March 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
RE: Nemdaco, Inc.
SEC File No. 0-19064
Form 10-QSB -- Quarter Ended
January 31, 1996
Gentlemen:
Enclosed please find one manually executed copy and seven
conformed copies of a Form 10-QSB for the quarter ended January 31,
1996, for Nemdaco, Inc.
This report is filed pursuant to the requirements of the
Securities Exchange Act of 1934.
Please acknowledge receipt of the enclosures by stamping and
returning to me in the self-addressed, stamped envelope the
duplicate copy of this letter.
Very truly yours,
Gary Larkin
President
Enclosures
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended January 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 0-19064
NEMDACO, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1027731
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
3888 East Mexico Avenue, Suite 240 Denver, Colorado 80210
(Address of principal executive offices) (Zip code)
(Issuer's telephone number) (303) 758-0133
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check whether issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common stock, $.01 par value 6,095,400 shares
Page 1 of 14
Form 10-QSB
Third quarter ended
January 31, 1996
INDEX
PAGE
NEMDACO, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of January 31, 1996 3
Consolidated Statements of Operations for the three
and nine months ended January 31, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity for
the period from May 1, 1995 to January 31, 1996 5
Consolidated Statements of Cash Flows for the nine
months ended January 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
ITEMS 1 through 6 12
NEMDACO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
January 31, 1996
(UNAUDITED)
ASSETS
Furniture and equipment $ 18,000
Other assets:
License rights (Note 5) 100,000
Total Assets $ 118,000
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses:
Related party (Note 2) $ 397,000
Other 159,000
Total current liabilities 556,000
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, $.01 par value; 12,000,000
shares authorized; issued 7,096,400 shares 71,000
Additional paid-in capital 3,202,000
Deficit (3,642,000)
(369,000)
Less 1,001,000 shares of common stock
held in treasury at cost (69,000)
Total stockholders' equity (deficit) (438,000)
Total Liabilities and Stockholders'
Equity (Deficit) $ 118,000
See notes to consolidated financial statements.
NEMDACO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended January 31, 1996
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1996 1995 1996 1995
Operating expenses:
General and administrative $ 171,000 $ 97,000 $ 450,000 $ 159,000
Rent expense,
related party (Note 2) 4,000 6,000 11,000 18,000
175,000 103,000 461,000 177,000
Loss from operations (175,000) (103,000) (461,000) (177,000)
Other charges (income):
Interest expense,
related party (Note 2) 1,000 10,000
Interest income (3,000) (8,000)
(2,000) (2,000)
Loss from continuing operations (175,000) (101,000) (461,000) (179,000)
Discontinued operations:
Income from discontinued operations 173,000 263,000
Net income (loss) $(175,000) $ 62,000 $(461,000) $ 84,000
Earnings per common share:
Loss from continuing operations $ (.029) $ (.011) $ (.076) $ (.021)
Income from discontinued operations .021 .034
Net income (loss) $ (.029) $ .010 $ (.076) $ .014
Weighted average of common shares
outstanding 6,095,400 6,095,400 6,095,400 6,095,400
See notes to consolidated financial statements.
NEMDACO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from May 1, 1995 To January 31, 1996
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID-IN TREASURY STOCK
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT)
BALANCE, 5/1/95 7,096,400 $ 71,000 $3,202,000 1,001,000 $ 69,000 $(3,181,000)
Net loss (461,000)
BALANCE, 1/31/96 7,096,400 $ 71,000 $3,202,000 1,001,000 $ 69,000 $(3,642,000)
See notes to consolidated financial statements.
NEMDACO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine months Ended January 31, 1996 and 1995
(UNAUDITED)
1996 1995
Cash Flows From Operating Activities:
Net income (loss) $ (175,000) $ 84,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary gain on retirement of debt (150,000)
Depreciation and amortization 1,000
Changes in assets and liabilities:
Decrease (increase) in deferred tax asset 5,000
Decrease (increase) in trade receivables 15,000
Increase (decrease) in accounts payable and
accrued expenses 243,000 67,000
Total adjustments 243,000 (62,000)
Net cash provided by (used in) operating activities (68,000) 22,000
Cash Flows From Investing Activities:
Purchase of furniture and equipment (18,000)
Receipts applied to notes receivable (100,000) 47,000
Net cash provided by investing activities (118,000) 47,000
Cash Flows From Financing Activities:
Payments on note payable, related party (12,000)
Net cash used in financing activities (12,000)
Net increase (decrease) in cash and cash equivalents (50,000) 57,000
Cash and cash equivalents, beginning 50,000 50,000
Cash and cash equivalents, ending $ 0 $ 107,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine months for:
Income taxes $ -0- $ - 0-
Interest -0- 7,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company was instrumental in organizing an entity called Nemdaco China
Ventures, in July 1995, for which it owned a 30% equity. The investment in
this affiliate has been accounted for under the equity method (Note 5). The
shares in Nemdaco China Ventures have subsequently been distributed to
shareholders of the Company in February, 1996 (Item 7, Plan of Operations).
See notes to consolidated financial statements.
NEMDACO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months Ended January 31, 1996 and 1995
1. BASIS OF PRESENTATION:
Unaudited Information - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. They do not include all information and
footnotes required by generally accepted accounting principles for
complete financial statements. However, except as disclosed herein,
there has been no material change in the information disclosed in the
notes to consolidated financial statements included in the
Annual Report on Form 10-KSB for the year ended April 30, 1995
and Forms 10-QSB for the quarters ended July 31 and October
31, 1995. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the nine months ended January 31, 1996 are not necessarily
indicative of the results that may be expected for the year
ending April 30, 1996.
Principles of Consolidation - The unaudited financial state-
ments as of January 31, 1996, include the accounts of the
Company and Tracks Entertainment, Inc. ("Tracks"), a wholly-
owned subsidiary until December 1994. All significant inter-
company transactions and accounts have been eliminated.
License rights and investment in an affiliate in which
ownership is at least 20% but not over 50% is accounted for
under the equity method (Note 5).
Reclassification - The 1994 statement of operations and
earnings (loss) per share have been reclassified to reflect
the operating results of Tracks as discontinued operations,
which is consistent with the 1995 presentation.
2. RELATED-PARTY TRANSACTIONS:
Accounts Payable and Other Accrued Expenses:
Amounts included in accounts payable and other accrued
expenses, related party, consists of balances due to 1) an
officer and director for salaries and other out of pocket
expenses, 2) an entity controlled by a director for rent and
other office services provided to the Company and 3) funds
advanced by a major stockholder.
Rent Expense:
Since November 1993, the Company leased, on a month to month
basis, office and storage space from an entity controlled by
a director and former officer of the Company. Rent expense
incurred during the nine months ended January 31, 1996
totalled $11,000. Records and books were relocated in
February, 1996 to California.
3. DISCONTINUED OPERATIONS:
Effective December 1, 1994, the Company disposed of Tracks and
its Licensing and Royalty Agreement. Operating results from
the discontinued operations are included in the consolidated
statement of operations under "Income from discontinued
operations," and include:
1994/95
Revenues:
License and royalty fees
net of income tax expense of
of $54,000 $ 138,000
Extraordinary gain from debt
retirement, net of income tax
expense of $33,000 117,000
Income from discontinued
operations $ 263,000
4. GOING CONCERN:
As shown in the accompanying financial statements, the Company
has incurred a loss of $461,000 during the nine months ended
January 31, 1996. In addition, as of the date of these
financial statements, the Company had no continuing revenue
generating operations resulting in projected cash flow
deficiencies. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management is attempting to resolve these deficiencies by
raising financing necessary to acquire interests in on-going
businesses and to satisfy its working capital requirements.
The Company is currently exploring various possibilities for
obtaining financing, including possible private placements and
public offerings and debt secured by assets acquired. If
adequate financing can be obtained, the Company intends to
consider the possibilities of investing in various joint
ventures or acquisitions that management is currently
investigating. Pursuant to these policies, the company has
purchased or made commitments to acquire interests in certain
on-going business activities. (Note 5)
5. COMMITMENTS AND CONTINGENCIES:
The Company has acquired the following interests during the
current fiscal year:
a. Nemdaco China Ventures, Inc.
The Company was instrumental in organizing an entity
called Nemdaco China Ventures, Inc. in July 1995. The
Company owns 30% of this affiliate with 70% owned by
various entities. The Company accounts for the
investment in this affiliate under the equity method.
Summarized condensed financial information of the
unconsolidated affiliate, Nemdaco China Ventures, Inc.,
accounted for by the equity method, is as follows:
Sales $ -0-
Expenses 193,000
Net loss $ (193,000)
Company s share of net loss $ (58,000)
Current assets $ -0-
Non-current assets -0-
Total assets $ -0-
Current liabilities $ 193,000
Non-current liabilities -0-
Equity (193,000)
Total liabilities and equity $ -0-
Company s share of equity $ (58,000)
Since the Company's share of losses has exceeded the
carrying amount of the investment and the Company has not
guaranteed any of the investee's obligations, the company
has suspended the application of the equity method for
accounting for its investment in Nemdaco China Ventures,
Inc. The Company shall resume applying the equity method
after the Company's share of the investee's net income
equals the Company's share of the investee's losses not
previously recognized.
b. ThermaFreeze License Rights
The Company acquired a perpetual license for the sale and
distribution of the "ThermaFreeze shipping system" for
Asia in December, 1995. Under the terms of the license
agreement purchased for $100,000 from ThermaFreeze, Inc.,
an Indiana corporation. Nemdaco, Inc. is committed to pay
ThermaFreeze an on-going royalty on all sales of five
percent. The ThermaFreeze shipping system is a
specialized product used to ship temperature sensitive
products. This investment is reflected as "Other Assets"
on the January 31, 1996 consolidated balance sheet.
c. Attache' Communications Systems
In January, 1996, the Company finalized the purchase of
Attache' Communications Systems (Attache') for 70 percent
interest in a newly formed subsidiary company: Nemdaco
Attache' Communications, Inc. Attache' is in a
developmental mode, with no significant assets.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Plan of Operations
Since December 1, 1994, the Company has had no revenue
generating operations. In April 1995, a controlling interest of
the Company was acquired by Coubert Dennis, Ltd., a Republic of
Ireland corporation. Since the change in control in ownership, new
officers and directors have been appointed.
With the planned relocation of the Company to California
(completed in February, 1996), Gary Larkin was appointed President
and CEO on November 30, 1995, replacing R.C. Moore. Samuel W.
Stearman was appointed Vice President Finance and CFO, effective
January 1, 1996. Subsequently, Gary Larkin was appointed as
Director in February, 1996, replacing Martin Chernoff, who
resigned.
The new management team has purchased interests in two
businesses and acquired license rights for an additional product
(see Note 5 to financial statements) during the last quarter, none
of which are currently generating revenues. The Company continues
to aggressively explore other investment opportunities. In
December, 1995 the Company, in consort with key management, made an
offer to purchase the assets and business of Graphic Research,
Inc., a California corporation and wholly owned subsidiary of
Methode, Inc., for $US 2.5 million. Graphics Research is involved
in the design and manufacture of circuit boards for government and
commercial applications with operations in Chatsworth, California.
Under the terms of the purchase agreement, key management personnel
would retain 30 percent interest in a new subsidiary company. An
agreement has not yet been finalized.
The Nemdaco, Inc. subsidiary, Nemdaco China Ventures, Inc. has
also entered into preliminary purchase agreements to acquire
controlling interest in the following businesses located within the
People's Republic of China:
a) Beijing Dachun Foods Limited; involved in the distribution and
sale of bottled water (60% interest).
b) Qinhuangdao Brewery: a government owned brewery founded in 1985
(60% interest).
c) Hebei Jintai Brewery: a government owned brewery founded in
1987 (80% interest).
The Company announced in October that its interest in Nemdaco
China Ventures, Inc. would be distributed to shareholders of record
of Nemdaco, Inc. as of November 15, 1995. These share were
subsequently issued on February 20, 1996. It is the intention of
Nemdaco China Ventures, Inc. to file a registration statement with
the Securities and Exchange Commission within 90 days of issuance
to request registration of the shares on behalf of shareholders
requesting such registration on or before April 10, 1996.
In order to complete acquisitions and funding for these and
other business interests, the Company has been seeking financing
through a combination of secured loans and public and private
placements.
The following financing is currently under negotiation:
a) Management entered into an agreement in December to sell 2
million shares of Nemdaco, Inc. under Regulation S to foreign
investors for a total consideration of $US 500,000 ($.25 cents
per share). These funds have not yet been received.
b) An additional $US 40 million financing is being negotiated with
a group of foreign investors to fund Chinese projects. Under
the terms of the financing arrangement, Nemdaco China Ventures,
Inc. would be obligated to repay the investors $US 40 million,
plus interest at 9.5 percent per annum, based on a ten year
amortization schedule, with interest payable only for the first
two years and a balloon payment due at the end of year five.
As additional consideration, Nemdaco China Ventures, Inc. would
issue 2 million shares to the foreign investors.
c) Secured loans have been tentatively approved to fund the
purchase of Graphics Research, Inc. through commercial
lenders.
There is no assurance that necessary financing can be obtained
to fund new acquisitions made or anticipated.
The Company has a deficit in stockholders' equity of $438,000
as of January 31, 1996, down $461,000 from April 30, 1995. This
decrease is due to the expenses incurred during the nine months
ended January 31, 1996.
Warrants issued by the Company for 400,000 Class A, 400,000
Class B and 400,000 Class C common stock at an exercise price of
$1.50 exercisable expired on February 1, 1996. No additional
warrants have been issued.
The Company's operations have not been materially impacted by
inflationary forces since the Company's inception.
PART II - OTHER INFORMATION
ITEMS 1 THROUGH 6: NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEMDACO, INC.
(Registrant)
Dated: March 13, 1996 By:/s/ Gary Larkin
Gary Larkin, President
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEMDACO, INC.
(Registrant)
Dated: March 13, 1996 By:
Gary Larkin, President