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 9. Total pages 13.
Item 2. Acquisition or Disposition of Assets.
Sale of Certain Real Estate of the Company. On March 10,
1999, National Micronetics, Inc., a Delaware corporation (the
"Company"), sold part of its real estate for two million four
hundred thousand dollars ($2,400,000.00) in cash to the City of New
York, a New York municipal corporation. The terms of the
transaction are set forth in an agreement of purchase and sale
dated November 4, 1998 between the Company and the City of New
York, Department of Citywide Administrative Services, a copy of
which was filed on February 10, 1999 with the Securities and
Exchange Commission as Exhibit 13 on pages 83 to 95 of the
information statement on Schedule 14C of the Company.
General Character and Location of the Property. The property
consists primarily of real estate located at 71-85 Smith Avenue,
Kingston, New York and improved with 83,000 square feet of factory,
engineering, research, cafeteria, security, shop and office space
in a two story, steel frame, high tech, sprinklered, climate
controlled, light manufacturing building, a 1,560 square foot
detached storage building, as well as part of the real estate
located at 91 Smith Avenue and at 41-45 Railroad Avenue, Kingston,
New York improved with a lighted parking lot. The underlying land
includes a maximum of 3.445 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 the City of New York in
exchange for the real estate on March 10, 1999 was two million four
hundred thousand dollars ($2,400,000) 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 the City of New York 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 the City of New York at a fair market value of
$2,490,000 based on a sales comparison approach on July 15, 1996,
plus a value which is unsupported in the market of $625,000 due to
the cost of special construction improvements.
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 the City of New York at a fair
market value of less than $3,820,000 based on a capitalized gross
income approach on July 15, 1996, plus a value which is unsupported
in the market of $625,000 due to the cost of special construction
improvements. That capitalized gross income appraisal value would
be considerably less if usual expenses applicable to the building
being sold to the City of New York 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 fairness of the consideration also must be
evaluated in terms of the need of the Company to satisfy its term
note which had been in default more than one year in order that its
principal lending institution would not foreclose its mortgage on
terms and conditions which possibly would have been much less
favorable to the Company.
Identity of Purchaser of the Real Estate. The buyer of the
real estate is the City of New York, a New York municipal
corporation (the "City of New York"). The principal executive
offices of the City of New York are located at 1 Centre Street,
20th Floor North, New York, New York 10007, Attention: Assistant
Commissioner for Acquisitions, telephone (212) 669-7293.
No Material Relationship of the City of New York to the
Company. The City of New York has no material relationship with
the Company or with any affiliate of the Company or with any
director or officer of the Company or with any associate of any
director or officer of the Company.
No Other Contracts Between the Company and the City of New
York. There are no past, present or proposed material contracts,
arrangements, understandings, relationships, negotiations or
transactions during the two fiscal years ended June 28, 1997 and
June 27, 1998 or during the current fiscal year ending June 26,
1999 between the Company and its affiliates and the City of New
York and its affiliates, except the agreement of purchase and sale
dated November 4, 1998 between the Company and the City of New York
as described above and the escrow agreements dated March 10, 1999
assuring performance of some of the terms and conditions of that
agreement.
Benefits of Sale to the Company. The Company benefitted from
the sale of its real estate to the City of New York primarily by
avoiding a foreclosure of the mortgage which was satisfied out of
the proceeds of the sale and 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 the City of New York primarily because Mr. K. H. Chung,
a director of the Company, Tae Il Media Co., Ltd. and Newmax Co.,
Ltd. will not be asked to perform their guarantees of the term loan
note of the Company which was satisfied out of the proceeds of sale
and 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.
Subdivision Map. The Company satisfied its obligation to
obtain approval by the City of Kingston Planning Board of a
subdivision map on December 10, 1998 in respect of two tax lots
improved with parking lots. The Company filed the subdivision map
with the Recorder of Ulster County on February 9, 1999 upon receipt
of confirmation from the Treasurer of the City of Kingston that
arrears of real estate taxes, interest and penalties regarding
those two tax lots improved as parking lots had been paid by the
Company.
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 the City of New York.
Certificate of Occupancy and Street Letters. The Company
furnished to the City of New York 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 sold to the City of New York.
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 the
City of New York. The debts of the Company remaining after the
sale of part of its real estate on March 10, 1999 are payable
primarily to 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 the City of New York.
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 December 26,
1998 (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
elimination of the current portion of long-term debt in the pro
forma statement of net liabilities on page 11 occurred as the
result of the satisfaction of the term loan mortgage indebtedness
with $1,632,302.33 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, accrued vacation payments to employees and some
accounts payable.
Net Proceeds Receivable by the Company. The Company applied
the gross proceeds of $2,400,000 first to pay secured creditors,
including its institutional lender which had a mortgage, local
governments which had tax liens and creditors which had mechanics
liens, because those debts had to be satisfied in order to convey
good and marketable title to the City of New York 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 liens against the real estate,
brokerage commissions, legal fees and other expenses of sale, the
Company realized $353,675.50 to apply toward the payment of accrued
vacation pay to its employees, 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 $353,675.50 amount is computed as follows:
Type of Lien or ExpenseAmount
Principal of mortgage note$1,408,000
Interest on mortgage note224,302
Tax liens143,441
Mechanics' liens63,118
Utilities and escrow for utilities10,796
Realtors' commissions96,000
Escrow for costs of repairs50,000
Legal fees80,000
Closing costs550
SUBTOTAL$ 2,076,207
Adjustment for prepaid taxes and escrow(29,882)
DIFFERENCE$ 2,046,325
Net proceeds to the Company353,675
TOTAL$ 2,400,000
Other Material Features of the Contract or Transaction. The
Company demolished and repaired a passageway between the building
sold and an adjacent building at an aggregate cost estimated to be
$12,000. Since the Company failed to complete the required repair
of the roof, however, the City of New York retained an escrow of
$50,000 to assure the satisfactory completion of those repairs.
Mortgage Satisfaction. The Company paid the outstanding
principal balance of $1,408,000, plus accrued interest of
$224,302.33 as of March 10, 1999, in respect to the term note
payable to its institutional lender out of the proceeds of sale of
the real estate to the City of New York and received a satisfaction
of that mortgage. As a result, Mr. K. H. Chung, a director of the
Company, Tae Il Media Co., Ltd. and Newmax Co., Ltd. will not be
asked to perform their guarantees of the term loan note of the
Company.
Satisfaction of Other Secured Liabilities. The Company
satisfied the mechanics liens and tax liens encumbering its real
estate out of the net proceeds of sale of certain of its real
estate to the City of New York.
Arrears of Real Estate Taxes. The Company paid all accrued
and unpaid real estate taxes, interest and penalties aggregating
$143,441 applicable to the sold real estate out of the proceeds of
sale of the real estate to the City of New York.
Brokerage Commissions. The Company paid commissions to Julien
J. Studley, Inc., the broker for the City of New York, in the
amount of $48,000 or 2 percent of the $2,400,000 contract price and
commissions to Win Morrison Realty, Inc., the broker for the
Company, in the amount of $48,000 or 2 percent of the $2,400,000
contract price for their services as brokers out of the proceeds
of sale of the real estate to the City of New York.
Satisfaction of Unsecured Liabilities. The Company expects
to apply the $353,675 balance of the net proceeds remaining after
the payment of the expenses of sale and the secured liabilities to
keep a cash reserve of $100,000, to make payments on account of
about $42,000 of accrued vacation benefits of employees and on
account of other liabilities or obligations to general creditors
of the Company, including possibly some associates of directors of
the Company.
Accounting Treatment of the Sale of Real Estate. The Company
is reporting a loss on the sale to the City of New York of the
non-depreciable land and the depreciable buildings and improvements
which comprise the part of its real estate which the Company sold
to the City of New York. The sale yielded a loss, because the
sales price of $2,400,000 is $157,000 less than the sum of the
estimated closing costs plus the $2,377,000 cost, net of
depreciation, of the Company in the land (which is not
depreciable), buildings and improvements to be sold as of September
26, 1998. The loss will be slightly offset by depreciation for the
quarter ended December 26, 1998 and part of the quarter ending
March 27, 1999.
Federal Income Tax Loss Realized on the Sale of Real Estate.
The Company may realize a loss on the sale of part of its land to
the City of New York, because the portion of the sales price of
$2,400,000 to be allocated to the land to be sold may be less than
the basis of the Company in the land to be sold. The Company may
realize loss on the sale of part of its buildings and improvements
to the City of New York, because the portion of the sales price of
$2,400,000 allocated to the buildings and improvements to be sold
may be less than the adjusted basis of the Company in the buildings
and improvements to be sold.
Characterization of Federal Income Tax Losses. 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 loss on the sale of the
non-depreciable land. For federal income tax purposes, the Company
may recognize ordinary loss on the sale of the depreciable
buildings and improvements which comprise the part of its real
estate which the Company is selling to the City of New York if the
gains from the sale of Section 1231 property by the Company during
the tax year ending June 26, 1999 do not exceed the losses from the
sale of Section 1231 property by the Company during the tax year
ending June 26, 1999.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
None.
(b) Pro forma financial information.
Unaudited consolidated condensed
pro forma statement of net liabilities
of the Company and its subsidiaries
as of December 26, 1998Page 11
Unaudited consolidated condensed
pro forma statement of changes
in net liabilities of the Company
and its subsidiaries for the period
from December 2, 1998 to December 26, 1998 Page 12
Unaudited consolidated condensed
pro forma statement of operations
of the Company and its subsidiaries
for the period from June 28, 1998
to December 1, 1998 Page 12
Unaudited consolidated condensed
pro forma statement of operations
of the Company and its subsidiaries
for the fiscal year ended June 27, 1998 Page 12
(c) Exhibits.
Agreement of purchase and sale dated November 4, 1998 between
National Micronetics, Inc. and the City of New York,
Department of Citywide Administrative Services, which is
incorporated by reference to Exhibit 13 on pages 83 to 95 of
the information statement on Schedule 14C of the Company filed
on February 10, 1999, Commission File Number 0-7207, CIK
Number 0000070333.
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: March 17, 1999 By Heehwan Lee
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 the City of New York 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 December 26,
1998, an unaudited condensed pro forma consolidated statement of
changes in net liabilities of the Company and its subsidiaries for
the period from December 2, 1998 to December 26, 1998, an 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 and an unaudited condensed pro forma Consolidated
statement of operations of the Company and its subsidiaries for the
fiscal year ended June 27, 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 stockholders approved the dissolution
of the Company on February 26, 1999. As the liquidation 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.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF NET LIABILITIES (UNAUDITED)
(In Thousands)
December 26, 1998
Current Value BasisPro Forma
ASSETS
Current assets:
Cash and cash equivalents: $ 11$ 100
Other current assets 7 7
Property, plant and equipment, net 2,586186
$ 2,604$ 293
LIABILITIES
Current portion of long-term debt $ 1,419$ --
Short-term debt 8,3978,397
Accounts payable and
accrued expense 958223
Due to related parties, net 2,1702,170
$12,944 $10,790
Net Liabilities $10,340 $10,497
NATIONAL MICRONETICS, INC AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CHANGES IN NET LIABILITIES
(UNAUDITED)
For the period from December 2, 1998 to December 26, 1998
(In Thousands)
Current
Value Basis Pro Forma
Net liabilities at December 2, 1998 $ 10,272 $ 10,441
Net increase in liabilities 68 68
Pro forma adjustment-
Interest on long-term debt
retired from sale of real estate (12)
Net liabilities at December 28, 1998 $ 10,340 $ 10,497
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
For the period from June 28, 1998 to December 1, 1998
(In Thousands)
Net loss (historical) $ 595
Pro forma adjustment-
Interest on long-term debt
retired from sale of real estate (62)
Pro forma net loss $ 533
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
For the year ended June 27, 1998
(In Thousands)
Net loss (historical) $1,599
Pro forma adjustments -
Loss from sale of real estate 157
Interest on long-term debt retired
from sale of real estate (125)
Pro forma net loss $1,631
Note - Subsequent to December 26, 1998, the Company agreed to sell
its most valuable office, laboratory and factory building to the
City of New York for $2,400,000. A major portion of the proceeds
from this sale used to retire the $1,408,000 principal balance and
over $200,000 of accrued interest of the term loan note secured by
a mortgage on all of the assets of the Company. The accompanying
unaudited consolidated condensed pro forma statement of net
liabilities as of December 26, 1998 reflects these transactions as
if they had occurred at December 26, 1998. Pro forma adjustments
related to the accompanying unaudited consolidated condensed pro
forma statement of changes of net liabilities for the period from
December 2, 1998 to December 26, 1998, unaudited consolidated
condensed pro forma statement of operations for the period from
June 28, 1998 to December 1, 1998 and unaudited consolidated
condensed pro forma statement of operations for the fiscal year
ended June 27, 1998 are computed assuming the transactions were
consummated at the beginning of the fiscal year ended June 27,
1998. The pro forma adjustment are loss from sale of the real
estate and the elimination of interest expense on the retired
long-term debt.
