<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended __________________ June 30,1996 _________________
/ / 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 0-20675
Nouveau International, Inc.
---------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-2932617
---------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
212 Phillips Road, Exton, PA 19341
----------------------------------
(Address of principal executive offices)
(610) 524-8393
--------------
(Issuer's telephone number)
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
X YES NO
- --
As of August 16, 1996, the number of shares of Common Stock issued and
outstanding was 11,249,988.
<PAGE> 2
NOUVEAU INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - June 30,1996.................................... 1
Condensed Consolidated Statements of Operations - For the three and six months
ended June 30, 1996 and 1995........................................................... 2
Statements of Change in Stockholders Equity - June 30,1996 and 1995.................... 3
Condensed Consolidated Statements of Cash Flows - For the six months ended
June 30, 1996 and 1995................................................................. 4
Notes to Condensed Consolidated Financial Statements................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................N/A
Item 2. Changes in Securities.............................................................N/A
Item 3. Defaults Upon Senior Securities...................................................N/A
Item 4. Submission of Matters to a Vote of Security Holders...............................N/A
Item 5. Other Information.................................................................N/A
Item 6. Exhibits and Reports on Form 8-K..................................................15
</TABLE>
<PAGE> 3
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS June 30,1996
------ -------------
<S> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,531
Accounts receivable, Trade . . . . . . . . . . . . . . . . . . 147,899
Loans receivable, Officer . . . . . . . . . . . . . . . . . . 100,000
Inventory (Note B[3] and C) . . . . . . . . . . . . . . . . . 3,338,213
Settlement receivable (Note D) . . . . . . . . . . . . . . . . 533,340
Deferred financing costs (Note E) . . . . . . . . . . . . . . 144,042
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . 38,454
Due from affiliate (Note F) . . . . . . . . . . . . . . . . . 32,287
----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 4,342,766
Property and equipment, net (Note G) . . . . . . . . . . . . . . . . . 191,829
Settlement receivable (Note D) . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,151
----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,631,746
==========
LIABILITIES
-----------
Current liabilities:
Current portion of prepetition liabilities (Note H) $ 124,773
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 258,278
Accrued expenses and other current liabilities . . . . . . . . 94,368
Notes payable, net of discount for warrants of
$562,555 (Note I) . . . . . . . . . . . . . . . . . . 437,445
Fees payable (Note D) . . . . . . . . . . . . . . . . . . . . 225,000
Dividends payable (Note K) . . . . . . . . . . . . . . . . . . 65,333
-------
Total current liabilities . . . . . . . . . . . . . . . 1,205,197
Prepetition liabilities (Note H) . . . . . . . . . . . . . . . . . . . 134,773
----------
Total liabilities . . . . . . . . . . . . . . . . . . . 1,339,970
----------
STOCKHOLDERS' EQUITY
---------------------
Preferred stock, 70 shares, Series A 4% cumulative
convertible redeemable (Note K) . . . . . . . . . . . . . . . . . 3,233,333
Common stock 25,000,000 shares authorized,
11,249,988 shares issued and outstanding. . . . . . . . . . . . . 11,250
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 961,795
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (914,602)
----------
Total stockholders' equity . . . . . . . . . . . . . . . 3,291,776
----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,631,746
==========
</TABLE>
Attention is directed to the accompanying notes to condensed consolidated
financial statements.
(1)
<PAGE> 4
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- ---------
1996 1995 1996 1995
---- ---- ---- ----
(debtor-in- (debtor-in-
possession) possession)
<S> <C> <C> <C> <C>
Revenues:
Net sales . . . . . . . . . . . . . . . . . . $ 64,484 $ 38,860 $ 325,325 $ 80,779
Cost of goods sold . . . . . . . . . . . . . 59,173 32,218 294,053 67,174
--------- ------- ------- ------
Gross profit . . . . . . . . . . . . . . . . 5,311 6,642 31,272 13,605
--------- ------- ------- --------
Operating expenses:
General and administrative . . . . . . . . . 743,945 74,454 1,329,069 160,217
Selling . . . . . . . . . . . . . . . . . . . 167,866 11,697 338,712 23,769
--------- ------ ------- ------
911,811 86,151 1,667,781 183,986
--------- ------ --------- -------
Loss from operations . . . . . . . . . . . . . . . . (906,500) (79,509) (1,636,509) (170,381)
---------- --------- ----------- ----------
Other income (expenses):
Gain from settlement of lawsuit (Note D) . . 5,979,459 5,979,459
Miscellaneous income . . . . . . . . . . . . 6,280 35,680
Interest income . . . . . . . . . . . . . . . 16,248 31,657 37,826 31,657
Interest expense . . . . . . . . . . . . . . ( 10,668) (10,411) (12,409) (20,388)
--------- --------- -------- ---------
5,580 6,006,985 25,417 6,026,408
NET INCOME (LOSS) . . . . . . . . . . . . . . (900,920) 5,927,476 (1,611,092) 5,856,027
========== =========== =========== =========
Net income(loss) per share of common stock . $ (.08) $ .53 $ (.14) $ .52
=========== =========== ============ ==========
Weighted average shares of common stock
outstanding(Note B [9]) 11,249,988 11,249,988 11,249,988 11,249,988
=========== ========== ========== ==========
</TABLE>
Attention is directed to the accompanying notes to condensed
consolidated financial statements.
(2)
<PAGE> 5
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock,
Preferred Stock, $.001 Par Value
70 Shares, 25,000,000 Shares Total
Series A 4% Authorized, Stockholder's
cumulative, 11,249,988 Shares Additional Retained Equity
convertible, Issued and Paid-In Earnings (Capital
redeemable Outstanding Capital (Deficit) Deficiency)
---------- ----------- ------- --------- -----------
(Note K)
<S> <C> <C> <C> <C> <C>
Balance -- January 1, 1996 $389,714 $995,156 $1,384,870
Net Effect of the Exchange of
6,750,000 shares of HMI's common
stock for all of the outstanding
shares of Nouveau International,
Inc.'s common stock (378,464) 378,464
Issuance of 70 shares of Series
A 4% Cumulative Convertible
Redeemable Preferred Stock 3,000,000 3,000,000
Issuance of warrants to
purchase 333,332 shares of Common
Stock, in connection with a Private
Placement, at an exercise price of
$2.00 per share 583,331 583,331
Net (loss) (1,611,092) (1,611,092)
Accretion for preferred stock
dividends payable (65,333) (65,333)
Accretion for preferred stock
liquidation preference 233,333 (233,333)
---------- -------- -------- ------------ -----------
BALANCE -- June 30, 1996 $3,233,333 $11,250 $961,795 (914,602) $3,291,776
========== ======== ======== ============ ===========
</TABLE>
(3)
<PAGE> 6
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------
1996 1995
---- ----
(debtor - in -
possession)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (1,611,092) $ 5,856,027
Adjustments to reconcile net loss
to net cash used in
operating activities:
Litigation Settlement . . . . . . . . . . . . . . (4,260,117)
Depreciation and amortization . . . . . . . . . 23,879 35,233
Bad debt reserve: 13,720
Discount for warrant valuation 20,776
Changes in operating assets and liabilities:
(Increase)Decrease in accounts receivable . . (139,536) 6,311
(Increase)decrease in inventory . . . . . . . (163,554) 20,119
(Increase) in prepaid expenses and
other assets . . . . . . . . . . . . . . . . ( 74,131) (15,500)
(Decrease) in accounts . . . . . . . . . . .
payable and accrued expenses:
Prepetition . . . . . . . . . . . . . (21,032)
Postpetition . . . . . . . . . . . . 203,006 17,163
Decrease in settlement receivable . . . . . 277,496
(Decrease) in fees payable . . . . . . . . . . . . . . (75,000)
----------- -----------
Net cash used in operating activities . . . . (1,545,468) 1,659,236
---------- ----------
Cash flows used in investing activities:
Loans made to officer. . . . . . . . . . . . . . . . . . (100,000)
Purchase of property and equipment . . . . . . . . . . . (98,458)
---------- -----------
Net cash used in investing activities . . . . . (198,458)
--------- -----------
Cash flows from financing activities:
Sale of preferred stock . . . . . . . . . . . . . . . . 3,500,000
Proceeds from short term borrowing . . . . . . . . . . . 1,000,000
Payment of offering costs . . . . . . . . . . . . . . . (644,042)
Payment of prepetition liabilities . . . . . . . . . . . (2,296,708) (1,346,429)
Loans repaid to stockholder . . . . . . . . . . . . . . (183,764)
---------- -----------
Net cash provided by financing activities . . . . 1,375,486 (1,346,429)
--------- ------------
NET (DECREASE) INCREASE IN CASH . . . . . . . . . . . . . . . . (368,440) 312,807
Cash - beginning of Period . . . . . . . . . . . . . . . . . . . 376,971 16,932
---------- -----------
CASH - END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 8,531 $ 329,739
========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest . . . . . . . . $ 10,668 $ 20,388
</TABLE>
Attention is directed to the accompanying notes to condensed consolidated
financial statements.
(4)
<PAGE> 7
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) - Merger Between Health Management, Inc. and Nouveau International,
Inc.
In January 1996, all of the outstanding stock of the Company
was acquired by Health Management, Inc. ("HMI") in exchange for
6,750,000 shares, representing 60% of HMI common stock. HMI was a non
operating company, therefore this transaction was accounted for as a
recapitalization instead of a business combination.
(NOTE B) - Business and Summary of Significant Accounting Principles:
(1) The Company:
Nouveau International, Inc. and subsidiaries (the "Company")
manufactures and distributes hot food vending machines and related
food products. The Company uses certain proprietary machine and food
technology in the manufacture of its products.
On October 24,1994, the Company (the "Debtor") filed petitions
for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court and subsequently submitted a plan of
reorganization to the court. Under Chapter 11, certain claims against
the Debtor in existence prior to the filing of the petitions for
relief under the federal bankruptcy laws were stayed while the Debtor
continued business operations as debtor-in-possession. On December 8,
1995 the plan of reorganization (the "Plan") was confirmed.
(2) Principles of consolidation:
The consolidated financial statements of Nouveau
International, Inc. include the accounts of its wholly owned
subsidiaries, Nouveau Foods International, Inc., Nouveau Vend
International, Inc., and Nouveau Equities, Inc. Intercompany balances
have been eliminated in the consolidated financial statements.
(3) Inventories:
Inventories are valued at the lower of cost (first-in,
first-out method) or market.
(4) Property and equipment:
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets (5 to 7 years).
(5) Revenue recognition:
Revenue is recognized when goods are shipped.
(6) Research and Development:
Research and Development costs are expensed as incurred.
(7) Income taxes:
The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109 "Accounting for Income Taxes." SFAS No. 109
provides for income taxes to be accounted for based on the difference
between reported amounts of assets and liabilities and their tax
bases.
The confirmation of the Plan of Reorganization has eliminated all
net operating loss carryforwards which were available to offset future
taxable income.
(8) Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect 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.
(5)
<PAGE> 8
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(9) Earnings per share:
Earnings (loss) per share is based on the weighted average
number of shares outstanding during each period retroactively restated
for the exchange and merger with "HMI" described in Note A, as if this
transaction took place at the beginning of the period. The effect of
warrants and options is computed, if dilutive, using the treasury
stock method.
(NOTE C) - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1996
--------------
<S> <C>
Component parts . . . . . . . . . . . . . . . . . . . . . $ 1,597,870
Work-in-process . . . . . . . . . . . . . . . . . . . . . 223,220
Finished machines . . . . . . . . . . . . . . . . . . . . 1,517,123
-------------
T o t a l . . . . . . . . . . . . . . . $ 3,338,213
=============
</TABLE>
Included in inventory at June 30, 1996 is approximately $900,000
of parts and substantially all of the work-in-process and finished
machines, which were received from a vendor pursuant to the
litigation settlement referred to in Note D. These goods were valued
at their current replacement cost.
(NOTE D) - Litigation Settlement:
In 1995, the Company settled a lawsuit with the former supplier of
its vending machines. Under the terms of the settlement agreement,
the supplier canceled accounts payable of $884,975 and agreed to pay
the Company cash of $3,938,000 and deliver to the Company inventory
parts, work-in-process and finished machines held by them, which were
valued at $2,592,914. The Company has received cash payments totaling
$3,338,000 through June 1996. An installment of $100,000 which was
due in June 1996, was received in early July, 1996. A final
installment of $500,000 is due in June 1997.
The settlement balance receivable is shown at its net present
value discounted at an effective interest rate of 11% per annum. The
bankruptcy court ordered that a portion of the cash proceeds of the
settlement be used to pay a secured claim owed to a creditor (Note H)
and attorneys' fees for services rendered in connection with the
settlement of the lawsuit. Fees payable to the litigating attorneys
amount to $225,000 at June 30,1996.
(NOTE E) - Deferred Financing Costs:
Deferred financing costs are being amortized over the term of the
related debt, which is one year.
(NOTE F) - Due From Affiliate:
Due from affiliate consists of a loan due on demand from a company
which is wholly-owned by the stockholder and officer of the Company.
(6)
<PAGE> 9
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE G) - Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, 1996
--------------
<S> <C>
Machinery and equipment . . . . . . . . . . . . . . . $ 262,142
Furniture and fixtures . . . . . . . . . . . . . . . . 56,967
Transportation equipment . . . . . . . . . . . . . . . 13,596
Leasehold Improvements . . . . . . . . . . . . . . . . 27,990
-------
360,695
Less accumulated depreciation . . . . . . . . . . . . 168,866
-------
T o t a l . . . . . . . . . . . . . . . . . . $ 191,829
===============
</TABLE>
(7)
<PAGE> 10
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE H) - Prepetition Liabilities:
Prepetition liabilities consists of the following:
<TABLE>
<CAPTION>
June 30,1996
-------------
<S> <C>
Priority:
Former stockholder . . . . . . . . . . . . . 10,000
--------------
10,000
--------------
Unsecured:
Stockholders . . . . . . . . . . . . . . . . . . . 8,638
Trade and other
miscellaneous claims . . . . . . . . . . . . . 144,390
Former investor . . . . . . . . . . . . . . . . . 96,518
--------------
249,546
--------------
T o t a l . . . . . . . . . . . . . . . 259,546
Less current portion . . . . . . . . . . . . . . . 124,773
--------------
Non current portion . . . . . . . . . . . . . . . $ 134,773
==============
</TABLE>
In January 1996, the Company used a portion of the proceeds received
from the sale of preferred stock (Note J) to pay the remaining balance
of secured claims owed to the former investor of $2,244,708.
(8)
<PAGE> 11
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE H) - Prepetition Liabilities: (continued)
Priority claims consist of unpaid rent due to a former stockholder for
leased premises which were vacated in 1995.
Upon confirmation of the plan of reorganization, unsecured claims,
including those due to certain stockholders and the former investor
were settled for 10% of their prepetition amount and are payable in
two equal installments of 5% each in December 1996 and December 1997.
Minimum payments remaining for all claims due under the plan
of reorganization are as follows:
<TABLE>
<CAPTION>
Priority Unsecured Total
-------- --------- ------
<S> <C> <C> <C>
1996 . . . . . . . . . . . . . . . . . . $124,773 $124,773
1997 . . . . . . . . . . . . . . . . . . 10,000 124,773 134,773
------- -------- -------
$10,000 $249,546 $259,546
======= ======== ========
</TABLE>
(NOTE I)-Notes Payable
On May 23,1996 the Company received $870,000 representing the net
proceeds of a private placement offering of 4 units, each of which
consisted of a Series A 10% Senior Note in the principal amount of
$250,000 and warrants to purchase 83,333 shares of common stock, at an
exercise price of $2.00 per share. These notes are due on the earlier
of May 23,1997 or the closing of a public offering of the Company's
common stock, the gross proceeds of which equal or exceed $5,000,000.
The warrants expire in May 1999.
On July 3,1996 the Company received an additional $383,482,
representing the net proceeds of a private placement offering of one
and 9/10 units, each unit consisting of a Series A 10% Senior Note in
the principal amount of $250,000 and warrants to purchase 83,333
shares of common stock at an exercise price of $2.00 per share. The
terms and conditions of these notes are equal to those stated above.
(9)
<PAGE> 12
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE J) - Commitments and Contingencies:
(1) On June 3,1996, the Company entered into certain employment agreements
for five (5) employees of the Company. These employment contracts
terminate on June 3, 2000. The contracts are subject to adjustment
each year in accordance with the increase of the Consumer Price Index
for the Philadelphia, Pennsylvania area. Future minimum compensation
payment, per the terms of the contracts exclusive of any C.P.I.
adjustment or increase, are as follows:
<TABLE>
<S> <C>
Six months ending December 31, 1996 $ 211,002
Year ending December 31,
1997 422,004
1998 422,004
1999 422,004
2000 175,835
-------
TOTAL $1,652,849
==========
</TABLE>
(2) The Company occupies premises pursuant to an operating lease which
expires in July 1998. In addition, the Company entered into a three
year lease in January 1996 for a building which it intends to use as a
facility to assemble and store pizza vending machines. The new lease
expires on March 31,1999. These leases are subject to escalation's
for the Company's pro rata share of real estate taxes and operating
expense. Future minimum rental payments, exclusive of escalation
payments for taxes and utilities, under these leases are as follows:
<TABLE>
<S> <C>
Six months ending December 31,
------------------------------
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,179
Year ending December 31,
------------------------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,182
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,437
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,450
-------
T o t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 329,626
=========
</TABLE>
The Company also leases certain storage facilities on a month-to-month
basis.
For six months ended June 30, 1996, rent expense totaled $75,092.
For the same period ended in 1995, rent expense amounted to $12,600
which was paid to a former stockholder.
(3) In February 1996, the Company formed Nouveau Equities, Inc. and
entered into contract for the purchase of a building in which it will
operate a food processing plant. The purchase price of the building
is $1,360,000. The Company has made a nonrefundable down payment of
$70,000 and is currently seeking additional financing which is needed
to fund the balance of the purchase price. There is no assurance that
such financing will be obtained.
(NOTE K)-Preferred Stock:
In January 1996, in a private placement offering, the Company sold 70
units, each unit consisting of 1 share of Series A 4% cumulative
redeemable preferred stock and 1,608 common stock purchase warrants
for $3,500,000. The preferred stock is mandatorily redeemable at a
price per share which is equal to the original issuance price plus
accrued dividends on the earlier of the date of a public offering of
its common stock for minimum gross proceeds of $5,000,000 or January
17, 1997. In the event it is not redeemed through a public offering,
the Company has the right to convert the preferred stock into
1,125,000 shares of common stock. The preferred stock has a
liquidation value equal to the redemption value. Each common stock
purchase warrant entitles the holder to purchase one share of the
Company's common stock at an exercise price of $.50 per share. The
warrants expire in January 1999.
(10)
<PAGE> 13
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE L) - Related Party Transactions
In December 1994, the Company entered into a joint venture to
distribute the Company's products in Europe. The joint venture
company called Nouveau Cordon Bleu ("NCB") is incorporated in Ireland.
During the time in which the Company was in bankruptcy
proceedings, the parties agreed to suspend all performance
requirements provided for in the joint venture agreement. Sales to
NCB since its inception amount to approximately $137,000. All of
these sales occurred during the quarter ended March 31,1996. The
operations of NCB have been terminated and the Company will seek
direct relationships with Master distributors for its products.
(11)
<PAGE> 14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
In January 1996, Health Management, Inc. ("HMI"), a Florida
corporation, which at the time had not engaged in any business for
over two years and had virtually no assets, reincorporated in the
State of Delaware and exchanged its common stock for all of the
outstanding capital stock of Nouveau International, Inc. ("Nouveau
PA"), a Pennsylvania corporation. HMI also changed its name to
Nouveau International, Inc. following the acquisition of Nouveau PA.
References herein to the Company's products, business operations and
financial condition refer to the products, business operations and
financial condition of Nouveau PA unless otherwise indicated. During
1995 the Company was in bankruptcy proceedings and had essentially
ceased operations. In December 1995, the Company emerged from
bankruptcy and in January 1996 completed a private placement of its
securities which provided the Company with funds to recommence
operations. Therefore, management does not believe that a comparison
of financial operations and conditions to the corresponding periods in
1995 would be meaningful.
RESULTS OF OPERATIONS
During the six months ended June 30,1996, the net loss was $1,611,092
compared to a net income of $5,856,027 for the period ended June 30,
1995. The net income for the period ended June 30, 1995 represented
the proceeds from a settlement of a lawsuit (see note D of Notes to
Financial Statements). Revenues consisted of $325,325 for the period
ended June 30, 1996 and consisted of $228,591 in vending machine
sales, $11,010 in sales of machine parts and $85,724 in food product
sales. All of the vending machine sales were foreign sales. One
domestic customer accounted for $42,524 in food product sales.
Operating expenses for the six months ended June 30,1996 totaled
$1,667,781. For the six months ended June 30,1995 operating expenses
were $183,986.
Selling expenses account for $338,712 of the total operating expenses
for the period ended June 30,1996. Administrative salaries totaled
approximately $426,932 for the period ended June 30,1996, as compared
to $67,567 for the period ending June 30,1995. Professional fees
equaled approximately $234,507 for the period ending June 30, 1996.
No expenditures were paid for these types of services at June 30,
1995. Approximately $181,528 of such fees were incurred during the
first quarter and related to the fees incurred in connection with
reorganization of the Company and the private placement of the
preferred stock. Consulting fees for the period ended June 30,1996
were $178,757. No expenditures were paid for those types of services
at June 30,1995.
Dividends accrued on the Company's preferred stock at June 30,1996
equaled $65,333.
For the three months ended June 30,1996, the net loss was $900,920
compared to net income of $5,927,476 for the three months ended June
30,1995. The net income represented the above-mentioned settlement.
Revenues for the three months ended June 30, 1996 were $64,484 and
were comprised of $12,960 in vending machines, $11,010 in vending
machine parts and $40,513 in food product sales. Substantially all of
the food product sales were to one customer. The decrease in revenues
was the result of the failure of several customers to satisfy
obligations to purchase vending machines that were called for in their
distributorship agreements, during the three months ended June 30,
1996. In July 1996, the Company entered into a distributor agreement
for the country of Portugal. Also during the period the Company
terminated its agreement with a joint venture partner which covered
sections of the European market. The Company does not expect to
generate an operating profit for the third quarter.
Operating expenses for the three months ended June 30,1996 were
$911,811 compared to $86,151 for the three months ended June 30,1995.
Selling expenses accounted for $167,866 of the total operating
expenses for the period. Administrative salaries were $244,560
compared to $25,460 for the three month period ended June 30, 1995.
Professional fees equaled $52,979 for the period. No expenditures
were paid for these types of services at June 30,1995. Consulting
fees for the three month period ended June 30, 1996 were $99,259.
(12)
<PAGE> 15
In April 1996 the Company entered into a consulting agreement which
was subsequently amended in July 1996. The agreement is for two
years. The total annual payments under the agreement is $180,000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30,1996 the Company had working capital of $3,137,569 compared
to a working capital deficiency of $285,103 at June 30,1995.
During the six months ended June 30, 1996, the Company raised a total
of $3,915,000 in net proceeds from two private placements of
securities.
The private placements consisted of preferred stock and senior notes.
The first placement in January 1996 was for the sale of 70 units with
each unit consisting of 1 share of Series A 4% cumulative convertible
redeemable preferred stock and 1,608 common stock purchase warrants.
The net amount of proceeds to the Company was $3,045,000. In May 1996
the Company sold 4 units with each unit consisting of a Series A 10%
Senior Note principal amount of $250,000 and 83,333 common stock
purchase warrants. The net amount of proceeds were $870,000.
Substantially all of these funds were expended during the period.
Approximately $2,245,000 was paid to a former investor representing
the remaining balance of secured claims as part of the Company's
bankruptcy reorganization. The remaining $1,670,000 was used by the
Company to recommence its operations.
During the period the Company received $300,000 pursuant to a lawsuit
settled in June 1995. The remaining balance is due in installments of
$100,000 in June 1996, which was received in July 1996, and $500,000
in June 1997.
The Company currently obtains its pizza food products from a sole
vendor pursuant to a co-pack agreement. The agreement provides that
the price can be adjusted by the vendor annually. The agreement may
be terminated by the vendor at any time upon ninety days notice.
During the first quarter, the Company was notified by the vendor of a
price increase. The Company is also concerned with the quality of the
food products being produced by the vendor and is taking extra
measures to insure the quality of the food products. These extra
measures are increasing the Company's cost for its food products.
The loss of this product source at this time would have a material
adverse effect on the Company's operation. In order to more closely
control the cost and quality of its food products as well as have a
more secure source of food products, the Company, in February 1996,
entered into an agreement to purchase a facility capable of
manufacturing the Company's food products. The Company has paid
$110,000 to lease the facility until the closing on the sale which is
scheduled for August 1996. At closing the Company will be required to
pay $1,290,000 to purchase the facility. Management presently
estimates that it will cost approximately $700,000 to renovate the
facility. The Company is presently in negotiation with a commercial
lender to secure the financing for the purchase of the facility. The
Company will have to secure additional funding for the renovations.
The Company will not be able to close on the purchase of the facility
on the agreed settlement date in August. The Company is presently
attempting to secure an extension of the closing date. The Company
will also need additional funds to finance the manufacturing of it
vending machines. The amount of funds will be determined by the
number of vending machines that are ordered.
As of August 16, 1996, the Company had limited cash resources. The
Company will require additional funding to fund its corporate
operations, its food production operation, for working capital and to
purchase vending machines and parts. The Company is seeking
additional sources of financing to meet its needs. The Company has
entered into a letter of intent with an investment banker for the
purpose of raising between $10-12 million in a "firm commitment"
public offering of its securities. No assurance can be given that the
Company will be able to obtain any additional financing. In the event
the Company is not able to raise funds on a timely basis its
operations will be materially affected.
EVENTS SUBSEQUENT TO JUNE 30, 1996
In July 1996, the Company received an additional $383,482 in net
proceeds from the sale of its senior notes. As of August 16, 1996 all
of these funds had been expended.
(13)
<PAGE> 16
In July 1996, the Company terminated its agreement with its
distributor for Germany. The termination was on account of such
distributor not meeting payment requirements pursuant to the
agreement.
In July 1996, the Company entered into a series of master
distributorship agreements covering Argentina, Brazil, Chile,
Paraguay, and Uruguay. The Company has received a deposit for an
initial order of twenty-six vending machines for these areas.
In July 1996, the Company entered into a master distributorship
agreement covering Portugal.
In August 1996, the Company took possession of twenty-six vending
machines which had been sold to its joint venture partner, the effect
of which was fully reserved at June 30, 1996. The amount of the sale
was $132,600.
(14)
<PAGE> 17
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.0 Financial data schedule
</TABLE>
(15)
<PAGE> 18
SIGNATURES
In accordance with the Exchange Act, the registrant has caused this
report to be signed on its behalf by the undersigned, duly authorized.
DATED: August 16, 1996 NOUVEAU INTERNATIONAL, INC.
BY: /S/ GARY W. BLACK, SR.
---------------------------
Gary W. Black, Sr.
Chief Executive Officer and Chief
Financial Officer
(16)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,531
<SECURITIES> 0
<RECEIVABLES> 161,619
<ALLOWANCES> 13,720
<INVENTORY> 3,338,213
<CURRENT-ASSETS> 4,342,766
<PP&E> 360,695
<DEPRECIATION> 168,866
<TOTAL-ASSETS> 4,631,746
<CURRENT-LIABILITIES> 1,205,197
<BONDS> 0
3,233,333
0
<COMMON> 11,250
<OTHER-SE> 47,193
<TOTAL-LIABILITY-AND-EQUITY> 3,291,776
<SALES> 325,325
<TOTAL-REVENUES> 325,325
<CGS> 294,053
<TOTAL-COSTS> 632,765
<OTHER-EXPENSES> 1,329,069
<LOSS-PROVISION> 13,720
<INTEREST-EXPENSE> 12,409
<INCOME-PRETAX> (1,611,092)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,611,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,611,092)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
