SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSK
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to
----------- ----------
Commission File Number 0-19064
--------
NEMDACO, INC.
---------------------------------------------------------
(Name of small business issuer as specified in its charter)
COLORADO 84-1027731
- ----------------------- ---------------------
(State of incorporation) (I.R.S. Employer ID No)
1801 Avenue of the Stars, 6th Floor, Los Angeles, CA 90067
(Address of principal executive offices)
(Issuer's telephone number) (310) 553-7755
--------------
3888 East Mexico Avenue, Suite 240,
Denver, Colorado 80210
------------------------------------------
(Former address, changed since last report.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check whether issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will 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-KSB or any amendment to
the Form 10-KSB. [X]
<PAGE>
State issuer's revenues for its most recent fiscal year: $ -0-.
State the aggregate market value of voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of August 6, 1996 was $1,644,000. See Item 5.
As of August 6, 1996, Registrant had 10,095,398 shares of its common stock
issued and outstanding.
<PAGE>
PART 1
ITEM 1: DESCRIPTION OF BUSINESS
-----------------------
(a) Introduction
Nemdaco, Inc. (the "Company"), was incorporated in April 1986 and completed a
public offering of 400,000 Units at $1.00 per Unit. Each Unit consisted of one
share of Common Stock, one Class A Warrant, one Class B Warrant and one Class C
Warrant. All warrants expired in February, 1996. The Company has owned and
operated various business enterprises since its inception, all of which have
been sold, discontinued or disposed of by the original management, and has had
no continuing operations since December, 1994.
In April 1995, two principal officers and directors (the former management
team), sold their 4,678,800 shares of the Company's common stock to Coubert
Dennis, Ltd. ("CDL"). CDL is a corporation formed in the Republic of Ireland
that specializes in venture capital acquisitions. These shares were purchased on
behalf of a group of unaffiliated investors and are to be distributed upon
demand by said beneficial owners. As of April 30, 1996, CDL has retained
beneficial ownership and voting rights to 2,789,400 shares, representing 27.6%
of the Company's issued and outstanding common stock.
(b) Current Business Activities
Since the change in management, the Company is operating as a holding company
which seeks to invest in operating entities, each of which will be established
as subsidiary operating entities. Management seeks to finance new operating
entities through a combination of new stock sales, sale of existing holdings,
debt and cash-flow generated from the new operations.
Pursuant to this operating philosophy, the Company has formed the following
subsidiary companies: Nemdaco China Ventures, Inc. ("NCV") (July 1995), Nemdaco
Attache' Communications (January 1996), Nemdaco/ Global One Media (February
1996) and Nemdaco Retail Sales (June 1996). Following management's plan to
establish operating entities as separate operating publicly-traded companies,
NCV is currently in the process of preparing an S-8 registration statement to be
filed with the SEC. As of April 30, 1996, the Company retained a 16% interest in
NCV. The Company retains controlling interest in all other subsidiaries. All new
<PAGE>
subsidiaries are in the start-up phase. None have generated any revenues as of
August 6, 1996. Business activities and philosophies of these companies and
other targeted companies are discussed as part of ITEM 6: Management's
Discussion and Analysis.
(c) Competition
The search for potentially profitable business opportunities is intensely
competitive and there is no assurance that the Company will be successful in
obtaining financing for suitable investments. It is likely that such competitive
conditions will also characterize any industry in which the Company operates
after taking advantage of any business opportunity.
(d) Trademark Registration
The Company does not currently hold any registered trademarks.
(e) Regulation
The Company is not currently subject to any government regulations.
(f) Research and Development
No research and development costs were incurred during the years ended April 30,
1996 and 1995.
(g) Employees
As of April 30, 1996, the Company employed three officers (two on a full time
basis) and one other employee (full time), all engaged in management. The
management team in place will be supplemented by additional employees necessary
to manage and control operations as acquired.
ITEM 2: DESCRIPTION OF PROPERTY
-----------------------
The Company owns no significant assets, patents or trademarks.
In July 1995 the Company paid incorporation and legal fees of approximately
$2,000 in return for an initial 30% common stock investment in Nemdaco China
Ventures, Inc. ("NCV"), a newly incorporated entity formed to pursue business
opportunities in
<PAGE>
the Peoples Republic of China. The Company accounted for its investment on the
equity method of accounting and recognized losses equal to its carrying amount
of the investment. During the quarter ended October 31, 1995, the Company
discontinued applying the equity method when the carrying amount of the
investment was reduced to zero. Subsequent to October 1995, NCV issued
additional common stock to Nemdaco, Inc. shareholders and to other parties and
at April 30, 1996, reducing the Company's ownership to 16%. Since there are no
continuing commitments to NCV, the Company currently accounts for its investment
by the cost method of accounting. NCV has incurred losses and the initial $2,000
investment has been charged to expense during the year ended April 30, 1996.
Prior to March 1996, the Company leased corporate office space in Denver,
Colorado from an entity controlled by a former director and shareholder of the
Company. With the change in ownership in April 1995, the Company continued to
lease the space in Denver on a month-to-month basis through February 1996. In
March 1996, the Company relocated its offices to Los Angeles, California, and
has entered into a month-to-month lease arrangement with an unrelated entity.
Total rent expense was $13,000 and $51,000 during the years ended April 30, 1996
and 1995, respectively.
ITEM 3: LEGAL PROCEEDINGS
-----------------
The Company is involved in a dispute related to a potential acquisition that has
been terminated. The amount claimed has not been specifically quantified,
however, management does not believe that the Company's potential exposure
related to this matter would have a material adverse effect on the Company's
financial position or results of operations. No other material legal proceeding
to which the Company is a party to or to which the property of the Company is
subject to are pending, and no such proceedings are known by the Company to be
contemplated.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the stockholders during the year ended
April 30, 1996.
<PAGE>
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
(a) Market Information
The principal market on which the Company's common stock is traded is the
over-the-counter market. While activity in the Company's common stock has
increased over the last year, based upon information obtained by the Company
from its stock transfer sheets, these have been speculative in nature.
Accordingly, any current bid and asked prices quoted on the over-the-counter
market should not be deemed an indication of the market value of the outstanding
common stock of the Company. Complete price range information regarding the bid
quotations of the Company's common stock during its last two fiscal years is not
available to the Company inasmuch as price quotations were not regularly
published or available.
The range of high and low bid quotations for the Company's common stock for the
applicable periods are provided below. These over-the-counter market quotations
reflect inter-dealer prices without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
High Bid Low Bid
-------- --------
5/1/94 - 7/31/94 No bid No bid
8/1/94 - 10/31/94 $0.375 $0.125
11/1/94 - 1/31/95 $0.375 $0.125
2/1/95 - 4/30/95 $0.500 $0.125
5/1/95 - 7/31/95 $0.625 $0.375
8/1/95 - 10/31/95 $0.719 $0.688
11/1/95 - 1/31/96 $1.313 $1.188
2/1/96 - 4/30/96 $0.438 $0.375
5/1/96 - 8/06/96 $0.313 $0.125
(b) Holders
Since some of the Company's stock is held by brokerage firms for clients, the
exact number of record holders as of April 30, 1996 cannot be accurately
determined. However, management believes that there are less than 500
stockholders.
(c) Dividends
The Company has not paid any cash dividends with respect to its common stock and
has no plans to pay dividends in the future. There are no contractual
restrictions on the Company's present or future ability to pay dividends. Future
<PAGE>
dividend policy will be subject to the discretion of the Board of Directors and
will depend upon a number of factors, including future earnings, capital
requirements and the financial condition of the Company.
Management's Discussion and Analysis, Changes in Auditors, and Financial
Statements
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
(a) Plan of Operations
The Company has had no revenue generating operations from December 1, 1994
through April 30, 1996. In April 1995, a controlling interest of the Company was
acquired by Coubert Dennis, Ltd., a Republic of Ireland corporation. With the
change in ownership, new officers and directors have been appointed.
The company is operating as a holding company which seeks to invest in operating
entities in selected growth markets, each of which will be established as a
subsidiary operating entity. Management seeks to finance new operating entities
through a combination of new stock sales, sale of existing holdings, debt and
cash-flow generated from the new operations.
To date, the Company has concentrated its efforts in the following key markets:
(1) Electronics
The Company formed a new subsidiary company in January, 1996 under the name of
Nemdaco Attache' Communications, Inc. This company was incorporated as a Nevada
corporation. Attache' is a start up company established to explore and develop
new communications hardware and software products. Attache' has had no sales,
and operating expenses consisting of salaries, consulting fees and travel
expenses have been expensed directly by the Company.
<PAGE>
The Company signed a letter of intent in January, 1996 to acquire the assets and
on-going operations of Graphics Research, Inc., a wholly-owned subsidiary of
Methode, Inc., an Illinois corporation. Graphics Research manufacturers circuit
boards for defense and commercial applications. Due to potential environmental
problems at Graphic Research's Chatsworth, California facilities, the Company
allowed its purchase option to expire.
The Company signed a letter of intent in February, 1996 to acquire the assets
and on-going operations of C.B. Fox, Inc., a Colorado corporation. C.B. Fox is
in the business of populating circuit boards for commercial accounts. The
planned acquisition was abandoned due to problems encountered during the due
dilengence process.
(2) Product Distribution
The Company purchased an eighty (80) percent interest in a new entity:
Nemdaco/Global One Media, Inc. in February, 1996. Nemdaco/Global One Media was
subsequently incorporated as a Nevada corporation in June, 1996. Under the terms
of the purchase agreement, the Company agreed to provide a minimum of $500,000
to fund the operation during its first year of operation and to pay salaries and
consulting fees to the two principals. Nemdaco/Global One Media marketing
strategy is to sell sports trading cards and other memorabilia through network
television and other retail channels. No sales have been made as of July 29,
1996. Operating expenses, including salaries, consulting fees, travel and other
operating expenses have been paid directly by the Company.
The Company is currently under negotiations to acquire the assets and/or
licensing rights to The Hat Club, an Arizona corporation, which sells sport caps
and other sporting apparel through retail stores in Arizona and Montana.
Management is not able to determine at this time whether these negotiations will
be successful. Any purchase or agreement would not involve any initial funding
by the Company.
In November, 1996 CDL transferred on behalf of the Company 100,000 shares of
common stock to acquire marketing rights for Thermafreeze, Inc. products for
Asia. Thermafreeze manufactures a proprietary packaging system for shipment of
products requiring a "refrigerated environment" to replace conventional
refrigerated shipping containers. The Company has continued to discuss
<PAGE>
acquisition possibilities as well. The Company has not been able to
satisfactorily complete all due-diligence required for the successful closing of
the acquisition and licensing agreements. The Company is continuing
due-diligence and negotiations in an endeavor to complete to the Company's
satisfaction all matters related to the targeted acquisition and licensing
undertaking. For this reason, the investment in Thermafreeze has been written
off for book purposes.
The Company is seeking financing from various sources (sale of stock, debt and
convertible debt) to finance the operations of acquisitions made and
contemplated. There is no assurance that the Company will be successful in
obtaining necessary financing.
(b) Discussions of Operating Results, Liquidity and Capital Resources:
The Company incurred net losses of $645,000 and $35,000 for the years ended
April 30, 1996 and 1995, respectively. These include operating expenses of
$645,000 and $299,000 and income from discontinued operations of $ -0- and
$263,000 respectively. The following paragraphs detail the factors which have
contributed to these results and how some of these results may change during the
year ending April 30, 1997.
The income from discontinued operations in 1995 represents $113,000 of income
related to discontinued operations and a net gain of $150,000 realized on the
disposal of Tracks, Inc., a wholly-owned subsidiary sold by former management to
Cherfein Joint Venture, an entity controlled by a former director, former
principal stockholders and former officers of the Company.
During the year ended April 30, 1996, the Company's operating expenses increased
by $346,000 from 1995, primarily due to the following factors: Consulting fees
were incurred associated with the stock acquisition by CDL ($50,000); investment
banking service provided the Company by CDL under contract ($70,000); the
payment to R.C. Moore, President and Director from May 1995 to December 1995, of
$100,000 as final settlement; and expenses of $10,000 related to the
Thermafreeze, Inc. marketing rights.
The financial statements have been prepared on a going concern basis, which
contemplates continuity of operations and the realization of assets and
liquidation of liabilities in the ordinary course of business. As of April 30,
1996, current liabilities exceeded current assets by $148,000 and the Company
has no continuing revenue generating operations, which raise substantial doubt
about the Company's ability to continue as a going concern.
<PAGE>
Management is attempting to resolve these deficiencies by raising the financing
necessary to both satisfy its working capital requirements and to acquire
interests in potentially profitable businesses. Management is currently seeking
financing through a combination of new stock sales, sale of existing holdings,
debt and cash-flow generated from new operations. If adequate financing can be
obtained, the Company will use the proceeds to fund existing businesses, to
complete various joint ventures and acquisitions currently in negotiations and
to investigate other potential acquisitions and joint ventures to complement
existing businesses.
All Company warrants outstanding as of April 30, 1995 expired in February, 1996.
No other warrants or options have been issued.
The Company's operations have not been materially impacted by inflationary
forces since the Company's inception.
ITEM 7: FINANCIAL STATEMENTS
--------------------
All financial statements required to be filed hereunder are attached hereto
following Item 13.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
----------------------------------------------------------------
The Company has made no changes in auditors, and concurs with their financial
reporting and disclosure requirements.
<PAGE>
PART III
ITEM 9: OFFICERS AND DIRECTORS
-----------------------
The individuals that have served as officers and directors of the Company at
some time during the period from May 1, 1995 to July 29, 1996 are:
Name Age Position
- ---- --- --------
R.C. Moore 44 President and Chairman of the
Board of Directors
Jeffrey R. Bender 54 President, Director and Chairman of the
Board of Directors
Gary Larkin 43 President and Director
Samuel W. Stearman 56 CFO and Director
The directors of the Company are elected to hold office until the next annual
meeting of shareholders and until their respective successors have been elected
and qualified. Officers of the Company are elected annually by the Board of
Directors and hold office until their successors are duly elected and qualified.
No stockholder meetings were held during the year ended April 30, 1996.
R.C. Moore, was President and acting Director of the Company from July 1995
until December 1995. Mr. Moore has also been Director and President of RC Moore,
Inc. since March 1975. Mr. Moore was a Director of the Arizona Country Club from
October 1990 to October 1993 and President from October 1992 to October 1993.
From August 1991 to March 1994, Mr. Moore was a Director and Chief Executive
Officer of T.C. Tekcom, Inc.
Jeffrey R. Bender, was selected as Chairman of the Board in December, 1995, Mr.
Bender has been a Director of the Company since April 1995 and served as
President from May 1995 to July 1995. From March 1988 to June 1994, Mr. Bender
was Chief Executive Officer of ENSOL, Inc., an environmental engineering
consulting firm. From June 1994 to July 195, Mr. Bender served as Chief
Financial Officer and Director of Toure Jantar Construction Company, Ltd., which
functioned as a venture capital and management company. Mr. Bender has also
served as Chairman and President of Nemdaco China Ventures, Inc. since its
<PAGE>
inception in July, 1995. Mr. Bender is also a Director and Officer of Nemdaco
Attache' Communications, Inc., Nemdaco/Global One, Inc. and Nemdaco Retail
Sales, Inc., subsidiaries of the Company.
Gary Larkin, was elected as President in December 1995 and acting Director in
January 1996. Mr. Larkin is also President of his own sports consulting
firm-Styles Communication, started in December 1990, was former President of
Nationwide Access Control Systems, Inc. from March 1995 to January 1996, and
Chairman and CEO of the Pritchard Group, Inc. from July 1987 to January 1991.
Mr. Larkin is also a Director and Officer of Nemdaco Attache' Communications,
Inc., Nemdaco/Global One, Inc. and Nemdaco Retail Sales, Inc., subsidiaries of
the Company.
Samuel W. Stearman, was elected as Chief Financial Officer and acting Director
in January 1996. Mr. Stearman is also been President of his own accounting and
consulting practice, started in September 1989; President of ASP Merchandising,
Inc. (formerly known as WaterBlock International, Inc.)since November 1994; and
Chief Financial Officer of Summatec Corp. since March 1996. Mr. Stearman is also
a Director and Officer of Nemdaco Attache' Communications, Inc., Nemdaco/Global
One, Inc. and Nemdaco Retail Sales, Inc., subsidiaries of the Company.
No officers or directors are or have been involved as a principal in any legal
proceedings.
ITEM 10: EXECUTIVE COMPENSATION
-----------------------
No retirement, pension, profit sharing, health benefits or other similar
programs have been adopted by the Company. No warrants or options have been
granted to any officer, director or other employees of the Company.
The following table sets forth information concerning the compensation of the
Company's Chief Executive Officer for the fiscal years shown. No executive
officers earn compensation in excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Position Fiscal Yr Salary Bonus
- ------------------ -------- --------- ------ -----
<S> <C> <C> <C> <C>
Jeffrey R. Bender 1996 $100,000 $ - 0 -
Chairman, President, Director 1995 - 0 - - 0 -
R.C. Moore 1996 100,000 - 0 -
President and Director
Gary Larkin 1996 23,333 - 0 -
President and Director
</TABLE>
<PAGE>
The Company compensates its executive officers as authorized by the Board of
Directors. Salary of $100,000 was approved for Mr. Bender, which has been
accrued as of April 30, 1996 but not paid. Mr. Moore was paid $100,000
(accounted for as a consulting fee) in December 1995 for a release against any
and all future claims. The salary approved for Mr. Larkin and other officers and
employees have been paid as salaries on a semi-monthly basis.
The Company has no current stock option or stock appreciation right plans in
effect. The incentive stock plan adopted in August 1995 expired upon Mr. Moore's
termination in December 1995.
Directors of the Company receive no compensation for their services as Director.
ITEM 11: SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------
The following table sets forth as of April 30, 1996, information with respect to
the ownership of the Company's Common Stock of all directors, individually, all
officers and directors as a group, and all beneficial owners of more than five
percent of the Common Stock. The following stockholders have sole voting and
investment power with respect to the shares, unless indicated otherwise.
Name and address No. of % of shares
of beneficial owner Shares outstanding
- ------------------- ------ -----------
Jeffrey R. Bender
4322 Woodlake Dr.
Bakersfield, CA 93309 - 0 - 0.0%
Gary Larkin
1942 Turtle Ridge Lane
Porter Ranch, CA 91326 - 0 - 0.0%
Samuel W. Stearman
3120 San Helena
Oceanside, CA 92056 - 0 - 0.0%
Coubert Dennis, Ltd.
9 Buckskin Road
Bell Canyon, CA 91307 2,789,400 27.6%
All officers and directors
as a group - 0 - 0.0%
All beneficial owners of
more than 5 percent of stock 2,789,400 27.6%
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company contracted with CDL, a major stockholder, to provide investment
banking services to the Company in May 1995. Per the agreement between the
Company and CDL, the Company is obligated to pay CDL a monthly fee of $10,000
plus ten percent commission on all funds raised by their efforts. With the
formation of Nemdaco China Ventures, Inc. in July 1995, the $10,000 monthly fee
is being allocated equally between Nemdaco China and the Company. The Company's
expense for the year was $70,000 under this agreement.
During the year ended April 30, 1996, CDL assisted the Company in selling a
total of 4,000,000 million shares of Company common stock which they sold under
a Regulation S for $1,000,000, for which they received $100,000 in commissions,
per contractual arrangement. Payment for the sale of stock was made to CDL. CDL
paid $397,000 to the Company from the proceeds received through April 30, 1996.
After offsetting fees due CDL for investment banking services, CDL owed $503,000
to the Company as of April 30, 1996. CDL has signed a demand note for the amount
due. CDL has made additional payments to the Company through August 8, 1996 of
$94,000.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(a) No Form 8-K's were filed during the year ended April 30, 1995.
(b) Exhibits required by Item 601 of Regulation S-B follow:
<PAGE>
Number Description
- ------ -----------
3.1 Articles of Incorporation filed with the Colorado
Secretary of State on April 1, 1986, as amended (2)
3.1(a) Articles of Amendment to the Articles of Incorporation filed with the
Colorado Secretary of State on December 22, 1989 effectuating a
corporate name change (5)
3.1(b) Articles of Amendment to the Articles of Incorporation filed with the
Colorado Secretary of State on December 22, 1989 effectuating a reverse
stock split of one share for each one hundred shares of common stock
(5)
3.1(c) Articles of Amendment to the Articles of Incorporation filed with the
Colorado Secretary of State on October 31, 1990 effectuating an
increase in the number of authorized shares of common stock from
9,000,000 to 12,000,000 (6)
3.3 Bylaws (1)
10.1 Asset Purchase Agreement for Nemdaco/Global One Media, a start-up
company, dated February 22, 1996.
10.2 Investment Banking and Public Relations Services Agreement, dated April
30, 1995 with Coubert Dennis, Ltd., a Republic of Irish Corporation.
10.3 Promissory Note dated April 30, 1996 from Coubert Dennis, Ltd. in the
amount of $503,193.66.
22.1 List of Subsidiaries:
Nemdaco Attache' Communications, Inc., a Nevada Corporation;
Nemdaco/Global One Media, Inc., a Nevada Corporation; and
Nemdaco Retail Sales, Inc., a Nevada Corporation.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
NEMDACO, INC.
(Registrant)
Dated: August 8, 1996 By: /s/ Gary Larkin
----------------------------
Gary Larkin, President
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
NEMDACO, INC.
(Registrant)
Dated: August 8, 1996 By: /s/ Gary Larkin
---------------------------
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Jeffrey R. Bender Chairman of the Board August 8, 1996
- ------------------------
Jeffrey R. Bender
/s/ Gary Larkin President August 8, 1996
- ------------------------
Gary Larkin
/s/ Samuel W. Stearman Chief Financial Officer August 8, 1996
- ------------------------
Samuel W. Stearman
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
None
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NEMDACO, INC. AND SUBSIDIARIES
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheet, April 30, 1996 F-2
Consolidated Statements of Operations, Years Ended
April 30, 1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity,
(Deficiency), Years Ended April 30, 1996 and 1995 F-4
Consolidated Statements of Cash Flows,
Years Ended April 30, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Nemdaco, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Nemdaco, Inc. and
subsidiaries as of April 30, 1996, and the related consolidated statements of
operations, shareholders' equity (deficiency), and cash flows for each of the
years in the two-year period ended April 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nemdaco, Inc. and
subsidiaries as of April 30, 1996, and the results of their operations and their
cash flows for each of the years in the two-year period ended April 30, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered losses from continuing operations
of $645,000 and $299,000 and net losses of $645,000 and $35,000 for the years
ended April 30, 1996 and 1995, respectively, has no continuing revenue
generating operations, and at April 30, 1996 has a shareholders' deficiency of
$131,000; these factors raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN & CO.
August 8, 1996
Denver, Colorado
F-1
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
ASSETS
Current assets:
Note receivable, shareholder, collected
subsequent to April 30, 1996 (Note 6)
(total current assets) $ 94,000
Office equipment, net of accumulated
depreciation of $1,000 17,000
---------
$ 111,000
=========
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Accounts payable, trade $ 49,000
Accrued expenses:
Consulting fees, related parties (Notes 3 and 4) 60,000
Payroll and other 133,000
---------
Total liabilities (all current) 242,000
---------
Commitments and contingencies (Notes 3,4 and 5)
Shareholders' equity deficiency (Note 6):
Common stock, $.01 par value; authorized
12,000,000 shares; issued and outstanding
10,095,400 shares 101,000
Additional paid-in capital 4,003,000
Note receivable, shareholder (409,000)
Deficit (3,826,000)
---------
Total shareholders' equity deficiency (131,000)
---------
$ 111,000
==========
See notes to consolidated financial statements.
F-2
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995
1996 1995
------------- -----------
Operating expenses:
General and administrative $ 379,000 $ 248,000
Consulting fees, related parties (Note 3) 266,000
Rent expense, related party (Note 5) 24,000
Lease termination expense (Note 5) 27,000
--------- ---------
Total operating expenses 645,000 299,000
--------- ---------
Other charges (income):
Interest expense, related party (Note 4) 5,000 10,000
Interest income:
Related party (Note 6) (5,000) (4,000)
Other (7,000)
--------- ---------
(1,000)
--------- ---------
Loss from continuing operations (645,000) (298,000)
Discontinued operations (Note 8):
Income from discontinued operations 113,000
Net gain on disposal 150,000
Income from discontinued operations 263,000
--------- ---------
Net loss $ (645,000) $ (35,000)
========== ==========
Loss per common share (Note 6):
Loss from continuing operations $ (0.10) $ (0.05)
Income from discontinued operations 0.04
---------- ----------
Net loss $ (0.10) $ (.01)
========== ==========
Weighted average number of common
shares outstanding 6,762,100 6,095,400
========= =========
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
NEMDACO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED APRIL 30, 1996 AND 1995
Common stock Additional Note Treasury stock
------------------ paid-in receivable -------------------
Shares Amount capital shareholder Shares Amount (Deficit) Total
------ ------ ------- ----------- ------ ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, May 1, 1994 7,096,400 $71,000 $3,202,000 1,001,000 $(69,000) $(3,146,000) $ 58,000
Net loss (35,000) (35,000)
--------- ------- ---------- --------- --------- ------ --------- ------
Balances, April 30, 1995 7,096,400 71,000 3,202,000 1,001,000 (69,000) (3,181,000) 23,000
Retirement of treasury
stock (Note 6) (1,001,000) (10,000) (59,000) (1,001,000) 69,000
Sale of common stock net
of costs of $100,000 (Note 6) 4,000,000 40,000 860,000 900,000
Reclassification of note
receivable, shareholder
(Note 6) $(409,000) (409,000)
Net loss (645,000) (645,000)
---------- -------- ---------- --------- --------- ------- ----------- -------
Balances, April 30, 1996 10,095,400 $101,000 $4,003,000 $(409,000) $(3,826,000) $(131,000)
========== ======== ========== ========= ========= ======= ========== =========
See notes to consolidated financial statements
F-4
</TABLE>
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995
1996 1995
----------- ----------
Cash flows from operating activities:
Net loss $(645,000) $ (35,000)
---------- ---------
Adjustments to reconcile net loss to
net cash used in operating activities:
Decrease in deferred tax asset 5,000
Gain on sale of assets (150,000)
Depreciation and amortization 1,000 2,000
Changes in assets and liabilities:
Decrease in interest receivable 1,000
Decrease in trade receivables 21,000
Decrease in deposits 3,000
Increase in consulting fees payable 60,000
Increase in accounts payable
and other accrued expenses 128,000 49,000
--------- ----------
Total adjustments 189,000 (69,000)
--------- ----------
Net cash used in operating activities (456,000) (104,000)
--------- ----------
Cash flows from investing activities:
Purchase of office equipment (18,000)
Sale of furniture and equipment 2,000
Cash transferred upon sale of subsidiary (11,000)
Prepayment of notes receivable, other 17,000
Proceeds from sale of assets, related party 127,000
---------- ----------
Net cash provided by (used in)
investing activities (18,000) 135,000
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock (Note 6) 397,000
Net payments under note payable,
related party (12,000)
---------- ----------
Net cash provided by (used in)
financing activities 397,000 (12,000)
---------- ----------
Net increase (decrease) in cash
and cash equivalents (77,000) 19,000
Cash and cash equivalents, beginning 77,000 58,000
---------- ---------
Cash and cash equivalents, ending $ $ 77,000
========== =========
(Continued)
F-5
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMETNS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
1996 1995
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ $ 25,000
========== =========
Disclosure of noncash investing and
financing activities:
Note receivable from shareholder for
partial proceeds on sale of common
stock (Note 6) $ 503,000
==========
See notes to consolidated financial statements.
F-6
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
1. Business and summary of significant accounting policies:
Operations:
Nemdaco, Inc. ("Nemdaco" or "the Company"), was incorporated in April 1986.
Nemdaco is a holding company which is currently seeking investments in
operating entities, that will be owned through subsidiaries. At April
30, 1996, the Company has no active operating subsidiaries and no
revenue producing activities. Through December 1994, the Company's
operations consisted of receiving royalties and license fees from an
unrelated nightclub facility located in Washington, DC. In December
1994, the Company sold its royalty and license agreement and Tracks
Entertainment, Inc. ("Tracks"), its previously wholly owned operating
subsidiary (Note 8).
Principles of consolidation:
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less
to be cash equivalents.
Office equipment:
Office equipment is carried at cost, net of accumulated depreciation.
Depreciation is calculated primarily by the straight-line method over
the estimated useful lives of the related assets, ranging from five to
seven years.
Income taxes:
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
F-7
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
1. Business and summary of significant accounting policies (continued):
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures About the
Fair Value of Financial Instruments," requires the Company to disclose
estimated fair values for its financial instruments, for which it is
practicable to estimate fair value. The carrying value of the Company's
financial instruments approximates fair values primarily because of the
short maturity of these instruments.
Use of estimates in financial statement preparation:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount 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 periods. Actual results could differ
from those estimates.
Recently issued accounting standards:
Management does not believe that any recently issued accounting standards
will have a material impact on the Company's financial position or
results of operations.
2. Going concern:
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, and
the realization of assets and liquidation of liabilities in the
ordinary course of business. As shown in the accompanying financial
statements, the Company incurred net losses of $645,000 and $35,000 for
the years ended April 30, 1996 and 1995, respectively. At April 30,
1996, current liabilities exceeded current assets by $148,000, there is
a shareholders' deficiency of $242,000, and the Company has no
continuing revenue generating operations. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
F-8
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
2. Going concern (continued):
Management is attempting to resolve these deficiencies by raising the
financing necessary to both satisfy its working capital requirements
and to acquire interests in potentially profitable businesses. The
Company is currently exploring various possibilities for obtaining
financing, including possible private placements and public offerings.
If adequate financing can be obtained, the Company intends to consider
the possibilities of investing in various joint ventures or
acquisitions that management is currently investigating.
3. Investments:
Nemdaco China Ventures, Inc.:
In July 1995 the Company invested $2,000 in return for a common stock
investment in Nemdaco China Ventures, Inc. (NCV), a newly incorporated
entity formed to pursue business opportunities in the Peoples Republic
of China. At April 30, 1996, the Company owns an approximate 16%
investment in the common stock of NCV. NCV has incurred losses and,
accordingly, the initial $2,000 has been charged to expense during the
year ended April 30, 1996.
Nemdaco Attache' Communications, Inc.:
In January 1996, the Company formed a new wholly-owned subsidiary,
Nemdaco Attache' Communications, Inc. ("Attache'"), to explore and
develop new communications hardware and software products. Attache'
has had no sales, and operating costs consisting of salaries,
consulting fees and travel expenses have been expended.
F-9
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
3. Investments (continued):
Nemdaco Global One Media, Inc.:
In February 1996, the Company formed a new subsidiary, Nemdaco Global One
Media, Inc. ("Nemdaco Global One") which entered into an asset
purchase agreement with Global One Media, Inc. Under the terms of the
purchase agreement, Nemdaco Global One acquired certain trademarks and
logos and Global One Media, Inc. received a 20% interest in the common
stock of Nemdaco Global One. The value of the trademarks and logos is
nominal as prior to the transaction, Global One Media, Inc. had no
significant operations. Subsequent to the transaction, Nemdaco Global
One has been investigating selling trading cards and other memorabilia
through network television and other retail channels. Nemdaco Global
One has made no sales and operating costs, including salaries,
consulting fees and travel costs have been expensed in the
consolidated financial statements. No minority interest has been
recognized as the losses applicable to the minority interest exceed
the minority interest in the equity capital of Nemdaco Global One. The
Company has agreed to provide a minimum of $500,000 to fund the
operations of Nemdaco Global One during its first year of operation.
Through April 30, 1996, the Company has not funded any amounts under
this commitment.
Thermafreeze, Inc.:
In November 1995, the Company acquired certain marketing rights for
Thermafreeze, Inc. products in Asia. Thermafreeze, Inc. manufactures a
packaging system for shipment of products requiring refrigeration. The
purchase price of $100,000 was paid on behalf of the Company by
Coubert Dennis, Ltd. ("CDL"), a major shareholder of the Company (Note
4). The Company has also been negotiating with Thermafreeze, Inc. to
acquire certain related licensing agreements and other assets.
However, as the Company has not been able to satisfactorily complete
due diligence procedures, no sales of the Thermafreeze, Inc. products
have been made, and it is uncertain if the Company will be able to
develop a distribution network to market the products. The initial
$100,000 investment has been charged to general and administrative
expense during the year ended April 30, 1996.
Consulting fees:
Consulting fees represent amounts paid primarily to related parties,
including CDL, in connection with the Company's investment activities.
F-10
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
4. Transactions with Coubert Dennis Ltd:
The Company has entered into an agreement with CDL whereby CDL will
provide investment banking and public relations services to the
Company through April 1997. Under the agreement, monthly fees were
$10,000 in May and June 1995 and reduced to $5,000 thereafter. Total
fees for the year ended April 30, 1996 were $70,000 and are included
in consulting fees on the consolidated statement of operations. The
Company also is to pay a 10% transaction fee for any funds raised by
CDL on behalf of the Company. During the year ended April 30, 1996,
CDL paid certain operating expenses on behalf of the Company. The
total expenses paid by CDL on behalf of the Company were approximately
$327,000. Amounts due to CDL by the Company are unsecured and bear
interest at 8%. In connection with the Regulation S offering, the
total amount owed to CDL of $397,000 was offset against a $900,000
note receivable due from CDL (Note 6).
5. Commitments and contingencies:
Corporate facilities lease:
Prior to March 1996, the Company leased corporate office space in Denver,
Colorado from an entity controlled by a former director and shareholder
of the Company. Rent expense during the year ended April 30, 1995 was
$2,000 per month. In April 1995, there was a change in control of the
Company and the lease was terminated for $27,000. The Company continued
to lease the space in Denver at $1,200 per month through February 1996.
In March 1996, the Company entered into a month to month lease, with an
unrelated entity, for corporate office space in Los Angeles, California
for $1,000 per month. Total rent expense, including lease termination
fees, was $13,000 and $51,000 during the years ended April 30, 1996 and
1995, respectively.
Litigation:
The Company is involved in a dispute related to a potential acquisition
that has been terminated. The amount claimed has not been specifically
quantified. However, management does not believe that the Company's
potential exposure related to this matter would have a material
adverse effect on the Company's financial position or results of
operations.
F-11
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
5. Commitments and contingencies (continued):
Line of credit:
During the year ended April 30,1995, a bank granted the Company a $25,000
line of credit bearing interest at 4.75% over the bank's prime rate.
The Company had no borrowings under this line of credit and the line
was terminated during the year ended April 30, 1996.
6. Shareholders' equity:
Regulation S offering:
During February and April 1996, CDL assisted the Company in the selling a
total of 4,000,000 shares of common stock to buyers outside the U.S.
through a Regulation S offering. Total proceeds were $1,000,000 and
CDL's commission was $100,000. The net proceeds due from CDL of
$900,000 were reduced by $397,000 owed to CDL by the Company (Note 4).
The Company received a $503,000 promissory note for the balance of the
proceeds. The promissory note is due on demand and bears interest at
8%. Through August 8, 1996, the Company has received $94,000 from CDL
and the remaining uncollected balance of the note receivable of
$409,000 is shown as a reduction from shareholders' equity. The
Company anticipates receiving the balance due through cash receipts,
offset of the note receivable against future fees due to CDL, or by
expenditures made by CDL on behalf of the Company.
Warrants:
In connection with the Company's initial public offering in 1986, the
Company sold 400,000 Class A, 400,000 Class B and 400,000 Class C
warrants. No warrants have been exercised and all of the warrants
expired in February 1996.
F-12
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
6. Shareholders' equity (continued):
Stock option plan:
The Company has an incentive stock option plan and has reserved 400,000
shares of common stock for possible grants under the plan. Generally,
the options are to be granted at the fair market value of the common
stock at the time of grant, the options may not have a term in excess
of ten years. The options may be granted at the discretion of the
Board of Directors. As of April 30, 1996, no options have been
granted under the plan.
Loss per share:
Loss per common share data has been computed based upon the weighted
average number of shares outstanding during each period and does not
include the potential exercise of warrants that were outstanding
through November 1995, since the effect would be anti-dilutive.
Treasury stock:
At April 30, 1995, the Company held 1,001,000 shares of common stock as
treasury stock at a cost of $69,000. During the year ended April 30,
1996, in accordance with Colorado law, the shares were constructively
retired.
7. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are:
1996 1995
--------- ----------
Deferred tax asset:
Net operating loss carryforward $ 230,000 $ 7,000
Less valuation allowance (230,000) (7,000)
--------- --------
Net deferred tax asset $ -- $ --
========== =========
F-13
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
7. Income taxes (continued):
A significant portion of the Company's previously reported net operating
losses ("NOL") related to Tracks, the Company's previously wholly owned
subsidiary. Upon the sale of Tracks in December 1994, its portion of
the consolidated NOL was no longer available to the Company for income
tax purposes. At April 30, 1996, the Company has a gross deferred tax
asset of approximately $230,000 arising from its remaining NOL
carryforward totaling approximately $676,000 which expires in various
years between 2006 and the year 2011 if not utilized. Since management
has not determined that it is more likely than not that the deferred
tax asset will be realized, the Company has not recognized any benefit
of the losses from continuing operations and has established a
valuation allowance for the entire amount of the deferred tax asset.
8. Discontinued operations:
Effective December 1, 1994, the Company sold 100% of the common stock of
Tracks to Cherfein Joint Venture ("CJV") , an entity controlled by a
director and former principal shareholders and officers of the Company,
and also transferred its license and royalty agreement to CJV. The net
book value of the net assets sold was $127,000. As consideration for
this transaction, the Company received 1) an 8%, $127,000 promissory
note, which was fully collected by the Company by April 30, 1995, and
2) the cancellation of $150,000 under a 10.5% note payable due to CJV,
resulting in a gain of $150,000 which is included in discontinued
operations.
For the year ended April 30, 1995, operating results from the discontinued
Tracks' operations are included in the consolidated statement of
operations under "Income from discontinued operations," and include:
License and royalty fees $ 118,000
Income tax expense 5,000
---------
Income from discontinued operations $ 113,000
=========
F-14
<PAGE>
NEMDACO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995
8. Discontinued operations (continued):
At disposition in 1994, Tracks' assets and liabilities disposed of
consisted of the following:
Cash $ 11,000
Net receivables 15,000
Notes receivable 102,000
---------
Total assets 128,000
Less liabilities 1,000
Net assets disposed of $ 127,000
=========
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 94,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 94,000
<PP&E> 18,000
<DEPRECIATION> (1,000)
<TOTAL-ASSETS> 111,000
<CURRENT-LIABILITIES> 242,000
<BONDS> 0
0
0
<COMMON> 101,000
<OTHER-SE> (232,000)
<TOTAL-LIABILITY-AND-EQUITY> 111,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 645,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (645,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (645,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (645,000)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
