U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
------- -------
Commission file number 0-27378
NUCO2 INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its charter)
FLORIDA 65-0180800
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2800 Southeast Market Place, Stuart, Florida 34997
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(407) 221-1754
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
-----------------------------
(Title of Class)
Check whether the issuer: (1) has 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 / /
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
(continued next page)
<PAGE>
State issuer's revenues for its most recent fiscal year: The
issuer's revenues for the fiscal year ended June 30, 1996 were $11,965,999.
The aggregate market value at September 24, 1996 of shares of
the registrant's Common Stock, $.001 par value per share (based upon the closing
price of $21.50 per share of such stock on the Nasdaq National Market on such
date), held by non-affiliates of the Registrant was approximately $129,419,229.
Solely for the purposes of this calculation, shares held by directors and
officers of the Registrant have been excluded. Such exclusion should not be
deemed a determination or an admission by the Registrant that such individuals
are, in fact, affiliates of the Registrant.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: At September 24,
1996, there were outstanding 7,163,434 shares of the Registrant's Common Stock,
$.001 par value.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
DOCUMENTS INCORPORATED BY REFERENCE
The information required by items 9, 10, 11 and 12 of Part III
is incorporated by reference to a definitive proxy statement to be filed by the
Registrant not later than October 28, 1996 pursuant to Regulation 14A.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
NuCo2 Inc., a Florida corporation organized in 1990 (the "Company")
operates in a relatively new industry which supplies liquid carbon dioxide
("bulk CO2") to retail establishments for use in the carbonation and dispensing
of fountain beverages. In most instances, carbon dioxide is presently supplied
in the form of CO2 gas, which is transported and stored in high pressure
cylinders. The Company offers its customers two principal services: a stationary
bulk CO2 system installed on the customer's premises and routine filling of the
system with bulk CO2 according to a defined schedule. The bulk CO2 system
utilizes a cryogenic vessel that preserves CO2 in its liquid form and then
converts the liquid product to gaseous CO2, the necessary ingredient for
beverage carbonation. Typically the bulk CO2 system is owned by the Company and
leased to the customer under a five year noncancelable contract, although some
customers own their own system. The Company believes high pressure cylinders are
being displaced by bulk CO2 systems because, from a customer's perspective, bulk
CO2 systems enjoy several qualitative and economic advantages over high pressure
cylinders.
The Company entered the bulk CO2 business in Florida in 1990 with the
acquisition of a fountain syrup distributor with a base of 19 bulk CO2 systems.
After consolidating its position in Florida through internal growth and the
acquisition of five bulk CO2 distributors, beginning in 1994 the Company
expanded into other regional markets as follows:
O In January 1995, the Company completed the acquisition of a
bulk CO2 beverage distributor located in New Orleans and also
opened depots in Alabama and Mississippi.
O In June 1995, the Company acquired substantially all of the
assets of Bevtech, Inc. ("Bevtech") a supplier of bulk CO2
service in Georgia, North Carolina, South Carolina and
Alabama, more than doubling the Company's service area.
Previously, in June 1993 the Company had acquired the Florida
operations of Bevtech.
O In January 1996, the Company acquired two bulk CO2 businesses,
one operating in Arkansas, Mississippi, Louisiana and Texas
and the other operating in Florida, Georgia and Alabama.
O In May 1996, the Company acquired the bulk CO2 operations in
New York, New Jersey and Connecticut of The Coca-Cola Bottling
Company of New York, Inc.
O In May 1996, the Company acquired a second bulk CO2 business
operating in Mississippi.
O In August 1996, the Company acquired the bulk CO2 operations
of two affiliated companies operating in Ohio and Indiana.
O In 1996, the Company also opened service and supply depots in
Raleigh-Durham, North Carolina; Macon, Georgia; Little Rock,
Arkansas; Shreveport and Lake Charles, Louisiana; Chattanooga,
Tennessee; Melville and Pelham, New York.
As of August 31, 1996, the Company had operations in 18 states and
serviced over 17,400 bulk CO2 customers, which consist primarily of restaurants,
convenience stores, taverns, theaters, theme parks, resorts and stadiums.
INDUSTRY OVERVIEW
CO2 is universally used for the carbonation and dispensing of fountain
beverages. The Company believes that bulk CO2 technology will eventually
displace most high pressure cylinders in the beverage CO2 market and, therefore,
the bulk CO2 industry presents substantial opportunity for growth. Major
restaurant and convenience store chains continue to adopt this new technology
and search for qualified suppliers to install and service these systems. Unlike
high pressure cylinders, which are typically changed when empty and transported
to the supplier's depot for refilling, bulk CO2 systems are permanently
installed at the customer's site and are kept charged by filling by the supplier
from a specialized bulk CO2 truck on a constant "stay filled" basis. Advantages
to users of bulk CO2
<PAGE>
systems include enhanced safety, improved beverage quality and product yields,
reduced employee handling and cylinder storage requirements, and elimination of
system downtime and product waste during cylinder changeovers.
Many types of businesses compete in the beverage CO2 business, and
market share is fragmented. High pressure cylinders and bulk CO2 service are
most frequently provided by distributors of industrial gases. These companies
generally provide a number of products and services in addition to CO2, and
often view bulk CO2 systems as high-service adjuncts to their core business.
Industrial gas distributors generally have been reluctant to attempt to convert
their cylinder CO2 customers to bulk CO2 systems for several reasons, that
include the capital outlays required to purchase the bulk CO2 systems, the
idling of high pressure cylinders and associated equipment, and the
inefficiencies that would result from splitting their CO2 customer base between
two CO2 technologies. Other competitors in the beverage CO2 market include
fountain supply companies and distributors of restaurant supplies and groceries,
which firms vary greatly in size. There are a number of small companies which
specialize in bulk CO2 supply, that operate on a local or regional geographic
scope. Many of these suppliers lack the capital necessary to offer bulk CO2
systems to customers on lease, or to purchase additional or replacement
specialized bulk CO2 trucks and stationary depots.
Management believes that demand for bulk CO2 systems will be driven by
the safety, product quality and other operating advantages afforded to users by
such systems, and the increasing availability and acceptance within the food and
beverage industry of bulk CO2 systems. In addition, the Company believes that
qualified suppliers of bulk CO2 systems do not presently exist in many regions
of the United States.
COMPETITIVE STRATEGY
The central elements of the Company's competitive strategy are the
following:
Focus on Bulk CO2 Market. Unlike many of its competitors for whom bulk
CO2 is a secondary service line, the Company has no material lines of business
at present other than the provision of bulk CO2, and does not anticipate
diversifying into other product or service lines. All aspects of the Company's
operations are guided by its focus on the bulk CO2 business, including its
selection of operating equipment, design of delivery routes, location of depots,
structure of customer contracts, content of employee training programs and
design of management information and accounting systems. By restricting its
scope of activities to the bulk CO2 business, and largely avoiding the dilution
of management time and Company resources that would be required by other service
lines, the Company believes it is able to maximize the level of service it
provides to its bulk CO2 customers. The Company also believes that its focus on
this product line also helps minimize operating costs through the use of
equipment dedicated to bulk CO2 applications and through the high level of
product experience held by its employees.
Company Owned Equipment. The Company generally places a Company owned
bulk CO2 system on the customer's premises under a long-term supply contract.
This arrangement is often appealing to the customer since the Company bears the
initial capital cost of the equipment and installation, with the customer only
facing a predictable and modest monthly usage fee. The Company believes that its
ability to place its equipment on the customers premises helps create customer
loyalty and deter competition.
Long term Customer Contracts. The Company typically enters into five
year bulk CO2 system lease agreements with its customers. Generally, these
contracts are classified as one of two types: "budget-plan" service contracts
and "rental plus per pound charge" contracts. Pursuant to budget plan contracts,
customers pay fixed monthly charges for the lease of a Company owned bulk CO2
system installed on the customer's premises and refills of bulk CO2 according to
a predetermined schedule. The bulk CO2 is included in the monthly rental charge
up to a predetermined maximum annual volume. If the maximum annual volume is
exceeded, the customer is charged for additional bulk CO2 delivered. Pursuant to
rental plus per pound charge contracts, the Company also leases a bulk CO2
system to the customer, but the customer is charged on a per pound basis for all
bulk CO2 delivered. In exchange for a noncancelable monthly charge, the Company
installs and rents to its customers a Company owned bulk CO2 system and, through
a delivery routing system, services the bulk CO2 system and supplies bulk CO2 to
the customer's site on a regular basis. Even with customers that own their own
bulk CO2 systems, the Company seeks to arrange for multi-year supply contracts.
The Company believes that the use of long-term contracts provides benefits to
both itself and its customers. Customers are able to largely eliminate CO2
supply interruptions and the need to operate CO2 equipment themselves, while the
contract adds stability to the Company's revenue base and may deter potential
competition. After the expiration of the initial term of a contract, the term of
the contract continues in effect until either the Company or the customer
notifies the other of its desire to terminate. Generally, the Company has been
successful contracting with its customers for a new long-term supply contract.
To date, the
-2-
<PAGE>
Company's experience has been that contracts roll-over without a significant
portion of contracts expiring without renewal in any one year. The largest
number (approximately 38%) of the Company's current contracts with customers
expire by their terms in 2000.
Capture Advantages of Scale and Route Density. In most of its current
markets the Company has established itself as the leading or dominant supplier
of bulk CO2, and believes it enjoys these cost advantages over its competitors
due to the greater density of the Company's route structure; a lower average
time and distance travelled between stops, and a lower average cost per
delivery. Greater scale may also lead to better vehicle and fixed asset
utilization, as well as the ability to spread fixed marketing and administrative
costs over a broader revenue base.
Superior Customer Service. The Company seeks to differentiate itself
through its attention to customer service. Each bulk CO2 system serviced by the
Company has a label with a toll-free help line for the customer's use. The
Company has an advanced dispatch and delivery system, including the ability to
communicate by radio with route personnel at all times. The Company responds to
service calls on a 24-hour, seven day a week basis, and the experience level of
its personnel aids in the resolution of equipment failures or other service
interruptions, whether or not caused by the Company's equipment. Recognizing the
public visibility of its customers, the Company carefully maintains the
appearance of its vehicles and the professional image of its employees.
Rapid Installation and Diverse Configurations. The bulk CO2 system
installed at the customer's site consists of a cryogenic vessel for the storage
of liquid CO2 and related valves, regulators and gas lines. The Company operates
a fleet of 20 specialized installation vehicles with dedicated installation
personnel. A key attribute in marketing the Company's services to multi-unit
customers is its ability to rapidly install bulk CO2 systems at customers'
locations with minimal disruption. The Company offers systems ranging from 100
to 600 pounds of CO2 capacity. With the recent introduction of the 100 pound
capacity system, the range of system sizes now permits the Company to market its
services to an even broader range of potential customers.
Attractive Pricing to Customer. The Company carefully monitors the
prices offered in its markets by providers of high pressure CO2 cylinders.
Despite the customer-level advantages of bulk CO2 systems over high pressure
cylinders, the Company generally prices its services comparably to the price of
high pressure cylinders. This has proved an effective inducement to cause
customers to convert from cylinders to bulk CO2 systems. When appropriate, the
Company will adjust pricing to meet local market conditions in order to build
route density.
GROWTH STRATEGY
The objective of the Company is to become the dominant national
supplier of bulk CO2 systems for beverage applications. The Company intends to
implement its strategy through (i) internal market development by which it
builds route densities necessary to become the lowest cost operator and (ii) a
program of strategic acquisitions, by which it will enter a new market area, or
through tuck-in acquisitions whereby it consolidates an underpenetrated existing
market.
Internal Market Development. The majority of growth is driven by the
conversion of high pressure cylinder CO2 users to bulk CO2 systems. The
Company's ability to drive conversion is illustrated by its success in the
Florida market, where it continues to rapidly add new bulk CO2 system
installations, even after actively marketing in the state since 1990. The
Company's internal growth initiatives consist of marketing multi-system
placements to corporate and franchised operations of large restaurant,
convenience store and theater chains. The Company's relationships with chain
customers in one geographic market frequently help it to establish service with
these same chains when the Company expands to new markets. As the Company enters
a new market, the Company may seek to establish an initial presence through
acquisition. After accessing the chain accounts in a new market, the Company
attempts to rapidly build route density by leasing bulk CO2 systems to
independent restaurants, convenience stores and theaters.
The Company believes that optimal route density is achieved at
approximately 350 accounts per bulk CO2 truck, and the Company typically employs
targeted sales efforts to build density within an existing route. The Company
maintains a "hub and spoke" route structure and establishes additional
stationary bulk CO2 depots as a service area expands through geographic growth.
The Company's route density and market share is highest in Florida, and is less
developed in the other nine southern states and the New York metropolitan area
where the Company presently has operations. The Company's entry to these states
was accomplished largely by recent acquisitions of businesses with more thinly
developed route networks than are typical for the Company. The
-3-
<PAGE>
Company expects to benefit from route efficiencies and other economies of scale
as it builds its customer base in these states through more intensive internal
marketing initiatives.
Strategic Acquisitions. It has been the Company's experience that
acquisition opportunities on satisfactory terms have been regularly available.
The Company estimates that there are more than 100 distributors throughout the
United States that service between 250 and 750 bulk CO2 accounts and more than
10 distributors that each service between 1,000 and 6,000 accounts, many of
which may represent attractive acquisition candidates for the Company. The
Company has generally been able to acquire smaller distributors at prices near
their asset value. Since this cost per system is similar to the Company's
internal installation costs, these acquisitions represent an economic means of
acquiring accounts. The Company's strategy is to target tuck-in operations that
can be easily integrated into established routes. These transactions typically
involve the purchase of installed bulk CO2 systems, equipment and customer lists
and require little additional administrative expense to operate. With these
acquisitions, all administrative functions such as billing, dispatching and
accounting are moved to the Company's headquarters in Stuart, Florida.
As the Company enters a new market, or consolidates an existing market,
incumbent bulk CO2 distributors may be willing to be acquired on satisfactory
terms for the following reasons: (i) distributors realize that successful
competition with the Company will be difficult if the Company has already
achieved greater route density; (ii) a distributor's primary business often is
distribution of other industrial gases and welding supplies, with bulk CO2 not
representing a key service, and a reasonable offer to purchase a non-core
business is often appealing; (iii) because of the operating efficiencies the
Company brings to the accounts serviced, the accounts have more value for the
Company than for the seller; (iv) a distributor may have little opportunity for
growth because of its inability to access capital; and (v) there are few other
credible buyers competing with the Company.
Additional Bulk CO2 Uses. CO2 has recently been introduced as a safe
and cost efficient alternative to the use of hazardous acids to control the pH
balance in swimming pools. As with the beverage market, bulk CO2 systems are
often advantageous compared to high pressure cylinders in maintaining a safe,
uninterrupted CO2 supply. As of August 31, 1996, the Company had approximately
450 bulk CO2 systems placed in swimming pools in Florida. These customers have
been integrated into the Company's existing delivery route network.
MARKETING AND CUSTOMERS
The Company markets its bulk CO2 systems primarily to large customers
such as restaurant and convenience store chains, movie theater operators and
theme parks. The Company's customers include most of the major national and
regional chains with units in the southeastern United States. With respect to
these large chains, the Company generally approaches their regional corporate
office for approval to become the exclusive supplier of bulk CO2 within a
designated territory. The Company then directs its marketing efforts to the
managers or owners of the individual or franchised operating units. Whereas the
large chains offer immediate penetration on a regional basis, the small
operators are important accounts because they provide geographic density which
optimizes delivery efficiency and reduces cost. The recent introduction of
smaller bulk CO2 systems (100 pound capacity vessels), which the Company helped
develop, allows the Company to penetrate the market for lower volume users of
CO2 such as mall-based food courts, small restaurants and mass-market retailers.
As of August 31, 1996, the Company distributed bulk CO2 to over 17,400
customers, none of which accounted for more than 5% of the Company's fiscal 1996
net sales. The Company has negotiated multi-system placements or CO2 supply
contracts with numerous customers, including McDonald's, Pizza Hut, Kentucky
Fried Chicken, Burger King, Wendy's, Hardees, Subway, Shoney's, Chili's,
7-Eleven, Circle K, EZ Serve, Carmike Cinemas, AMC Theaters, Universal Studios,
Walt Disney World and Joe Robbie Stadium. The Company's relationships with chain
customers in one geographic market frequently help it establish service with
these same chains when the Company expands to new markets. After accessing the
chain accounts in a new market, the Company attempts to rapidly build route
density by leasing bulk CO2 systems to independent restaurants, convenience
stores and theaters.
The Company also supplies high pressure gases in cylinder form,
including CO2, helium and nitrogen. The Company estimates that it currently
services approximately 550 high pressure CO2 customers, most of whom were either
customers of acquired companies or are low volume users for which it is not
economical to convert to bulk CO2 systems. However, with the introduction of 100
pound capacity bulk CO2 systems, the Company anticipates that many low volume
users will convert from high pressure cylinders. Helium and nitrogen are mostly
supplied to existing bulk customers in connection with filling balloons and
dispensing beer, respectively.
-4-
<PAGE>
OPERATIONS
As of August 31, 1996, the Company operated 25 liquid CO2 service and
supply depots located throughout its service area from which it operates 51
specialized bulk CO2 trucks, 20 installation and service vehicles and one high
pressure cylinder delivery truck. Each specialized bulk CO2 truck covers up to
350 accounts, depending on market density, refilling customer systems on a
regular schedule. All delivery quantities are measured by flow meters installed
on the Company's tank trucks. Service and supply depots are equipped with large
storage tanks (up to 40 tons) which receive liquefied CO2 from large capacity
tanker trucks and from which the Company's bulk CO2 trucks refill for delivery
to customers. In most cases, the tank is accessible from the outside of the
establishment. This information is then loaded onto the Company's centralized
billing system, which is maintained on an IBM AS/400 computer.
The Company has a record of timely bill collections, with accounts
receivable historically averaging approximately 30 days of sales. The Company
attributes its successful collection history to several factors: (i) the Company
generates invoices immediately after delivery; (ii) since fountain soda is
generally a highly profitable item, customers are less likely to risk their CO2
supply by not paying their bills; (iii) the Company performs continuous
proprietary account monitoring and may interrupt service to those customers that
are behind on their accounts; and (iv) the use of a locking device on the fill
port prevents customers from receiving bulk CO2 from other sources while bills
to the Company remain unpaid.
All dispatch and billing functions are conducted from the Company's
corporate headquarters, with route drivers, installers and service personnel
operating from the Company's depots.
BULK CO2 SUPPLY
Bulk CO2 is a readily available commodity product which is processed
and sold by various sources. The Company purchases bulk CO2 from several
suppliers and often qualifies for volume discounts. The Company is currently
purchasing bulk CO2 from both Carbonic Industries Corporation and Liquid
Carbonics (a subsidiary of CBI Industries).
BULK CO2 SYSTEMS
The Company purchases new bulk CO2 systems from Minnesota Valley
Engineering, Inc. and Taylor-Wharton Cryogenics (a division of Harsco
Corporation), the two major manufacturers of such equipment. The Company
believes that it has been the largest single purchaser of bulk CO2 systems from
the two principal manufacturers of such systems. The Company purchases vessels
in five sizes (100, 250, 300, 400 or 600 lbs.) depending on the CO2 needs of its
customers. The Company's vessels are vacuum insulated containers with extremely
high insulation characteristics allowing the storage of CO2, in its liquid form,
at very low temperatures. The vessels operate under low pressure, are fully
automatic and require no electricity. The service life of the Company's vessels,
based upon manufacturers' estimates, is expected to exceed 20 years with minimal
maintenance.
The Company's in-house service department coordinates all installations
and repairs of equipment. In addition to the normal single unit bulk CO2 system
installation, the Company has performed many complex multi-unit installations in
stadiums (e.g., Pro Players Stadium and Miami Arena) and amusement parks (e.g.
Universal Studios). These installations involve erecting custom-designed piping
systems to link bulk CO2 systems situated in remote locations. The Company's
strong technical capabilities represent an important competitive advantage and
have often resulted in the equipment manufacturers consulting with the Company
on product modifications.
TRADEMARKS
"NuCo2(R)" is a registered trademark of the Company. The Company
markets its services utilizing the "NuCo2(R)" trademark.
REGULATORY MATTERS
The business of the Company is subject to federal and state laws and
regulations adopted for the protection of the environment, the health and safety
of employees and users of the Company's products. The transportation of bulk CO2
is subject to regulation by various federal, state and local agencies, including
the U.S. Department of Transportation. These regulatory authorities have broad
powers, and the Company is subject to regulatory and
-5-
<PAGE>
legislative changes that can affect the economics of the industry by requiring
changes in operating practices or by influencing the demand for, and the costs
of providing services. In addition, the Company voluntarily complies with
applicable safety standards. Management believes that the Company is in
compliance with all such laws, regulations and standards currently in effect and
that the cost of compliance with such laws, regulations and standards has not
and will not have a material adverse effect on the Company.
COMPETITION
The Company competes with other distributors of bulk CO2 and high
pressure CO2, including several regional industrial gas distributors, numerous
small independent operators and distributors of restaurant supplies and
groceries. Bulk CO2 systems typically are serviced by industrial and welding
supply companies, specialty gas distributors and fountain supply companies.
These suppliers range widely in size. Some of the Company's competitors have
significantly greater financial, technical or marketing resources than the
Company. The Company believes that its ability to compete depends on a number of
factors, including price, product quality, availability and reliability, credit
terms, name recognition, delivery time and post-sale service and support.
EMPLOYEES
At June 30, 1996 the Company had 148 full-time employees, of whom 52
were involved in an executive, marketing or administrative capacity, 69 of whom
were route drivers and 27 of whom were in service/installation functions. None
of the Company's employees is covered by a collective bargaining agreement or is
a member of a union. The Company considers its relationship with its employees
to be good.
ITEM 2. DESCRIPTION OF PROPERTY.
On September 12, 1996, the Company moved into new headquarters located
in a 22,000 square foot facility in Stuart, Florida. This facility accommodates
corporate, administrative, marketing, sales and warehouse space. The lease
expires March 31, 2001 with a fixed annual rent of $167,215. As of August 31,
1996, the Company also leased liquid CO2 service and supply depots at the
following 25 locations: Florida (Stuart, Miami, Ft. Myers, Jacksonville,
Tallahassee, Orlando and Tampa); Georgia (Atlanta, Savannah and Macon); Alabama
(Birmingham and Mobile); Louisiana (New Orleans, Shreveport and Lake Charles);
Mississippi (Jackson); North Carolina (Charlotte and Raleigh-Durham); South
Carolina (Florence); Arkansas (Little Rock); Tennessee (Chattanooga); New York
(Melville and Pelham); Ohio (Dayton) and West Virginia (Charleston). The
properties on which such facilities are located are leased from third parties
(other than the Stuart and Ft. Myers, Florida service and supply depots) on
terms consistent with market rentals prevailing in the location's area. The
Company believes that its other existing facilities are adequate for its current
needs and that additional facilities in its service area are available to meet
future needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material threatened or pending
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
-6-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock commenced trading on the Nasdaq National Market under
the symbol "NUCO" on December 19, 1995.
The following table sets forth, for the periods indicated, the highest
and lowest bid quotations for the Common Stock, as reported by the Nasdaq
National Market. The prices reported reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not reflect actual transactions.
CALENDAR 1995 HIGH LOW
---- ---
Fourth Quarter (from December 19, 1995).............. 12-3/4 $9-1/2
CALENDAR 1996
First Quarter........................................ 17-1/4 12-1/4
Second Quarter....................................... 34 17
At June 30, 1996, there were approximately 160 holders of record of the
Company's Common Stock. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in "street name."
The Company has not paid any cash dividends on the Common Stock since
its inception and the Board of Directors does not anticipate declaring any cash
dividends on the Common Stock in the foreseeable future. The Company currently
intends to utilize any earnings it may achieve for the development of its
business and working capital purposes. In addition, the payment of cash
dividends on the Common Stock is restricted by financial covenants in the
Company's credit facility.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Management's Discussion and Analysis or Plan of Operation contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements. Factors that may cause such differences include, but
are not limited to, the Company's expansion into new markets, competition,
technological advances and availability of managerial personnel.
OVERVIEW
At June 30, 1996 the Company leased 12,884 bulk CO2 systems to its
customers, principally pursuant to five year noncancelable lease contracts.
These customers include restaurants, convenience stores, theaters, taverns and
other businesses which dispense carbonated beverages. Generally, these contracts
are classified as one of two types: "budget-plan" service contracts and "rental
plus per pound charge" contracts. Pursuant to budget plan contracts, customers
pay a fixed monthly charge for the lease of a Company owned bulk CO2 system
installed on the customer's premises and refills of bulk CO2 according to a
predetermined schedule. The bulk CO2 is included in the monthly rental charge up
to a predetermined maximum annual volume. If the maximum annual volume is
exceeded, the customer is charged for additional bulk CO2 delivered. Pursuant to
rental plus per pound charge contracts, the Company also leases a bulk CO2
system to the customer, but the customer is charged on a per pound basis for all
bulk CO2 delivered. The Company's contracts generally provide for price
increases based upon increases in the consumer price index.
The Company provides some services besides those offered under the
above two types of contracts. As of June 30, 1996, the Company provided "fill
only" service to approximately 2,900 customers, 85% of which were previously
serviced by acquired businesses.
As of June 30, 1996, approximately 5,600 of the Company's 15,762
customers were billed on a per pound basis which varies with the quantity of
bulk CO2 delivered. These customers will tend to consume less CO2 in the winter
months, and this may cause the Company's revenues and earnings for its fiscal
quarters ending in December and March to be relatively lower than for its other
quarters. As of June 30, 1996, approximately 10,100 of the Company's 15,762
customers were billed at a flat monthly rate which generally does not vary
throughout the year.
-7-
<PAGE>
The Company's installed base of bulk CO2 systems has increased through
internally generated new customers and through acquisitions. As route density
increases, route profitability increases as the fixed costs associated with the
route are spread over a larger revenue base. Since the Company's inception in
February 1990 to June 30, 1996, 8,540 Company owned bulk CO2 systems have been
installed and 7,222 customer accounts have been acquired through 11
acquisitions. Approximately 3,100 of these customer accounts resulted from the
acquisition of Bevtech in June 1995. The Company believes that reduced interest
expense as a result of the repayment of debt from the net proceeds of the
Company's sale of 2,022,576 shares of Common Stock in the Company's initial
public offering in December 1995 (the "IPO"), combined with economies of scale
resulting from internal growth and acquisitions, should lead to the
profitability of the Company on an annual basis.
The Company intends to continue to grow through a combination of
internal growth and acquisitions. The Company requires significant capital to
purchase and install bulk CO2 systems at customers' locations and to grow the
network of service and supply depots and specialized CO2 delivery vehicles
required to service these installations. Once installed, however, there are
minimal additional capital requirements for bulk CO2 systems in service, and the
Company has generally experienced significant positive cash flows on a per-unit
basis. These cash flows stem from per-unit operating income combined with
per-unit non-cash charges for depreciation and amortization. The Company
believes its current installed base of bulk CO2 systems is stable, partly due to
the existence of long-term contracts with its customers. In fiscal 1995 and
fiscal 1996, less than 5% of Company owned bulk CO2 systems experienced service
termination. Service termination is typically caused by restaurant closure.
Affected bulk CO2 systems are either removed and reconditioned for use with
other customers, or left in place when prospects for a new restaurant in the
same location are deemed favorable.
GENERAL
Under the budget plan, the Company's net sales consist of charges to
customers for the use of Company owned bulk CO2 systems and a predetermined
quantity of liquid CO2. On customer invoices, the Company does not separate
charges for equipment use from charges for liquid CO2 delivered; customers are
presented with a single amount payable. Customers are invoiced monthly in
advance of services rendered. For customers on rental plus per pound charge
contracts, invoices are broken down into the two respective services, with the
charge for liquid CO2 supply varying with the amount delivered. The Company's
net sales also include revenues received from customers to which it supplies
only CO2 refill services, based on the amount delivered.
Cost of products sold is comprised of purchased CO2 and labor, vehicle
and depot costs associated with the Company's storage and delivery of bulk CO2
to customers. Selling, general and administrative expenses consist of salaries,
dispatch and communications costs, and expenses associated with marketing,
administration, accounting and employee training. Consistent with the capital
intensive character of its business, the Company incurs significant depreciation
and amortization expenses. These stem from the depreciation of Company owned
bulk CO2 systems; amortization of bulk system installation costs; amortization
of direct lease origination costs, such as sales commissions, legal fees and
contract documentation costs; and amortization of goodwill, deferred financing
costs and other intangible assets.
With respect to bulk CO2 systems, the Company only capitalizes costs
that are associated with specific successful placements of such systems with
customers under noncancelable contracts and which would not be incurred by the
Company but for a successful placement. All other service, marketing and
administrative costs are expensed as incurred. Capitalized components parts and
direct costs associated with installation of bulk CO2 equipment leased to
customers was approximately $1.8 million and $3.2 million at the end of fiscal
1995 and fiscal 1996, respectively. Amortization expense related to capitalized
component parts and direct costs associated with installation was approximately
$306,000 and $406,000 for fiscal 1995 and fiscal 1996, respectively.
The Company believes EBITDA is useful as a means of measuring the
growth and earning power of its business. In addition, the NationsBank Facility
utilizes EBITDA for its formal calculation of financial leverage, affecting the
amount of funds available to the Company for borrowing under such credit
facility. EBITDA represents operating income plus depreciation and amortization.
Information regarding EBITDA is presented because of its use by certain
investors as one measure of a corporation's ability to generate cash flow.
EBITDA should not be considered an alternative to, or more meaningful than,
operating income or cash flows from operating activities as an indicator of a
corporation's operating performance. EBITDA excludes significant costs of doing
business and should not be considered in isolation from GAAP measures.
-8-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship which the various items bear to net sales:
Year Ended
JUNE 30,
1995 1996
----- -----
Income Statement Data:
Net sales 100.0% 100.0%
Cost of products sold 41.3 43.3
Selling, general and administrative expenses 23.9 25.6
Depreciation and amortization 22.7 20.2
----- -----
Operating income 12.1 10.9
Interest expense, net 20.9 10.5
----- -----
Income (loss) before extraordinary item (8.8)% .4%
Extraordinary item -- (7.2)
----- -----
Net loss (8.8)% (6.8%)
Other Data:
EBITDA 34.8% 31.1%
===== =====
Net sales increased $5.9 million, or 97.4%, from $6.1 million in fiscal
1995 to $12.0 million in fiscal 1996. This increase resulted primarily from
internal growth in the number of Company owned bulk CO2 systems in service. At
June 30, 1996 there were 12,884 Company owned systems in service, an increase of
4,917 over the 7,967 in service at the end of fiscal 1995. Of such increase,
1,580 resulted from acquisitions of businesses completed during fiscal 1996 and
the remaining 3,337 resulted from internal marketing efforts. Approximately 65%
of the acquired systems were obtained through the acquisition of the bulk CO2
operations in New York, New Jersey and Connecticut of The Coca-Cola Bottling
Company of New York, Inc. on May 15, 1996 and, therefore, only contributed to
net sales for six weeks of fiscal 1996. Increases in net sales due to price
increases were insignificant.
Cost of products sold increased by $2.7 million from $2.5 million in
fiscal 1995 to $5.2 million in fiscal 1996, and increased as a percentage of net
sales from 41.3% to 43.3%. This increase was attributable to the expansion of
the Company into new territories. The number of depots operated by the Company
at June 30, 1996 increased to 24, compared to 15 at the end of fiscal 1995.
Selling, general and administrative expenses increased by $1.6 million
from $1.4 million in fiscal 1995 to $3.1 million in fiscal 1996, and increased
as a percentage of net sales from 23.9% to 25.6%. The dollar increase was
attributable to growth in the number of marketing and administrative personnel
and their associated expenses, as well as the costs of expanding the Company's
geographic areas of service. At June 30, 1995 the Company had operations in
seven southeastern states and at the end of fiscal 1996, the Company had
operations in 18 states.
Depreciation and amortization increased by $1.0 million from $1.4
million in fiscal 1995 to $2.4 million in fiscal 1996. As a percentage of net
sales, such expense decreased from 22.7% in fiscal 1995 to 20.2% in fiscal 1996.
Depreciation expense increased by $757,000 from $852,000 in fiscal 1995 to $1.6
million in fiscal 1996 principally due to the increase in bulk CO2 systems
leased to customers. Expressed as a percentage of net sales, depreciation
expense decreased from 14.0% in fiscal 1995 to 13.4% in fiscal 1996.
Amortization expense increased by $281,000 from $528,000 in fiscal 1995 to
$808,000 in fiscal 1996 primarily due to the amortization of goodwill and
customer lists created from the Bevtech acquisition in June 1995. As a
percentage of net sales, amortization expense decreased from 8.7% in fiscal 1995
to 6.8% in fiscal 1996. The Company incurred fees and expenses of $403,000 in
connection with new financings concluded in fiscal 1996.
Net interest expense decreased $6,334 in fiscal 1996 from $1.3 million
in fiscal 1995. This decrease is attributable to the repayment of debt from the
proceeds of the IPO in December 1995. Net interest expense increased by $426,000
for the six months ended December 31, 1995 as compared to the same period in
1994; however, net interest expense decreased by $432,000 for the six months
ended June 30, 1996 as compared to the same period in 1995.
-9-
<PAGE>
During fiscal 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.
For the reasons described above, the Company's net loss increased from
$533,000 in fiscal 1995 to $813,000 in fiscal 1996; however, net income before
extraordinary item in fiscal 1996 was $46,822. The Company has made no provision
for income tax expense in either fiscal 1995 or fiscal 1996 due to its net
losses. At June 30, 1996 the Company had net operating loss carryforwards for
federal income tax purposes of $7.9 million, which are available to offset
future federal taxable income through 2011.
For the reasons described above, EBITDA increased from $2.1 million in
fiscal 1995 to $3.7 million in fiscal 1996, but decreased as a percentage of net
sales from 34.8% to 31.1%.
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. As of June 30, 1996, the Company anticipated making cash
capital expenditures of approximately $12.0 million to $15.0 million during
fiscal 1997, primarily for purchases of bulk C02 systems that it expects to
place into service during this time. Once bulk CO2 systems are placed into
service, the Company has generally experienced 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, 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.
Prior to the IPO, the Company's primary sources of liquidity were
borrowings under its then existing 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 Series B
Preferred Stock, 500 shares of Series C Preferred Stock and 1,500 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 $243,000 of accrued dividends and (ii) all of the
outstanding Series C Preferred Stock and Series D Preferred Stock automatically
converted into an aggregate of 455,430 shares of Common Stock. The Company used
a portion of the net proceeds of the IPO to pay accrued dividends of
approximately $118,000 on the Series C Preferred Stock and Series D Preferred
Stock. 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's capital resources include cash flows from operations; the
net proceeds from the Company's sale of 1,761,165 shares of Common Stock in the
Company's secondary public offering in June 1996 (the "Secondary Offering"); and
available borrowing capacity under the Company's credit facility with
NationsBank of Florida, N.A. (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 the Secondary 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
-10-
<PAGE>
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.
As of June 30, 1996, the Company's total outstanding borrowings
aggregated $10.8 million, as compared to $17.4 million as of June 30, 1995. As
of June 30,1996, borrowings under the term portion of the NationsBank Facility
aggregated $10.2 million with interest ranging from 8.19% to at 8.51% per annum,
as compared to 2.5% over the prime rate on pre-existing bank debt.
In January 1996, the Company repaid approximately $2.3 million of
indebtedness incurred in connection with the acquisition of Bevtech in June
1995.
Working Capital. At June 30, 1995 the Company had a working capital
deficit of $3.5 million. At June 30, 1996, the Company had working capital of
$40.7 million.
Cash Flows from Operating Activities. During fiscal 1995 and fiscal
1996, net cash provided by operating activities was $1.4 million and $1.8
million respectively. Cash flows from operating activities increased by $397,000
for the fiscal year ended June 30, 1996 compared to the same period in 1995
primarily due to the net income before extraordinary item, an increase in
depreciation and amortization and an increase in accounts payable.
Cash Flows from Investing Activities. During fiscal 1995 and fiscal
1996, the Company made net capital expenditures of $3.5 million and $9.4
million, respectively, primarily for new bulk CO2 systems and associated
installation and direct placement costs. During the year ended June 30, 1996,
the Company also made four acquisitions with a combined purchase price of $4.3
million.
Cash Flows from Financing Activities. During fiscal 1995 and fiscal
1996, cash flows from financing activities were $2.5 million and $50.0 million,
respectively. For the year ended June 30, 1996, cash flows from financing
activities are primarily from the issuance of Common Stock in connection with
the IPO and the Secondary Offering less the repayment of long-term debt,
redemption of Preferred Stock and additional borrowings used to finance the
placement of bulk C02 systems into service.
The Company believes that cash from operating activities, and the net
proceeds from the Secondary 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.
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 increases in the consumer price index. The
Company believes that inflation will not have a material adverse effect on its
future results of operations.
ITEM 7. FINANCIAL STATEMENTS.
[See page F-1.]
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On July 2, 1996, the Audit Committee of the Board of Directors of the
Company dismissed KPMG Peat Marwick LLP ("KPMG") as independent accountants to
the Company and appointed Cooper, Selvin & Strassberg LLP as the new independent
accountants to the Company. KPMG's accountant's report on the financial
statements of the Registrant for the fiscal year ended June 30, 1995 (the period
for which KPMG was engaged as independent accountants) did not contain any
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
-11-
<PAGE>
PART III
The information required by Items 9, 10, 11 and 12 of this Part III is
incorporated by reference to the definitive proxy statement to be filed by the
Company no later than October 28, 1996 pursuant to Regulation 14A.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits:
**3.1 -- Amended and Restated Articles of Incorporation of the Company.
**3.2 -- Bylaws of the Company.
**10.1 -- 1995 Stock Option Plan.
**10.2 -- Directors' Stock Option Plan.
**10.3 -- Noncompetition Agreement between the Company and Joseph M.
Criscuolo, dated November 30, 1995.
**10.4 -- Noncompetition Agreement between the Company and Edward M.
Sellian, dated November 30, 1995.
**10.5 -- Asset Purchase Agreement among the Company, Bevtech, Inc., E.
Reid Hunter, Edward M. Sellian and Suzan Sellian, dated
November 30, 1995.
**10.6 -- Lease for 2528 North Tamiami Trail, Ft. Myers, Florida,
between the Company and Edward M. Sellian.
**10.7 -- Lease for storage facility, Ault Road, Stuart, Florida,
between the Company and Edward M. Sellian.
**10.8 -- Airplane lease dated March 30, 1995 between the Company and
Suzan Charters, Inc.
**10.9 -- IBM AS/400 computer lease dated April 1, 1994 between the
Company and EMS Bandit Inc.
**10.10 -- Form of Indemnification Agreement between the Company and
directors and officers of the Registrant.
**10.11 -- Lease for 2800 Southeast Market Place, Stuart, Florida between
the Company and Edward M. Sellian.
**10.12 -- Asset Purchase Agreement between the Registrant and The
Coca-Cola Bottling Company of New York, Inc., dated April 18,
1996.
**10.13 -- Amendment No. 1 to Asset Purchase Agreement between the
Registrant and The Coca- Cola Bottling Company of New York,
Inc., dated May 15, 1996.
*11.1 -- Statement re: computation of per share earnings.
**16 -- Letter of Cooper Selvin & Strassberg dated December 11, 1995.
*23.1 -- Consent of Cooper, Selvin & Strassberg LLP to the
incorporation by reference to the Registrant's Registration
Statement on Form S-8 (No. 333-06705) of the independent
auditors' report included herein.
-12-
<PAGE>
*23.2 -- Consent of KPMG Peat Marwick LLP to the incorporation by
reference to the Registrant's Registration Statement on Form
S-8 (No. 333-06705) of the independent auditors' report
included herein.
*27 -- Financial Data Schedule.
- ---------------------------
* Included herein.
** Incorporated by reference to the Company's Registration Statement on
Form SB-2, filed with the Commission on November 7, 1995 (Commission
File No. 33-99078), as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form SB-2, filed with the Commission on June 7, 1996 (Commission File
No. 333-3352).
(b) REPORTS ON FORM 8-K
No reports were filed on Form 8-K in the quarter ended June 30, 1996.
-13-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUCO2 INC.
Dated: September 27, 1996 S/S EDWARD M. SELLIAN
-------------------------------
Edward M. Sellian,
Chairman of the Board and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ EDWARD M. SELLIAN Chairman of the Board and Chief September 27 , 1996
- ------------------------------- Executive Officer
Edward M. Sellian
/S/ JOSEPH M. CRISCUOLO President, Chief Operating Officer and September 27 , 1996
- ------------------------------- Director
Joseph M. Criscuolo
/S/ ROBERT L. FROME Director September 27 , 1996
- -------------------------------
Robert L. Frome
/S/ JOHN J. O'NEIL Director September 27 , 1996
- -------------------------------
John J. O'Neil
/S/ EDWARD F. O'REILLY Director September 27 , 1996
- -------------------------------
Edward F. O'Reilly
/S/ WILLIAM B. PORTER Director September 27 , 1996
- -------------------------------
William B. Porter
/S/ JEAN HOUGHTON Acting Chief Financial Officer September 27 , 1996
- -------------------------------
Jean Houghton
</TABLE>
-14-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
NUCO2 INC.
<TABLE>
<CAPTION>
<S> <C>
REPORTS OF INDEPENDENT ACCOUNTANTS..................................................... F-2
FINANCIAL STATEMENTS:
BALANCE SHEETS AS OF JUNE 30, 1995 AND 1996......................................... F-4
STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND 1996.......... F-5
STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED JUNE 30,
1995 AND 1996................................................................... F-6
STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND 1996.......... F-7
NOTES TO FINANCIAL STATEMENTS.......................................................... F-9
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
NuCo2 Inc.
We have audited the accompanying balance sheet NuCo2 Inc. as of June 30, 1995,
and the related statements of operations, shareholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NuCo2 Inc. as of June 30, 1995,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
West Palm Beach, Florida
October 6, 1995
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
NuCo2 Inc.
Stuart, Florida
We have audited the accompanying balance sheet of NuCo2 Inc. as of June 30,
1996, and the related statements of operations, shareholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NuCo2 Inc. as of June 30, 1996,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
COOPER, SELVIN & STRASSBERG LLP
Great Neck, New York
August 23, 1996
F-3
<PAGE>
NuCo2 INC.
BALANCE SHEETS
ASSETS
(NOTE 6)
<TABLE>
<CAPTION>
JUNE 30,
------------
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 561,778 $ 43,000,676
Trade accounts receivable; net of allowance for doubtful
accounts of $77,132 and $210,629, respectively 701,918 1,385,642
Inventories 40,984 52,425
Prepaid expenses and other current assets 28,580 384,948
----------- -----------
Total current assets 1,333,260 44,823,691
----------- -----------
Property and equipment, net (Note 4) 15,079,948 24,392,692
----------- -----------
Other assets:
Goodwill, net 2,398,987 3,064,877
Deferred charges, net 758,958 389,343
Customer lists, net 955,929 873,512
Restrictive covenants, net 174,167 114,167
Deferred lease acquisition costs, net 419,737 714,040
Deposits 21,999 260,363
----------- -----------
4,729,777 5,416,302
----------- -----------
$ 21,142,985 $ 74,632,685
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 6) $ 2,299,159 $ 1,358,447
Accounts payable 1,948,001 2,226,795
Accrued expenses 601,085 497,975
Other current liabilities 34,465 73,529
----------- -----------
Total current liabilities 4,882,710 4,156,746
Long-term debt, excluding current maturities (Note 6) 15,091,550 9,485,994
Customer deposits 119,271 305,535
Deferred interest payable 306,535 -
----------- -----------
Total Liabilities 20,400,066 13,948,275
----------- -----------
Shareholders' equity (Note 7):
Series A cumulative deferred preferred stock; $1,000 stated value; 1,000
shares authorized; issued and outstanding 485 shares at
June 30, 1995 and 0 shares at June 30, 1996 485,000 -
Series B preferred stock; $1,000 stated value; 1,000 shares authorized;
issued and outstanding 500 shares at June 30, 1995 and 0 shares at
June 30, 1996 500,000 -
Series C convertible preferred stock; $1,000 stated value; 500 shares
authorized; issued and outstanding 500 shares at June 30, 1995 and
0 shares at June 30, 1996 500,000 -
Series D convertible preferred stock; $1,000 stated value; 1,500 shares
authorized; issued and outstanding 1,500 shares at June 30, 1995 and
0 shares at June 30, 1996 1,500,000 -
Common stock; par value $.001 per share; 20,000,000 shares authorized;
issued and outstanding 1,932,953 shares at June 30, 1995 and 7,129,467
shares at June 30, 1996 1,933 7,129
Additional paid-in capital 9,317 63,743,312
Accumulated deficit (2,253,331) (3,066,031)
----------- -----------
Total shareholders' equity 742,919 60,684,410
Commitments and contingencies
$ 21,142,985 $ 74,632,685
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NuCo 2 INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales $ 6,061,911 $11,965,999
----------- -----------
Costs and expenses:
Cost of products sold 2,503,159 5,177,320
Selling, general and administrative expenses 1,447,503 3,066,381
Depreciation and amortization 1,379,592 2,417,492
----------- -----------
5,330,254 10,661,193
----------- -----------
Operating income 731,657 1,304,806
Other expenses:
Interest expense, net 1,264,318 1,257,984
----------- -----------
Income (loss) before extraordinary item (532,661) 46,822
----------- -----------
Extraordinary item - loss on extinguishment of debt - 859,522
----------- -----------
Net loss $ (532,661) $ (812,700)
============ ===========
Dividends on Preferred Stock $ (108,900) $ (110,917)
============ ===========
Net loss attributable to common stockholders $ (641,561) $ (923,617)
============ ===========
Loss per common share (Note 1)
Loss before extraordinary item $ (0.17) $ (0.01)
Extraordinary item (Note 6) - (0.18)
----------- -----------
Net loss $ (0.17) $ (0.19)
============ ===========
Weighted average number of common and common
equivalent shares outstanding 3,379,493 4,677,900
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NuCo2 INC.
STATEMENTS 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, 1994 485 $ 485,000 500 $ 500,000 - - - -
Issuance of Series C convertible
preferred stock - - - - 500 500,000 - -
Issuance of Series D convertible
preferred stock - - - - - - 1,500 1,500,000
Net loss - - - - - - - -
------ ------- ------ ------- ------ ------- ------ ---------
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 and
options - - - - - - - -
Issuance of 2,022,576 shares of com-
mon stock - Initial Public Offering - - - - - - - -
Issuance of 1,761,165 shares of com-
mon stock - secondary offering - - - - - - - -
Net loss - - - - - - - -
Dividends declared on
Preferred Stock - - - - - - - -
------ ------- ------ ------- ------ ------- ------ ---------
Balance, June 30, 1996 - - - - - - - -
------ ------- ------ ------- ------ ------- ------ ---------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK Additional Shareholders
------------ Paid-in Accumulated Equity
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,932,953 $1,933 $ 9,317 $(1,720,670) $ (724,420)
Issuance of Series C convertible
preferred stock - - - - 500,000
Issuance of Series D convertible
preferred stock - - - - 1,500,000
Net loss - - - (532,661) (532,661)
--------- ------ ----------- ----------- -----------
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 and
options 957,343 957 805,400 - 806,357
Issuance of 2,022,576 shares of com-
mon stock - Initial Public Offering 2,022,576 2,023 16,149,341 - 16,151,364
Issuance of 1,761,165 shares of com-
mon stock - secondary offering 1,761,165 1,761 44,641,484 - 44,643,245
Net loss - - - (812,700) (812,700)
Dividends declared on
Preferred Stock - - (361,275) - (361,275)
--------- ------ ----------- ----------- -----------
Balance, June 30, 1996 7,129,467 $7,129 $63,743,312 $(3,066,031) $60,684,410
--------- ------ ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NuCo 2 INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1995 1996
----------- -----------
<S> <C> <C>
Net income (loss) before extraordinary item $ (532,661) $ 46,822
Extraordinary item - loss on extinguishment of debt -- 859,522
----------- -----------
Net loss (532,661) (812,700)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation of property and equipment 851,963 1,609,063
Amortization of other assets 527,629 808,429
Loss on disposal of property and equipment 7,199 155,592
Write-off of deferred financing costs -- 784,069
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (355,195) (646,224)
Inventories (17,633) (11,441)
Prepaid expenses and other current assets 26,591 (356,368)
Increase (decrease) in:
Accounts payable 573,134 278,794
Accrued expenses 306,703 (103,910)
Other current liabilities 13,281 39,064
Customer deposits 47,129 100,463
----------- -----------
Net cash provided by operating activities 1,448,140 1,844,831
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 38,100 126,850
Purchase of property and equipment (3,198,328) (6,971,472)
Acquisition of businesses -- (1,767,460)
Increase in deferred lease acquisition costs (292,937) (514,258)
Increase in deposits (1,884) (238,364)
----------- -----------
Net cash used in investing activities $(3,455,049) $(9,364,704)
----------- -----------
</TABLE>
F-7
<PAGE>
NuCo 2 INC.
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ -- $ 60,794,609
Net proceeds from issuance of long-term debt 6,720,328 10,551,728
Repayment of long-term debt (5,900,340) (19,943,243)
Increase in loan payable to shareholder -- 200,000
Repayment of loan payable to shareholder -- (200,000)
Increase in deferred charges (508,687) (694,457)
(Decrease) Increase in deferred interest payable 199,173 (306,535)
Exercise of warrants and options -- 403,444
Preferred stock dividends -- (361,275)
Redemption of Series A preferred stock -- (485,000)
Redemption of Series B preferred stock -- (500)
Proceeds from issuance of Series C convertible preferred
and Series D convertible preferred stock 2,000,000 --
------------ ------------
Net cash provided by financing activities 2,510,474 49,958,771
------------ ------------
Increase in cash and cash equivalents 503,565 42,438,898
Cash and cash equivalents, beginning of year 58,213 561,778
------------ ------------
Cash and cash equivalents, end of year $ 561,778 $ 43,000,676
============ ============
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 1,064,497 $ 1,661,645
============ ============
Income taxes $ -- $ --
============ ============
Supplemental schedule of noncash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 5,778,532 $ 4,269,535
Cost in excess of net assets of business acquired 2,073,500 746,910
Liabilities assumed or incurred (7,852,032) (3,248,985)
------------ ------------
Cash paid $ -- $ 1,767,460
============ ============
</TABLE>
In connection with the IPO in December 1995, the Company converted $2.0
million of Series C and Series D Preferred Stock into common stock. In addition,
the Company converted $406,707 of subordinated debt and $499,500 of Series B
Preferred Stock into shares of common stock and additional paid-in capital,
respectively.
In 1996 the Company purchased equipment and incurred debt in the amount
of $89,570.
See accompanying notes to financial statements.
F-8
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
NOTE 1 - Description of Business and Summary of Significant Accounting
Policies
(a) Description of business
NuCo2 Inc., formerly known as Fowler Carbonics, Inc. (the
"Company"), a Florida corporation, is a supplier of bulk CO2 dispensing systems
to customers in the food, beverage, lodging and recreational industries in the
United States.
(b) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
(c) Inventories
Inventories, consisting primarily of carbon dioxide gas, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
(d) Property and Equipment
Property and equipment are stated at cost. The Company does not
depreciate bulk systems held for installation until the systems are in service
and leased to customers. Upon installation, the systems, component parts and
direct costs associated with the installation are transferred to the leased
equipment account. These costs are associated with successful placements of such
systems with customers under noncancelable contracts and which would not be
incurred by the Company but for a successful placement. Upon early service
termination, the unamortized portion of direct costs associated with the
installation are charged to cost of products sold. Depreciation and amortization
is computed using the straightline method over the estimated useful lives of the
respective assets or the lease terms for leasehold improvements, whichever is
shorter.
The depreciable lives of property and equipment are as follows:
ESTIMATED LIFE
--------------
Leased equipment 5-20 years
Equipment and cylinders 3-20 years
Vehicles 3-5 years
Computer equipment 3-7 years
Office furniture and fixtures 5-7 years
Leasehold improvements lease life
F-9
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(1) Description of Business and Summary of Significant Accounting
Policies - (Continued)
(e) Other Assets
Goodwill, Net
Goodwill, net, represents costs in excess of net assets of
businesses acquired and is being amortized on a straight-line basis over twenty
years. Accumulated amortization of goodwill was $49,514 and $174,607 at June 30,
1995 and 1996, respectively. The Company evaluates the recoverability of
goodwill as well as the amortization periods to determine whether an adjustment
of the carrying value is appropriate.
Deferred Charges, Net
Deferred charges, net, consist of the unamortized portion of
financing costs which are being amortized over the term of the related
indebtedness, ranging from thirty-six to sixty months. Accumulated amortization
of deferred costs was $477,350 and $199,091 at June 30, 1995 and 1996,
respectively. Included in the statement of operations for the year ended June
30, 1996 is an extraordinary write-off of deferred financing fees in connection
with the reduction of certain indebtedness (Note 6).
Customer Lists, Net
Customer lists, net, consist of the unamortized portion of
customer lists acquired in connection with asset acquisitions which are being
amortized over five years, the average life of customer leases. Accumulated
amortization of customer lists was $50,671 and $257,948 at June 30, 1995 and
1996, respectively. The Company's policy is to value customer lists based on the
estimated value of future cash flows over the life of the customer lease.
Restrictive Covenants, Net
Restrictive covenants, net, consist of covenants not to compete
arising in connection with the 1995 asset acquisitions (See Note 3) which are
being amortized over their contractual lives ranging from thirty to sixty
months. Accumulated amortization of restrictive covenants was $833 and $60,833
at June 30, 1995 and 1996, respectively. The Company's policy is to value
restrictive covenants based on the negotiated contractual value of the
restrictive covenant or a third party appraisal.
Deferred Lease Acquisition Costs, Net
Deferred lease acquisition costs, net, consist of commissions
associated with the acquisition of new leases and are being amortized over the
life of the related leases, generally five years. Accumulated amortization of
deferred lease acquisition costs was $339,289 and $428,284 at June 30, 1995 and
1996, respectively. Upon early service termination, the unamortized portion of
deferred lease acquisition costs are charged to cost of products sold.
F-10
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(1) Description of Business and Summary of Significant Accounting
Policies - Continued
(f) Revenue Recognition
The Company earns its revenues from the leasing of CO2 systems and
related gas sales. The Company, as lessor, recognizes revenue from leasing of
CO2 systems on a straight-line basis over the life of the related leases. The
majority of CO2 system leases generally include payments for leasing of
equipment and a continuous supply of CO2 until usage reaches a pre-determined
maximum annual level, beyond which the customer pays for CO2 on a per pound
basis. Other CO2 and gas sales are recorded upon delivery to the customer.
(g) Income Taxes
The Company has adopted Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes. Statement No. 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Under Statement No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The Company
adopted Statement No. 109 in fiscal 1994. There was no cumulative effect
adjustment on the financial statements as a result of this change in accounting
for income taxes.
(h) Net Loss Per Common Share
Net loss per common share is computed by dividing net loss
including dividends on preferred stock and adding back interest on the
convertible portion of the senior and junior subordinated notes by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year. In connection with the Initial Public Offering
(IPO), 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 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 upon exercise of warrants and options.
The above shares have been treated as outstanding since July 1, 1994. Stock
options and warrants to purchase an additional 152,851 shares of common stock
granted during 1995 have also been treated as outstanding since July 1, 1994,
using the treasury stock method.
(i) 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.
(j) Employee Benefit Plan
On June 1, 1996, the Company adopted a deferred compensation plan
under Section 401(K) of the Internal Revenue Code which covers all eligible
employees. Under the provisions of the plan, eligible employees may defer a
percentage of their compensation subject to the Internal Revenue Service limits.
Contributions to the plan are made only by employees.
F-11
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
NOTE 2 - Public Offerings
(a) Initial Public Offering (IPO)
In connection with the Company's Initial Public Offering,
2,022,576 shares of common stock were sold in December 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 (see Note 15).
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 and other offering expenses, the net
proceeds were $16,151,364.
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 the IPO. The Company also had
outstanding 485 shares of Series A Preferred Stock, 500 shares of Series B
Preferred Stock, 500 shares of Series C Preferred Stock and 1,500 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 $243,000 of dividends and (ii) all of the
outstanding Series C Preferred Stock and Series D Preferred Stock automatically
converted into an aggregate of 455,430 shares of Common Stock. The Company used
a portion of the net proceeds of the IPO to pay dividends of approximately
$118,000 on the Series C Preferred Stock and Series D Preferred Stock. 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.
Prior to the IPO, the board of directors approved, among other
things, an increase in the number of shares authorized of common stock of the
Company to 20,000,000 shares, reduced the par value to $ .001 per share, and
increased the number of authorized shares of preferred stock to 5,000,000
shares.
The Company's board of directors also declared an approximate
3,866 - for-1 stock split of the Company's common stock. This stock split
resulted in the issuance of an additional 1,932,453 shares of common stock of
the Company. 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.
(b) Secondary Public Offering
In connection with the Company's Secondary Public Offering,
1,425,165 shares of common stock were sold in June 1996. In addition, an
over-allotment option for an additional 336,000 shares of common stock was
exercised.
The net proceeds the Company received from the sale of the
1,761,165 shares of common stock, after deducting the underwriters' discounts
and commissions and other offering expenses was $44,643,245. The Company repaid
$1,963,486 of indebtedness outstanding under its credit facility with the
proceeds. The Company intends to use the remaining proceeds to fund internal
growth, for the acquisition of additional bulk CO2 systems leasing businesses
and for general corporate purposes.
F-12
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
NOTE 3 - Acquisitions
Effective January 3, 1995, the Company acquired substantially all
of the assets and technology of Carbon Dioxide Equities, Inc. d/b/a Chem Carb
CO2 (Chem Carb) for $250,000 in cash and $479,000 in notes, payable in monthly
installments through January 2000. The cash portion of the purchase price was
funded through a borrowing under the Company's $2,500,000 note payable to bank
(see Note 6).
Effective June 7, 1995, the Company acquired substantially all of
the assets and technology of Bevtech, Inc. (Bevtech) for $4,000,000 in cash,
$2,348,032 in notes, payable in monthly installments through June 2001 and
incurred additional liabilities of $775,000. The cash portion of the purchase
price was funded through a borrowing under the Company's $3,250,000 note payable
to bank and proceeds from the issuance of Series D preferred stock (see Note 6).
In January 1996, the Company purchased certain assets from two
companies, Fire-Quip Corporation and Holox, Ltd. Fire-Quip Corporation, located
in Monroe, Louisiana, sold assets for an aggregate purchase price of $475,550.
Holox, Ltd., located in Atlanta, Georgia, sold assets for an aggregate purchase
price of $545,000. The Company paid cash for both of these transactions.
Effective May 15, 1996, the Company acquired substantially all of
the assets associated with the bulk CO2 operating segment of the BevServ
Division of The Coca-Cola Bottling Company of New York, Inc. (BevServ) for
$2,914,374. The Company financed the acquisition through available borrowings
under its $30 million credit facility.
Effective June 1, 1996, the Company acquired certain assets of
Capweld, Inc., having its principal place of business in Jackson, Mississippi,
for an aggregate purchase price of $248,010. The entire purchase price was
financed through the acquisition facility with the Company's bank.
These acquisitions were accounted for by the purchase method of
accounting and, accordingly, the purchase prices and direct costs of the
acquisitions have been allocated to the respective assets and liabilities of the
acquired companies based upon their estimated fair market values at the date of
acquisition. The results of operations of the acquired companies are included in
the Company's financial statements since the effective date of the acquisitions.
The following summarized, unaudited, pro forma results of
operations assume that the Bevtech and BevServ acquisitions described above
occurred as of the beginning of the periods presented:
YEARS ENDED JUNE 30,
1995 1996
---- ----
Net Sales $10,317,129 $13,169,143
Income (loss) before extraordinary item (1,011,497) 20,275
Net loss (1,011,497) (839,247)
Net loss per common share (0.30) (0.18)
F-13
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
NOTE 4 - Property and Equipment, Net
Property and equipment, net consists of the following:
JUNE 30,
--------
1995 1996
---- ----
Leased equipment $14,154,226 $22,901,699
Equipment and cylinders 2,010,773 2,920,456
Systems held for installation 537,453 1,195,299
Vehicles 234,531 229,641
Computer equipment 85,404 164,039
Office furniture and fixtures 41,287 62,378
Leasehold improvements -- 18,482
Construction in progress -- 368,008
----------- -----------
17,063,674 27,860,002
Less accumulated depreciation 1,983,726 3,467,310
----------- -----------
$15,079,948 $24,392,692
=========== ===========
Capitalized component parts and direct costs associated with
installation of equipment leased to others included in leased equipment was
approximately $1,839,945 and $3,155,424 at June 30, 1995 and 1996, respectively.
Accumulated amortization of these costs were $712,235 and $1,118,377 at June 30,
1995 and 1996, respectively.
Depreciation of property and equipment was $851,963 and $1,609,063 for
the years ended June 30, 1995 and 1996, respectively.
NOTE 5 - Leases
The Company leases equipment to its customers generally pursuant
to five-year noncancelable operating leases which expire on varying dates
through June 2002. At June 30, 1996, future minimum rentals due from customers
are as follows:
YEAR ENDING JUNE 30,
--------------------
1997 $ 6,322,631
1998 5,667,358
1999 4,845,041
2000 3,740,789
2001 1,615,221
Thereafter 12,602
-----------
$22,203,642
===========
F-14
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
NOTE 6 - Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
---- ----
<S> <C> <C>
Notepayable to bank of $3,250,000, interest only at prime plus
2.5%, payable monthly beginning June 1, 1995, principal
payments of $54,167 plus interest beginning September 1, 1995.
Includes a $75,000 loan agreement amendment fee payable in
fifteen monthly installments of $5,000 each beginning on July
1, 1995 (repaid in 1996). (b) $ 3,325,000 $ -
Notepayable to bank of $4,300,000, principal payments of $65,152
plus interest at prime plus 2.5%, payable monthly beginning
September 30, 1994. Includes a $175,000 loan agreement
amendment fee payable on the earlier of repayment in full of
the note or May 15, 1997 (repaid in 1996). (b) 3,888,636 -
Notepayable to bank of $1,300,000, interest only at prime plus
2.5%, payable monthly beginning September 30, 1994, principal
payments of $19,697 plus interest beginning September 30,
1995 (repaid in 1996). (b) 1,300,000 -
Notepayable to bank of $2,500,000, advances made under the note
converting to term loans semi-annually from December 31, 1994
to December 31, 1996, monthly payments on the term loans and
advances calculated on a sixty-month amortization schedule
bearing interest at prime plus 2.5% (repaid in 1996). (b) 1,935,871 -
Senior subordinated convertible notes with warrants, interest only
at 14%, payable quarterly if the Company is in compliance with
certain reporting and financial requirements contained in its
amended bank credit facility, maturing on May 31, 1997 and
subordinate to loans pursuant to the bank credit facility. Ten
percent of the original principal amount of the notes or
$150,000 is convertible until maturity into 15% of the fully
diluted common stock of the Company at the rate of $10,000 per
each percent. Converted and repaid $150,000 and $1,350,000
in 1996, respectively. (a) 1,500,000 -
</TABLE>
F-15
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(6) Long-Term Debt - (Continued)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
---- ----
<S> <C> <C>
Senior subordinated convertible notes with warrants, interest only
at 6% on $950,000 and 10% on $250,000, payable quarterly if
the Company is in compliance with certain reporting and
financial requirements contained in its amended bank credit
facility. Additional interest is deferred at a rate of 8% and
4% per year, respectively, until the earliest of three events.
The notes mature on June 30, 1998 and are subordinate to loans
pursuant to the bank credit facility. Approximately 16% of the
original principal amount of the notes or $197,625 is
convertible until maturity into approximately 13% of the fully
diluted common stock of the Company at an average rate of
approximately $15,555 per each percent. Converted and repaid
$197,625 and $1,002,375 in 1996, respectively. (a) $ 1,200,000 $ -
Senior subordinated convertible notes issued with warrants (issued
in satisfaction of unpaid interest currently due on previously
outstanding senior subordinated convertible notes, interest
only at 6% payable quarterly and deferred at 8% if the Company
is in compliance with certain reporting and financial
requirements contained in its amended credit facility,
maturing July 1, 1998 and subordinate to loans pursuant to the
bank credit facility). Twenty-five percent of the original
principal amount of the notes or $59,082 is convertible until
maturity into approximately 1% of the fully diluted common
stock of the Company. Converted and repaid $59,082 and
$177,247 in 1996, respectively. (a) 236,329 -
Junior subordinated note payable to a shareholder (converted from
a prior loan payable to shareholder on August 30, 1994),
interest only deferred at a rate of 14% per year (previously
interest only at 6% payable quarterly and deferred at 8%) and
payable upon the completion of an underwritten equity offering
of the Company's securities provided that certain events take
place, maturing August 30, 1999 and subordinate to loans
pursuant to the bank credit facility and senior subor-
dinated debt (repaid in 1996). 725,000 -
</TABLE>
F-16
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(6) Long-Term Debt - (Continued)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
---- ----
<S> <C> <C>
Notepayable issued in connection with a 1995 asset acquisition of
$2,348,032, interest only at prime plus 1%, payable monthly
beginning July 7, 1995, principal payments of $39,333 plus
interest beginning the earlier of July 7, 1996 or the first
day of the month following the closing of an underwritten
public offering. The note is personally guaranteed
by a shareholder of the Company (repaid in 1996). $2,348,032 -
Notepayable issued in connection with a 1995 asset acquisition of
$479,000, principal and interest (at 7%) payments of $9,485
payable monthly, maturing January, 2000 and collateralized by
the purchased assets with a net book value of
$504,274 at June 30, 1996. 445,154 $ 359,794
Notepayable of $423,698, principal and interest (at 10%) payments
of $9,002 payable monthly, maturing May 1, 1997,
collateralized by certain high pressure cylinders with a net
book value of $164,450 at June 30, 1996 and personally
guaranteed by an officer of the Company. 187,747 94,248
Notepayable to bank of $6,000,000 under a $30 million facility,
interest only for 12 months and principal payments of $100,000
plus interest at a fixed rate of 8.51%, payable monthly for
twenty-three months commencing January 1997. Any accrued
interest and one final payment of all unpaid principal due and
payable on November 30, 1998; secured by substantially all
assets of the Company. - 6,000,000
Notepayable to bank of $10,000,000 under a $30 million facility,
interest only for 12 months at two hundred seventy-five basis
points above the 30-day London InterBank Offering Rate
("LIBOR") (8.19% at June 30, 1996), with the principal amount
outstanding at the end of 12 months (December 1996) and 24
months (December 1997) converted to term loans calculated on a
60 month amortization schedule. Any accrued interest and one
final payment of all unpaid principal due and payable on
November 30, 1998; secured by sub- stantially all assets of
the Company. - 3,248,010
</TABLE>
F-17
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(6) Long-Term Debt - (Continued)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
---- ----
<S> <C> <C>
Notepayable to bank of $13,000,000 under a $30 million facility,
interest only for 12 months at two hundred seventy-five basis
points above the 30-day London InterBank Offering Rate
("LIBOR") (8.19% at June 30, 1996), with the principal amount
outstanding at the end of 12 months (December 1996) and 24
months (December 1997) converted to term loans calculated on a
60 month amortization schedule. Any accrued interest and one
final payment of all unpaid principal due and payable on
November 30, 1998; secured by substantially
all assets of the Company. - $ 908,455
Notepayable of $290,162 for the financing of equipment, principal
and interest (at 8%) payments of $6,045 payable monthly,
maturing August 3, 1997 collateralized by equipment with a net
book value of $200,277 at June 30, 1996 and personally guar-
anteed by a shareholder of the Company. $ 138,779 75,037
Other note payable issued in connection with a 1995 asset
acquisition, principal payments aggregating $50,000 per annum
beginning July, 1995 through December 31, 1997. 125,000 75,000
Various notes payable of $89,570 for the financing of equipment,
principal payments of $2,671 payable monthly, maturing from
September 1997 to August 2000 collateralized by equipment with
a net book value of $68,118 at June 30, 1996. - 67,029
Other notes payable 35,161 16,868
------------ ------------
17,390,709 10,844,441
Less current maturities of long-term debt 2,299,159 1,358,447
------------ ------------
Long-term debt, excluding current maturities $15,091,550 $ 9,485,994
============ ============
</TABLE>
(a) See Note 2 for discussion of conversion and repayment of
certain debt.
(b) In consideration for the bank credit facility, a 10 year
warrant was issued to the bank in June 1995 to purchase 2.5% (84,917 shares) of
the fully diluted common stock of the Company at $5.00 per share.
F-18
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(6) Long-Term Debt - (Continued)
In addition, the Company maintains a revolving promissory note
payable to a bank in the amount of $1,000,000 under a $30 million facility,
interest only at two hundred seventy-five basis points above the 30-day London
InterBank Offering Rate ("LIBOR"), payable monthly and maturing November 30,
1998. At June 30, 1996, no borrowings were outstanding under this credit
arrangement.
The aggregate maturities of long-term debt for each of the five
years subsequent to June 30, 1996 are as follows:
YEAR ENDING
-----------
1997 $ 1,358,447
1998 2,188,442
1999 7,226,180
2000 70,400
2001 972
-----------
$10,844,441
===========
Interest expense on long and short-term debt amounted to
$1,270,020 and $1,402,773 for the years ended June 30, 1995 and 1996,
respectively.
Extraordinary item - loss on extinguishment of debt
For the year ended June 30, 1996, the Company incurred a one time
extraordinary charge of $859,522 for the write-off of deferred financing costs
and prepayment penalties related to debt which was repaid within the proceeds of
the IPO.
NOTE 7 - Shareholders' Equity
See Note 2 for discussion of conversion and repayment of preferred
stock and dividends declared and paid.
(a) Non-Qualified Stock Options
During 1995, the Company granted options to purchase 67,934 shares
of common stock at $4.40 per share to certain officers and employees. These
options vest one year after date of grant and are exercisable for 10 years. In
June 1996, options to purchase 33,967 shares of common stock were exercised. In
1992, the Company also granted options to purchase 45,125 shares of Common Stock
to a company in connection with the issuance of the senior subordinated
convertible notes. These options were also exercised in 1996. Proceeds to the
Company for the exercise of non qualified stock options in 1996 aggregated
$164,455.
F-19
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(7) Shareholders' Equity - (Continued)
(b) Warrant
In August 1994, the Company granted a five year warrant to
purchase 73,042 shares of Common Stock at $3.22 per share to a shareholder of
the Company in connection with the guarantee of certain indebtedness. This
warrant was exercised in 1996. Proceeds to the Company for the exercise of this
warrant aggregated $235,195.
(c) Stock Option Plans
The board of directors adopted the 1995 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. At June 30,
1995 there were no options granted under the Plan. At June 30, 1996, 55,991
options were granted at an exercise price of $9 per share and 75,000 options
were granted at an exercise price of $17.50 per share. The 55,991 options and
the 75,000 options vest one-third per annum commencing December 1996 and April
1997, respectively.
The board of directors of the Company adopted the Directors' 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 Directors' 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 June 30, 1996, options to purchase a
total of 24,000 shares of Common Stock at an exercise price of $9 per share had
been issued. None of these options are currently exercisable.
NOTE 8 - Income Taxes
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax liabilities are as
follows:
F-20
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
(8) Income Taxes - (Continued)
JUNE 30,
--------
1995 1996
----------- -----------
Deferred tax assets:
Allowance for doubtful account $ 29,000 $ 79,200
Accrued interest payable 1,600 --
Deferred interest payable 91,500 --
Other 22,100 44,900
Net operating loss carryforwards 1,760,400 2,978,600
----------- -----------
Total gross deferred tax assets 1,904,600 3,102,700
Less valuation allowance (554,900) (842,500)
----------- -----------
Net deferred tax assets 1,349,700 2,260,200
Deferred tax liabilities:
Depreciation expense (1,349,700) (2,260,200)
----------- -----------
Total gross deferred tax liabilities (1,349,700) (2,260,200)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
At June 30, 1996, the Company had net operating loss carryforwards
for Federal income tax purposes of $7,922,000, which are available to offset
future Federal taxable income, if any, in varying amounts through June 2011. The
valuation allowance for deferred tax assets as of July 1, 1995 was $554,900. The
net change in the total valuation allowance for the year ended June 30, 1996 was
an increase of $287,600.
NOTE 9 - Related Party Transactions
The Company entered into leases with the chairman of the board and
chief executive officer for its warehouse and office facilities with annual
rentals of approximately:
YEAR ENDING JUNE 30,
--------------------
1997 $248,000
1998 245,000
1999 184,000
2000 167,000
2001 125,000
Rental expense was $79,640 and $87,081 in 1995 and 1996, respectively,
under these leases.
At June 30, 1995 the Company was indebted to its chairman of the
board and chief executive officer for an aggregate principal amount of
$1,555,592 pursuant to two Senior Subordinated Notes and a Junior Subordinated
Note.
(See Note 6.)
The Company also leases an aircraft from a Company owned by the
chairman of the board and chief executive officer for a minimum of 250 hours
annually at a cost of $300 per hour. Rent expense for the years ended June 30,
1995 and 1996 was $19,282 and $77,305, respectively, for this aircraft. The
Company also leases computer equipment from the chairman of the board and chief
executive officer for $2,000 per month through May, 2000.
F-21
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
NOTE 10 - Lease Commitments
The Company leases office equipment, trucks and warehouse and
office facilities under operating leases (including related party leases, see
Note 9) that expire at various dates through February, 2003. Future minimum
lease payments under noncancelable operating leases (that have initial
noncancelable lease terms in excess of one year) are as follows:
YEAR ENDING JUNE 30
1997 $1,056,425
1998 938,277
1999 694,068
2000 504,404
2001 387,358
Thereafter 135,225
----------
$3,715,757
==========
Total rental expense under noncancelable operating leases was
approximately $446,300 and $763,900 in 1995 and 1996, respectively.
NOTE 11 - Concentration of Credit and Business Risks
The Company's business activity is with customers located within
the United States. As of June 30, 1995 and 1996, the Company's sales to
customers in the food and beverage industry were approximately 94% and 97%,
respectively.
There were no customers that accounted for greater than 5% of
total sales for the years ended June 30, 1995 or 1996, nor were there any
customers that accounted for greater than 5% of total accounts receivable at
June 30, 1995 or 1996.
NOTE 12 - Commitments and Contingencies
(a) Employment Agreement
The Company has an employment agreement with an employee that
currently provides minimum annual compensation of $70,000 per year through
December 31, 1997. The contract provides for additional compensation in the form
of bonuses based on performance, medical insurance coverage, and a company
vehicle. The employment agreement also includes a covenant against competition
with the Company which extends for two years after termination for any reason.
(b) Other
The Company is a defendant in legal actions which arise in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material effect on the Company's financial position or
results of operations.
F-22
<PAGE>
NuCo2 INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 30, 1995 AND 1996
NOTE 13 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments.
(a) Cash and cash equivalents
The carrying amount approximates fair value due to the short
maturity of these instruments.
(b) Long-term debt
The fair value of the Company's long-term debt has been estimated
based on the current rates offered to the Company for debt of the same remaining
maturities.
The carrying amounts and fair values of the Company's financial
instruments at June 30, 1996 are as follows:
Carrying Fair
Amount Value
------ -----
Cash and cash equivalents $43,000,676 $43,000,676
Long-term debt, including current maturities 10,844,441 10,844,441
NOTE 14 - New Pronouncements
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, is effective for fiscal years beginning after December 15, 1995. The early
adoption of this Statement would have no effect on the financial statements for
the year ended June 30, 1996.
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, defines a fair value based method of accounting
for employee stock options. It is effective for fiscal years beginning after
December 15, 1995. The Statement allows an entity to continue to measure
compensation cost using the accounting method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and to make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied. The Company intends to provide such pro forma
disclosures on a prospective basis.
NOTE 15 - Subsequent Events
(a) Acquisitions
In August 1996, the Company purchased certain assets from Geer Gas
Corporation and OK Leasing Company for an aggregate purchase price of
$1,400,000. The Company paid cash for these transactions.
(b) Warrants
In July 1996, the Company redeemed and cancelled a warrant to
purchase 77,000 shares of its common stock for $1,143,450. The warrant was held
by representatives of the underwriters in connection with the IPO.
(c) Operating Leases
The Company entered into six operating leases in July and August
1996. Four leases were for warehouse facilities with aggregate annual rentals of
approximately $63,000 expiring at various dates through August 1999. Two leases
were for trucks with aggregate annual rentals of approximately $19,000 expiring
at various dates through February 2003.
(d) Other
In July 1996, the Company purchased an airplane for $2,022,000
through a newly formed wholly owned subsidiary, NuAir Inc. The airplane is to be
utilized exclusively by the Company. It will enable the Company to reach remote
geographic locations which are inconvenient by commercial means of
transportation. The Company paid cash for this transaction.
F-23
Net loss per common share is computed by dividing net loss
including dividends on preferred stock and adding back interest on the
convertible portion of the senior and junior subordinated notes by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year. In connection with the Initial Public Offering
(IPO), 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 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 upon exercise of warrants and options.
The above shares have been treated as outstanding since July 1, 1994. Stock
options and warrants to purchase an additional 152,851 shares of common stock
granted during 1995 have also been treated as outstanding since July 1, 1994,
using the treasury stock method.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement (No. 333-06705) on Form S-8 of our report dated August 23, 1996 for
the year ended June 30, 1996, and to the reference to our firm under the caption
"Experts" in the Prospectus.
COOPER, SELVIN & STRASSBERG LLP
New York, New York
September 26, 1996
Consent of Independent Certified Public Accountants
The Board of Directors
NuCo2 Inc.
We consent to incorporation by reference in the registration statement (No.
333-06705) on Form S-8 of NuCo2 Inc. of our report dated October 6, 1995,
relating to the balance sheet of NuCo2 Inc. as of June 30, 1995, and the related
statements of operations, shareholders' equity, and cash flows for the year then
ended, which report appears in the June 30, 1996 annual report on Form 10-KSB of
NuCo2 Inc.
KPMG PEAT MARWICK LLP
West Palm Beach, Florida
September 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NUCO2 INC.
FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 43,000,676
<SECURITIES> 0
<RECEIVABLES> 1,385,642
<ALLOWANCES> 210,629
<INVENTORY> 52,425
<CURRENT-ASSETS> 44,823,691
<PP&E> 27,860,002
<DEPRECIATION> 3,467,310
<TOTAL-ASSETS> 74,632,685
<CURRENT-LIABILITIES> 4,156,746
<BONDS> 0
0
0
<COMMON> 7,129
<OTHER-SE> 60,677,281
<TOTAL-LIABILITY-AND-EQUITY> 74,632,685
<SALES> 11,965,999
<TOTAL-REVENUES> 11,965,999
<CGS> 5,177,320
<TOTAL-COSTS> 10,661,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,257,984
<INCOME-PRETAX> 46,822
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,822
<DISCONTINUED> 0
<EXTRAORDINARY> (859,522)
<CHANGES> 0
<NET-INCOME> (812,700)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
