Gold rush|Guitar maker Grem USA may buy nanotech company, but local production has yet to take off

 

A former clothing company that relocated to Fort Wayne to make guitars in early 2006 could be branching out into a completely different business: nanotechnology.

    Grem USA is a penny-stock company that has operated under several names since 1999 and has been the subject of fraud charges filed by the Securities and Exchange Commission.

    In a prepared statement, Grem USA announced in May it had entered into negotiations to acquire Nanogold Corp., a Canadian research-and-development company specializing in what it calls “nano gold” technology.

    Grem is not to be confused with Babicz Guitars USA, which recently announced plans to establish a guitar production and distribution facility in Fort Wayne.

    Grem has yet to produce many guitars at its 40,000-square-foot plant at 315 E. Wallace St. But if it proceeds with the acquisition of the Canadian nanotechnology company, it will not shift its focus from guitar manufacturing, said Edward Miers, Grem’s president and chief executive officer.

    “I’m just reviewing things,” he said. “If we want it to happen, it will happen.”

    Miers said he was not free to elaborate on the company’s prepared statement about its negotiations with Nanogold. The statement said Nanogold was involved in a joint venture with a prominent Chinese university to develop nano-metal applications.

    The Canadian firm has been developing chemical processing for the production of nanoscale gold powder, and the research team at the Chinese university has several years’ experience in chemical processing for the production of nanoscale metals and oxide powders, according to Grem’s statement.

    Grem said the powder could be used in fuel cells, pollution-control devices and biomedical and electronics products, and as a decorative coating.

    Grem — as the company renamed itself for the seventh time in not quite six years — got into the guitar business late in 2004.

    The company traces its origins back to 1999 in Nevada, where it started as Last Company Clothing with plans to import and wholesale products to action or extreme-sports clothing retailers.

    The company’s 2005 annual report shows it changed its name: in March 2001 to Premier Axium ASP; in February 2003 to Core Solutions; in May 2003 to Sunshine Ventures; in June 2003 to Christine’s Precious Petals; and in August 2003 to Global Business Markets.

    In July 2005, the Securities and Exchange Commission filed fraud charges in a Los Angeles federal court against the company’s former CEO, Christine Favara. At the time the alleged violations occurred, the company was operating under the Core Solutions name.

    Miers said the company should not be judged today on the basis of what happened under Favara because it was engaged in a different business under different ownership.

    “It wasn’t us; it has nothing to do with the guitar company. Those people have nothing to do with us,” he said.

    The SEC said Favara had issued false and misleading press releases and improperly registered shares intended to be issued as compensation to employees and consultants.

    According to the complaint, in 2003 when the company had no revenue and about $11,000 in assets, Favara issued news releases announcing the company had won new accounts that would produce more than $1 million in annual revenue and projected future annual revenues of $50 million to $250 million.

    Since the fraud charges were filed against Favara, the SEC has not announced any enforcement proceedings against Grem or any of its executives.

    The fraud charges and name changes are among the reasons the company has been the subject of investigative reports by StockPatrol.com, a Web site that says it reports “on interesting, odd and unusual developments in the securities markets.” The site offers both free and subscription services.

    The site also tracks how companies issue stock to compensate consultants, senior managers and other insiders.

    “They’ve been handing out stock to people for years. Somebody’s making money on this company,” said Hartley Bernstein, publisher of StockPatrol.com.

    Grem’s first-quarter 2007 report said it was authorized to issue 5 billion shares of common stock, and as of May 1, it had 4.56 billion shares outstanding.

    According to the company’s 2006 annual report, Miers owns 85.5 percent of Grem’s common stock.   

    Grem’s balance sheet showed it ended 2006 with assets of about $466,277 and liabilities of $2.3 million. Its deficit had grown to $1.8 million at the end of the year from $1.3 million a year earlier.

    The company had only $9,077 in sales last year and no sales the year before. It narrowed its 2006 net loss to $1.5 million, from $2.4 million in 2005, by reducing management compensation and consulting fees.

    It still paid $677,600 to consultants last year and $1.2 million to Miers. It had only one other permanent, full-time employee in 2006.

    For its first quarter in 2007, Grem reported a loss of $373,303, which was less than the loss of $728,108 it had reported for the comparable 2006 quarter.

    The company began producing guitars at a plant in Spencerville in April 2005. Before the year ended, Grem had purchased the 40,000-square-foot building in Fort Wayne for 273 million shares of common stock.

    The company’s most recent quarterly report said Grem had relocated to the building and had all of its production equipment installed there by the end of March 2006. Since then, the company has upgraded some equipment, completed development of five prototype guitars and sold at least $9,000 in guitars it has manufactured.

    “In the past we relied on Gregory Reszel, who owns a significant amount of equipment and tools that were used in producing our handmade guitars,” the quarterly report said.

    “However, since receiving cash from the issuance of promissory notes and sale of restricted stock, Edward Miers, our president, has spent a significant amount of time locating various pieces of used manufacturing equipment.”

    In late April, the company issued a news release saying its plant would be fully operational by mid-May and “within the next quarter, Grem USA will be in a break-even and/or positive cash-flow position.”

    But part of the first quarter 2007 report evaluating the risks facing the business describes a company that could be on the verge of collapse even as it is about to start production:

    “Our audited financial statements … indicate that there was substantial doubt about our ability to continue as a going concern due to our need to generate cash from operations and obtain additional financing.”

    The report also said Grem’s “continual issuance of shares for services to consultants will result in substantial dilution to the interests of our stockholders. We continue to maintain losses each quarter primarily as a result of additional shares being issued each quarter.”

    The report later added: “The effect of this dilution increases the probability of our stockholders losing their entire investment.”

    Miers said those statements are typical of the standard disclaimers used by businesses to protect themselves from possible future liability.

    He also said during a recent phone interview that Grem will add at least 15 workers this spring and summer.

    “The bulk of the people will be hired in 90 days because everything slows down for July for manufacturing in general. We’ll be ramping up the whole way through though; we’re not slowing down,” he said.

    On May 23, Grem announced Michael Sweet, of the Christian rock band Stryper, had signed on to endorse Grem guitars and to play them exclusively in studio recording sessions and on his 2007-2008 world tour. The company also said it was finalizing details of negotiations for three major distributors to carry the full line of Grem guitars.

    The company’s sales projections and news of its negotiations with distributors did not move Grem stock above $1.50 per 1,000 shares the day of the announcement.

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