SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 5, 1996
GENERAL KINETICS INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 0-1738 54-0594435
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
14130-C Sullyfield Circle, Chantilly, Virginia 22021-1615
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 802-9300
Not Applicable
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
Sale of Secure Communications Division
As of December 5, 1996, General Kinetics Incorporated
("GKI") completed the sale of its secure communications business to
Cryptek Secure Communications, LLC (the "Purchaser"), a Delaware
limited liability company, the majority of whose equity interests are
owned by affiliates of Angelo Gordon & Co., L.P.
In the transaction GKI received $1.75 million in
cash, a $750,000 secured promissory note payable over three years
(bearing interest at 1% over the prime rate) and $1.5 million face
amount of 6% convertible preferred equity of the Purchaser which must
be redeemed by the Purchaser within five years (unless previously
converted). Such preferred equity interest is convertible, at GKI's
option, into 4.2% of the regular membership interests in the Purchaser
on a diluted basis. The Purchaser also assumed certain liabilities
related to the secure communications business, subject to the terms and
conditions of the agreement of sale. The foregoing summary is not a
complete description of the terms of the reported transaction;
reference is made to the copy of the agreement between the Purchaser
and GKI attached as Exhibit 2.1 hereto and incorporated herein by
reference. Such summary is qualified in all respects by such reference.
The consideration received by GKI for its secure
communications business was determined in arms-length negotiations with
the Purchaser. GKI is not aware of any material relationship between it
or any of its directors and officers, or between any affiliate or the
directors or officers of any affiliate and the Purchaser, that existed
at the date of the disposition.
Item 5. Other Events.
Although GKI had earlier deferred a previously
contemplated one-for-three reverse stock until split after completion
of the sale of its secure communications business, GKI does not now
anticipate implementing such reverse stock split in the immediate
future, if at all.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
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The following unaudited consolidated pro forma
balance sheet at August 31, 1996, and the unaudited consolidated pro
forma statements of income for the three months ended August 31, 1996
and the fiscal year ended May 31, 1996 give effect to the disposition
of the secure communications business of GKI to the Purchaser. The pro
forma statements of income assume the transaction occurred on June 1,
1995. The unaudited pro forma financial information is based on the
historical financial statements of GKI, giving effect to the
disposition and to the assumptions and adjustments in the accompanying
notes to the unaudited pro forma financial information.
The unaudited pro forma financial statements are
presented for informational purposes only and do not purport to be
indicative of the financial position which would actually have existed
or the results of operations which would actually have been obtained if
the transaction had occurred in the periods indicated below or which
may exist or be obtained in the future. The ultimate use of the
proceeds may differ from the assumptions used herein. The unaudited pro
forma financial information should be read in conjunction with the
notes thereto and the historical GKI consolidated financial statements
and notes thereto included in GKI's latest annual report on Form 10-K
and latest quarterly report on Form 10-Q.
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General Kinetics Incorporated
Pro Forma Consolidated Balance Sheet
At August 31, 1996
(Unaudited)
PRO FORMA
---------------------------------------------
August 31, Secure
1996 Comm.
Form 10-Q Division Adjustments Adjusted
Assets
Current Assets:
Cash and cash equivalents $ 153,600 $1,750,000(a) $ 1,903,600
Accounts receivable, net of allowance 2,236,400 (604,700) 1,631,700
Inventories 2,906,400 (2,374,800) 531,600
Prepaid expenses and other 28,900 (6,900) 22,000
-------------- ---------- ---------- -------------
Total Current Assets 5,325,300 (2,986,400) 1,750,000 4,088,900
-------------- ---------- ---------- -------------
Note Receivable 750,000(a) 750,000
Property, Plant and Equipment 6,899,500 (2,073,100) 4,826,400
Less: Accumulated Depreciation (5,475,600) 1,900,700 (3,574,900)
-------------- ---------- ---------- -------------
1,423,900 (172,400) -- 1,251,500
Other Assets, principally capitalized software 311,200 (296,600) 14,600
-------------- ---------- ---------- -------------
Total Assets $ 7,060,400 $ (3,455,400) $2,500,000 $ 6,105,000
============== ========== ========== =============
Liablilities and Stockholders' Deficit
Current Liabilities:
Advances from factor $ 317,000 $ 317,000
Current maturities of long-term debt 218,600 (1,400) 217,200
Accounts payable, trade 1,429,000 (526,200) 902,800
Accrued expenses and other payables 1,195,400 (399,500) 115,000(b) 910,900
-------------- ----------- --------- --------------
Total Current Liabilities 3,160,000 (927,100) 115,000 2,347,900
-------------- ----------- --------- --------------
Long-Term debt - less current maturities 9,778,300 9,778,300
Other long-term liabilities 282,200 282,200
-------------- ----------- --------- --------------
Total Long-Term Liabilities 10,060,500 -- 10,060,500
-------------- ----------- --------- --------------
Total Liabilities 13,220,500 (927,100) 115,000 12,408,400
-------------- ----------- --------- --------------
Stockholders' Deficit:
Common Stock, $0.25 par value 1,759,000 1,759,000
Additional Contributed Capital 7,186,900 7,186,900
Accumulated Deficit (14,655,800) (2,528,300) 2,385,000 (14,799,100)
-------------- ----------- --------- --------------
(5,709,900) (2,528,300) 2,385,000 (5,853,200)
Less: Unearned ESOP shares -- --
Treasury Stock, at cost (526,632 shares) (450,200) (450,200)
Total Stockholders' Deficit (6,160,100) (2,528,300) 2,385,000 (6,303,400)
-------------- ----------- --------- --------------
Total Liabilities and Stockholders' Deficit $ 7,060,400 $ (3,455,400) $2,500,000 $ 6,105,000
============== =========== ========= ==============
Page 4
General Kinetics Incorporated and Subsidiaries
Pro Forma Consolidated Statements of Operations
Quarter Ended August 31, 1996
(Unaudited)
PRO FORMA
--------------------------------
Quarter Ended Secure
August 31, Comm
1996 Division Adjusted
Net Sales $ 3,490,000 $ 851,000 $ 2,639,000
Cost of Sales 2,484,900 571,200 1,913,700
--------------- -------------- --------------
Gross Profit 1,005,100 279,800 725,300
--------------- -------------- --------------
Selling, General & Administrative 654,300 192,100 462,200
Product Research, Development & Improvement 181,600 122,500 59,100
--------------- -------------- --------------
Total Operating Expenses 835,900 314,600 521,300
--------------- -------------- --------------
Operating Income 169,200 (34,800) 204,000
Interest Expense 105,400 105,400
--------------- -------------- --------------
Net Income $ 63,800 $ (34,800) $ 98,600
=============== ============== ==============
Net Earnings per share $ 0.00 $ (0.01) $ 0.00
=============== ============== ==============
Weighted Average Number of Common Shares
and Dilutive Equivalents Outstanding 25,508,925 6,508,925 25,508,925
=============== ============== ==============
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General Kinetics Incorporated and Subsidiaries
Pro Forma Consolidated Statements of Operations
Fiscal Year Ended May 31, 1996
(Unaudited)
PRO FORMA
--------------------------------
FY Ended Secure
May 31, Comm
1996 Division Adjusted
Net Sales $ 15,368,400 $ 7,253,200 $ 8,115,200
Cost of Sales 11,668,200 5,578,500 6,089,700
------------- -------------- --------------
Gross Profit 3,700,200 1,674,700 2,025,500
------------- -------------- --------------
Selling, General & Administrative 3,170,000 1,395,900 1,774,100
Product Research, Development & Improvement 945,900 863,800 82,100
------------- -------------- --------------
Total Operating Expenses 4,115,900 2,259,700 1,856,200
------------- -------------- --------------
Operating Income (415,700) (585,000) 169,300
Interest Expense 337,000 2,000 335,000
------------- -------------- --------------
Net Income $ (752,700) $ (587,000) $ (165,700)
============== ============== ==============
Net Earnings per share $ (0.12) $ (0.09) $ (0.03)
============== ============== ==============
Weighted Average Number of Common Shares
and Dilutive Equivalents Outstanding 6,508,925 6,508,925 6,508,925
============== ============== ==============
Page 6
Notes to the Pro Forma Consolidated Financial Statements
The pro forma balance sheet pro forma adjustments column at August 31,
1996 reflects the following:
a. Represents the cash proceeds and note receivable from the
disposal of the secure communications business. Management
has not determined what portion of the proceeds, if any, will
be used to retire debt.
b. Represents the estimated closing costs related to the
disposition. GKI is currently in the process of calculating
the actual closing costs relating to the secure communications
business.
GKI has determined that the $1.5 million face amount of convertible
preferred equity of the Purchaser received by GKI in the transaction is
contingent consideration and the value is dependent upon future
earnings by the Purchaser. Accordingly, the pro forma consolidated
balance sheet does not record any value related to such interest.
The actual gain or loss to be recorded as of December 5, 1996 will
differ from the estimated pro forma loss assumed in the August 31, 1996
pro forma balance sheet.
Such gain or loss on the sale has been excluded from the accompanying
pro forma consolidated statements of income as it represents a direct,
nonrecurring effect of the transaction. The actual gain or loss is not
anticipated to be material to GKI's annual consolidated results of
operations.
(c) Exhibits.
2.1 Asset Purchase Agreement ("Asset Purchase Agreement")
between General Kinetics Incorporated and Cryptek
Secure Communications, LLC, a Delaware limited
liability company formed by affiliates of Angelo,
Gordon & Co., L.P., dated as of November 1, 1996.
2.2 List of contents of Exhibits and Schedules to the
Asset Purchase Agreement. Registrant hereby
undertakes to furnish to the Commission
supplementally a copy of any omitted Exhibit or
Schedule upon request.
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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.
GENERAL KINETICS INCORPORATED
Date: December 20, 1996 /s/ Sandy B. Sewitch
--------------------
Sandy B. Sewitch
Chief Financial Officer
(Principal Accounting Officer
and Principal Financial
Officer)
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Exhibit Index
Exhibit
Number Description
2.1 Asset Purchase Agreement ("Asset Purchase
Agreement") between General Kinetics Incorporated
and Cryptek Secure Communications, LLC, a
Delaware limited liability company formed by
affiliates of Angelo, Gordon & Co., L.P., dated
as of November 1, 1996.
2.2 List of contents of Exhibits and Schedules to the
Asset Purchase Agreement.
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