<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 September 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 November 13, 1996, the number of shares of Common Stock issued and
outstanding was 9,249,988.
<PAGE> 2
NOUVEAU INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - September 30, 1996 ............................ 1
Condensed Consolidated Statements of Operations - For the three and nine months
ended September 30, 1996 and 1995..................................................... 2
Statements of Change in Stockholders Equity - September 30, 1996 ..................... 3
Condensed Consolidated Statements of Cash Flows - For the nine months ended
September 30, 1996 and 1995........................................................... 4
Notes to Condensed Consolidated Financial
Statements............................................................................ 5-11
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 September 30,1996
- ------ -----------------
<S> <C>
Current assets:
Cash................................................................ $ 118,623
Accounts receivable, Trade.......................................... 15,587
Inventory (Note B[3] and C)........................................ 3,391,526
Loan receivable, Stockholder (Note D)............................... 100,000
Settlement receivable (Note E) ..................................... 448,142
Deferred financing costs (Note B[5])................................ 158,460
Prepaid Expenses and other current assets........................... 34,499
-----------
Total current assets................................................ 4,266,837
Property and equipment, net (Note F)........................................ 251,527
Deferred financing costs, non-current....................................... 75,000
Other assets................................................................ 51,596
-----------
T O T A L........................................................... $ 4,644,960
===========
L I A B I L I T I E S
---------------------
Current liabilities:
Notes payable, net of discount for warrants of
$615,611 (Note H).............................. $ 859,389
Notes payable, other (Note I)....................................... 140,000
Current portion of prepetition liabilities (Note G) 134,773
Accounts payable.................................................... 630,484
Accrued expenses and other current liabilities...................... 233,408
Fees payable (Note E)............................................... 225,000
Dividends payable (Note K).......................................... 100,333
-----------
Total current liabilities................................... 2,323,387
Prepetition liabilities (Note G)............................................ 124,773
-----------
Total liabilities........................................... 2,448,160
-----------
STOCKHOLDER'S EQUITY
--------------------
Preferred stock, 70 shares, Series A 4% cumulative convertible
redeemable (Note K).......................................................... 3,358,333
Common stock 25,000,000 shares authorized,
9,249,988 shares issued and outstanding (Note M) 9,250
Additional paid in capital................................................... 1,240,877
Accumulated deficit ......................................................... (2,411,660)
-----------
Total stockholders' equity................................... 2,196,800
-----------
T O T A L ........................................................... $ 4,644,960
===========
</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 Nine Months Ended
September 30, September 30,
---------------------------- -------------------------
1996 1995 1996 1995
--------- ----------- --------- --------------
(debtor-in- (debtor-in-
possession) possession)
<S> <C> <C> <C> <C>
Revenues:
Net sales . . . . . . . . . . . . . . . . . . $ 238,057 $137,816 $ 563,382 $ 218,595
Cost of goods sold . . . . . . . . . . . . . 221,978 111,683 516,031 178,857
---------- --------- ---------- ---------
Gross profit . . . . . . . . . . . . . . . . 16,079 26,133 47,351 39,738
---------- --------- ---------- ---------
Operating expenses:
General and administrative . . . . . . . . . 884,273 215,306 2,213,342 375,523
Selling . . . . . . . . . . . . . . . . . . . 149,756 40,938 488,468 64,707
---------- --------- ---------- ---------
1,034,029 256,244 2,701,810 440,230
---------- --------- ---------- ---------
Loss from operations . . . . . . . . . . . . . . (1,017,950) (230,111) (2,654,459) (400,492)
---------- --------- ---------- ---------
Other income (expenses):
Gain from settlement of lawsuit (Note E) . . . 5,979,459
Miscellaneous income . . . . . . . . . . . . . (35,680)
Interest income . . . . . . . . . . . . . . . 181 35,613 38,007 67,270
Interest expense . . . . . . . . . . . . . . . (319,289) (9,543) (331,698) (29,931)
Loss on abandonment and sale of property . . . (91,228) (91,228)
Reorganization Expense . . . . . . . . . . . . (33,150) (33,150)
---------- --------- ---------- ---------
(319,108) (133,988) (293,691) 5,892,420
---------- --------- ---------- ---------
Income (loss) before extraordinary item . . . (1,337,058) (364,099) (2,948,150) 5,491,928
Extraordinary item: Compromise of
prepetition liabilities . . . . . . . . . . . 112,000 112,000
---------- --------- ---------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . (1,337,058) (252,099) (2,948,150) 5,603,928
========== ========= ========== =========
Net income (loss) per share
before extraordinary item . . . . . . . . . . (.14) (.04) (.32) .60
Extraordinary item . . . . . . . . . . . . . . .01 .01
---------- --------- ---------- ---------
Net income(loss) per share of common stock . . $(.14) $(.03) $(.32) $.61
========== ========= ========== =========
Weighted average shares of common stock
outstanding(Note B [10]) 9,249,988 9,249,988 9,249,988 9,249,988
========== ========= ========== =========
</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
<TABLE>
<CAPTION>
Preferred Stock, Common Stock, $.001 Par Value
70 Shares, 25,000,000 Shares Authorized,
Series A 4% cumulative, 9,249,988 Shares Additional
convertible, Issued and Paid-In
redeemable Outstanding Capital
---------- ----------- --------
(Note K) (Note M)
<S> <C> <C> <C>
Balance - January 1, 1996 $389,714
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 (380,464) 380,464
Issuance of 70 shares of Series A 4%
Cumulative Convertible Redeemable
Preferred Stock 3,000,000
Issuance of warrants to purchase
491,665 shares of Common Stock, in
connection with a Private Placement,
at an exercise price of $2.00 per share 860,413
Net (loss)
Accretion for preferred stock
dividends payable
Accretion for preferred stock
liquidation preference 358,333
--------- --------- ----------
BALANCE-September 30, 1996 3,358,333 $ 9,250 $1,240,877
========= ======== ==========
<CAPTION>
Retained
Earnings Total
(Accumulated Stockholders'
Deficit) Equity
------------ -------------
<S> <C> <C>
Balance - January 1, 1996 $ 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
Issuance of 70 shares of Series A 4%
Cumulative Convertible Redeemable
Preferred Stock 3,000,000
Issuance of warrants to purchase
491,665 shares of Common Stock, in
connection with a Private Placement,
at an exercise price of $2.00 per share 860,413
Net (loss) (2,948,150) (2,948,150)
Accretion for preferred stock
dividends payable (100,333) (100,333)
Accretion for preferred stock
liquidation preference (358,333)
------------ -----------
BALANCE-September 30, 1996 ($2,411,660) $ 2,196,800
============ ===========
</TABLE>
Attention is directed to the accompanying notes to condensed consolidated
financial statements.
(3)
<PAGE> 6
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
-------- --------
(debtor - in -
possession)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $(2,948,150) $5,603,928
Adjustments to reconcile net (loss) income
to net cash provided on (used in) operating activities:
Litigation Settlement . . . . . . . . . . . . . . . . (3,241,459)
Loss on abandonment and sale of property . . . . . . . 91,228
Bad Debt Expense . . . . . . . . . . . . . . . . . . . 28,770
Compromise of prepetition liabilities . . . . . . . . (112,000)
Depreciation and amortization . . . . . . . . . . . . 95,379 30,892
Discount for warrant valuation . . . . . . . . . . . . 244,802
Interest imputed on lawsuit settlement . . . . . . . . (67,270)
Changes in operating assets and liabilities:
(Increase)Decrease in accounts receivable . . . . . (22,274) 9,146
(Increase)decrease in inventory . . . . . . . . . . (216,867) 44,485
(Increase) decrease in prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . . 7,666 27,067
(Decrease) Increase in accounts
payable and accrued expenses:
Prepetition . . . . . . . . . . . . . . . (59,032) (46,783)
Postpetition . . . . . . . . . . . . . . . 714,252 60,553
Decrease in settlement receivable . . . . . . . . 362,694
(Decrease) in fees payable . . . . . . . . . . . . . (75,000) (750,000)
---------- ---------
Net cash (used in) provided by operating activities . . . . . . (1,867,760) 1,649,787
---------- ---------
Cash flows used in investing activities:
Proceeds from sale of equipment . . . . . . . . . . . . . . 1,000
Loans made to stockholder . . . . . . . . . . . . . . . . . (100,000)
Purchase of property and equipment . . . . . . . . . . . . (172,401)
---------- ---------
Net cash (used in) provided by investing activities (272,401) 1,000
---------- ---------
Cash flows from financing activities:
Sale of preferred stock . . . . . . . . . . . . . . . . . . 3,500,000
Proceeds from short term borrowing . . . . . . . . . . . . 1,615,000
Payment of offering costs for sale of preferred stock (500,000)
Payment of offering costs for sale of Senior Notes (290,715)
Payment of prepetition liabilities . . . . . . . . . . . . (2,258,708) (1,346,430)
Loans repaid to stockholder . . . . . . . . . . . . . . . . (183,764)
---------- ---------
Net cash (used in) provided (used in) by financing
activities . . . . . . . . . . . . . . . . . . . . . . . 1,881,813 (1,346,430)
--------- ---------
NET (DECREASE) INCREASE IN CASH . . . . . . . . . . . . . . . (258,348) 304,357
Cash - beginning of Period . . . . . . . . . . . . . . . . . . 376,971 16,932
----------- ----------
CASH - END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 118,623 $ 321,289
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest . . . . . . $ 10,668 $ 29,931
Attention is directed to the accompanying notes to condensed consolidated
financial statements.
</TABLE>
(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 was confirmed.
(2) Principles of consolidation:
The consolidated financial statements of Nouveau International,
(PA.)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) Deferred financing costs:
Deferred financing costs are being amortized over the term of the
related debt, which is one year.
(6) Revenue recognition:
Revenue is recognized when goods are shipped.
(7) Research and Development:
Research and Development costs are expensed as incurred.
(8) 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.
(5)
<PAGE> 8
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(9) 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.
(10) Earnings (loss) 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 (Note A), and the contribution of
2,000,000 shares of common stock back to the Company by certain
stockholders (Note M ), as if these transactions took place at the
beginning of the period. The effect of warrants and options is computed, if
dilutive, using the treasury stock method.
(11) Interim financial information:
The condensed consolidated financial statements included herein have
been prepared by Nouveau International, Inc. ("the Company"), without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management of the Company
believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the notes thereto. In the
opinion of the management of the Company, the condensed consolidated
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary to fairly present the results for the
interim periods to which these financial statements relate.
The results of operations of the Company for the nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
(NOTE C) - Inventories:
Inventories consist of the following:
September 30, 1996
<TABLE>
<S> <C>
Component parts . . . . . . . . . . . . . . . . . . . . . $1,638,714
Work-in-process . . . . . . . . . . . . . . . . . . . . . 223,220
Finished machines . . . . . . . . . . . . . . . . . . . . 1,529,592
----------
T o t a l . . . . . . . . . . . . . . . . . $3,391,526
==========
</TABLE>
Included in inventory at September 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 E. These goods were valued at their
current replacement cost.
(NOTE D) - Loan Receivable, Stockholder:
Loan receivable from stockholder is due February 7, 1997 with
interest at 8% per annum.
(6)
<PAGE> 9
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 $3,438,000
through September 1996. A final installment of $500,000 which was due in
June 1997, was received in October 1996.
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 G) 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
September 30,1996.
(NOTE F) - Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Machinery and equipment . . . . . . . . . . . . . . . . . . $ 268,583
Furniture and fixtures . . . . . . . . . . . . . . . . . . . 57,302
Transportation equipment . . . . . . . . . . . . . . . . . . 13,596
Leasehold Improvements . . . . . . . . . . . . . . . . . . . 95,159
--------------
434,640
Less accumulated depreciation . . . . . . . . . . . . . . . 183,113
--------------
T o t a l . . . . . . . . . . . . . . . . . . . . . $ 251,527
==============
</TABLE>
In July 1995, the Company abandoned leasehold improvements with a net book
value of $90,640.
(7)
<PAGE> 10
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE G) - Prepetition Liabilities:
Prepetition liabilities consists of the following:
<TABLE>
<CAPTION>
September 30,1996
-----------------
<S> <C>
Priority:
Former stockholder . . . . . . . . . . . . . . . . . . . . . . 10,000
--------
10,000
--------
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 . . . . . . . . . . . . . . . . . . . . 134,773
----------
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . $ 124,773
==========
</TABLE>
In January 1996, the Company used a portion of the proceeds received from
the sale of preferred stock (Note K) to pay the remaining balance of
secured claims owed to the former investor of $2,244,708.
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 . . . . . . . . . . . . . . . . . . . . . 10,000 $124,773 $134,773
1997 . . . . . . . . . . . . . . . . . . . . . 124,773 124,773
------- -------- --------
$10,000 $249,546 $259,546
======= ======== ========
</TABLE>
(8)
<PAGE> 11
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE H)-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 securities, the gross
proceeds of which equal or exceed $5,000,000. The warrants expire in May
1999.
In July 1996 the Company received an additional $383,482, representing the
net proceeds of a private placement offering of one and 9/10 units of the
same securities described above, due in July 1997.
(NOTE I)-Notes Payable, Other
During the month of September 1996, the Company borrowed a total of
$140,000 to fund its short-term needs. The resulting promissory notes are
due at the earlier of September 1997 or the closing of a public offering
of the Company's securities, the gross proceeds of which equal or exceed
$5,000,000. Interest is accruing at a rate of the prime rate plus one
percent. These notes are secured by the assets of the Company.
(9)
<PAGE> 12
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE J) - Commitments and Contingencies:
(1) 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 hot food vending machines. The new lease expires on
March 31,1999. These leases are subject to escalations for the Company's
pro rata share of real estate taxes and operating expenses. Future
minimum rental payments, exclusive of escalation payments for taxes and
utilities, under these leases are as follows:
Three months ending December 31,
1996 ............................... $ 34,290
Year ending December 31,
1997 ............................... 142,117
1998 ............................... 110,437
1999 ............................... 18,450
----------
T o t a l............. $ 305,294
==========
For nine months ended September 30, 1996, rent expense totaled $162,041.
For the same period ended in 1995, rent expense amounted to $86,694, of
which $12,600 was paid to a former stockholder.
(2) 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. Continued in November, 1996 this
contract was terminated. The Company has agreed to lease the facility for
a two-year period with an option to purchase the facility within eighteen
months. This lease is conditional on a third party purchasing the
facility from the current owner. An agreement of sale has been entered
into between the third party and the owner. Closing is scheduled for no
later than December 13, 1996. The exact terms of the lease have not been
finalized.
(3) In April 1996 the Company entered into an agreement for consulting
services for $12,500 per month through April 1999. Fees incurred under
this arrangement amount to approximately $90,000.
(10)
<PAGE> 13
NOUVEAU INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 securities 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.
(NOTE L) - Related Party Transaction:
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"). 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 distributors for its products.
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.
(NOTE M) - Other:
In September 1996 the Chairman of the Board of Directors of the Company
and certain other stockholders have contributed 2,000,000 shares of common
stock back to the Company reducing the total number of shares of common stock
issued and outstanding to 9,249,988.
(11)
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has developed a proprietary turnkey system for the automated
vending of hot meals. As a result of circumstances which the Company believes
were beyond the control of the Predecessor Company, in October 1994, the
Predecessor Company sought protection from creditors under Chapter 11 of the
Bankruptcy Code. During the pendency of such proceedings, the Predecessor
Company essentially ceased operations. The Predecessor Company emerged from
bankruptcy in December 1995. In January, May, and July, 1996, the Company
completed private placements of its securities which provided the Company with
funds to resume limited operations. To date, the Company's operations have
been limited to arranging distributorships for the Company's vending and
food-dispensing machines and selling a limited number of the fully-robotic
vending machines to such distributors from the Company's inventory for test
marketing in their local markets.
Until January 1996, the Company, under its prior name, Health Management, Inc.,
was a publicly traded corporation not engaged in any business activity and with
virtually no assets. In January 1996, the Company acquired the Predecessor
Company and since such time has continued the operations of the Predecessor
Company on a limited scale.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales increased by $344,787 to $563,382 for the nine months ended September
30, 1996, as compared to $218,595 for the nine months ended September 30, 1995.
Net sales consisted of approximately $396,950 in vending machines sales,
approximately $19,949 in machine parts sales, and approximately $146,483 in
food product sales. Such increase was primarily attributable to an increased
level of operations in general following the emergence of the Company from
bankruptcy in December 1995. One domestic purchaser accounted for $48,451 in
food product sales. Sales to one foreign distributor totaled $160,249 for
pizza and sandwich vending machines, while sales to an additional international
customer totaled $72,031 in pizza vending machines and $32,256 in food product
sales.
Cost of goods sold increased by $337,174 to $516,031 for the nine months ended
September 30, 1996, compared to $178,857 for the nine months ended September
30, 1995. Cost of goods sold as a percentage of net sales increased to 91.6%
for the nine months ended September 30, 1996, as compared to 81.8% for the nine
months ended September 30, 1995. The increase in cost of goods sold was
primarily attributable to the increased net sales of the Company during the
nine months ended September 30, 1996. The increase in cost of goods sold as a
percentage of net sales was primarily attributable to higher costs of vending
machine components sourced directly by the Company in small quantities.
Gross profit increased by $7,613, to $47,351 for the nine months ended
September 30, 1996, as compared to $39,738 for the nine months ended September
30, 1995. Such increase was attributable to the aforementioned increase in net
sales.
(12)
<PAGE> 15
General and administrative expenses increased by $1,837,819, to $2,213,342 for
the nine months ended September 30, 1996, compared to $375,523 for the nine
months ended September 30, 1995. Such increase was primarily attributable to
the Company's recommencement of operations following its emergence from
bankruptcy.
Selling expense increased by $423,761 to $488,468 for the nine months ended
September 30, 1996, compared to $64,707 for the nine months ended September 30,
1995. Such increase was primarily attributable to the Company's recommencement
of operations following its emergence from bankruptcy.
Loss from operations increased by $2,253,967, to $2,654,459, for the nine
months ended September 30, 1996, compared to $400,492 for the nine months ended
September 30, 1995. Such increase was primarily attributable to increased net
sales offset by increased cost of goods sold, general and administrative
expenses, and selling expenses.
Other income (expenses) decreased from $5,892,420 for the nine months ended
September 30, 1995, to ($293,691) for the nine months ended September 30, 1996.
Such other income (expenses) for the nine months ended September 30, 1995 was
comprised of gain from the settlement of a lawsuit in the amount of $5,979,459,
loss on abandonment and sale of property in the amount of ($91,228), interest
income in the amount of $67,270, offset by interest expense in the amount of
($29,931), and reorganization expenses totaling ($33,150). Such other income
(expenses) for the nine months ended September 30, 1996 was comprised of
interest income in the amount of $38,007, offset by interest expense in the
amount of ($331,698).
Dividends accrued on preferred stock issued in January, 1996 amount to $100,333
on September 30, 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales increased by $100,241, to $238,057 for the three months ended
September 30, 1996, as compared to $137,816 for the three months ended
September 30, 1995. Net sales consisted of approximately $168,359 in vending
machine sales, approximately $8,939 in machine parts sales, and approximately
$60,759 in food product sales. Such increase was primarily attributable to
increased sales as well as to an increased level of operations in general
following the emergence of the Company from bankruptcy in December 1995. One
foreign purchaser accounted for $50,688 in food product sales. This customer
also accounted for $147,289 in sales of both pizza and sandwich vending
machines.
Cost of goods sold increased by $110,295, to $221,978 for the three months
ended September 30, 1996, compared to $111,683 for the three months ended
September 30, 1995. Cost of goods sold as a percentage of net sales increased
to 93.2% for the three months ended September 30, 1996, as compared to 81% for
the three months ended September 30, 1995. The increase in cost of goods sold
was primarily attributable to the increased net sales of the Company during the
three months ended September 30, 1996. The
(13)
<PAGE> 16
increase in cost of goods sold as a percentage of net sales was primarily
attributable to higher costs of vending machine components sourced directly by
the Company in small quantities.
Gross profit decreased by $10,054, to $16,079 for the three months ended
September 30, 1996, as compared to $26,133 for the three months ended September
30, 1995. Such decrease was attributable to the aforementioned increase in
cost of goods sold.
General and administrative expenses increased by $668,967, to $884,273 for the
three months ended September 30, 1996, compared to $215,306 for the three
months ended September 30, 1995. Such increase was primarily attributable to
the Company's recommencement of operations following its emergence from
bankruptcy.
Selling expense increased by $108,818, to $149,756 for the three months ended
September 30, 1996, compared to $40,938 for the three months ended September
30, 1995. Such increase was primarily attributable to the Company's
recommencement of operations following its emergence from bankruptcy.
Loss from operations increased by $787,839, to $1,017,950, for the three months
ended September 30, 1996, compared to $230,111 for three months ended September
30, 1995. Such increase was primarily attributable to increased net sales
offset by increased cost of goods sold, general and administrative expenses,
and selling expenses.
Other income (expenses) decreased from $133,988 for the three months ended
September 30, 1995, to ($319,108) for the three months ended September 30,
1996. Such other income (expenses) for the three months ended September 30,
1995 was comprised of a loss on the abandonment and sale of property in the
amount of ($91,228), reorganization expenses totaling ($33,150), an adjustment
to miscellaneous income of ($35,680), and interest income in the amount of
$35,613, offset by interest expense in the amount of ($9,543). Such other
income (expenses) for the three months ended September 30, 1996 was comprised
of interest income in the amount of $181, offset by interest expense in the
amount of ($319,289).
The Company does not expect to generate a profit from operations at least
through the end of the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash in operating activities during the nine months ended
September 30, 1996 in the amount of $1,867,760.
As of September 30, 1996, the Company had working capital of approximately
$2,018,450, compared with working capital of $137,010 on September 30, 1995.
In March 1996 and July 1996, the Company received an additional $200,000 and
$77,000, respectively, net, as part of a settlement with a former supplier.
The remaining balance which was due in a single installment of $500,000 in June
1997, was received in October, 1996. Net proceeds, after payment to litigating
attorneys for legal fees, amounted to $350,000.
During the nine months ending September 30, 1996, the Company raised net
proceeds of approximately $3,045,000 in private placement offering of its
preferred stock and $1,253,482 in a private placement offering of Senior Notes.
Substantially all of these funds have been expended during the period to repay
liabilities existing prior to the filing of the Company's petition for
bankruptcy protection and to fund the Company's operations during this period.
(14)
<PAGE> 17
The Company has filed with the Securities and Exchange Commission, a
registration statement relating to the proposed public sale of 1,500,000 shares
of Series B 8% cumulative convertible redeemable preferred stock . If
consumated, gross proceeds from this offering are expected to be $12,000,000.
There can be no assurance that this offering will be completed.
During September 1996, the Company borrowed an aggregate of $140,000 from an
individual to meet the Company's short term capital needs. Such principal
amount accrues interest at the prime rate of interest plus one percent and is
repayable on the earlier of the close of the Company's pending Public Offering
or September 6, 1997. The notes are secured by the Company's assets.
Upon the closing of the Company's proposed Public Offering, the Company will be
required to redeem the 70 shares of Series A 4% Cumulative Convertible
Redeemable Preferred Stock issued in the January private placement offering for
approximately $3,600,000, including accrued dividends of approximately
$100,000, and to repay the Series A 10% Senior Notes of the Company issued in
the May and July private placement offerings for approximately $1,547,000,
including interest of approximately $72,000.
The Company may within the next two years, purchase a facility for use as a
food processing plat it is currently leasing. The purchase price is estimated
to be approximately $1,650,000. During the next two fiscal quarters the
Company will be required to renovate the facility and buy equipment. Such
costs are currently estimated to be approximately $750,000. The Company will
also be required to pay out approximately $135,000 in prepetition amounts due
by December 31, 1996.
As of November 13, 1996, the Company had limited cash resources. The Company
will require additional capital to fund its operations, for working capital and
to secure contract manufacturing of its vending machines. No assurance can be
given that the Company will be able to obtain additional financing. In the
event the Company is not able to raise funds on a timely basis the operations
of the Company could be materially adversely affected.
(15)
<PAGE> 18
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------
27.0 Financial data schedule
(16)
<PAGE> 19
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: November 13, 1996 NOUVEAU INTERNATIONAL, INC.
BY: /S/ GARY W. BLACK, SR.
-------------------------------------------
Gary W. Black, Sr.
Chief Executive Officer and Chief Financial
Officer
(17)
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-01-1996
<CASH> 118,623
<SECURITIES> 0
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