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a 0 percent interest promissory note to Dooyong for $82,000. The
maturity date of the note was March 17, 1993.
On March 29, 1991, Dooyong shipped two video games4 to
3-Koam. For U.S. Customs' purposes, Dooyong declared $4,500 as
the total value of the games. This was the only import
transaction between Dooyong and 3-Koam. Thereafter, 3-Koam test
marketed its product by placing one of the games in an arcade in
Santa Clara, California, and the other in Santa Cruz. After 4
weeks, 3-Koam determined that the games did not attract
sufficient customers and had no residual value, and therefore
decided to abandon the idea of distributing arcade video games.
3-Koam never attempted to sell the games to any other person or
entity.
Neither Inkax nor 3-Koam ever paid Dooyong for its
development efforts. Moreover, at the time of trial, Inkax had
closed its bank account and dissolved. Dooyong has never taken
any legal recourse against 3-Koam or Inkax to enforce the $82,000
promissory note issued by Inkax.
On its 1990 U.S. Partnership Return of Income (Form 1065),
the only transactions Inkax reported were the accrual of $90,000
of income from 3-Koam, and an accrual of $82,000 as cost of goods
sold, reflecting the promissory note issued to Dooyong, which
produced an $8,000 operating profit. Houston and Paik each
4 Dooyong actually shipped 3-Koam video game circuit boards,
which 3-Koam then assembled into two video game arcade cabinets.
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