UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
National Micronetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-7207 14-1507019
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation
P.O. Box 1128, Kingston, New York 12402
678 Aaron Court, Kingston, New York 12401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 338-0333
71 Smith Avenue, Kingston, New York 12401
(Former name or former address, if changed since last report.)
Index to Exhibits is on sequential page 8. Total pages 12.
Item 2. Acquisition or Disposition of Assets.
Sale of Certain Real Estate of the Company. On September 14, 1999,
National Micronetics, Inc., a Delaware corporation (the "Company"), sold part
of its real estate for two hundred seventy-five thousand dollars
($275,000.00) in cash to D. K. Shah Properties, Inc., 27 Grand Street,
Kingston, New York. The terms of the transaction are set forth in an
agreement of purchase and sale dated April 20, 1999 between the Company and
D. K. Shah Properties, Inc., a copy of which is annexed as Exhibit 13.1.
General Character and Location of the Property. The property consists
primarily of real estate located at 33 Grand Street, Kingston, New York and
improved with 37,000 square feet in a one-story, masonry, light manufacturing
building, as well as part of the real estate located between that building
and the Conrail right-of-way at the end of Dederick Street, Kingston, New
York improved with a lighted parking lot. The underlying land includes a
maximum of 1.233 acres which are not in a flood plain. The use of the real
estate conforms with its M-1 and M-2 zoning classifications for manufacturing
purposes.
Nature and Amount of Consideration. The nature and amount of
consideration received by the Company from D. K. Shah Properties, Inc., in
exchange for the real estate on September 14, 1999 was two hundred
seventy-five thousand dollars ($275,000) in cash.
Principle Followed in Determining the Amount of the Consideration. The
principle followed by the Company in determining the amount of the
consideration for its real estate was arm's length negotiation with D. K.
Shah Properties, Inc., in reliance upon comparative sales method and
capitalized gross income method appraisals of the real estate of the
Company.
On July 15, 1996, the City of New York obtained from Griffin Valuation &
Realty Services, Ltd, P. O. Box 3614, 96 Maiden Lane, Kingston, NY 12401, an
appraisal of the fair market value of most real estate owned by the Company
in Kingston, New York, except two acres of parking lot.
Qualifications of Appraiser. Griffin Valuation & Realty Services, Ltd.
is a certified general appraiser licensed in New York, New Jersey and
Connecticut, a licensed real estate broker in New York, a member of the
American Institute of Real Estate Appraisers and a senior real property
appraiser designated by the Society of Real Estate Appraisers.
Selection of Appraiser. The Company in 1994 had selected Griffin
Valuation & Realty Services, Ltd. as an appraiser because it had fifteen
years of general real estate business experience in Ulster County, New York
and in nearby counties.
No Material Relationships between the Company and the Appraiser. During
the last two years there has been no material relationship between the
Company or its affiliates and Griffin Valuation & Realty Services, Ltd. or
its affiliates or unaffiliated representatives. No such material
relationship is contemplated. The Company had paid Griffin Valuation &
Realty Services, Ltd. for an appraisal in 1994.
Availability of Appraisal. The appraisal by Griffin Valuation & Realty
Services, Ltd. will be made available for inspection and copying at the
principal executive offices of the Company at 678 Aaron Court, Kingston, NY
12401 during its regular business hours, which are 9:00 a.m. to 4:00 p.m. on
Monday, Tuesday and Wednesday, by any interested common stockholder of the
Company or his or her representative who has been so designated in writing.
A copy of the appraisal by Griffin Valuation & Realty Services, Ltd.
(excluding photographs) will be transmitted by the Company to any interested
common stockholder of the Company or his or her representative who has been
so designated in writing upon written request and at the expense of the
requesting common stockholder.
Comparative Sales Method Appraisal of Real Estate. The comparative
sales method of appraisal is based on recent sales prices of comparable
properties in the region. Griffin Valuation & Realty Services, Ltd.
appraised the land and building which were being sold to D. K. Shah
Properties, Inc., at a fair market value of $520,000 based on a sales
comparison approach on July 15, 1996.
Capitalized Gross Income Appraisal of Real Estate. The capitalized
gross income method of appraisal is based on the capitalization of
anticipated future gross rents set forth in recent leases of comparable
properties in the region. The Company has deduced by extrapolating from the
aggregate information in the appraisal that Griffin Valuation & Realty
Services, Ltd. appraised the building which was being sold to D. K. Shah
Properties, Inc. at a fair market value of less than $820,000 based on a
capitalized gross income approach on July 15, 1996. That capitalized gross
income appraisal value would be considerable less if usual expenses
applicable to the building being sold to D. K. Shah Properties, Inc., were
deducted from annual estimated gross income prior to dividing by the
capitalization rate. Unfortunately, the appraisal did not allocate the
expenses attributable to all of the buildings owned by the Company among them
separately.
Fairness of Consideration. The fairness of the consideration is based
on the results of the efforts which the Company has made to sell its real
estate with the professional assistance of the listing realtor and the advice
which the Company has received from another realtor, as well as upon the
information contained in the appraisal. The absence of any demand for the
building during the years while it has been listed for sale motivated the
Company to seek to dispose of the building for considerable less than its
appraised fair market value. The fairness of the consideration also must be
evaluated in terms of the need of the Company to satisfy claims of general
creditors and the desire of the Company to terminate its expenses of
maintaining the building.
Identity of Purchaser of the Real Estate. The buyer of the real estate
is D. K. Shah Properties, Inc. The principal executive offices of the D. K.
Shah Properties, Inc. are located at 27 Grand Street, Kingston, New York.
No Material Relationship of the Purchaser to the Company. The purchaser
of the real estate, D. K. Shah Properties, Inc., has no material relationship
with the Company or with any affiliate of the Company or with any director
or officers of the Company or with any associate of any director of officer
of the Company.
No Other Contracts Between the Company and the Purchaser. There are no
past, present or proposed material contracts, arrangements, understandings,
relationships, negotiations or transactions during the two fiscal years ended
June 27, 1998 and June 26, 1999 or during the current fiscal year ending June
29, 2000 between the Company and its affiliates and the D. K. Shah
Properties, Inc., and its affiliates, except the agreement of purchase and
sale date April 20, 1999 between the Company and D. K. Shah Properties, Inc.
as described above and the agreement of purchase and sale pursuant to which
a few years ago D. K. Shah Properties, Inc. had acquired from the Company the
real estate located at 27 Grand Street, Kingston, New York 12401.
Benefits of Sale to the Company. The Company benefitted from the sale
of its real estate to D. K. Shah Properties, Inc. primarily by avoiding a
petition in bankruptcy by the Company or by the creditors of the Company,
though the Company can make no assurances that the remaining creditors of the
Company will not seek to file a petition in bankruptcy against it.
Benefits of Sale to the Affiliates of the Company. The affiliates of
the Company benefitted from the sale of its real estate to D. K. Shah
Properties, Inc. primarily because the net proceeds of sale would be
available to satisfy debts of the Company to Gigamax Corporation, Tae Il
Magnetics Co., Ltd., Tae Il U. S. A., Inc., Tae Il Media Co., Ltd., Newmax
Co., Ltd. or Techmedia International Corporation, in some of which Mr. K. H.
Chung and Dr. Heehwan Lee, directors of the Company, and Dr. Yoon H. Choo,
a former director of the Company, may be deemed to have an interest.
Federal and State Regulatory Requirements. The Company demonstrated
compliance with federal and New York state environmental protection laws,
labor laws and health laws, City of Kingston zoning laws, construction and
building codes, fire safety ordinances and other laws.
Environmental Matters. The Company has received a letter dated August
6, 1998 from the New York State Department of Environmental Conservation
regarding a visual site inspection by the New York State Department of
Environmental Conservation in November 1997 of the real estate of the
Company, which was considered to be in compliance with all environmental
standards applied during that inspection. The Company has responded to that
letter and experienced no environmental problems hindering its sale of its
real estate to D. K. Shah Properties, Inc.
Certificate of Occupancy and Street Letters. The Company furnished to
D. K. Shah Properties, Inc. the certificate of occupancy and the street
letters which it has for the real estate.
No Violations. The Company had no outstanding violations with respect
to the real estate.
Rights of Common Stockholders as a Result of the Sale. The rights of
the common stockholders of the Company will not be different as a result of
the sale of part of its real estate to D. K. Shah Properties, Inc. The debts
of the Company remaining after the sale of part of its real estate on
September 14, 1999 are payable primarily to affiliates or former affiliates
of the Company, such as Gigamax Corporation, Tae Il Magnetics Co., Ltd., Tae
Il U.S.A., Inc., Tae Il Media Co., Ltd., Newmax Co., Ltd. and Techmedia
International Corporation, in some of which Mr. K. H. Chung and Dr. Heehwan
Lee, directors of the Company, and Dr. Yoon H. Choo, a former director of the
Company, may be deemed to have an interest. Those debts of the Company
exceed the fair market value of its assets remaining after that sale, so the
common stockholders of the Company as stockholders will not realize any of
the net proceeds of the sale of real estate to D. K. Shah Properties, Inc.
Use of Proceeds of Sale of Real Estate. The increase in cash in the
unaudited consolidated condensed pro forma statement of net liabilities of
the Company and its subsidiaries as of June 26, 1999 (the "pro forma
statement of net liabilities"), which is set forth on page 11, is
attributable to the cash reserve which was set aside out of the proceeds of
sale of the real estate. The reduction of accounts payable and accrued
expenses in the pro forma statement of net liabilities on page 11 resulted
and will result from using part of the proceeds of sale of the real estate
to pay closing expenses and some accounts payable.
Net Proceeds Receivable by the Company. The Company applied the gross
proceeds of $275,000 first to pay local governments which had tax liens,
because those debts had to be satisfied in order to convey good and
marketable title to D. K. Shah Properties, Inc. to the satisfaction of its
title insurance company. The Company applied the remaining gross proceeds
to pay brokerage commissions, legal fees and other expenses of sale, because
those commissions, fees and expenses customarily are paid in connection with
real estate conveyances. After paying all tax liens against the real estate,
brokerage commissions, legal fees and other expenses of sale, the Company
realized $211,711 to apply toward the payment of some of its general
creditors and establishment of a cash reserve to pay its day to day
expenses.
Of course, general creditors of the Company may seek to alter that plan by
exercising their claims against the assets of the Company. That $211,711
amount is computed as follows:
Type of Lien or ExpenseAmount
Tax liens 40,970
Realtors' commissions11,000
Escrow for misc. repairs10,000
Legal fees 650
Closing costs 1,260
SUBTOTAL$ 63,880
Adjustment for prepaid taxes (591)
DIFFERENCE$ 63,289
Net proceeds to the Company211,711
TOTAL$ 275,000
Satisfaction of Other Secured Liabilities. The Company paid all accrued
and unpaid real estate taxes, interest and penalties aggregating $40,970 and
satisfied the tax liens applicable to the sold real estate out of the net
proceeds of sale of certain of its real estate to D. K. Shah Properties, Inc.
Brokerage Commissions. The Company paid commissions to Win Morrison
Realty, the broker for the Company, in the amount of $11,000 or 4 percent of
the $275,000 contract price for their services as brokers out of the proceeds
of sale of the real estate to D. K. Shah Properties, Inc.
Satisfaction of Unsecured Liabilities. The Company expects to apply the
$211,711 balance of the net proceeds remaining after the payment of the
expenses of sale and the secured liabilities to keep a cash reserve of
$40,000, to make payments on account of other liabilities or obligations to
general creditors of the Company, including possibly some associates of
directors or the former director of the Company.
Accounting Treatment of the Sale of Real Estate. The Company is
reporting a gain on the sale to D. K. Shah Properties, Inc. of the
non-depreciable land and the depreciable buildings and improvements which
comprise the part of its real estate which the Company sold to D. K. Shah
Properties, Inc. The sale yielded a gain, because the sales price of
$275,000 is $157,000 more than the sum of the $13,000 closing costs plus the
$105,000 cost, net of depreciation, of the Company in the land (which is not
depreciable), buildings and improvements to be sold as of June 26, 1999. The
gain will be slightly offset by depreciation for the quarter ended September
25, 1999.
Federal Income Tax Gain Realized on the Sale of Real Estate.
The Company may realize a gain on the sale of part of its land to D. K. Shah
Properties, Inc., because the portion of the sales price of $275,000 to be
allocated to the land to be sold may be more than the basis of the Company
in the land to be sold. The Company may realize gain on the sale of part of
its buildings and improvements to D. K. Shah Properties, Inc., because the
portion of the sales price of $275,000 allocated to the buildings and
improvements to be sold may be more than the adjusted basis of the Company
in the buildings and improvements to be sold.
Characterization of Federal Income Tax Gains. The land retains its
character as a capital asset, while the buildings and improvements acquire
the character of section 1231 property for federal income tax purposes.
Therefore, for those purposes the Company may recognize a long term capital
gain on the sale of the non-depreciable land. For federal income tax
purposes, the Company may recognize long-term capital gain on the sale of the
depreciable buildings and improvements which comprise the part of its real
estate which the Company is selling to D. K. Shah Properties, Inc. if the
gains from the sale of Section 1231 property by the Company during the tax
year ending June 29, 2000 exceed the losses from the sale of Section 1231
property by the Company during the tax year ending June 29, 2000.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
None.
(b) Pro forma financial information. Page 10
Unaudited condensed pro forma consolidated
statement of net liabilities in liquidation
of the Company and its subsidiaries
as of June 26, 1999 Page 11
Unaudited condensed pro forma
consolidated statement of changes
in net liabilities in liquidation of the
Company and its subsidiaries for the period
from December 2, 1998 to June 26, 1999 Page 11
Unaudited condensed pro forma
consolidated statement of operations
of the Company and its subsidiaries
for the period from June 28, 1998
to December 1, 1998 Page 12
(c) Exhibits.
Agreement of purchase and sale dated April 20, 1999 between National
Micronetics, Inc. and D. K. Shah Properties, Inc.
SIGNATURES
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.
NATIONAL MICRONETICS, INC.
Date:September 28, 1999 By
Heehwan Lee, President
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Financial Information. Set forth below, in order
to show the effects of the sale of part of its real estate to D. K. Shah
Properties, Inc. and the related use of proceeds, are an unaudited condensed
pro forma consolidated statement of net liabilities of the Company and its
subsidiaries as of June 26, 1999, and an unaudited condensed pro forma
consolidated statement of changes in net liabilities of the Company and its
subsidiaries for the seven-month period from December 2, 1998 to June 26,
1999, an unaudited condensed pro forma consolidated statement of operations
of the Company and its subsidiaries for the five-month period from June 29,
1998 to December 1, 1998. On December 1, 1998, the board of directors of the
Company adopted a resolution to dissolve the Company and recommended that the
stockholders vote on the proposed dissolution at the annual meeting of
stockholders of the company on February 26, 1999. The Company was dissolved
on September 20, 1999 pursuant to the General Corporation Law of the State
of Delaware. As the liquidation of the Company pursuant to the plan of
complete liquidation which was approved by the directors of the Company on
December 1, 1998 and approved by the stockholders of the Company on February
26, 1999 is imminent, the Company has changed its basis of accounting for
periods subsequent to December 1, 1998, from the going-concern basis to the
liquidation basis. Accordingly, the carrying value of the remaining assets
as of June 26, 1999, are presented at estimated realizable value and all
liabilities are presented at estimated settlement amounts. However, all
liabilities are not adjusted and are presented at cost basis amounts because,
in the opinion of the Company, it was not possible to estimate settlement
amounts. The Company is in the process of settling the obligations, but, in
the opinion of the Company, it is not presently determinable whether the
amounts that creditors agree to accept in settlement of the obligations due
from them will differ materially from the amounts shown in the unaudited
condensed pro forma consolidated financial statements referred to above. The
unaudited condensed pro forma consolidated financial statements referred to
above do not include any adjustments that might result from the outcome of
this uncertainty.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF NET LIABILITIES
IN PROCESS OF LIQUIDATION (UNAUDITED)
(In Thousands)
June 26, 1999
Current Value BasisPro Forma
ASSETS
Current assets:
Cash and cash equivalents: $ 25$ 92
Other current assets 35 35
Property, plant and equipment, net 323 61
$ 383$ 188
LIABILITIES
Accounts payable $ 275$ 231
Current portion of long-term debt 9 9
Other accrued expense 169 169
Short-term debt 8,397 8,397
Due to related parties, net 2,1902,039
$11,040 $10,845
Net Liabilities $10,657 $10,657
NATIONAL MICRONETICS, INC AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF CHANGES IN NET LIABILITIES
IN PROCESS OF LIQUIDATION
(UNAUDITED)
For the period from December 2, 1998 to June 26, 1999
(In Thousands)
Current
Value Basis Pro Forma
Net liabilities at December 2, 1998 $ 10,072 $ 10,072
Add:
Overhead expense 462 462
Administration expense 31 31
Interest expense 516 516
$ 10,009 $ 10,009
Deduct:
Gain on sale of properties
and others 156 156
Related party interest forgiven 268 268
$ 424 424
Net liabilities
June 26, 1999 $ 10,657 $ 10,657
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the five-month period from June 28, 1998 to December 1, 1998
(In Thousands)
Net loss (historical) $ 595
Pro forma adjustments -
Gain from sale of real estate (157)
Pro forma net loss $ 438
Note - Subsequent to June 26, 1999, the Company agreed to sell its factory
building to D. K. Shah Properties, Inc. for $275,000. The accompanying
unaudited condensed pro forma consolidated statement of net liabilities as
of June 26, 1999 reflects these transactions as if they had occurred at June
28, 1998. Pro forma adjustments related to the accompanying unaudited
condensed pro forma consolidated statement of changes of net liabilities for
the seven-month period from December 2, 1998 to June 26, 1999 and unaudited
consolidated condensed pro forma statement of operations for the five-month
period from June 28, 1998 to December 1, 1998 are computed assuming the
transactions were consummated at the beginning of the fiscal year ended June
26, 1999. Pro forma net loss was $438,000 with a gain of $157,000 on sale
of the real estate.
