, the net assets of the Company at July 31, 2003
and 2002 are stated at liquidation value whereby assets are stated at
their estimated net realizable values and liabilities, which include
estimated liquidation expenses to be incurred through the date of final
dissolution of the Company, are stated at their anticipated settlement
amounts.
The valuation of assets and liabilities necessarily requires estimates
and assumptions. Net assets and future liquidating distributions will be
subject to uncertainties including the ultimate amount of liquidation
expense and the amount, if any, ultimately collected on unsecured claims
against the bankruptcy estate.
F-5
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE B - ESTIMATED LIQUIDATION EXPENSES
Estimated liquidation expenses, consisting of legal and other professional fees,
consulting fees and insurance expense, to be incurred through the date of final
dissolution of the Company have been accrued in the accompanying financial
statements. Analysis of transactions reflected in the liability for estimated
liquidation expenses during fiscal 2001, 2002 and 2003 follows:
Balance at July 31, 2000 $ 746
Liquidation expenses paid during the year ended July 31, 2001 (312)
Decrease in estimated liquidation expenses to be incurred (6)
---------
Balance at July 31, 2001 428
Liquidation expenses paid during the year ended July 31, 2002 (113)
Decrease in estimated liquidation expenses to be incurred (95)
---------
Balance at July 31, 2002 220
Liquidation expenses paid during the year ended July 31, 2003 (62)
Decrease in estimated liquidation expenses to be incurred (33)
---------
Balance at July 31, 2003 $ 125
=========
F-6
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE C - INCOME TAXES
The Company accounts for income taxes utilizing the asset and liability approach
requiring the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the basis of
assets and liabilities for financial reporting purposes and tax purposes.
The net deferred tax asset at July 31, 2003 and 2002 relates to the following:
2003 2002
------------ -------------
Estimated liquidation expenses $ 50,000 $ 88,000
Deferred gain related to proceeds from letter of credit 1,675,000
Alternative minimum tax credit carryover 165,000 215,000
------------ -------------
215,000 1,978,000
Valuation allowance (165,000) (215,000)
------------ -------------
$ 50,000 $ 1,763,000
============ =============
For the year ended July 31, 2002, the gain from life insurance policy proceeds
which amounted to $1,511,000, although exempt from regular corporate income tax,
resulted in an alternate minimum tax of $215,000 which is included in the
provision for income tax in the accompanying statements of changes in net
assets. Although the alternative minimum tax ("AMT") is available as a credit
against the regular tax liability in future years and is therefore included as
deferred tax assets, a valuation allowance has been provided against such amount
as the amount of credit which will ultimately be realized is uncertain. During
the year ended July 31, 2003, $50,000 of the AMT credit was used to offset the
regular tax liability leaving a remaining AMT credit carryover of $165,000 at
July 31, 2003.
NOTE D - OFFICER'S LIFE INSURANCE
The Company was the owner and beneficiary of insurance policies of $1,600,000,
on the life of its former president. In December 2001, subsequent to the death
of the Company's former president, the Company received approximately
$1,599,000, net of outstanding loans of $157,000 from the insurance company in
settlement of the policies, resulting in a gain of $1,511,000 in fiscal 2002.
NOTE E - COMMITMENT AND CONTINGENCIES
[1] On March 3, 1998, the Company filed a complaint in Supreme Court of the
State of New York, in New York County, against its former auditors,
Anchin, Block & Anchin, LLP (the "Anchin Firm") seeking to recover
damages for professional malpractice, breach of fiduciary duty and breach
of contract exceeding $16,000,000 in connection with an inventory
defalcation. The Anchin Firm had previously acted in the capacities of
financial advisors, auditors and accountants for the Company for a
continuous period beginning in 1977 and ending on July 2, 1996.
The damages sought from the Anchin Firm relate to the loss of inventory
by reason of the defalcations taking place during the period from October
1992 through May 1996, a reduction in the consideration received in the
asset sale transaction with Neuman and restitution of approximately
$900,000 of fees paid to the Anchin Firm and various other fees and
expenses.
F-7
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE E - COMMITMENT AND CONTINGENCIES (CONTINUED)
[1] (continued)
On April 30, 1998, the Anchin Firm filed an answer denying the material
allegations, and commenced a third-party lawsuit against members of the
Company's Executive Committee during the period of January 1990 through
May 31, 1996, and the Company's corporate attorneys, alleging that if the
Company is successful in its claims against the Anchin Firm, then these
third-party defendants, by reason of their alleged failure to reasonably
perform their respective fiduciary duties, should be held liable for the
losses to the Company for which the Anchin Firm is sought to be held
responsible. On October 27, 1998, the court dismissed the third-party
claims against the Company's corporate attorneys and the Anchin Firm
withdrew its claims against the former members of the Executive
Committee, thereby discontinuing the third-party lawsuit.
The Company's claims against the Anchin Firm were tried before a jury in
Supreme Court, New York County, in October and November 2002, which
resulted in a verdict in favor of the Company. Judgment in favor of the
Company and against the Anchin Firm was entered in Supreme Court, New
York County, on February 4, 2003 in the aggregate sum of approximately
$290,000. The judgment was paid in full on May 16, 2003 in the total sum
of $297,000, including interest of $7,000, which amount net of legal
expense of $291,000, is included as gain on settlement of litigation in
the statement of changes in net assets for the year ended July 31, 2003.
[2] On or about July 1, 1998, the buyer of the Company's assets (Neuman)
proposed to reassign to the Company uncollected accounts receivable of
four customers which accounted for approximately $1,486,000 of accounts
receivable purchased from the Company in July 1997 (see Note A[2]). The
Company had assigned those accounts receivable to Neuman together with
related security agreements. After the closing of the asset purchase
Neuman made additional sales to those four customers and extended
additional credit to them. Neuman also incurred legal fees and interest
in seeking to collect both the pre-closing and post-closing accounts
receivable with the result that Neuman asserted that it has made a
post-closing extension of credit to the four customers totaling
approximately $2,336,000. Neuman had told the Company that it should
accept reassignment of the accounts receivable of the four customers in
an aggregate total of $1,486,000 without reassignment of the security
agreements, with a corresponding reduction in the adjustable value note
receivable.
The Company had taken the position that the security agreements must
follow the accounts receivable which they secure and that it is therefore
not obligated to accept reassignment of the accounts receivable, and
therefore a reduction in the face amount of the note, unless it also
receives the security agreements applicable to those accounts receivable.
The Company had told Neuman that pursuant to the asset purchase
agreement, the oldest accounts receivable must be paid in full before the
newer accounts receivable are paid and that it was therefore entitled,
under the security agreements which must be reassigned together with the
accounts receivable, to receive the full amount of the pre-acquisition
balance due of $1,486,000 out of a pending payment by a major
pharmaceutical retail chain to Neuman of approximately $2,500,000.
As described in Note A[2], a settlement agreement was approved by the
Bankruptcy Court on October 9, 2002, pursuant to which the Trustee in
Neuman's bankruptcy and the Company released each other from all
pre-petition or post-petition claims and, accordingly, none of the
accounts receivable were reassigned to the Company.
F-8
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE E - COMMITMENT AND CONTINGENCIES (CONTINUED)
[3] A customer of the Company initiated a lawsuit in February 1997 in the
United States District Court for the District of New Jersey, alleging
that the Company had conspired with co-defendant wholesalers to deny
credit to the plaintiff that is allegedly due to it, amounting to an
alleged "group boycott" in violation of the federal Sherman Anti-trust
Act and New Jersey's Anti-trust Act, as well as a breach of an implied
covenant of good faith and fair dealing and tortuous interference with
the plaintiff's contracts.
The plaintiff asked for preliminary and permanent injunctions as well as
a money judgment against each defendant for what were described as
actual, compensatory, punitive and trebled damages, attorney's fees and
costs and such other relief as the court may deem appropriate. The court
did not enter any preliminary injunction against any defendant. The
Company filed an answer denying all of the material allegations of the
complaint, setting forth various affirmative defenses, alleging a
counterclaim against the plaintiff for the money it owes the Company,
approximately $48,000, and asking for a dismissal of the complaint.
The defendants, including the Company, had made motions for summary
judgment seeking dismissal of all of the plaintiff's claims, which were
pending before the court. The Company had also asked for summary judgment
on its counterclaim. On August 12, 2002, these claims were dismissed by
the court.
[4] The Company entered into consulting agreements with its President, a
Director and its former Vice President - Finance for the purpose of
implementing the plan of liquidation. The agreement with the Company's
President provides for his part-time employment on a month-to-month basis
for a fee of $5,000 per month plus expenses. The consulting fee for the
Director was $1,000 per month and ended in April 2002. The agreement with
the former Vice President - Finance commenced on June 4, 1998 and
provided for a monthly consulting fee of $11,400 (beginning in January
1999) plus expenses, and a severance payment of $34,000. This agreement
terminated in August 1999 and he was engaged thereafter on a
month-to-month basis for a fee of $2,750 through April 2002.
[5] In connection with the sale of the Company's assets on July 3, 1997, the
purchaser assumed the Company's obligation under existing leases and the
landlord released the Company from liability for future lease payments.
The Company, subsequent to the sale, occupies office space on a
month-to-month basis in the offices of its President, at an annual cost
including telephone service, photocopies and postage of $1,200.
[6] The Company has been a party to several other pending legal actions,
principally motor vehicle accidents involving vehicles owned or operated
by the Company, and other claims including one for product liability for
which the Company is covered by its insurance. The Company believes the
results of these various lawsuits and claims will not materially affect
the financial position of the Company.
F-9