SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act (Fee Required)
For the Fiscal Year Ended July 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ____________ to _______________
Commission File Number 0-3338
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NMC CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-1558317
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
477 Madison Avenue, Suite 701, New York, New York 10022
(212) 207-4560
(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.06 2/3 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (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
----- -----
[X] Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
<PAGE>
At November 1, 1996, 986,677 shares of registrant's Common Stock were
outstanding.
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average bid and asked prices of such stock as
reported in the National Quotation Bureau, Incorporated as of November 1, 1996
was $1,223,196.
Documents incorporated by reference: See Part V, Index to Exhibits
<PAGE>
NMC CORP.
INDEX
Part I Page
- ------ ----
Item 1. Business.............................. 1
Item 2. Properties............................ 6
Item 3. Legal Proceedings..................... 6
Item 4. Submission of Matters to a Vote of
Security Holders...................... 6
Part II
- -------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters....... 7
Item 6. Selected Financial Data............... 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ 10 - 12
Item 8. Financial Statements and Supplementary
Data.................................. 13*
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................ 14
Part III
- --------
Item 10. Directors of the Registrant........... 14
Item 11. Executive Compensation................ 15 - 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management................. 17 - 18
Item 13. Certain Relationships and Related
Transactions.......................... 19
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............... 20
Signatures................................................ 22
*Page F-1 follows Page 13.
<PAGE>
PART I
Item 1. Business
--------
General
-------
NMC Corp. (the "Company" or "NMC"), organized under Delaware law, currently
operates its business through Krystal Fountain Water Company Limited
("Krystal"), its fifty (50%) percent owned subsidiary, a United Kingdom company
which was organized on April 3, 1992. Krystal rents water dispensers and sells
bottled mineral water, cups and ancillary items to businesses in the greater
London metropolitan area situated within the M25 London Orbital Motorway (the
"Greater London Area"). On November 1, 1995, Krystal acquired substantially all
of the net assets of Water Express ("Water Express"). Water Express is a
distributor of natural mineral water to commercial establishments located within
the Greater London area for use with water coolers. Water Express serviced
approximately 1,300 customers with approximately 1,600 water coolers. The
Company purchased the net assets of Water Express for 363,155 shares of the
common stock of Krystal, approximately $379,000 in cash and a promissory note of
approximately $125,000. Krystal's business has not generated a profit on an
annual basis to date. The Company acquired all of the capital stock of Krystal,
on October 31, 1993, in return for the issuance of 155,000 shares of Common
Stock and approximately $540,000. Prior to June 30, 1992, the Company was
engaged in the purchase and sale of liquidation merchandise.
On October 4, 1996, the Company agreed in principle, subject to a
definitive executed agreement to acquire Select Acquisitions, Inc. ("Select"),
the holding company for All American Recreation, Inc., which intends to develop
and manage golf courses, skating rinks and community related housing. Select
also intends to operate two recycling plastic facilities in North Carolina.
Effective April 17, 1995, the Board of Directors authorized a 1-10 reverse
stock split. All share and per share data for prior periods have been restated
to reflect the reverse stock split.
The Company maintains executive offices at 477 Madison Avenue, Suite 701,
New York, New York 10022 and its telephone number is (212) 207-4560.
1
<PAGE>
Industry Background
-------------------
The renting of water dispensers and the attendant sale of bottled water to
commercial enterprises is a relatively new business in the United Kingdom,
although management believes that this business is increasing. No assurance can
be given that the renting of water dispensers will continue to increase or, even
if it does, that Krystal will secure a significant portion of this market and be
able to operate profitably. Management believes that the market may be divided
into five basic categories, namely, companies supplying: (i) natural mineral
water; (ii) purified water; (iii) spring water; (iv) water dispensers for use
with tap water; and (v) water dispensers which are connected directly into the
water supply system. Krystal sells natural mineral water.
The classification of mineral water in the United Kingdom is controlled by
the Natural Mineral Water Regulations which have been in effect since February
1986. In accordance with these Regulations, water classified as natural mineral
water must (i) originate in an underground water table emerging from a spring
protected from all risk of pollution; (ii) be microbiologically wholesome and
drinkable in its natural state; (iii) be bottled at its source; and (iv) be
subjected to frequent analysis and checks by the responsible authority in the
country of origin. In addition, the name of the water source and the place where
the water emerges must be set forth on the label or bottle.
Products
--------
Krystal purchases all of its mineral water from Northumbrian pursuant to an
agreement that terminates in December 1999. The agreement provides Krystal with
the exclusive right to sell Northumbrian spring natural water for use with water
coolers to commercial establishments located within the M25 London Orbital
Motorway, which constitutes the Greater London Area. Northumbrian spring has
been continuously producing water for more than 100 years. Northumbrian bottles
its water at the source and transports the filled bottles which it supplies as
part of the inclusive cost - in its own vehicles to Krystal's facility. The
water is supplied by Krystal to its customers in the 19 liter (five gallon)
bottles furnished by Northumbrian. Northumbrian performs regular tests to insure
the quality of its water, which Northumbrian asserts has remained consistent for
more than 20 years. Management has been advised that the production of
Northumbrian water has been historically stable and reliable.
Krystal purchases most of its water dispensers from EBAC, a company located
in County Durham, England. The dispensers, which range in price from $210 to
$277 per unit, include machines which provide only cold water as well as those
providing hot and cold water, and are offered in desktop and freestanding
models. EBAC dispensers are believed to have patented features, marketed under
EBAC's "WATERSAFE" trademark, which protects against spillage and maintains
highest quality sanitary conditions.
EBAC manufactures such water dispensers in the United Kingdom. Krystal has
not entered into any long-term or other supply agreements with EBAC, but does
not believe that it would be beneficial to do so and has experienced no material
problems to date. Krystal has also purchased water dispensers from Elkay and
Ebco and believes that it would be able to obtain any needed units without
significant disruption on short notice at competitive prices if units could not
be obtained from EBAC.
2
<PAGE>
Krystal delivers and services its dispensers and provides semi-annual
sanitation maintenance for an annual charge of $64.00 per unit and quarterly
sanitization for an annual charge of $102.40 per unit. Krystal will replace
malfunctioning units in accordance with the five year warranties provided by
Elkay and EBAC. Krystal has not entered into any maintenance agreements
concerning ongoing service of the Elkay and EBAC units nor does it presently
intend to do so. There have been few mechanical problems relating to the Elkay
and EBAC units to date.
In addition, Krystal obtains the plastic cups it sells to its customers
from several suppliers. Krystal does not have any applicable long-term or other
supply contracts and believes that plastic cups are essentially fungible and can
be obtained from multiple alternative suppliers on short notice without
disruption at competitive costs.
Marketing and Service
---------------------
Krystal utilizes door-to-door sales efforts, telemarketing and promotional
mailing to market its products and services. It also offers potential customers
seven day free trial periods and advertised its products in trade journals,
general circulation magazines, telephone advertising directories and on its
delivery vehicles.
Krystal concentrates its marketing efforts on promoting the Northumbrian
name and its twenty-four (24) hour replenishment service within the M-25.
Management believes, however, that service is a more important component in
securing and retaining business than the brand of the water being marketed.
Because Krystal is situated in Central London and is within approximately twenty
(20) minutes' driving time of a majority of its locations in its main marketing
area, it is able to provide its customers with a phone-in replenishment service
and guaranteed deliveries within a 24 hour period. Management believes that
Krystal's competitors are currently unable to offer this service. Management
also believes that, in the event Krystal's agreement with Northumbrian were
terminated, Krystal would be able to obtain an alternate supply of water with
comparable quality and, based on the quality of service it provides, retain most
of its customer base.
Customers
---------
Krystal currently services approximately 2,500 accounts which use an
aggregate of approximately 3,400 water dispensers. Customers range from small
independent businesses to large, national corporations, as well as government
agencies and include, among others, members of the Royal Family. No single
customer accounted for 5% or more of Krystal's business for the fiscal year
ended July 31, 1996. Over 90% of Krystal's customers are located in the Greater
London Area. Those customers located outside the Greater London Area are
serviced by independent distributors with whom Krystal has a revenue sharing
arrangement. The dispensers are leased by Krystal to its customers as follows:
68% pursuant to one year agreement; 5% pursuant to two year agreements; 7%
pursuant to three year agreements; and 15% on a monthly basis. Historically,
Krystal's water sales have averaged approximately five bottles per water
dispenser per month. Each bottle is currently sold for $9.52.
3
<PAGE>
Competition
-----------
Management believes that Krystal has 5 major direct competitors in the
United Kingdom who have, in the aggregate, an estimated 40,000 water dispensers
in service, predominantly in the Greater London Area. The following table sets
forth information relating to Krystal's competitors which has been derived from
published sources which are believed to be accurate, but has not been
independently verified by the Company as such competitors are privately owned:
Approximate Approximate
Number Percentage of Product Category Time in
Name of Competitor of Dispensers Market Share (see Below) Business
- ------------------ ------------- ------------ ----------- --------
Aquacool 12,000 30.0 1 10 years
Sparkling Spring 11,000 27.5 2 7 years
Hollywell Spring Group* 5,000 12.5 3 8 years
Braebourne Springs 4,000 10.0 1 8 years
Krystal 3,400 8.5 1 5 years
Hydropure 2,500 6.25 2,3 5 years
Others as a group 2,100 5.25 1,2,3 Various
- ---------------------------
(1) Natural mineral water.
(2) Purified water.
(3) Spring water.
(4) Water dispensers which are plumbed into the water mains.
* Includes independent distributors who purchase water from the spring.
Sparkling Spring uses mineral water. Hollywell Spring uses natural spring
water. Aquacool is the trading name for Ionics (U.K.) Limited, a U.S. Company,
which uses purified water. Hydropure uses purified mineralized water and spring
water.
The Company competes primarily on the basis of what it believes to be
superior customer service and, to a lesser extent, on the basis of price. The
Company also competes indirectly against mass purveyors of bottled waters in
bottles of less than two liters which are not used in connection with water
dispensers - such as Evian and Perrier, who deal primarily with the grocery and
restaurant trade - as well as other types of beverages.
4
<PAGE>
Government and Other Regulation
-------------------------------
All bottled mineral water and water dispenser units are regulated by
agencies of the British government and the European Union ("EU"). Accordingly,
Krystal and the suppliers of its water and water dispenser units are governed by
these regulations.
The EU sets the testing standards for the chemical and other tolerances
which water must satisfy to be marketable. Northumbrian is believed to be in
material compliance with the regulations of the Ministry of Agriculture,
Fisheries and Food, a governmental agency. Northumbrian is required to perform
regular testing to confirm that its water has a mineral and chemical content,
and otherwise satisfies applicable standards.
Violation of any applicable regulations could force the closing of the
source of its water or prohibit the use of its water dispenser units. Management
believes that Northumbrian and Northumbrian mineral water and the Elkay and EBAC
dispensers are in substantial compliance with all applicable regulations and, as
of the date hereof, Krystal has received no notice of any violations thereof.
Although management believes that it could replace such suppliers without
disruption on acceptable terms, it is possible that failure to maintain such
compliance may have a materially adverse effect on Krystal's business.
Krystal is also subject to the regulations of the International Bottled
Water Association, a trade organization of which it is a member. These
regulations require that members market only water from sources which, based on
inspections performed by the Association, comply with certain sanitary criteria.
Non-compliance with these regulations could subject Krystal to suspension or
expulsion from this organization which might also have an adverse effect on
Krystal's business.
Employees
---------
In addition to Marvin E. Greenfield, who is President, Treasurer, Chief
Executive Officer, and a Director of the Company, NMC currently employs one
administrative assistant and a file clerk.
Krystal has 26 full-time employees who include Paul R.C. Woolford, who is
the Managing Director and Matthew Mitchison (the fifty (50%) percent owner of
Krystal), and 2 part-time employees. Of the 28 full-time employees and part-time
employees, 2 are involved in management; 10 full-time employees and 2 part-time
employees are involved in administration; 2 are involved in the operation of
Krystal's warehouse; 10 are drivers; 2 full-time employees are involved in
maintenance; and 2 are involved full-time in sales.
The Company believes its future prospects will depend upon the ability to
identify and retain capable management. The Company considers its relations with
employees, who are not represented by any labor organization, to be
satisfactory.
5
<PAGE>
Item 2. Properties
----------
The Company's corporate headquarters are located at 477 Madison Avenue,
Suite 701, New York, New York 10014, where the Company occupies approximately
1,500 square feet pursuant to a lease ending July 31, 1997 at an annual rental
of $34,200. The lease is believed to be at a market rate. The Company does not
own or lease any other facilities.
Krystal rents approximately 5,640 square feet of office and warehouse
facilities at 8 Brandon Road, Unit #8, London N7 9AA, England, pursuant to a
lease expiring on June 30, 1998 for an annual rent of $36,000. The lease may be
terminated by Krystal upon six months written notice. These facilities are used
as Krystal's executive offices as well as a warehouse for Krystal's products.
Krystal also owns and leases 8 vans and miscellaneous servicing equipment.
Item 3. Legal Proceedings
-----------------
The Company is not presently subject to any legal proceedings which are
material to the consolidated results of operations or financial condition of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended July 31, 1996.
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
-------------------------------
NMC's Common Stock is traded in the over-the-counter market on the NASD
Non-NASDAQ Electronic Bulletin Board. The following table sets forth, for the
periods indicated, the high and low closing bid and asked prices for one share
of Common Stock. These prices were obtained from the National Quotation Bureau,
Incorporated. All prices prior to April 18, 1995 reflect transactions effected
prior to the one for ten reverse stock split which was effective as of April 17,
1995. The quotations represent prices between dealers and do not include retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.
The market for the Common Stock has been sporadic and there have been long
periods during which there were few, if any, transactions in the Stock and no
reported quotations. Accordingly, reliance should not be placed on the quotes
listed below, as the trades and depth of the market may be limited and,
therefore such quotes may not be a true indication of the current market value
of the Company's Common Stock.
Fiscal Year Ended Bid Prices Asked Prices
July 31, 1995 High Low High Low
- ----------------- --------------- ----------------
August 1, 1994 through
October 31, 1994 3/16 1/16 9/16 1/4
November 1, 1994 through
January 31, 1995 1/8 1/16 5/8 5/16
February 1, 1995 through
April 17, 1995 5/32 1/16 5/8 5/16
April 18, 1995 through
April 30, 1995 (1) 1 1/8 1/2 3 1/8 2 3/4
May 1, 1995 through
July 31, 1995 1 3/4 1/8 3 3/4 5/8
Fiscal Year Ended Bid Prices Asked Prices
July 31, 1996 High Low High Low
- ----------------- --------------- ----------------
August 1, 1995 through
October 31, 1995 1 7/8 1/4 2 1/8 3/4
November 1, 1995 through
January 31, 1996 15/16 1/4 1 1/8 1/2
February 1, 1996 through
April 30, 1996 (1) 9/16 1/8 3/4 1/2
May 1, 1996 through
July 31, 1996 2 1/8 9/16 2 1/2 5/8
- ----------------------
(1) The Company declared a 1 for 10 reverse stock split effected on April 17,
1995 and the prices reflect such change.
7
<PAGE>
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters (Continued)
-------------------------------
(b) Approximate Number of Equity Security Holders.
----------------------------------------------
The following table sets forth the approximate number of holders of record
of the equity securities of NMC listed:
Number of Holders at
Title of Class November 1, 1996
- -------------- ----------------
Common Stock, $.06 2/3 par value 1,267
Series B Convertible Preferred
Stock, $1.00 par value 10
Series C Preferred Stock,
$1.00 par value 81
(c) Dividend Policy
---------------
No cash or stock dividends have been declared or paid during the last two
fiscal years. No cash dividends may be declared or paid on the Company's Common
Stock if, and as long as, the Series B Preferred Stock is outstanding or there
are unpaid dividends on outstanding shares of Series C Preferred Stock. No
dividends may be declared on the Series C Preferred Stock if, and as long as,
the Series B Preferred Stock is outstanding. Accordingly, it is unlikely the
Company will declare any cash dividends in the foreseeable future.
8
<PAGE>
Item 6. Selected Financial Data
-----------------------
Years Ended July 31,
---------------------------------------------------
1996(3) 1995(3) 1994(3) 1993(3) 1992(3)
------- ------- ------- ------- -------
(In thousands of dollars, except per share data)
Selected Statements of Operations Data:
Sales ................... $ 1,496 $ 577 $ 339 $ -- $ 1,229
Cost of sales ........... 555 246 177 -- 886
Revenue from participa-
tion in joint ventures,
net .................... -- -- -- -- 4
Interest expense ........ 181 25 6 2 --
(Loss) before income tax
provision .............. (758) (430) (490) (168) (206)
Income tax provision .... 5 1 5 3 3
Net (loss) .............. (763) (431) (495) (171) (209)
(Loss) per common and
common equivalent share:
(Loss) per common and
common equivalent
shares ............... (.79) (.74) (1.34) (.88) (1.30)
Years Ended July 31,
---------------------------------------------------
1996(2) 1995 1994(1) 1993 1992
------- ------- ------- ------- -------
Selected Balance Sheet Data:
(In thousands of dollars)
Total Assets ............ $3,186 $1,544 $1,200 $ 580 $ 586
Long-term debt .......... 96 12 39 -- --
(1) The Company acquired Krystal as of October 31, 1993, pursuant to a
transaction accounted for as a purchase. Accordingly, the results of
Krystal's operations are reflected above solely for the periods after the
acquisition and the balance sheet data set forth above does not include
Krystal for periods prior to 1994.
(2) Krystal acquired Water Express as of November 1, 1995, pursuant to a
transaction accounted for as a purchase. Accordingly, the results of Water
Express's operations are reflected above solely for the periods after the
acquisition and the balance sheet data set forth above does not include
Water Express for the periods prior to 1996.
(3) All share and per share date have been restated to reflect the 1-10 reverse
stock split.
9
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
---------------------
1996 Compared to 1995
The Company currently operates its business through Krystal. On November 1,
1995, Krystal acquired substantially all the net assets of Water Express. The
operating results of Water Express have been included in the consolidated
statement of operations from the date of acquisition.
Revenues from sales increased 160% to $1,495,846 for the year ended July
31, 1996 from $575,247 for the year ended July 31, 1995. The increase is
primarily due to the inclusion of Water Express in the settlement of operations,
an increase in the number of customers and more demand for the Company's
products.
Cost of sales increased 125.6% to $555,282 for the year ended July 31, 1996
from $246,205 for the year ended July 31, 1995 due to the reasons explained
above.
Selling, general and administrative expenses increased 110.5% to $1,611,260
for the year ended July 31, 1996 from $765,504 for the year ended July 31, 1995.
The increase is primarily due to the inclusion of Water Express in the statement
of operations, an expansion of the Company's marketing program, the write-off of
costs relating to an aborted acquisition and increases in depreciation of
equipment and amortization of goodwill in connection with the Water Express
acquisition.
Interest expense increased to $181,434 for the year ended July 31, 1996
from $25,496 for the year ended July 31, 1995. The increase is attributable to
the increase in debt incurred by the Company in the year ended July 31, 1996 as
discussed below in "Liquidity and Capital Resources".
Other income decreased approximately $31,000 for the year ended July 31,
1996 compared to the year ended July 31, 1995 due primarily to settlement
received by Krystal for the infringement of its territorial rights by a
competitor in 1995. This event was a non-recurring transaction.
The net loss increased 77% to $763,335 for the year ended July 31, 1996
from $431,317 for the year ended July 31, 1995. The Company attributes the
increase primarily to the increase in interest expense and the write-off of
expenses in connection with an aborted acquisition. The improved operations of
Krystal have not been able to offset the overhead of the Company at its
corporate offices.
1995 Compared to 1994
Revenues from sales increased from $339,324 for the year ended July 31,
1994 to $575,247 for the year ended July 31, 1995. The increase was due
primarily to the inclusion of Krystal in the statement of operations for the
entire year ended July 31, 1995 compared to only nine months of the prior year
as well as an increase in the number of customers and more demand for the
Company's product.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
-----------------------------------------------
Cost of sales increased from $176,864 for the year ended July 31, 1994 to
$246,205 for the year ended July 31, 1995 due to the reasons explained above.
Selling, general and administrative expenses increased from $648,418 for
the year ended July 31, 1994 to $765,504 for the year ended July 31, 1995 due to
the reasons explained above.
Other income increased from $1,835 for the year ended July 31, 1994 to
$31,752 for the year ended July 31, 1995 reflecting a settlement received by
Krystal for the infringement of its territorial rights by a competitor. This
event was a non-recurring transaction.
Interest expense increased from $6,076 for the year ended July 31, 1994 to
$25,496 for the year ended July 31, 1995. The increase was due to additional
loans made to the Company to fund its current operations.
The net loss decreased by approximately $63,000 for the year ended July 31,
1995 compared to the year ended July 31, 1994. The Company attributed the
decrease primarily to the improvement in the operations of Krystal. However, the
operations of Krystal have not been able to offset the overhead of the Company
at its corporate offices.
Liquidity and Capital Resources
- -------------------------------
NMC currently has no operations other than those relating to Krystal's
business which will, therefore, provide the Company's only source of cash flow
for the foreseeable future. Management estimates that this cash flow should be
sufficient to support Krystal's operations during the next twelve (12) months.
This estimate is based on existing water dispenser unit lease commitments and
projected water sales which, in turn, are based on historical per unit water
usage.
Krystal acquired substantially all the net assets of Water Express in
exchange for the issuance of 363,155 shares of the common stock of Krystal,
approximately $379,000 in cash and a promissory note of approximately $125,000.
As of this date, the Company's ownership equity in Krystal has been reduced to
fifty (50%) percent.
On October 4, 1996, the Company signed an agreement in principle, subject
to a definitive executed agreement, to acquire Select Acquisitions, Inc., the
holding company for All American Recreation, Inc., which intends to develop and
manage golf courses, skating rinks and community related housing. Select also
intends to operate two recycling plastic facilities in North Carolina. Under the
terms of the agreement, shareholders of Select will receive approximately 5.9
million shares of the Company's common stock based on receiving 2.11 shares of
the Company's common stock for each of the shares of Select stock outstanding,
which approximates 2.8 million shares. The combined Company's business will be
plastics recycling, recreation development and distribution of bottled mineral
water. Should the proposed merger take place, the Company will need substantial
funds to finance its operations. As of the date hereof, the Company has no
letter of intent for a proposed public equity financing or any document setting
forth the terms of any financing. No assurance can be given that an equity
financing will ever be consummated.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
-----------------------------------------------
Liquidity and Capital Resources (Continued)
- -------------------------------------------
On December 8, 1995, NMC and Krystal entered into separate loan agreements
with Ballydine Investments Limited ("Ballydine") for a combined line-of-credit
("line-of-credit") of up to $750,000. The line-of-credit is guaranteed by NMC
and is secured by the fifty (50%) percent of Krystal owned by the Company. Any
amount that Krystal borrows is secured by an English debenture ("Security
Agreement") from Krystal which encumber all of Krystal's assets in favor of
Ballydine. The lien on this collateral is superior to prior liens given to other
lenders, including affiliated entities.
On September 30, 1996, Krystal paid Ballydine $286,000 which liquidated the
liability to Ballydine from Krystal. The lien on the assets of Krystal by
Ballydine was released. The monies were advanced from the shareholders of
Krystal to repay the loan. The advances from the shareholders are due on demand
if there is sufficient cash flows to pay the shareholders.
The amount due Ballydine from NMC in the amount of $364,000 was extended to
the earlier of March 31, 1997 or within three (3) days after the closing of a
secondary offering of the Company's securities. As additional consideration for
the line-of-credit, the Company has issued 9.9% of the outstanding fully diluted
shares of the Company or 108,414 shares, in the form of a warrant exercisable at
$.001 per share, with registration rights.
The Company's continued existence is dependent upon its ability to obtain
needed working capital through additional equity and/or debt financing and
positive cash flows from the Company's recent acquisition. Management is
actively seeking additional capital to ensure the continuation of its
operations. However, there is no assurance that additional capital will be
obtained. In addition, the Company has an outstanding line-of-credit in the
amount of $364,000 which is due no later than March 31, 1997, and has borrowed
$200,000 from an unaffiliated third party during March, 1995 which is due no
later than July 31, 1997. Both loans are secured by the fifty (50%) percent
interest of Krystal owned by the Company. If the loans are not repaid, the
Company could lose its only revenue generating operation. Management estimates
the cash flow from Krystal's operations will also be sufficient to support the
corporate overhead of NMC during the next twelve (12) months. The cash flow from
Krystal's operations are based on projections prepared internally by the
management of Krystal. No assurance can be given that these projections will be
realized. Should NMC use any funds from Krystal to fund NMC's operations, the
Company's fifty (50%) percent equity partner must approve such a distribution
and is entitled to an equal distribution.
12
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements and Supplementary Financial Data
--------------------------------------------------------------
Page
---------
Independent Auditors' Report F-1 - F-2
Financial Statements:
Consolidated Balance Sheets as of July 31,
1996 and 1995 F-3 - F-4
Consolidated Statements of Operations, Years
Ended July 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Stockholders'
(Deficiency) Equity, Years Ended July 31,
1996, 1995 and 1994 F-6 - F-7
Consolidated Statements of Cash Flows, Years
Ended July 31, 1996, 1995 and 1994 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-22
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
NMC Corp.
New York, New York
We have audited the consolidated balance sheets of NMC Corp. and subsidiary
as of July 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' (deficiency) equity, and cash flows for each of the
three years in the period ended July 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Krystal Fountain Water Company Limited, a wholly-owned subsidiary, for the year
ended July 31, 1994, which statements reflect total assets constituting
twenty-four (24%) percent of consolidated assets at July 31, 1994 and total
revenues constituting one-hundred (100%) percent of consolidated total revenues
for the year then ended. Those statements were audited by other auditors whose
report has been furnished to us, and in our opinion, insofar as it relates to
the amounts included for Krystal Fountain Water Company Limited, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors for
the year ended July 31, 1994, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of NMC
Corp. and subsidiary at July 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1996 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
F-1
<PAGE>
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
explained in Note 1 of Notes to Consolidated Financial Statements, the Company
needs to obtain additional financing and achieve a level of sales to support its
cost structure. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
WIENER, PENTA & GOODMAN, P.C.
Certified Public Accountants
October 4, 1996
F-2
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31,
--------------------------
1996 1995
---------- ----------
Current Assets:
Cash $ 15,592 $ 14,043
Accounts receivable - less allowance
for doubtful accounts of $9,000 and
$-0- 587,696 152,196
Inventories 13,468 5,935
Prepaid expenses and sundry
receivables 132,823 39,250
---------- ----------
Total Current Assets 749,579 211,424
---------- ----------
Property, plant and equipment -
net 1,437,612 147,696
Unamortized excess of cost over fair
value of assets acquired 979,595 853,850
Deferred acquisition costs 18,868 331,281
---------- ----------
TOTAL ASSETS $3,185,654 $1,544,251
========== ==========
See notes to consolidated financial statements
F-3
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
July 31,
--------------------------
1996 1995
----------- -----------
Current Liabilities:
Short-term borrowings $ 1,251,373 $ 526,324
Current portion of long-term debt 27,343 6,047
Current portion of capital lease
obligations 380,897 --
Accounts payable 333,153 112,981
Accrued expenses 274,811 148,548
Customer deposits 105,873 16,000
Deferred revenue 138,312 58,896
Due to officer 200,000 50,000
Income taxes payable 7,970 3,030
----------- -----------
Total Current Liabilities 2,719,732 921,826
----------- -----------
Long-term debt 68,944 6,047
Deferred revenue 7,392 13,166
----------- -----------
Total Liabilities 2,796,068 941,039
----------- -----------
Minority interest in consolidated
subsidiary 543,461 --
Commitments and Contingent Liabilities
Stockholders' (Deficiency) Equity:
Preferred stock, par value $1; authorized
500,000 shares (involuntary liquidation
value $777,912):
Convertible Series B, at redemption
value; issued and outstanding
65,141 shares 130,282 130,282
Cumulative Series C, par value $1;
issued and outstanding 64,763
shares 64,763 64,763
Common stock, par value $.06-2/3;
authorized 20,000,000 shares; issued
and outstanding 986,677 and 936,677
shares 65,811 62,476
Additional paid-in capital 7,368,110 7,351,643
Deficit (7,792,894) (7,029,559)
Foreign currency translation adjustment 10,053 23,607
----------- -----------
Total Stockholders' (Deficiency)
Equity (153,875) 603,212
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIENCY) EQUITY $ 3,185,654 $ 1,544,251
=========== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
July 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales $ 1,495,846 $ 575,247 $ 339,334
Other income 70 31,752 1,835
----------- ----------- -----------
1,495,916 606,999 341,169
----------- ----------- -----------
Costs and Expenses:
Cost of sales 555,282 246,205 176,864
Selling, general and administrative
expenses 1,611,260 765,504 648,418
Interest expense 181,434 25,496 6,076
----------- ----------- -----------
2,347,976 1,037,205 831,358
----------- ----------- -----------
(Loss) before income tax provision (852,060) (430,206) (490,189)
Minority interest in net (loss) of
consolidated subsidiary 94,368 -- --
----------- ----------- -----------
(Loss) before income tax provision (757,692) (430,206) (490,189)
Income tax provision 5,643 1,111 4,509
----------- ----------- -----------
Net (loss) $ (763,335) $ (431,317) $ (494,698)
=========== =========== ===========
(Loss) per common share $ (.79) $ (.74) $ (1.34)
=========== =========== ===========
Weighted average number of common
shares outstanding 970,010 581,882 368,921
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
YEARS ENDED JULY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------
Convertible Cumulative
Series B Series C Common Stock Additional
-------------------------- -------------------------- ------------------------ Paid-In
Shares Amount Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 1,
1993 65,141 $ 130,282 64,763 $ 64,763 193,349 $ 12,896 $ 6,294,902
Issuance of common
stock in connection
with the acquisition
of Krystal Fountain
Water Company Ltd.
(valued at $3.00
per share) 155,000 10,338 454,662
Sale of common stock
(for $3.00 per share
net of related costs
of $28,998) 77,328 5,158 197,828
Issuance of common
stock in lieu of
compensation
(valued at $1.97
per share) 11,000 734 20,934
Foreign currency
translation ad-
justment
Net (loss)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, July 31,
1994 65,141 130,282 64,763 64,763 436,677 29,126 6,968,326
Foreign
Currency
Translation
Deficit Adjustment Total
----------- ----------- -----------
Balance, August 1,
1993 $(6,103,544) $ -- $ 399,299
Issuance of common
stock in connection
with the acquisition
of Krystal Fountain
Water Company Ltd.
(valued at $3.00
per share) 465,000
Sale of common stock
(for $3.00 per share
net of related costs
of $28,998) 202,986
Issuance of common
stock in lieu of
compensation
(valued at $1.97
per share) 21,668
Foreign currency
translation ad-
justment 8,051 8,051
Net (loss) (494,698) -- (494,698)
----------- ----------- -----------
Balance, July 31,
1994 (6,598,242) 8,051 602,306
</TABLE>
(Continued)
See notes to consolidated financial statements.
F-6
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
YEARS ENDED JULY 31, 1996, 1995 AND 1994 (Continued)
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------
Convertible Cumulative
Series B Series C Common Stock Additional
------------------------- -------------------------- ------------------------- Paid-In
Shares Amount Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock in lieu of
compensation (valued
at $.833 per share) 500,000 33,350 383,317
Foreign currency
translation ad-
justment
Net (loss)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, July 31,
1995 65,141 130,282 64,763 64,763 936,677 62,476 7,351,643
Issuance of common
stock in lieu of
compensation (valued
at $.25 per share) 50,000 3,335 2,915
Issuance of warrants
in lieu of interest
(valued at $.25 per
share) 13,552
Foreign currency
translation adjustment
Net (loss)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, July 31,
1996 65,141 $ 130,282 64,763 $ 64,763 986,677 $ 65,811 $ 7,368,110
=========== =========== =========== =========== =========== =========== ===========
Foreign
Currency
Translation
Deficit Adjustment Total
----------- ----------- -----------
Issuance of common
stock in lieu of
compensation (valued
at $.833 per share) 416,667
Foreign currency
translation ad-
justment 15,556 15,556
Net (loss) (431,317) (431,317)
----------- ----------- -----------
Balance, July 31,
1995 (7,029,559) 23,607 603,212
Issuance of common
stock in lieu of
compensation (valued
at $.25 per share) 6,250
Issuance of warrants
in lieu of interest
(valued at $.25 per
share) 13,552
Foreign currency
translation adjustment (13,554) (13,554)
Net (loss) (763,335) (763,335)
----------- ----------- -----------
Balance, July 31,
1996 $(7,792,894) $ 10,053 $ (153,875)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
July 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(763,335) $(431,317) $(494,698)
Adjustments to reconcile net (loss) to net cash
provided from operating activities:
Depreciation and amortization 285,511 100,522 75,008
Reserve for bad debts 9,000 -- --
Minority interest in (loss) of consolidated
subsidiary (94,368) -- --
Gain on sale of equipment (9,645) -- --
Unpaid executive compensation 150,000 150,000 150,000
Other non-cash items 19,802 -- --
Changes in operating assets and liabilities
net of effects from acquisition of Krystal
Fountain Water Company Limited and Water Expres (53,861) 96,787 1,764
--------- --------- ---------
Net Cash (Used in) Operating Activities (456,896) (84,008) (267,926)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 16,173 -- --
Purchase of property, plant and equipment (131,515) (51,750) (38,042)
Prepayments on acquisitions -- (164,974) --
--------- --------- ---------
Net Cash (Used in) Investing Activities (115,342) (216,724) (38,042)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings 804,711 823,567 245,926
Proceeds from minority shareholder 77,150 -- --
Repayments of borrowings (294,520) (525,259) (143,523)
Proceeds from sale of common stock -- -- 202,986
--------- --------- ---------
Net Cash Provided by Financing Activities 587,341 298,308 305,389
--------- --------- ---------
Foreign currency translation adjustment (13,554) 15,556 --
--------- --------- ---------
Net Increase (Decrease) in Cash 1,549 13,132 (579)
Cash - beginning of year 14,043 911 1,490
--------- --------- ---------
Cash - end of year $ 15,592 $ 14,043 $ 911
========= ========= =========
</TABLE>
(Continued)
See notes to consolidated financial statements.
F-8
<PAGE>
NMC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
July 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Changes in operating assets and liabilities net of
effects from purchase of Krystal Fountain Water
Company Limited and Water Express consist of:
(Increase) in accounts receivable $(206,855) $ (51,033) $ (23,463)
(Increase) decrease in inventories (4,433) 12,664 3,643
(Increase) in prepaid expenses and sundry receivables (90,683) (23,086) (1,313)
(Increase) in deferred acquisition costs (106,570) -- --
Decrease in other assets -- 13,540 --
Increase in accounts payable 149,178 72,356 16,560
Increase in accrued expenses 113,889 47,640 15,586
Increase in income taxes payable 4,940 49 2,137
Increase (decrease) in deferred revenue 73,642 24,657 (11,386)
Increase in customer deposits 13,031 -- --
--------- --------- ---------
$ (53,861) $ 96,787 $ 1,764
========= ========= =========
Supplementary information:
Cash paid during the year for:
Interest $ 128,998 $ 7,754 $ 1,567
========= ========= =========
Income taxes $ 2,568 $ 2,981 $ 2,372
========= ========= =========
Supplementary information of non-cash
investing and financing activities:
During 1995, Krystal Fountain Water Company
Limited purchased the net assets of Water Express.
During 1993, the Company's purchased the outstanding
common stock of Krystal Fountain Water Company
Limited. In conjunction with these acquisitions:
Fair value of assets acquired $1,260,110 $ -- $ 270,000
========== ===== =========
Liabilities assumed $ 360,399 $ -- $ 158,744
========== ===== =========
Common stock issued in consideration of compensation $ 6,250 $ 250,000 $ --
========== ========= =========
Common stock issued in consideration of consulting
services $ -- $ 166,667 $ --
========== ========= =========
Common stock issued in lieu of payment of interest $ 13,552 $ -- $ --
========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
NMC Corp. (the "Company" or "NMC"), through its fifty (50%) percent
owned subsidiary Krystal Fountain Water Company Limited ("Krystal"), rents
water dispensers and sells bottled water, cups and ancillary items to
businesses in the London, England market.
Recent Developments
-------------------
On October 4, 1996, the Company agreed in principle, subject to a
definitive executed agreement, to acquire Select Acquisitions Inc.
("Select"), the holding company for All American Recreation, Inc., which
intends to develop and manage golf courses, skating rinks and community
related housing. Select also intends to operate two recycling plastic
facilities in North Carolina. Should the proposed merger take place, the
Company will need substantial funds to finance its operations. As of the
date hereof, the Company has no letter of intent for a proposed public
equity financing or any document setting forth the terms of any financing.
No assurance can be given that an equity financing will ever be
consummated.
Basis of Presentation
---------------------
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
The Company has experienced recurring losses and negative cash flows
from operations through July 31, 1996. In addition, losses and negative
cash flows from operations have continued throughout the period subsequent
to July 31, 1996.
The Company's only operations relate to Krystal which is the Company's
only source of cash flow. Management estimates that this cash flow should
be sufficient to support Krystal's operations during the next twelve (12)
months. Additional funds will be required to pay for the cost of NMC's
operations, which approximates $300,000 annually.
On November 1, 1995, Krystal acquired substantially all of the net
assets of Water Express ("Water Express"), a company located in London,
England engaged in the sale of bottled water. The Company believes the cash
flows from the Water Express acquisition will be sufficient to fund its
operations in the future. Should NMC use any funds from Krystal to fund
NMC's operations, the Company's fifty (50%) percent equity partner must
approve such a distribution and is entitled to an equal distribution.
F-10
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company's continued existence is dependent upon its ability to
obtain needed working capital through additional equity and/or debt
financing and positive cash flows from the Company's recent acquisitions.
Management is actively seeking additional capital to ensure the
continuation of its operations. However, there is no assurance that
additional capital will be obtained. In addition, the Company has an
outstanding line-of-credit in the amount of $364,000 which is due no later
than March 31, 1997, and has borrowed $200,000 from an unaffiliated third
party during March, 1995 which is due no later than July 31, 1997. Both
loans are secured by the fifty (50%) percent interest of Krystal owned by
the Company. If the loans are not repaid, the Company could lose its only
revenue generating operation. These matters raise substantial doubt about
the ability of the Company to continue as a going concern.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its 50% owned subsidiary. All significant intercompany
transactions and balances have been eliminated.
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consists principally of accounts receivable.
The Company grants credit primarily to businesses based on an evaluation of
the customer's financial condition, without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's
financial condition. The Company controls its exposure to credit risk
through credit approvals, credit limits and monitoring procedures and
maintains allowances for anticipated losses.
Foreign Currency Translation
----------------------------
The functional currency for the majority of the Company's foreign
operations is the applicable local currency. The translation from the
applicable foreign currency to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date
and for revenue and expense accounts using the average rate during the
period. The gains or losses resulting from such translation are included in
stockholders' equity.
F-11
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gains or losses resulting from foreign currency transactions are
included in the statement of operations.
Inventories
-----------
Inventories, consisting primarily of bottled mineral water, are valued
at the lower of cost (first-in, first-out) or market.
Deferred Acquisition Costs
--------------------------
Costs incurred in connection with proposed acquisitions, are deferred
until the acquisitions have been consummated and will be included as part
of the purchase price of the acquisitions.
Depreciation
------------
Fixed assets are stated at cost less accumulated depreciation.
Depreciation, which includes amortization of assets under capital leases,
is calculated using the straight-line and declining-balance methods over
the estimated useful lives of the assets.
Minority Interest
-----------------
Minority interest represents the minority stockholders' proportionate
share of the equity of Krystal. At July 31, 1996, the Company owned fifty
(50%) percent of the capital stock of Krystal.
Common Stock
------------
The Board of Directors authorized a 1-10 reverse stock split effective
as of April 17, 1995. All share and per share data for prior periods
presented have been restated to reflect the reverse stock split.
Long-Lived Assets
-----------------
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of". This statement is effective for
fiscal years beginning after December 15, 1995. The Company does not expect
the effect on its consolidated financial condition and results of
operations from the adoption of this statement to be material.
F-12
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standard
-----------------------------------
In October, 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". The standard
encourages, but does not require, companies to recognize compensation
expense of grants for stock, stock options and other equity instruments to
employees based on fair value accounting rules. SFAS No. 123 requires
companies that choose not to adopt the new fair value accounting rules to
disclose pro forma net income and earnings per share under the new method.
The standard is effective for fiscal years beginning after December 15,
1995. The Company has not yet determined if it will adopt the accounting
provisions of SFAS No. 123 or only the disclosure provision. However, the
Company does not believe that adoption of SFAS No. 123 will have a
significant effect on its results of operations.
Deferred Revenue
----------------
Assets leased under operating leases to customers are included in
fixed assets and are depreciated over their useful lives. Rental income
from operating leases is included in the statement of operations on a
straight-line basis over the term of the lease. Amounts not earned are
reflected in deferred revenue.
Unamortized Excess of Cost Over Fair Value of Assets Acquired
-------------------------------------------------------------
The excess of cost over fair value of assets acquired is being
amortized on a straight-line basis principally over twenty (20) years.
Amortization was approximately $51,000 and $47,000 for the years ended July
31, 1996 and 1995, respectively.
Fair Value of Financial Instruments
-----------------------------------
For financial instruments including cash, short-term debt, accounts
payable, accrual expenses, capital lease obligations, and amounts due to
officer it was assumed that the carrying values approximated fair value
because of their short-term maturities. It is not practicable to estimate
the fair value of the non-publicly traded long-term debt.
(Loss) Per Common Share
-----------------------
(Loss) per common share is computed using the weighted average number
of common shares outstanding during the year. The convertible preferred
stock and exercise of warrants are not considered common share equivalents
for the purposes of the computation of earnings per share because their
effect is antidilutive.
Reclassification
----------------
Certain reclassifications have been made to prior year balances to
conform with the current year's presentation.
F-13
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
a. On October 31, 1993, the Company acquired all of the issued and
outstanding common stock of Krystal in exchange for the issuance of 155,000
shares of the Company's common stock and approximately $540,000 in cash.
The total purchase price approximated $1,047,000. Family members of Marvin
E. Greenfield ("Mr. Greenfield"), who is the President, Chief Executive
Officer, Treasurer and a Director of the Company, controlled certain
corporations which owned twenty-three (23%) percent of Krystal prior to the
acquisition.
The acquisition has been accounted for as a purchase and the cost of
the acquisition has been allocated based on the estimated fair market value
of the assets acquired and the liabilities assumed. The fair value of the
assets acquired was $270,000 and the liabilities assumed totalled $158,000
resulting in goodwill of approximately $935,000. At each balance sheet
date, the Company evaluates the realizability of goodwill based upon the
present market value of the contracts acquired and expectations of
non-discounted cash flows of these contracts. Based upon its most recent
analysis, the Company believes that no material impairment of goodwill
exists at July 31, 1996.
b. On November 1, 1995, Krystal acquired substantially all the net assets
of Water Express, a water distribution company in the United Kingdom in
exchange for the issuance of 363,155 shares of the common stock of Krystal,
approximately $379,000 in cash, and a promissory note of approximately
$125,000. The total purchase price approximated $1,085,000. As of this
date, the Company's ownership equity in Krystal has been reduced to fifty
(50%) percent. The non-NMC interest represents the minority stockholder's
proportionate share of the equity of Krystal.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly the purchase price was allocated to the assets
purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The fair value of the assets acquired was $1,260,000
and the liabilities assumed totalled $360,000 resulting in goodwill of
approximately $185,000, which will be amortized principally over twenty
(20) years. The operating results of the acquired business is included in
the consolidated statement of operations from the date of acquisition.
Proforma unaudited operating information for the years ended July 31,
1995 and 1994 of NMC, Krystal and Water Express assuming the business
combinations had occurred at the beginning of the respective year in which
Krystal and Water Express were acquired as well as at the beginning of the
immediate preceding year is as follows:
July 31,
--------------------------
1996 1995
---------- ----------
Net sales $1,661,505 $1,216,508
Net (loss) (726,874) (285,472)
Net (loss) per share $ (.75) $ (.49)
F-14
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
July 31,
--------------------------
1996 1995
---------- ----------
Machinery and equipment $1,652,225 $ 251,787
Leasehold improvements 6,197 6,197
Master tapes 20,001 20,001
---------- ----------
1,678,423 277,985
Less accumulated depreciation
and amortization 240,811 130,289
---------- ----------
$1,437,612 $ 147,696
========== ==========
Depreciation expense for the years ended July 31, 1996, 1995 and 1994
was $224,913, $53,390 and $39,928, respectively.
4. DEBT
Short-term debt is as follows:
July 31,
------------------------
1996 1995
---------- ----------
Secured note, due March 20, 1997,
interest at 7.5% per year (1) $ 100,000 $ 100,000
Secured note, due the earlier of
March 31, 1997 or within three (3)
days after the closing of a secon-
dary offering of the Company's
securities, interest at 18% per
year (2) 649,692 --
Secured note, due the earlier of
July 31, 1997 or within ten (10)
days after the closing of a
secondary offering of the Company's
securities, interest at 10% per
year (3) 200,000 200,000
Secured note, due on demand,
interest at 5% per year (4) 71,593 149,672
Unsecured note, due on demand,
interest at 5% per year (5) 103,541 50,000
Unsecured note, due on demand,
interest at 5% per year (6) 120,416 --
Unsecured notes, due on demand,
interest at 5% per year 6,131 26,652
---------- ----------
$1,251,373 $ 526,324
========== ==========
F-15
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT (Continued)
Long-term debt is as follows:
July 31,
------------------------
1996 1995
---------- ----------
Secured notes payable, due July, 1997
through April, 2000, interest at 9%
per year $ 96,287 $ 12,094
Less current maturities 27,343 6,047
---------- ----------
$ 68,944 $ 6,047
========== ==========
The scheduled repayment of long-term debt is as follows:
Years Ending July 31,
---------------------
1997 $ 27,343
1998 32,334
1999 16,322
2000 20,288
Thereafter -
--------
$ 96,287
========
(1) The note payable due Republic Bank is collateralized by a certificate
of deposit of an affiliate of Mrs. Barbara Greenfield ("Mrs.
Greenfield"), wife of Mr. Greenfield.
(2) On December 8, 1995, NMC and Krystal entered into separate loan
agreements with Ballydine Investments Limited ("Ballydine") for a
combined line-of-credit ("line-of-credit") of up to $750,000. The
line-of-credit is guaranteed by NMC and is secured by the fifty (50%)
percent of Krystal owned by the Company. Any amount that Krystal
borrows is secured by an English debenture ("Security Agreement") from
Krystal which encumbers all of Krystal's assets in favor of Ballydine.
The lien on this collateral is superior to prior liens given to other
lenders, including the affiliated entities.
On September 30, 1996, Krystal paid Ballydine $286,000 which
liquidated the liability to Ballydine from Krystal. The lien on the
assets of Krystal by Ballydine was released. The monies were advanced
from the shareholders of Krystal to repay the loan. The advances from
the shareholders are due on demand if there is sufficient cash flow to
pay the shareholders.
The amount due Ballydine from NMC in the amount of $364,000 was
extended to the earlier of March 31, 1997 or within three (3) days
after the closing of a secondary offering of the Company's securities.
As additional consideration for the line-of-credit, the Company has
issued 9.9% of the outstanding, fully diluted shares of the Company,
or 108,414 shares, in the form of a warrant exercisable at $.001 per
share, with registration rights. Interest expense in the amount of
$13,552 was charged for the year ended July 31, 1996 in connection
with this warrant.
F-16
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Debt (Continued)
(3) The secured note to an unaffiliated third party is collateralized by
all of the common stock of Krystal owned by the Company subordinated
to the line-of-credit.
(4) The secured note payable to Mrs. Greenfield is also collateralized by
all of the common stock of Krystal owned by the Company. The security
interest is subordinate to the line-of-credit and the third party
lender.
(5) The unsecured note is payable to Mrs. Greenfield representing advances
made by Mrs. Greenfield to Krystal.
(6) The unsecured note is payable to the fifty (50%) percent owner of
Krystal in connection with the acquisition of Water Express by
Krystal.
5. INCOME TAX
As of July 31, 1996, the Company has a net operating loss carryforward
("NOL") of approximately $3,387,000. The Company has not reflected any
benefit of such NOL carryforward in accordance with the Financial
Accounting Board Statement No. 109 (SFAS 109) as the realization of this
deferred tax benefit is not more than likely. The United States NOL
carryforward of approximately $2,716,000 expires in the years 1998 through
2011. The foreign NOL carryforward of approximately $670,000 can be used
indefinitely.
The provision for income taxes consists of the following:
Year Ended July 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
Current:
Federal $ -- $ -- $ --
Foreign -- -- --
State 5,643 1,111 4,509
--------- --------- ---------
$ 5,643 $ 1,111 $ 4,509
========= ========= =========
A reconciliation of taxes on income at the federal statutory rate to
amounts provided is as follows:
Year Ended July 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
Tax (credit) computed
at statutory rate $(257,615) $(146,270) $(166,664)
Increase in taxes resulting from:
State income taxes 1,919 378 2,976
Effect of unused tax losses 261,339 147,003 168,197
--------- --------- ---------
$ 5,643 $ 1,111 $ 4,509
========= ========= =========
F-17
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Tax (Continued)
The temporary differences between the tax bases of assets and the
financial reporting amount that give rise to the deferred tax assets and
their approximate tax effect are as follows:
July 31,
--------------------------------------------------------
1996 1995
-------------------------- --------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
----------- ----------- ----------- -----------
Net operating
loss carry-
forward $ 3,387,000 $ 1,254,000 $ 2,779,000 $ 1,057,000
Officer salary 200,000 80,000 50,000 20,000
Valuation
allowances (3,587,000) (1,334,000) (2,829,000) (1,077,000)
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
6. DUE TO OFFICER
The Company entered into an employment agreement with Mr. Greenfield,
providing him with annual compensation of $150,000 per year. The
compensation is to be accrued until the Company has sufficient cash flow to
pay such salary. The agreement extends through July 31, 1999. As of March
31, 1995, in consideration for his forgiving the accrued compensation for
services provided to the Company in the amount of $250,000 for the period
August 1, 1993 to March 31, 1995, the Board of Directors approved the
issuance of 300,000 shares of the Company's common stock. Executive
compensation from April 1, 1995 to July 31, 1996 in the amount of $200,000
has been accrued and is included in Due to Officer on the Company's
consolidated balance sheet at July 31, 1996 as there was not sufficient
cash flow to pay such salary.
On September 26, 1996, the Board of Directors approved the issuance of
200,000 options to Mr. Greenfield to purchase 200,000 shares of the common
stock of the Company, at a price of $.0001 per share, in consideration for
his forgiving such $200,000 of accrued compensation. The options expire
September 25, 2001.
Additionally, on September 26, 1996, the Board of Directors approved
the issuance to Mr. Greenfield of 200,000 options to purchase 200,000
shares of the common stock of the Company, at a price of $1.10 per share.
The options expire September 25, 2001.
7. CAPITAL STOCK
a) Preferred Stock
Convertible Series B preferred shares ("Series B") are non-dividend
bearing, and are convertible into shares of the Company's common stock
at any time at the option of the holder and are subject to adjustment
in accordance with certain antidilution clauses. Cumulative Series C
preferred shares ("Series C") are not convertible but are entitled to
cumulative cash dividends at the rate of $.65 per share per annum,
payable in each year commencing the year after all the shares of
Series B are retired.
F-18
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CAPITAL STOCK (Continued)
b) Voting Rights
The holders of Series B and Series C preferred stock have no voting
rights.
c) Dividend Restrictions
No cash dividends may be declared or paid on the Company's common
stock if, and as long as, Series B is still outstanding or there are
dividends in arrears on outstanding shares of Series C. No dividends
may be declared on Series C shares if, and as long as, any Series B
shares are outstanding.
d) Other information is summarized as follows:
Convertible Cumulative
Series B Series C
-------- --------
Number of common shares to
be issued upon conversion
of each preferred share 10 None
Redemption price and in-
voluntary liquidation value
per preferred shares (if
redeemed, must be in series
order, Convertible Series
B then Cumulative Series C) $2.00 $10.00(1)
(1) Plus any dividend in arrears.
Because the Series B preferred stock had mandatory redemption
requirements at the time of its issuance (which are no longer
applicable), these shares are stated at redemption value. Series C
shares are stated at par value.
e) Common Stock
The Board of Directors authorized a 1-10 reverse stock split effective
as of April 17, 1995. The aggregate number of shares of common stock
which the Company is authorized to issue remained 20,000,000, having a
par value of $.06 2/3. All share and per share data have been
retroactively restated to give effect to the reverse stock split.
8. OPTIONS AND WARRANTS
(1) During July 1992, certain investors including the daughter of Mr.
Greenfield, purchased 27,000 shares of the Company's common stock and
the rights to acquire 100,000 Common Stock Purchase Warrants. The
warrants expired on August 1, 1996.
F-19
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OPTIONS AND WARRANTS (Continued)
(2) On March 14, 1995, the Board of Directors approved the issuance of
200,000 shares of the Company's common stock to Arnold Poliskin as
consideration in the amount of $166,667 for consulting services in
connection with the proposed acquisition of certain entities in the
United Kingdom. Consulting fees of $83,334 have been capitalized in
connection with the acquisition of Water Express and are included in
unamortized excess of cost over fair value of assets acquired and the
balance of $83,333, was expensed during the year ended July 31, 1996
as a second proposed acquisition was aborted. Subsequent to the
issuance of the common stock, Mr. Poliskin was elected to the
Company's Board of Directors.
(3) On March 15, 1995, the Company entered into a secured loan agreement
with a third party. (See Notes 1 and 4 of Notes to Consolidated
Financial Statements). In consideration for the loan, the Company
issued to the lender a warrant to purchase up to 100,000 shares of the
Company's common stock at $1.00 per share exercisable through March
13, 1997. No value was ascribed to these warrants.
(4) On December 1, 1995, Paul Woolford, the Managing Director of Krystal
and a Director of the Company, received 50,000 shares of the Company's
common stock as part of his employment agreement. Compensation expense
of $6,250 was charged to operations during the year ended July 31,
1996.
9. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES
<TABLE>
<CAPTION>
Adjustments
United United and
States Kingdom Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
July 31, 1996
- -------------
Sales to unaffiliated
customers $ -- $ 1,495,846 $ -- $ 1,495,846
Transfers between
geographic areas -- -- -- --
------------ ------------ ------------ ------------
Total Revenue $ -- $ 1,495,846 $ -- $ 1,495,846
============ ============ ============ ============
Operating (loss) $ (437,838) $ (104,555) $ -- $ (542,393)
============ ============ ============ ============
Identifiable assets
at July 31, 1996 $ 1,203,009 $ 2,177,573 $ (69,540) $ 3,311,042
============ ============ ============ ============
July 31, 1995
- -------------
Sales to unaffiliated
customers $ -- $ 575,247 $ -- $ 575,247
Transfers between
geographic areas -- -- -- --
------------ ------------ ------------ ------------
Total Revenue $ -- $ 575,247 $ -- $ 575,247
============ ============ ============ ============
Operating (loss) $ (405,036) $ (31,426) $ -- $ (436,462)
============ ============ ============ ============
Identifiable assets
at July 31, 1995 $ 1,203,614 $ 418,902 $ (111,532) $ 1,510,984
============ ============ ============ ============
F-20
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES
(Continued)
July 31, 1994
- -------------
Sales to unaffiliated
customers $ -- $ 339,334 $ -- $ 339,334
Transfers between
geographic areas -- -- -- --
------------ ------------ ------------ ------------
Total Revenue $ -- $ 339,334 $ -- $ 339,334
============ ============ ============ ============
Operating (loss) $ (400,133) $ (85,811) $ -- $ (485,948)
============ ============ ============ ============
Identifiable assets
at July 31, 1994 $ 1,023,579 $ 284,288 $ (111,532) $ 1,200,335
============ ============ ============ ============
</TABLE>
Operating (loss) represents total revenue less operating expenses. In
computing operating (loss), none of the following items have been included:
interest income or expense, other income and income taxes.
Identifiable assets are those assets of the Company that are
identified with the operations of each geographic area.
The Company realized exchange losses of approximately $5,078, $500 and
$5,000 for the years ended July 31, 1996, 1995 and 1994, respectively.
The Company's foreign operations are principally in the United
Kingdom.
10. RELATED PARTY TRANSACTIONS
The Company sub-leased office space to the Mast Group, Inc. ("Mast")
and National BMF Corp. ("NBMF"). The Company received $6,000 in sub-lease
income from Mast for the year ended July 31, 1996 and $6,000 from both Mast
and NBMF for the years ended July 31, 1995 and 1994. Mr. Greenfield is the
President of Mast and NBMF. The Company believes the terms of the sub-lease
to Mast and NBMF were at least as favorable to the Company as rent which
would have been received from unaffiliated third parties. (See Note 11 of
Notes to Consolidated Financial Statements).
11. COMMITMENTS
Leases
------
The Company's subsidiary leases coolers under agreements which are
classified as capital leases. The leases have original terms ranging for
varying periods but all less than twelve (12) months in duration. At the
end of the lease the coolers are retained by the Company. Included in
property, plant and equipment are coolers under finance leases at an
original cost of $335,201, less accumulated depreciation of $4,801.
F-21
<PAGE>
NMC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS (Continued)
The Company and its subsidiary currently rents office and warehouse
facilities under operating leases which extend through June, 1997 and 1998.
The leases are subject to certain escalation clauses for real estate taxes
and other operating expenses. The minimum annual rentals due under the
leases are as follows:
Year Ending Capital Operating
July 31, Leases Leases
-------- ------ ------
1997 $ 403,570 $ 71,780
1998 -- 34,177
1999 -- --
2000 -- --
Thereafter -- --
--------- ---------
Total Minimum Payments 403,570 $ 177,737
=========
Amounts representing
interest 22,673
---------
Present value of
minimum capitalized
leased payments 380,897
Current portion 380,897
---------
Long-Term Capital
Lease Obligation $ --
=========
Rent expense under operating leases for the year ended July 31, 1996,
1995 and 1994 was $71,780, $97,530 and $103,533, respectively. The Company
sub-leases office space on a month-to-month basis. The amount of sub-lease
income was $24,000 for the years ended July 31, 1996, 1995 and 1994.
Acquisition
-----------
On October 4, 1996, the Company signed an agreement in principle,
subject to a definitive executed agreement, to acquire Select Acquisitions,
Inc., the holding company for All American Recreation, Inc., which intends
to develop and manage golf courses, skating rinks and community related
housing. Select also intends to operate two recycling plastic facilities in
North Carolina. Under the terms of the agreement, shareholders of Select
will receive approximately 5.9 million shares of the Company's common stock
based on receiving 2.11 shares of the Company's common stock for each of
the shares of Select stock outstanding, which approximates 2.8 million
shares. The combined Company's business will be plastics recycling,
recreation development, and distribution of bottled mineral water.
F-22
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
------------------------
None to be reported.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The directors and executive officers and key employees of the Company,
together with their ages and a brief description of their employment history,
are as follows:
Name Age Position
- ---- --- --------
Marvin E. Greenfield 66 President, Chief Executive Officer
Treasurer, Chief Financial Officer
and Director
Judith Kardos 35 Secretary and Director
Paul R.C. Woolford 48 Director
Arnold Poliskin 64 Director
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Vacancies on the Board of
Directors may be filled by the remaining directors until the next annual
stockholders' meeting. Officers serve at the discretion of the Board. The Board
has no committees. The Company has not to date paid directors fees for service
on the Board of Directors or any committee thereof.
The following is a brief summary of the background of each executive
officer and director of the Company.
Marvin E. Greenfield. Mr. Greenfield has held his offices with the Company,
and has also been a director of Krystal, since July 1, 1992. He is, and has been
since 1978, president of the Mast Group, Inc. ("Mast"), a company providing
management services to real estate entities with offices located in New York
City, N.Y. and Miami, Florida.
Mr. Greenfield filed a voluntary petition for personal bankruptcy pursuant
to Chapter 11 of the Bankruptcy Act in the United States Bankruptcy Court for
the Southern District of Florida on September 16, 1992, Docket No. 92-332126,
which has been converted to a proceeding under Chapter 7 of the Bankruptcy Act.
In addition, he is an officer and a stockholder of the corporate general
partners of six limited partnerships under the name of Video USA Associates,
Ltd. ("Video") and one limited partnership under the name of Metromall
Associates, Ltd. ("Metromall") which had filed bankruptcy petitions. The Video
proceeding was instituted in the United States Bankruptcy Court for the Eastern
District of New York on November 16, 1992 and the property owned by the bankrupt
entity has been distributed by the United States Trustee. The Metromall
proceeding was instituted in the United States District for the Southern
District of Florida in May 1992 and dismissed in January 1993. Subsequent to
such dismissal, the property owned by this partnership was foreclosed upon by
the first mortgagee.
14
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (Continued)
--------------------------------------------------
Judith Kardos. Ms. Kardos has been the Secretary of the Company since July
1, 1992. She became a director in July 1992. She was employed by Mast from 1984
through November 1993 as an executive assistant.
Arnold Poliskin. Mr. Poliskin became a director of the Company on March 15,
1995. Since 1990, Mr. Poliskin has acted as a financial consultant to
companies seeking advice regarding acquisitions, mergers and private and public
financing.
Paul R. C. Woolford. Mr. Woolford became a director of the Company on March
6, 1995. He has been employed by Krystal since July 1992 and became Managing
Director in March 1993. Since that date, Mr. Woolford has devoted his full time
to Krystal's business. From August 1992 through November 1992, Mr. Woolford
assisted Begbies, Chartered Accountants, in collecting the outstanding
receivables of R.N.I. (UK) Ltd. ("RNI"), a telemarketing merchandising company
that ceased operations. From May 1992 to August 1992 Mr. Woolford helped to
organize City Road Associates, a telemarketing company located in London. From
November 1990 through April 1992, Mr. Woolford was employed by RNI (Holdings)
Limited, a subsidiary of RNI, as Group Administration manager with
responsibility for supervising the operation of six subsidiaries. From April
1988 to November 1990, when he joined RNI, Mr. Woolford was a
Coordination/Administration Manager for International Media Corporation, a
company located in London, where he was responsible for marketing of, among
other things, the National Geographic Centennial Video Collection and the sale
of Skyview, a video system used by a number of airlines.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
To the Company's knowledge, based solely on a review of such materials as
are required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten percent of the Company's issued and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended July 31, 1996.
Item 11. Executive Compensation
----------------------
The following table sets forth, for the fiscal years ended July 31, 1996,
1995 and 1994, the annual and long-term compensation of the Company's Chief
Executive Officer and the two other most highly compensated executive officers
of NMC ("Named Officers").
15
<PAGE>
Item 11. Executive Compensation (Continued)
----------------------
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ---------------------------------
Awards Payouts
----------------------- ---------
Securities
Restricted Underlying
Name and Other Annual Stock Options LTIP All Other
Principal Position Year Salary($) Bonus($) Compensation($) Award(s)($) SARs(#) Payouts($) Compensation
- ------------------ ---- --------- -------- --------------- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin Greenfield 1996 150,000 -- -- -- -- -- --
President and 1995(A)
Chief Executive (B)(C) 150,000 -- -- -- -- -- --
Officer 1994 150,000 -- -- -- -- -- --
Judith Kardos 1996 31,200 -- -- -- -- -- --
Secretary 1995 31,200 -- -- -- -- -- --
1994 31,200 -- -- -- -- -- --
Paul Woolford 1996(D) 50,000 6,250 -- -- -- -- --
Managing Director 1995 50,000 -- -- -- -- -- --
of Krystal 1994 50,000 -- -- -- -- -- --
</TABLE>
- ------------------------------------------------
(A) Mr. Greenfield and the Company entered into an employment agreement through
July 31, 1999. The agreement provides for a base salary of $150,000 per
year. Under the terms of the agreement the salary shall be accrued until
such time as the Company shall have sufficient cash flow to pay the salary.
(B) In March 1995, Mr. Greenfield waived the cash compensation payable to him
from August 1, 1993 through March 31, 1995, aggregating $250,000, in
exchange for the issuance of 300,000 shares of the Company's common stock.
The Company has accrued, but has not paid any cash compensation to Mr.
Greenfield since April 1, 1995. In September 1996, the Board of Directors
approved the issuance of 200,000 options to purchase 200,000 shares of the
common stock of the Company, at a price of $.0001 per share in
consideration for his forgiving $200,000 of accrued compensation.
(C) In September 1996, the Board of Directors approved the issuance to Mr.
Greenfield of 200,000 options to purchase 200,000 shares of the common
stock of the Company, at a price of $1.10 per share.
(D) In December 1995, Mr. Woolford received 50,000 shares of the Company's
common stock as part of his employment agreement. Compensation of $6,250
was charged to operations.
(E) During 1996 no named Officer received perquisites (i.e., personal benefits)
in excess of the lesser of $50,000 or 10% of such individual's reported
salary and bonus.
(F) "All Other Compensation" only includes amounts earned or with respect to
1994, 1995 and 1996.
16
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management
--------------------------------
The following table sets forth as of November 1, 1996 the beneficial
ownership of voting securities of NMC by each person known to NMC to be the
beneficial owner of more than 5% of any class of its voting securities as well
as the beneficial ownership of equity securities of NMC by each of its directors
and its directors and officers as a group. To NMC's knowledge, each person named
has the sole voting and investment power with respect to the securities listed
as owned by him or it.
Only the common stock, which is also known as "Class A Common Stock", has
voting rights. An owner of Series B Convertible Stock has the right to convert
each share of such stock into one share of Class A Common Stock. Until such
conversion, the shares of Series B Preferred Stock may not be voted. None of the
classes of stock vote jointly.
Number of Shares
of Common Stock Approximate
Name and Address Beneficially Percentage of
of Beneficial Owner Owned (1) Class (1) (2)
------------------- ---------- -------------
Marvin E. Greenfield
(3)(4)(5)(6) 728,345 52.5 %
Judith Kardos (3) 600 *
Arnold Poliskin (3) 200,000 20.3
Paul Woolford (3) 50,000 5.1
Ira Russack (8) 100,000 9.2
504 Broadway
New York, NY 10012
Ballydine Investments Ltd. (9) 108,414 9.9
55 Mulgrave Street
Dun Laoghaire
County Dublin, Eire
Officer and directors as a group
(five persons) 978,945 70.6
-------
- --------------------------------------------------------------------------------
17
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management (Continued)
--------------
(1) There were 986,677 shares of Common Stock outstanding as of November 1,
1996.
(2) For purposes hereof, a person is deemed to be the beneficial owner of
securities that can be acquired by such person with 60 days from the date
hereof, upon the exercise of warrants or options or conversion of
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that any warrants, options or convertible securities
that are held by such person (but not those held by any other person) and
which are exercisable or convertible within 60 days from the date hereof,
have been exercised or converted.
(3) The addresses of each of these persons is c/o Company, 477 Madison Avenue,
Suite 701, New York, NY 10014.
(4) Director, President, Chief Executive Officer and Treasurer of NMC Corp.
(5) Includes 300,000 shares held by Mr. Greenfield's wife, 3,345 shares held of
record by National BMF Corp. ("NBMF") and 25,000 shares held of record by
Profitmargin Limited ("Profitmargin"), a company located in London,
England. The outstanding common stock of NBMF is owned by Mr. Greenfield's
daughter and a trust for which she is sole beneficiary. Mr. Greenfield's
wife is the sole trustee of the trust. Mr. Greenfield is also the President
of NBMF. The outstanding equity interest in Profitmargin is owned equally
by Mr. Greenfield's wife and NBMF.
(6) Includes 200,000 shares issuable at a price $.0001 per share upon the
exercise of options granted to Mr. Greenfield which are exercisable until
September 25, 2001.
(7) Includes 200,000 shares issuable at a price of $1.10 per share upon the
exercise of options granted to Mr. Greenfield which are exercisable until
September 25, 2001.
(8) Includes 100,000 shares issuable at a price of $1.00 per share upon the
exercise of warrants granted to Mr. Russack which are exercisable until
March 13, 1997.
(9) Includes 108,414 shares issuable at a price of $.0001 per share upon the
exercise of warrants granted to Ballydine Investments Limited which are
exercisable until December 7, 2000.
* Represents less than one percent of the Common Stock outstanding.
18
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
a) See Note 4 of Notes to Consolidated Financial Statements for further
information relating to advances made to the Company and Krystal from
related parties.
b) On March 14, 1995, the Company issued 300,000 shares of the Company's
common stock to Mr. Greenfield. (See Note 6 of Notes to Consolidated
Financial Statements).
c) On March 14, 1995, the Company issued 200,000 shares of the Company's
common stock to Arnold Poliskin, a Director of the Company, as
consideration for acting as a consultant in connection with Water Express
acquisition and the subsequently aborted acquisition. (See Note 8 of Notes
to Consolidated Financial Statements).
d) The Company sub-leased office space to the Mast Group, Inc. ("Mast") and
National BMF Corp. ("NBFM"). The Company received $6,000 in sub-lease
income from Mast for the year ended July 31, 1996 and $6,000 from both Mast
and NBMF for the years ended July 1995 and 1994. Greenfield is the
President of Mast and NBFM. The Company believes the terms of the sub-lease
to Mast and NBMF were at least as favorable to the Company as rent which
would have been received from unaffiliated third parties. (See Note 10 of
Notes to Consolidated Financial Statements).
19
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial statement Schedules
and Reports on Form 8-K Page
----------------------- ----
(a)
1. Financial statements filed as part of
this report:
Independent Auditors' Report F-1 - F-2
Consolidated Balance Sheets as of
July 31, 1996 and 1995 F-3 - F-4
Consolidated Statements of Operations
for the Years Ended July 31, 1996,
1995 and 1994 F-5
Consolidated Statements of Stockholders'
Equity for the Years Ended July 31,
1996, 1995 and 1994 F-6 - F-7
Consolidated Statements of Cash Flows
for the Years Ended July 31, 1996,
1995 and 1994 F-8 - F-9
Notes to Consolidated Financial
Statements F-10 - F-22
2. Financial statement schedules filed as
part of this report:
Schedule II: Valuation and Qualifying Accounts S - 1
All other schedules are omitted because they
are inapplicable, not required or the information
is included in the financial statements or notes
thereto.
(b)
3. Exhibits filed as part of this report
Exhibit No.:
- ------------
3.1 Certificate of Incorporation and Bylaws of the Registrant
--Incorporated by reference to Exhibit 3 of the Company's Annual
Report on Form 10-K for the year ended July 31, 1981.
10.1 Employment agreement between Registrant and Maxwell Friedberg
--Incorporated by reference to Exhibit C of the Company's Annual
Report on Form 10-K for the year ended July 31, 1988.
10.2 Lease covering Registrant's office -- Incorporated by reference to
Exhibit No. 1 of the Company's Annual Report on Form 10-K for the year
ended July 31, 1990.
20
<PAGE>
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K (Continued)
---------------------------------------
Exhibit No.:
- ------------
10.3 Agreement dated August 5, 1991 between NMC Corp., Maxwell Friedberg
and Estate of Jesse Selter ("Estate") for the Sale of Registrant's
Stock by the Estate to Maxwell Friedberg --Incorporated by reference
to Exhibit No. 1 of the Company's Annual Report on Form 10-K for the
year ended July 31, 1991.
10.4 Stock purchase agreement between Maxwell Friedberg and the Krystal
Group dated June 11, 1992 -- Incorporated by reference to Exhibit No.
1 of the Company's Annual Report on Form 10-K for the year ended July
31, 1993.
10.5 Stock purchase agreement dated October 15, 1993 between NMC Corp. and
Krystal Fountain Water Company Limited -- Incorporated by reference to
Exhibit 10.5 of the Company's Annual Report on Form 10-K for the year
ended July 31, 1994.
10.6 Report of Gerald Edelman, Registered Auditor and Chartered
Accountants, on the financial statements of Krystal Fountain Water
Company Limited for the year ended July 31, 1995, dated September 27,
1994 -- Incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K for the year ended July 31, 1994.
10.7 Asset Sale Agreement dated March 29, 1995 between Krystal Fountain
Water Company Limited ("Purchaser") and Matthew Richard Mitchison and
Catherine Mitchison ("Seller") -- Incorporated by reference to Exhibit
A of the Company's Quarterly Form 10-Q for the quarterly period ended
April 30, 1995.
11.1 A statement regarding the computation of earnings per share is omitted
because such computation can be clearly determined from the material
contained in this Annual Report on Form 10-K.
22.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NMC CORP.
By: /s/ Marvin E. Greenfield
------------------------
Marvin E. Greenfield, President
Date: November 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Marvin E. Greenfield
- --------------------------------
Marvin E. Greenfield, President,
Treasurer and Director
/s/ Judith Kardos
- --------------------------------
Judith Kardos, Secretary and
Director
/s/ Paul Woolford
- --------------------------------
Paul Woolford, Director
/s/ Arnold Poliskin
- --------------------------------
Arnold Poliskin, Director
22
<PAGE>
NMC CORP. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Additions
---------
(1) (2)
Charged Charged
Balance at to profit to other Balance
Beginning and loss accounts Deductions at close
Description of period or income (describe) (describe) of period
- ----------- --------- --------- ---------- ---------- ---------
Year ended July 31,
1996
Allowance for
doubtful accounts $ -- $9,000 $ -- $ -- $ 9,000
====== ====== ====== ======= =======
Year ended July 31,
1995
Allowance for
doubtful accounts $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
Year ended July 31,
1994
Allowance for
doubtful accounts $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
S-1
Subsidiaries of NMC Corp.
-------------------------
Jurisdiction of
Name Incorporation
---- -------------
Krystal Fountain Water Company Limited United Kingdom
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
NMC CORP. AND SUBSIDIARY FINANCIAL STATEMENTS AT JULY 31, 1996 AND
THE TWELVE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 15,592
<SECURITIES> 0
<RECEIVABLES> 596,696
<ALLOWANCES> 9,000
<INVENTORY> 13,468
<CURRENT-ASSETS> 749,579
<PP&E> 1,678,423
<DEPRECIATION> 240,811
<TOTAL-ASSETS> 3,185,654
<CURRENT-LIABILITIES> 2,719,732
<BONDS> 0
0
257,521
<COMMON> 65,811
<OTHER-SE> (477,207)
<TOTAL-LIABILITY-AND-EQUITY> 3,185,654
<SALES> 1,495,846
<TOTAL-REVENUES> 1,495,916
<CGS> 555,282
<TOTAL-COSTS> 2,166,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,434
<INCOME-PRETAX> (757,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (763,335)
<EPS-PRIMARY> (.79)
<EPS-DILUTED> 0
</TABLE>
