UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16371
NAMSCO CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0430312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
E. 122 Montgomery
SPOKANE, WA. 99207
(Address of principal executive offices) (Zip code)
(509) 327-7784
(Registrant's telephone number,
including area code)
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 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
As of October 31, 1996, 4,319,902 shares of common stock were
outstanding.
The total number of pages in this form 10-Q is 10 pages.
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
Form 10-QSB
INDEX
Page Number
Part I.
Financial Information
Item I. Financial Statements
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3-4
Consolidated Statements of Income
for the three month and nine month periods
ended September 30, 1996 and 1995 5
Consolidated Statements of Stockholders'
Equity December 31, 1995 and September 30, 1996
Consolidated Statement of Cash Flows for the
nine month periods ended September 30, 1996
and 1995 7
Notes to Financial Statements 8-9
Item II. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-10
Part II. Other Information and Signatures 10-11
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
Current assets:
Cash $ 67,977 $75,279
Accounts receivable 535,468 441,529
Current portion of net investment
in sales-type leases 2,440,403 3,287,954
Current portion of notes
receivable-Tribute contracts 33,118 280,337
Inventories 1,488,287 1,459,593
Prepaid expense and other (198,811) 100,882
__________ _________
Total 4,366,441 5,645,574
Property and Equipment (net)
Rental equipment 475,718 964,454
Operating equipment and
leasehold improvements 2,530,345 2,691,544
Total 3,006,063 3,655,998
Other assets
Non-current portion of net investment
in sales-type leases 16,897,182 15,968,714
Non-current portion notes receivable-
Tribute contracts 18,188 83,857
Non-current portion of
term contracts 57,705 184,867
Notes and advance due from related
parties 574,348 424,375
Total 17,547,423 16,661,813
Total Assets $24,919,927 $25,963,385
Notes to the financial statements for the year ended December 31,
1995 should be read in conjunction with these interim financial
statements and are not repeated here.
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Continued)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
Current liabilities:
Accounts payable:
Trade $ 1,831,820 $ 1,200,272
Reorganization costs 133,757
Accrued expenses:
Payroll & related taxes 373,669 457,251
Sales commissions 34,278
Interest 240,056 174,388
Current maturities of
long-term debt 15,722,671 9,889,035
Advance rental collections 681 59,546
Total 18,302,656 11,880,468
Liabilities due after one year:
Maintenance on Tribute contracts 45,067 66,000
Long-term debt 5,534,481 11,758,099
Advance collections on
rental accounts 2,924 1,856
Deferred income taxes 1,043,445 1,439,345
Total 6,614,017 13,265,300
Commitments and contingencies
Stockholders' Equity
Common stock,$.007 par value;
Authorized, 15,000,000 shares; issued
and outstanding, 4,319,902 30,240 30,240
Additional paid-in capital 201,269 201,269
Retained earnings (228,255) 586,108
Total 3,254 817,617
Total Liabilities & Equity $24,919,927 25,963,385
Notes to the financial statements for the year ended December 31,
1995 should be read in conjunction with these interim financial
statements and are not repeated here.
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30, September 30,
Revenues: 1996 1995 1996 1995
New music installations $637,363 1,546,142 1,970,831 5,050,828
Renewal contracts 70,304 73,075 954,167 308,958
Tribute contracts 366,656 182,900 1,201,892 534,499
Direct sales and other 166,584 173,670 526,578 533,421
Finance 636,848 547,677 1,784,323 1,607,928
Service 110,904 139,236 365,000 401,667
Rental 78,142 125,414 354,092 393,635
Total 2,066,801 2,788,114 7,156,883 8,830,936
Costs and Expenses:
Cost of sales 352,116 532,461 1,337,840 1,861,123
Selling, general and
administrative 1,061,193 1,202,050 2,981,547 3,407,038
Maintenance 130,719 157,474 615,649 620,836
Total 1,544,028 1,891,985 4,935,036 5,888,997
Income from operations 522,773 896,129 2,221,847 2,941,939
Other expense:
Interest (502,772)(552,714)(1,822,514)(1,664,788)
Cancellation of sales-
type leases:
Systems replaced with
CD equipment (194,443)(358,912)(1,031,666)(1,559,506)
Removed systems (144,229)(219,585) (566,953) (554,851)
Total (841,444)(1,131,211)(3,421,133)(3,779,145)
Income (Loss) before
income taxes (318,671) (235,082) (1,199,286) (837,206)
Provision for income
taxes (62,317) ( 88,000) (386,417) (203,400)
Net loss $(256,354)$(147,082)$ (812,869)$ (633,806)
Weighted average common
shares outstanding 4,319,902 4,319,902 4,319,902 4,319,902
Income (Loss) per share
of common stock $ (.06) $ (.03) $ (.19) $ (.15)
Notes to the financial statements for the year ended December 31,
1995 should be read in conjunction with these interim financial
statements and are not repeated here.
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
December 31, 1995 and September 30, 1996
Common Stock Additional
Paid-in Retained
Shares Amount Capital Earnings
BALANCE, December 31, 1995 4,319,902 $30,240 $201,269 $584,614
Net loss for the nine months
ended September 30, 1996 - - - (812,869)
BALANCE, September 30, 1996 4,319,902 $30,240 $201,269$(228,255)
Notes to the financial statements for the year ended December 31,
1995 should be read in conjunction with these interim financial
statements and are not repeated here.
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1996 1995
Net cash flow from operating
activities $ 706,704 $(313,774)
Cash flows from investing activities:
Additions-rental equipment (369,407) (441,398)
Additions-music and
video libraries 60,409 (115,063)
Additions-operating equipment 36,818 (219,142)
Total (272,180) (775,603)
Cash flows from financing activities:
Proceeds from sale of contracts 4,522,431 2,383,356
Principal payments on funds received
from sale of contracts (1,031,481) (690,493)
Proceeds from borrowing - 175,228
Payments of long term debt (3,544,039) 105,245
Payments on contracts and prefiling
obligations (388,837) -
Total 1,013,775 (425,232)
Increase/(Decrease) in Cash (7,302) (75,603)
Cash at beginning of period 75,279 130,182
Cash at end of period $ 67,977 $ 54,579
Notes to the financial statements for the year ended December 31,
1995 should be read in conjunction with these interim financial
statements and are not repeated here.
<PAGE>
NAMSCO CORPORATION AND SUBSIDIARY
Note to Financial Statements
Note 1- Compliance with terms of Secured Credit Agreement.
The Company is in default under the terms of the credit agreement
with the "secured lender", hereafter referred to as "lender". As
a result, the entire debt to the lender has been classified as a
current liability. The default is related to non-compliance with
the provisions for maintaining positive cash flow, timely payment
of taxes and a limitation on capital expenditures. The lender has
not waived the non-compliance. The Company has made all regularly
scheduled payments to the lender.
Item II
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's primary source of cash flow is from the collection of
monthly service fees on the 3,800 (approx) music playback systems,
1,700 (approx) music library agreements and 700 (approx) tribute
programs currently in place in funeral homes. Customers have the
option of paying cash, financing, or leasing new music
installations. Lease and sale agreements are sold (discounted) to
a finance company to provide the funds to cover the costs
associated with installing new music playback systems and tribute
programs that are not paid in full at the time of the installation.
The discounted amount realized from the sale of the agreements is
approximately the same as the cash sale price for the equipment.
The Company has been in contact with additional financing sources
to assure that it will have the financing to continue new
installations of its music systems and tribute programs.
Indications are that other sources are available.
During the first quarter of 1996, the Company initiated a plan to
pay down the liability to the secured lender. Contracts classified
under the "net investment in sales type leases" were discounted to
net present value, sold to a finance company, and the proceeds were
paid directly to the lender in the amount of $3,509,264.51 during
the first, second, and third quarters. This included principal
reductions which were part of the regular monthly payments.
On September 5, 1996, the lender was replaced by the present
secured lender in a negotiated transfer of position. Management's
plans with regard to these matters include discussions which have
been initiated with the replacement secured lender to restructure
or forgive a substantial portion of the related debt. By
restructuring or forgiving some of the debt, management believes it
will be able to modify the payment terms of the debt and thereby
reduce current cash flow requirements.
Results of Operations
Total revenues are $721,313 less for the three months and
$1,674,053 for the nine months ended September 30, 1996, or a
decrease of 26% and 19%, respectively. A total of 67 new
installations were completed in the third quarter of 1996 compared
with 92 for the same period in 1995. This resulted in a decrease
of total installations for the nine months ended September 30, 1996
to 219 new music systems compared with 428 systems for the same
period of 1995. The decrease in revenues from new installations was
partially offset by an increase in revenues from renewal agreements
and an increase in tribute sales. The expiring agreements that are
not renewed under term agreements represent customers who continue
to be billed as monthly rentals, reflecting as an increase of
rental accounts.
The majority of the new CD music installations in the latter part
of 1994 and all of 1995 were the new "conversion" style cabinet
that is less expensive to manufacture and less costly to ship.
Cost of sales for the third quarter of 1996 is 28% compared to 27%
for the same period of 1995 and 29% for the nine months ended
September 30, 1996 compared with 29% for the same period of 1995.
Selling, general and administrative costs increased to 51% of gross
sales for the quarter ended September 30, 1996 compared to 43% for
the same period of the prior year and 42% for the nine months ended
September 30, 1996 compared with 39% for the same period of 1995.
The increase in costs reflects an increase in sales expenses. In
the first, second, and third quarter of 1996, an increased effort
was made to upgrade existing tape installations by the addition of
CD units and thereby retain the customer base.
Maintenance costs decreased 17% in the quarter ended September 30,
1996 compared to the same period of the prior year and decreased 1%
in the nine month period.
Interest expense decreased in the third quarter of 1996 by $49,942
over the same period of the prior year, but increased $157,226 for
the nine months ended September 30, 1996 over the previous year.
This reflects the increase in debt from the sale of contracts to a
finance company. The effective interest rate on funds borrowed
from the finance company is higher than the interest rate for debt
that is being currently reduced.
The book value of replaced systems is charged to other expense in
the period the replacement installation is made. The book value
for equipment under lease includes the recorded residual value and
the present value of future payments that are cancelled at the time
of the replacement. The value of rental equipment removed is the
undepreciated book value of the rental equipment.
The effect of the above activity resulted in an increase in the net
loss during the quarter ended September 30, 1996 of $256,354
compared to a net loss of $147,082 for the same period of the prior
year, and a net loss of $812,869 for the nine months ended
September 30, 1996 compared to a net loss of $633,800 for the same
period of the prior year.
Balance Sheet
The net investment in sales-type leases increased $80,917 in the
first nine months of 1996. This reflects the addition of new lease
agreements at rates greater than the expiring or replaced lease
agreements. More emphasis has been placed on writing lease
agreements, and less on the outright sale of CD playback equipment.
This has resulted in more leases of equipment for new CD playback
installations.
The receivables from tribute contracts declined $312,888 in the
first nine months of 1996. The decline reflects the expiration of
tribute contracts in excess of new contracts added.
Inventories decreased $28,694 during the nine-months ended
September 30, 1996, a result of more emphasis on inventory control
and management.
Total term debt decreased $348,503 during the nine-months ended
September 30, 1996. During this nine month period the long term
debt of the secured lender was reduced by $3,509,264, along with a
$308,023 reduction in contracts payable. The new borrowing
represents the proceeds from the sale of lease agreements to a
finance company.
Part II. Other Information
Item 3. Defaults upon Senior Securities
The last "standstill period" instituted by the secured creditor as
provided in the Plan of Reorganization (whereby no payments can be
made to the holders of Senior Convertible Debentures) ended on
November 6, 1995. Some interest payments were made through
September 30, 1996. The plan of Reorganization provides for an
"Event of Default" and as of that date, unpaid interest on
subordinated debt and unpaid payments under the plan to unsecured
creditors and taxing agencies also constitute an "Event of
Default".<PAGE>
Opinion of Management
The balance sheet as of September 30, 1996 and the related
statements of income, changes in stockholders' equity, and cash
flows for the three month periods and nine month periods ended
September 30, 1996 and 1995 are unaudited. In the opinion of
Management, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments
consisted only of normal recurring items. Interim results are not
necessarily indicative of results for a full year. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
latest 10-KSB filing with the SEC. A copy of the form 10-KSB can
be obtained by contacting the corporate office and requesting a
copy.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date November 15, 1996 /s/ Merrill P. Womach
Merrill P. Womach
President and Chief Executive Officer
Acting Secretary and Treasurer
(Principal Executive Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 68
<RECEIVABLES> 536
<ALLOWANCES> 0
<SECURITIES> 0
<INVENTORY> 1,488
<CURRENT ASSETS> 4,366
<PP&E> 5,561
<DEPRECIATION> 2,555
<TOTAL-ASSETS> 24,920
<CURRENT-LIABILITIES> 18,303
<BONDS> 5,858
<COMMON> 30
<OTHER-SE> 729
<SALES> 4,653
<TOTAL-REVENUE> 7,157
<CGS> 1,337
<TOTAL-COSTS> 4,935
<OTHER-EXPENSES> 1,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,823
<INCOME-PRETAX> (1,199)
<INCOME-TAX> (386)
<INCOME-CONTINUING> (813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (813)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
