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 SECURITES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 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 No. 0-27378
NUCO2 INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 65-0180800
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
2820 SOUTHEAST MARKET PLACE
STUART, FLORIDA 34997
(Address of Principal Executive Offices)
(407) 221-1754
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Class Outstanding at March 31, 1996
----- -----------------------------
COMMON STOCK, $.001 PAR VALUE 5,334,335 SHARES
<PAGE>
NUCO2 INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 3
1996 and June 30, 1995
Statements of Operations for the Three 4
Months Ended March 31, 1996
and March 31, 1995
Statements of Operations for the Nine 5
Months Ended March 31, 1996
and March 31, 1995
Statements of Shareholders' Equity for the Nine 6
Months Ended March 31, 1996
Statements of Cash Flows for the Nine 7
Months Ended March 31, 1996
and March 31, 1995
Notes to Financial Statements 8-11
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 12-19
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
- -------- -----------------
ITEM I. EXHIBITS AND REPORTS ON FORM 8-K 20
--------------------------------
SIGNATURES 21
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
N U C O 2 INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(unaudited)
ASSETS March 31, 1996 June 30, 1995
-------------- -------------
Current assets:
<S> <C> <C>
Cash and cash equivalents .............................................. $ 1,048,352 $ 561,778
Trade accounts receivable, less allowance
for doubtful accounts of $172,468 and
$77,132, respetively ................................................... 1,058,409 701,918
Inventories ............................................................ 41,093 40,984
Prepaid expense and other current assets ............................... 246,262 28,580
------------ ------------
Total current assets ........................................... 2,394,116 1,333,260
------------ ------------
Property and equipment, net ................................................... 19,348,271 15,079,948
------------ ------------
Other assets:
Goodwill, net .......................................................... 2,410,657 2,398,987
Deferred charges, net .................................................. 431,066 758,958
Customer lists, net .................................................... 832,490 955,929
Restrictive covenants, net ............................................. 129,166 174,167
Deferred lease acquisition costs, net .................................. 662,667 419,737
Other .................................................................. 29,483 21,999
------------ ------------
Total other assets ............................................. 4,495,529 4,729,777
------------ ------------
Total Assets ............................................... $ 26,237,916 $ 21,142,985
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................................... $ 853,600 $ 2,299,159
Accounts payable ....................................................... 1,078,840 1,948,001
Accrued expenses ....................................................... 358,149 601,085
Other current liabilities .............................................. 44,338 34,465
------------ ------------
Total current liabilities ...................................... 2,334,927 4,882,710
Long-term debt, excluding current maturities ........................... 7,881,898 15,091,550
Customers' deposits .................................................... 176,796 119,271
Deferred interest payable .............................................. -- 306,535
------------ ------------
Total liabilities .............................................. 10,393,621 20,400,066
------------ ------------
SHAREHOLDERS' EQUITY:
Series A cumulative deferred preferred stock;
$1,000 stated value; 1,000 shares
authorized; issued and
outstanding 485 shares ............................................... -- 485,000
Series B preferred stock; $1,000 stated value; 1,000
shares authorized; issued and outstanding 500 shares ................ -- 500,000
Series C convertible preferred stock; $1,000 stated value;
500 shares authorized, issued and outstanding ....................... -- 500,000
Series D convertible preferred stock; $1,000 stated value;
1,500 shares authorized, issued and outstanding ..................... -- 1,500,000
Common stock; par value $.001 per share;
20,000,000 authorized; issued and
outstanding 5,334,335 shares .................................... 5,334 1,933
Additional paid-in capital ............................................. 18,949,517 9,317
Accumulated deficit .................................................... (3,110,556) (2,253,331)
------------ ------------
Total shareholders' equity ..................................... 15,844,295 742,919
Commitments and contingencies........................................... ------------ ------------
$ 26,237,916 $ 21,142,985
============ ============
</TABLE>
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<PAGE>
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N U C O 2 INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net sales ..................................................................... $ 2,974,376 $ 1,544,264
Costs and expenses:
Cost of products sold ................................................... 1,321,047 656,200
Selling, general and administrative expenses ............................ 774,063 367,508
Depreciation and amortization ........................................... 608,057 360,069
----------- -----------
2,703,167 1,383,777
----------- -----------
Operating Income ............................................ 271,209 160,487
Other Expenses:
Interest expense, net .............................................. 154,027 322,496
----------- -----------
Net income (loss) ........................................... $ 117,182 ($ 162,009)
=========== ===========
Dividends on Preferred Stock ............................................ $ 0
===========
Net income attributable to common stockholders .......................... $ 117,182
===========
Net income per common share ............................................. $ 0.02
===========
Weighted average number of common and
common equivalent shares outstanding ............................... 5,513,124
===========
</TABLE>
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<PAGE>
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N U C O 2 INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net sales ..................................................................... $ 8,455,077 $ 4,088,320
Costs and expenses:
Cost of products sold ................................................... 3,636,566 1,720,699
Selling, general and administrative expenses ............................ 1,926,981 965,131
Depreciation and amortization ........................................... 1,736,236 927,101
----------- -----------
7,299,783 3,612,931
----------- -----------
Operating Income ............................................ 1,155,294 475,389
Other Expenses:
Interest expense, net .............................................. 1,152,997 892,872
----------- -----------
Income (loss) before extraordinary item ..................... 2,297 (417,483)
Extraordinary item-loss on extinguishment
of debt ........................................ (859,522) 0
----------- -----------
Net loss .................................................... ($ 857,225) ($ 417,483)
=========== ===========
Dividends on Preferred Stock ............................................ ($ 110,917)
===========
Net loss attributable to common stockholders ............................ ($ 968,142)
===========
Loss per common share before extraordinary item ......................... ($ 0.03)
==========
Net loss per common share ............................................... ($ 0.23)
==========
Weighted average number of common and
common equivalent shares outstanding ............................... 4,166,807
===========
</TABLE>
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<PAGE>
- --------------------------------------------------------------------------------
N U C O 2 INC.
STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------------------------------------------------------
Series A Series B Series C Series D
-------- -------- -------- --------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 485 $485,000 500 $500,000 500 $500,000 1,500 $1,500,000
Redemption of Series A (485) (485,000)
Redemption of Series B (500) (500,000)
Conversion of Series C (500) (500,000)
Conversion of Series D (1,500) (1,500,000)
Conversion of Subordinated Debt
and exercise of warrants
Issuance of 2,022,576 shares
of common stock
Net (loss)
Dividends declared on Preferred
Stock
Balance, March 31, 1996 0 0 0 0 0 0 0 0
== == == == == == == ==
</TABLE>
<TABLE>
<CAPTION>
Common stock Additional Total
------------ Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 1,932,953 $1,933 $9,317 ($2,253,331) $742,919
Redemption of Series A (485,000)
Redemption of Series B 499,500 (500)
Conversion of Series C 155,164 155 499,845 0
Conversion of Series D 300,266 300 1,499,700 0
Conversion of Subordinated Debt
and exercise of warrants 923,376 923 655,979 656,902
Issuance of 2,022,576 shares
of common stock 2,022,576 2,023 16,146,451 16,148,474
Net (loss) (857,225) (857,225)
Dividends declared on Preferred
Stock (361,275) ($361,275)
Balance, March 31, 1996 5,334,335 $5,334 18,949,517 ($3,110,556) $15,844,295
========== ======= ========== ============ ===========
</TABLE>
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<PAGE>
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N U C O 2 INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net income (loss) before extraordinary item. . . . . . . .. . . . . . . .. . . . $ 2,297 ($ 417,483)
Extraordinary item-loss on
extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . (859,522) 0
------------ ------------
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (857,225) (417,483)
Cash flows from operating activities:
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation of property and equipment 1,128,617 591,165
Amortization of other assets 607,619 335,936
(Gain) loss on disposal of property and (1,823) 12,005
equipment
Write-off of deferred financing costs 784,069 0
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (356,491) (97,874)
Inventories (109) (1,507)
Prepaid expenses and other
current assets (217,682) (21,600)
Other assets (7,484) (1,808)
Increase (decrease) in:
Accounts payable (869,161) 528,383
Accrued expenses (242,936) 74,019
Other current liabilities 9,873 4,277
Customers' deposits 57,525 31,575
------------ ------------
Net cash provided by operating activities $ 34,792 $ 1,037,088
------------ ------------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 82,600 86,211
Purchase of property and equipment (5,477,718) (2,708,113)
Acquisiton of customer lists (29,000)
Increase in goodwill (105,558) 0
Increase in deferred charges (643,116) (364,028)
(Increase) decrease in deferred lease acquisition costs (372,281) 72,120
------------ ------------
Net cash (used in) investing activities (6,545,073) (2,913,810)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 16,148,474 0
Repayment of long-term debt (18,291,848) (5,734,537)
Proceeds from long-term debt 9,636,637 7,032,895
Conversion of subordinated debt and exercise of warrants 656,902 0
(Decrease) increase in defered interest payable (306,535) 147,571
Preferred stock dividends (361,275) 0
Redemption of Series A preferred stock (485,000) 0
Redemption of Series B preferred stock (500) 0
Proceeds from issuance of Series C preferred stock 0 500,000
------------ ------------
Net cash provided by financing activities 6,996,855 1,945,929
------------ ------------
Net increase in cash and cash equivalents 486,574 69,207
Cash and cash equivalents at the beginning of period 561,778 58,213
------------ ------------
Cash and cash equivalents at the end of period $ 1,048,352 $ 127,420
============ ============
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 1,027,425 $ 725,655
============ ============
Income taxes $ 0 $ 0
============ ============
</TABLE>
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<PAGE>
NUCO2 INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB used for quarterly reports under
Section 13 or 15 (d) of the Securities Exchange Act of 1934, and therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
The financial information included in this report has been prepared in
conformity with the accounting principles and methods of applying those
accounting principles, reflected in the financial statements for the year ended
June 30, 1995 included in the Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission.
All adjustments necessary for a fair statement of the results for the
interim periods presented have been recorded. This quarterly report on Form
10-QSB should be read in conjunction with the Company's audited financial
statements for the year ended June 30, 1995. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year.
NOTE 2. NET INCOME OR LOSS PER COMMON SHARE
The net income or loss per share computations for the 1996 periods presented
are based on the weighted average number of common shares and dilutive common
equivalent shares outstanding during each period. Fully diluted and primary
income or loss per common share are the same amounts for each period.
Net loss per share computations have not been presented for the 1995 periods
because the Company believes that such information is no longer meaningful in
view of the changes in capitalization as a result of the Initial Public
Offering.
In conjunction with the Initial Public Offering, on December 22, 1995,
155,164 and 300,266 shares of common stock were issued upon conversion of the
Company's Series C convertible preferred stock and Series D convertible
preferred stock, respectively. An
-8-
<PAGE>
additional 805,209 shares of common stock were issued upon the conversion of the
convertible portion of the Senior Subordinated Notes and 118,167 shares of
common stock were issued upon the exercise of warrants. For the purposes of the
net loss per share computations, these shares have been treated as outstanding
for the entirety of the periods presented. Stock options and warrants to
purchase an additional 152,851 shares of common stock granted during 1995 have
also been treated as outstanding for the entirety of those periods, using the
treasury stock method. In addition, warrants and options to purchase an
additional 165,991 shares of Common Stock were issued in connection with the
Company's Initial Public Offering.
For the nine month period ended March 31, 1996, the Company had a one time
extraordinary charge of $859,522 for the write-off of deferred financing costs
and prepayment penalties in connection with the reduction of certain
indebtedness. In addition, the Company paid $361,275 of accumulated dividends on
preferred stock, of which $110,917 pertained to the nine month period. These
items represented $.23 in net loss per common share for the nine month period
ended March 31, 1996.
NOTE 3. INITIAL PUBLIC OFFERING
In connection with the Company's Initial Public Offering, 2,022,576 shares
of common stock were sold on December 19, 1995. In addition, Representatives of
the Underwriters acquired warrants to purchase up to 110,000 shares of common
stock. Such warrants are exercisable for a period of five years, at an exercise
price of $10.80.
An over-allotment option was exercised to purchase 330,000 additional shares
of common stock. These shares were sold by the Company's Chairman of the Board
and Chief Executive Officer.
On December 15, 1995, the board of directors approved, among other things,
an increase in the number of shares of authorized common stock of the Company to
20,000,000, a reduction in par value to $.001 per share, and an increase in the
number of authorized shares of preferred stock to 5,000,000 shares.
The Company's board of directors also declared a 3,866-for-1 stock split of
the Company's common stock. This stock split of the Company was effective with
the closing of the offering. In connection therewith the Company amended and
restated its Articles of Incorporation. All share, per share and conversion
amounts relating to common stock, stock options and warrants, included in the
accompanying financial statements have been restated to reflect this stock
split.
-9-
<PAGE>
The gross proceeds the Company received from the sale of the 2,022,576 shares of
Common Stock were $18,203,184. After deducting the underwriters' discounts and
commissions, the net proceeds were $16,928,961. Expenses incurred in connection
with the offering were $782,510, as of March 31, 1996.
The Company used the proceeds to redeem Preferred Stock, to pay accumulated
Preferred Stock dividends, to redeem all Senior and Junior Subordinated Notes,
and to repay $10,971,395 of outstanding indebtedness under the Company's credit
facility with State Street Bank and Trust Company. The remaining proceeds were
used for general corporate purposes.
NOTE 4. STOCK OPTION PLAN
In 1995, the board of directors approved the 1995 Stock Option Plan (the
"1995 Plan"). Under the 1995 Plan, the Company has reserved 350,000 shares of
common stock for employees of the Company. Under the terms of the 1995 Plan,
options granted may be either incentive stock options or non qualified stock
options, or both. The exercise price of incentive options shall be at least
equal to 100% of the fair market value of the Company's common stock at the date
of the grant, and the exercise price of non qualified stock options issued to
employees may not be less than 75% of the fair market value of the Company's
common stock at the date of the grant. The maximum term for all options is 10
years. Options to purchase 55,991 shares of Common Stock at a price of $9.00 per
share were issued at the time of the Company's Initial Public Offering.
The board of directors of the Company adopted the Director's Stock Option
Plan (the "Directors' Plan"). Under the Directors' Plan each non-employee
director will receive options for 6,000 shares of Common Stock on the date of
his or her first election to the board of directors. In addition, on the third
anniversary of each director's first election to the Board, and on each three
year anniversary thereafter, each non-employee director will receive an
additional option to purchase 6,000 shares of Common Stock. The exercise price
per share for all options granted under the Director's Plan will be equal to the
fair market value of the Common Stock as of the date of grant. All options vest
in three equal annual installments beginning on the first anniversary of the
date of grant. As of March 31, 1996, options to purchase a total of 24,000
shares of Common Stock had been issued.
NOTE 5. LONG-TERM DEBT
The Company entered into an agreement for a $30 million dollar credit
facility with NationsBank of Florida, N.A. simultaneous with the closing of the
offering. Additionally, all loans with the Company's previous bank were repaid.
As of March 31, 1996, a total of
-10-
<PAGE>
$7,963,486 was outstanding pursuant to the new facility which comprises of the
original $6.0 million term loan and $1,963,486 on the tank revolver loan. The
term loan is payable interest only at 8.51 % for twelve months, principal of
$100,000 plus interest for the next 23 months with the balance due on November
30, 1998. The tank revolver loan is interest only for 12 months at prime plus
.25% , as of March 31, 1996 the rate was 8.06%. At the end of 12 months, all
drawings will convert into a term loan with monthly interest and principal
payments, calculated over a 60 month amortization. One final payment of all
unpaid principal and accrued interest will be payable on November 30, 1998.
In January 1996, the Company repaid an outstanding loan for $2,348,033 to the
former owner of Bevtech Inc..
NOTE 6. ACQUISITIONS
In January 1996, the Company purchased certain assets from two companies,
Holox, Ltd. and Fire-Quip Corporation. Holox, a Georgia limited partnership,
having its principal place of business in Macon, Georgia, sold assets for an
aggregate purchase price of $545,000. Fire-Quip, a Louisiana Corporation, having
its principal place of business in Monroe, Louisiana sold assets for an
aggregate purchase price of $462,000. The Company paid cash for both of these
transactions.
NOTE 7. SUBSEQUENT EVENTS
In April 1996, the Company signed an asset purchase agreement to acquire the
bulk CO2 systems leasing and supply operations in New York, New Jersey, and
Connecticut of The Coca-Cola Bottling Company of New York, Inc.. The acquisition
is scheduled to close in May 1996 subject to the completion of a due diligence
and the obtaining of all necessary approvals and consents. The purchase price is
$3,007,900, subject to adjustments.
The Company filed a registration statement with the Securities and Exchange
Commission in connection with a proposed offering of its Common Stock. In
connection therewith, the Company is offering 1,200,000 shares of Common Stock.
In addition, certain shareholders will be selling shares of Common Stock. The
Company will use the net proceeds from the sale of its shares of Common Stock to
fund internal growth, for acquisitions, to repay bank debt and for general
corporate purposes. The Company will not receive any proceeds from the sale of
Common Stock offered by the selling shareholders.
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<PAGE>
ITEM II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
unaudited Financial Statements and Notes thereto included elsewhere in this Form
10-QSB.
In January 1996, the Company purchased certain assets from two companies,
Holox, Ltd. and Fire-Quip Corporation. Holox, a Georgia limited partnership,
having its principal place of business in Atlanta, Georgia, sold assets for an
aggregate purchase price of $545,000. Fire-Quip, a Louisiana corporation, having
its principal place of business in Monroe, Louisiana sold assets for an
aggregate purchase price of $462,000. The Company paid cash for both
transactions.
At March 31, 1996, the Company had 10,733 bulk CO2 systems on lease to it's
customers, principally pursuant to five year noncancelable lease contracts. For
the three and nine month periods ended March 31, 1996, the Company's installed
base of leased bulk CO2 systems has increased through internally generated new
customers by 1,213 and 2,325 systems, respectively. The company also acquired
441 systems through two acquisitions in January 1996. In addition, the Company
serviced approximately 2,500 customer owned bulk CO2 systems as of March 31,
1996.
In April 1996, the Company signed an asset purchase agreement to acquire the
bulk CO2 systems leasing and supply operations in New York, New Jersey, and
Connecticut of The Coca-Cola Bottling Company of New York, Inc.. The acquisition
is scheduled to close in May 1996 subject to the completion of a due diligence
and the obtaining of all necessary approvals and consents. The purchase price is
$3,007,900, subject to adjustments.
INITIAL PUBLIC OFFERING
On December 19, 1995, the Company successfully completed an initial public
offering of 2,022,576 shares of common stock. In connection with the offering,
the Representatives of the Underwriters were issued warrants to purchase up to
110,000 shares of common stock at $10.80 per share.
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<PAGE>
The gross proceeds from the sale of 2,022,576 shares of common stock were
$18.2 million. After deducting the underwriters' discounts and commissions, the
net proceeds were $16.9 million. Expenses incurred in connection with the
offering were $783,000, as of March 31, 1996.
The Company used the proceeds to redeem Preferred Stock, to repay Senior
Subordinated Notes and Junior Subordinated Notes in amounts aggregating $3.7
million, to pay accumulated preferred stock dividends of $361,000 and to repay
its bank credit facility in the amount of $11.0 million. The remaining proceeds
were used for general corporate purposes.
An underwriters' over-allotment option was exercised for 330,000 additional
shares of common stock. These shares were sold by the Company's Chairman of the
Board and Chief Executive Officer.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship which various items bear to net sales:
<TABLE>
<CAPTION>
For the periods ended March 31, 1995 and March 31, 1996
-------------------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales ............................................................ 100.0% 100.0% 100.0% 100.0%
Cost of products sold ................................................ 42.5% 44.4% 42.1% 43.0%
Selling, general and administrative expenses ......................... 23.8% 26.0% 23.6% 22.8%
Depreciation and amortization ........................................ 23.3% 20.5% 22.7% 20.5%
----- ----- ----- -----
Operating Income ..................................................... 10.4% 9.1% 11.6% 13.7%
----- ----- ----- -----
Interest expense, net ................................................ 20.9% 5.2% 21.8% 13.7%
----- ----- ----- -----
Income (loss) before extraordinary item .............................. (10.5%) 3.9% (10.2%) .0%
Extraordinary item ................................................... -- -- -- (10.1%)
----- ----- ----- -----
Net (loss) income .................................................... (10.5%) 3.9% (10.2%) (10.1%)
===== ===== ===== =====
Other Data:
Operating income before depreciation and
amortization (EBITDA) ....................................... 33.7% 29.6% 34.3% 34.2%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995.
Net sales increased by $1.4 million, or 93% from $1.5 million in the 1995
period to $3.0 million in the 1996 period. Approximately $800,000 of the
increase represented net sales resulting from the June 1995 acquisition of
Bevtech. In addition, approximately $90,000 represented net sales from two
acquisitions in January 1996. The remainder of the increase in net sales was
principally due to internal growth in the number of Company
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<PAGE>
owned bulk CO2 systems in service. For the 1996 period, the Company estimates
that in excess of $80,000 of liquid CO2 sales were lost due to the inclement
winter weather conditions. A minimal amount of costs would have been incurred in
connection with these foregone sales. These sales were from customers that owned
their own CO2 systems and customers that are on the rental plus per pound charge
program.
Cost of products sold increased by $665,000 from $656,000 in the 1995 period
to $1.3 million in the 1996 period. Expressed as a percentage of net sales, cost
of products sold increased from 42.5% to 44.4% in the 1996 period. Such increase
is attributable to a greater proportion of customers which owned their own bulk
CO2 systems in the 1996 period. Service to customers who own bulk CO2 systems
generally carries higher cost of products sold as a percentage of net sales than
service to customers which lease systems from the Company. This change in
customer mix resulted from the June 1995 acquisition of Bevtech. Of the bulk CO2
systems serviced by Bevtech, only 56% were owned by Bevtech and the remainder by
customers. The Company expects that its customer mix may change over time as a
result of further acquisitions and internal growth. The Company is unable to
forecast the effect of a changing customer mix on operating results, as the
percentage of customer owned systems will vary with each acquisition.
Selling, general and administrative expenses increased by $407,000 from
$368,000 in the 1995 period to $774,000 in the 1996 period. Expressed as a
percentage of net sales, selling, general and administrative expenses increased
from 23.8% in the 1995 period to 26.0% in the 1996 period. The dollar increase
was primarily due to the increased number of accounts serviced in the 1996
period as compared to the 1995 period as well as to the increased number of
personnel employed in marketing and administrative capacities. The Company also
experienced approximately $60,000 of additional insurance, professional fees and
other costs associated with being a public company. The percentage increase is
attributable to the hiring of new employees in order to ensure a smooth
transition of the proposed acquisition and expansion into new territories.
Depreciation and amortization increased by $248,000 from $360,000 in the
1995 period to $608,000 in the 1996 period. As a percentage of net sales, such
expenses decreased from 23.3% in the 1995 period to 20.5% in the 1996 period.
Depreciation expense increased by $194,000 from $222,000 in the 1995 period to
$416,000 in the 1996 period principally due to the increase in bulk CO2 systems
leased to customers. Expressed as a percentage of net sales, depreciation
expense decreased from 14.4% in the 1995 period to 14.0% in the 1996 period.
Amortization expense increased by $54,000 from $138,000 in the 1995 period to
$192,000 in the 1996 period primarily due to the amortization of goodwill
created from the Bevtech acquisition in June 1995. As a percentage of net sales,
amortization expense decreased from 8.9% to 6.5%, respectively.
-14-
<PAGE>
Net interest expense decreased from $322,000 in the 1995 period to $154,000
in the 1996 period. Expressed as a percentage of net sales, interest expense
decreased from 20.9% to 5.2%, respectively. The decrease in interest expense
resulted primarily from the decreased average level of borrowings as well as
lower interest rates in the 1996 period.
As of March 31, 1996, the Company's outstanding borrowings aggregated $8.7
million, which is substantially less than the aggregate outstanding amount of
$17.4 million as of June 30, 1995. In addition, borrowings under the Company's
new credit facility (see "Liquidity and Capital Resources") are either fixed at
8.51% or will fluctuate at .25% over the prime rate, as compared to 2.50% over
the prime rate on pre-existing bank debt. In January 1996, the Company repaid an
additional $2.3 million of long-term debt.
For the reasons described above, EBITDA, representing operating income plus
depreciation and amortization, increased from $521,000 in the 1995 period to
$879,000 in the 1996 period and decreased as a percentage of net sales from
33.7% to 29.6%, respectively. The Company believes EBITDA is useful as a means
of measuring the growth and earning power of its business. In addition, the
Company uses EBITDA to measure how well the Company is generating cash flow.
EBITDA excludes significant costs and should not be considered in isolation from
GAAP measures.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
Net sales increased by $4.4 million, or 107% from $4.1 million in the 1995
period to $8.5 million in the 1996 period. Approximately $2.4 million of the
increase represented net sales resulting from the June 1995 acquisition of
Bevtech. The remainder of the increase in net sales was principally due to
internal growth in the number of Company owned bulk CO2 systems in service. For
the 1996 period, the Company estimates that in excess of $80,000 of liquid CO2
sales were lost due to the inclement winter weather conditions. A minimal amount
of costs would have been incurred in connection with these foregone sales. These
sales were from customers that owned their own CO2 systems and customers that
are on the rental plus per pound charge program.
Cost of products sold increased by $1.9 million from $1.7 million in the
1995 period to $3.6 million in the 1996 period. Expressed as a percentage of net
sales, cost of products sold increased from 42.1% to 43.0% in the 1996 period.
Such increase is attributable to a greater proportion of customers which owned
their own bulk CO2 systems in the 1996 period. Service to customers who own bulk
CO2 systems generally carries higher cost of products sold as a percentage of
net sales than service to customers which lease systems
-15-
<PAGE>
from the Company. This change in customer mix resulted from the June 1995
acquisition of Bevtech. Of the bulk CO2 systems serviced by Bevtech, only 56%
were owned by Bevtech and the remainder by customers. The Company expects that
its customer mix may change over time as a result of further acquisitions and
internal growth. The Company is unable to forecast the effect of a changing
customer mix on operating results, as the percentage of customer owned systems
will vary with each acquisition.
Selling, general and administrative expenses increased by $962,000 from
$965,000 in the 1995 period to $1.9 million in the 1996 period. Expressed as a
percentage of net sales, selling, general and administrative expenses decreased
from 23.6% in the 1995 period to 22.8% in the 1996 period. The decrease as a
percentage of net sales was primarily the result of economies of scale. The
dollar increase was primarily due to the increased number of accounts serviced
in the 1996 period as compared to the 1995 period as well as the increased
number of personnel employed in marketing and administrative capacities. In the
third quarter, the Company experienced approximately $60,000 of additional
insurance, professional fees and other costs associated with being a public
company.
Depreciation and amortization increased by $809,000 from $927,000 in the
1995 period to $1.7 million in the 1996 period. As a percentage of net sales,
such expenses decreased from 22.7% in the 1995 period to 20.5% in the 1996
period. Depreciation expense increased by $537,000 from $591,000 in the 1995
period to $1.1 million in the 1996 period principally due to the increase in
bulk CO2 systems leased to customers. Expressed as a percentage of net sales,
depreciation expense decreased from 14.5% in the 1995 period to 13.3% in the
1996 period. Amortization expense increased by $272,000 from $336,000 in the
1995 period to $608,000 in the 1996 period primarily due to the amortization of
goodwill created from the Bevtech acquisition in June, 1995. Expressed as a
percentage of net sales, amortization expenses decreased from 8.2% to 7.2%,
respectively.
Net interest expense increased from $893,000 in the 1995 period to $1.2
million in the 1996 period and decreased as a percentage of net sales from 21.8%
to 13.7%, respectively. The increase in dollars resulted primarily from the
increased average level of borrowings in the 1996 period, prior to the IPO.
As of March 31, 1996, the Company's outstanding borrowings aggregated $8.7
million, which is substantially less than the aggregate outstanding amount of
$17.4 million as of June 30, 1995. In addition, borrowings under the Company's
new credit facility (see "Liquidity and Capital Resources") are either fixed at
8.51% or will fluctuate at .25% over the prime rate, as compared to 2.50% over
the prime rate on pre-existing bank debt. In January 1996, the Company repaid an
additional $2.3 million of long-term debt.
-16-
<PAGE>
For the reasons described above, EBITDA increased from $1.4 million in the
1995 period to $2.9 million in the 1996 period and decreased as a percentage of
net sales from 34.3% to 34.2%, respectively.
For the nine months ended March 31, 1996, the Company wrote- off $785,000 of
deferred financing costs and incurred $75,000 in prepayment penalties related to
debt which was repaid with the proceeds of the IPO.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of capital expenditures
associated with placing new bulk CO2 systems into service at customers'
locations; payments of principal and interest on its outstanding indebtedness;
payments for acquired businesses; and working capital. Whenever possible, the
Company seeks to obtain the use of vehicles, land, buildings, and other office
and service equipment under operating leases as a means of conserving capital.
The Company anticipates making cash capital expenditures of approximately $4.5
million to $5.2 million during the remaining three months of fiscal 1996,
primarily for the $3.0 million acquisition and purchases of bulk CO2 systems
that it expects to place into service during this time. Once bulk CO2 systems
are placed into service, the Company has generally experienced significant
positive cash flows on a per-unit basis, as there are minimal additional capital
expenditures required for ordinary operations. In addition to the capital
expenditures related to internal growth, plus the above mentioned acquisition,
the Company continually reviews opportunities to acquire bulk CO2 service
businesses, and may require cash in an amount dictated by the scale and terms of
any such transactions successfully concluded. In January 1996 certain assets,
primarily consisting of bulk CO2 systems, were acquired from two companies for
an aggregate cash purchase price of $1.0 million.
Prior to the offering, the Company's primary sources of liquidity were
borrowings under a credit facility with its secured lender which was repaid and
terminated upon consummation of the IPO; equity and debt capital obtained from
various venture capital funds and individuals, including parties that sold
businesses to the Company; and cash flows from operations.
Prior to the IPO, the Company had outstanding approximately $2.9 million in
principal amount of Senior Subordinated Notes, a portion of which was
convertible at the option of the holders thereof into Common Stock. The holders
of the Senior Subordinated Notes converted, effective upon the closing of the
IPO, approximately $407,000 of the principal amount of the Senior Subordinated
Notes into an aggregate of 805, 209 shares of Common Stock. The Company repaid
the remaining principal of the Senior Subordinated Notes and accrued interest
thereon with a portion of the net proceeds of the IPO. The Company also had
outstanding 485 shares of Series A Preferred Stock; 500 shares of
-17-
<PAGE>
Series B Stock; 500 shares of Series C Preferred Stock and 1500 shares of Series
D Preferred Stock. Effective upon closing of the IPO, (i) the Company redeemed
with a portion of the net proceeds of the IPO all of the outstanding Series A
Preferred Stock and Series B Preferred Stock for an aggregate of $ 485,500 plus
approximately $226,000 of accrued dividends and (ii) all of the outstanding
Series C Preferred Stock and Series D Preferred Stock automatically converted
into an aggregate of the net of 455,430 shares of Common Stock. The Company used
a portion of the net proceeds of the IPO to pay accrued dividends of
approximately $81,000 on the Series C Preferred Stock and Series D Preferred
Stoc k. In Addition, the holders of warrants to purchase an aggregate of 118,167
shares of Common Stock exercised such warrants effective upon the closing of the
IPO.
The Company filed a registration statement with the Securities and Exchange
Commission in connection with a proposed offering of its Common Stock. In
connection therewith, the Company is offering 1,200,000 shares of Common Stock.
In addition, certain shareholders will be selling shares of Common Stock. The
Company will use the net proceeds from the sale of its shares of Common Stock to
fund internal growth, for acquisitions, to repay bank debt and for general
corporate purposes. The Company will not receive any proceeds from the sale of
Common Stock offered by the selling shareholders.
Following this offering, the Company's capital resources will include cash
flows from operations; the net proceeds from this offering; and available
borrowing capacity under the NationsBank Facility. The Company has available
under the NationsBank Facility an aggregate of $30.0 million, including a $6.0
million term loan that was used, together with a portion of the net proceeds of
the IPO, to refinance the outstanding balance of existing indebtedness under its
prior credit facility; a $13.0 million "tank revolver" to finance the purchase
and installation of new bulk CO2 service systems; a $10.0 million acquisition
revolver to finance the purchase of bulk CO2 service businesses; and a $1.0
million line of credit for general working capital needs. All portions of the
NationsBank Facility require full repayment of all outstanding principal and
interest on November 30, 1998, the maturity date of the NationsBank facility.
The Company believes that cash from operating activities, the net proceeds from
this offering and available borrowings under the NationsBank Facility will be
sufficient to fund proposed operations for at least the next 12 months at its
current rate of growth. The NationsBank Facility is secured by substantially all
the assets of the Company. The company is required to meet certain financial
covenants under the NationsBank Facility, and may not access borrowings which
would cause its total debt to exceed 3.25 times EBITDA.
At June 30, 1995 the Company had a working capital deficit of $3.5 million.
At March 31, 1996, the Company had working capital of $59,000. Prior to the
offering, the Company has had working capital deficits due to the lack of
adequate equity funding for internal and acquisition growth.
-18-
<PAGE>
For the nine months ended March 31, 1995 and March 31, 1996 net cash
provided by operating activities was $1.0 million and $35,000, respectively. The
decrease from the 1995 period to the 1996 period of $1.0 million is primarily
attributable a reduction in accounts payable and accrued expenses and an
increase in accounts receivable, depreciation and amortization.
For the nine months ended March 31, 1995 and March 31, 1996 net cash used in
investing activities was $2.9 million and $6.5 million, respectively. These
investing activities were associated primarily with the acquisition of new bulk
CO2 systems and nine months ended March 31, 1996, the company made two
acquisitions with a combined purchase price of $1.0 million.
For the nine months ended March 31, 1995 and March 31, 1996, net cash
provided by financing activities were $1.9 million and $7.0 million,
respectively. For the nine months ended March 31, 1995, cash flows from
financing activities are primarily attributable to the net increase in
borrowings to finance the placement of bulk CO2 systems. For the nine months
ended March 31, 1996 cash flows from financing activities are primarily from
issuance of common stock in connection with the IPO less the repayment of
long-term debt, redemption of Preferred Stock and additional borrowings used to
finance the placement of bulk CO2 systems into service.
INFLATION
The modest levels of inflation in the general economy since the Company
began business in 1990 have not affected its results of operations.
Additionally, the Company's contracts with its customers contain an annual lease
rate adjustment clause based on any increase in the consumer price index. The
company believes that inflation will not have a material adverse effect on its
future results of operations.
-19-
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial data schedule
(b) No reports on Form 8-K were filed for the quarter
ended March 31, 1996.
<PAGE>
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.
NuCo2 Inc.
Dated: May 6, 1996 By: /s/ Edward W. Dean
-----------------------------
Edward W. Dean
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
NuCo2 Inc Financial Statements as of March 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,048,352
<SECURITIES> 0
<RECEIVABLES> 1,058,409
<ALLOWANCES> 172,468
<INVENTORY> 41,093
<CURRENT-ASSETS> 2,394,116
<PP&E> 22,426,060
<DEPRECIATION> 3,077,789
<TOTAL-ASSETS> 26,237,916
<CURRENT-LIABILITIES> 2,334,927
<BONDS> 0
0
0
<COMMON> 5,334
<OTHER-SE> 15,838,961
<TOTAL-LIABILITY-AND-EQUITY> 26,237,916
<SALES> 8,455,077
<TOTAL-REVENUES> 8,455,077
<CGS> 3,636,566
<TOTAL-COSTS> 7,299,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,152,997
<INCOME-PRETAX> 2,297
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,297
<DISCONTINUED> 0
<EXTRAORDINARY> (859,522)
<CHANGES> 0
<NET-INCOME> 857,225
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
