FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 27, 1998 Commission File Number 33-11170-B
HOST AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1168423
- -------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2 Broadway Hamden, Connecticut 06518-2697
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (203) 248-4100
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check whether the registrant
(1) has filed all reports required to be
files by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during
the preceding 12 months (or for such
shorter period that the registrant was Yes: X
required to file such report(s), and (2) -----
has been subject to such filing No:
requirements for the past 90 days. -----
Indicate the number of shares outstanding
of each of the issuer's classes of common
stock, as of the close of the period
covered by this report.
Number of shares outstanding at
Class September 27, 1998
Common Stock, $.001 par value 1,130,000 shares
HOST AMERICA CORPORATION
SEPTEMBER 27, 1998 FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Balance Sheets - September 27, 1998 and
September 28, 1997 3
Condensed Statements of Income -three months ended
September 27, 1998 and September 28, 1997 4
Condensed Statements of Cash Flows - three months ended
September 27, 1998 and September 28, 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
HOST AMERICA CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
September 27, 1998 September 28, 1997
(Unaudited) (Unaudited)
---------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 3,188,811 $ 164,747
Accounts receivable, net of allowance for
doubtful accounts of $8,300 and $10,000
as of September 27, 1998 and September
28, 1997, respectively 409,415 397,288
Inventory 202,769 153,482
Prepaid expenses and other 217,584 80,241
Deferred income taxes 30,000 30,000
----------- -----------
Total current assets 4,048,579 825,758
PROPERTY AND EQUIPMENT, net 369,107 224,370
----------- -----------
$ 4,417,686 $ 1,050,128
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 89,659 $ 85,643
Accounts payable 253,751 551,362
Accrued expenses 105,978 105,458
Due to officer/director - 8,240
----------- -----------
Total current liabilities 449,388 750,703
LONG-TERM DEBT, less current portion
included above 176,933 139,827
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 20,000,000
shares authorized, 700,000 shares issued and
outstanding 700 -
Common stock, $.001 par value, 80,000,000 shares
authorized, 1,130,000 and 130,000 shares issued
and outstanding as of September 27, 1998 and
September 28, 1997, respectively 1,130 130
Additional paid-in capital 7,502,691 244,958
Deficit (3,713,156) (85,490)
----------- -----------
Total stockholders' equity 3,791,365 159,598
----------- -----------
$ 4,417,686 $ 1,050,128
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS
-3-
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF INCOME
For the three months ended
--------------------------------------
September 27, 1998 September 28, 1997
(Unaudited) (Unaudited)
---------------- ----------------
NET REVENUES $ 1,957,540 $ 1,635,120
COST OF GOODS SOLD 1,653,520 1,363,980
----------- -----------
Gross profit 304,020 271,140
GENERAL AND ADMINISTRATIVE EXPENSES 297,960 240,270
----------- -----------
Net income $ 6,060 $ 30,870
=========== ===========
NET INCOME PER COMMON SHARE $ 0.01 $ 0.24
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-4-
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended
--------------------------------------
September 27, 1998 September 28, 1997
(Unaudited) (Unaudited)
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,060 $ 30,870
Adjustments to reconcile net income to net
cash used in operating activities 25,908 20,403
Changes in operating assets and liabilities (952,197) (70,647)
----------- -----------
Net cash used in operating activities (920,229) (19,374)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (52,942) (10,535)
----------- -----------
Net cash used in investing activities (52,942) (10,535)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
warrants, net 3,759,433 -
Decrease in deferred offering costs 486,029 -
Proceeds from demand note payable and long
term debt - 75,000
Decrease in due to officer/director (17,041) (2,401)
Principal payments on long-term debt (115,968) (18,064)
----------- -----------
Net cash provided by financing activities 4,112,453 54,535
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,139,282 24,626
CASH AND CASH EQUIVALENTS, beginning of period 49,529 140,121
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,188,811 $ 164,747
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-5-
HOST AMERICA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - PUBLIC OFFERING
In July, 1998, the Company completed the issuance of an
additional 1,000,000 common shares and 1,000,000 common stock
warrants through a public offering, resulting in net proceeds
(after deducting issuance costs) of $3,759,433. The proceeds of
the offering will be used for acquisitions, sales and marketing,
working capital and product development.
NOTE B - REVERSE SPLIT OF OUTSTANDING COMMON STOCK
On February 14, 1998, the Board of Directors of the Company
authorized the reverse split of all issued and outstanding shares
of Common Stock so that each one hundred shares outstanding
converted to one share. Accordingly, all share and per share
amounts have been restated in the accompanying condensed
financial statements as of and for the three months ended
September 28, 1997.
NOTE C - PREFERRED STOCK
On March 1, 1998, the Company issued 700,000 shares of Preferred
Stock to certain officers and directors of the Company. Each
share of Preferred Stock is convertible into one share of Common
Stock at a conversion value of $5.00 per share. The conversion
price can potentially decrease should the Company meet certain
revenue and pre-tax earnings incentives over the next three years
and in the event the Company does not attain any of the
incentives, each share of Series A Preferred Stock then
outstanding shall automatically convert, at no additional cost to
the holder into one (1) share of common stock at the end of five
(5) years. The Preferred Shares have been valued by the Board of
Directors at $5.00 per share based on the stock's conversion
value. The Preferred Shares are entitled to vote on all matters
that the Common Stock is entitled to vote on the basis of one
vote per share.
NOTE D - RECENTLY ISSUED ACCOUNTING STANDARDS; EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". The objective of
SFAS No. 128 is to simplify the standards for computing earnings
per share (EPS) and replaces the presentation of primary and
fully-diluted EPS with a presentation of basic and diluted EPS.
Implementation of SFAS No. 128 did not have any impact on the
Company's calculation of EPS.
Net income per common share was computed based upon 877,253 and
130,000 weighted average shares outstanding during each of the
periods ended September 27, 1998 and September 28, 1997,
respectively. Dilutive earnings per share was not presented as
the potentially dilutive warrants, convertible preferred stock
and stock purchase options are anti-dilutive.
-6-
HOST AMERICA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On July 21, 1998, the Company completed a public offering of 1,000,000
shares of its Common Stock and 1,000,000 Common Stock Purchase Warrants.
The Company received net proceeds from the sale of approximately
$3,759,433. The Company anticipates utilizing proceeds of the offering for
sales and marketing, product development, acquisitions and working capital.
In September, the Company opened two new facilities. The Twin Rinks in
Stamford, Connecticut is a "state of the art" skating and hockey facility.
The Company is operating a full line concession food court service and a
sports bar which is scheduled to open in November 1998. The second
facility is Tyco Submarine in Morristown, New Jersey. The Company is
operating a food court facility, extensive catering, vending services and
the HOMEfood Market program.
In August, the Company opened vending services at Sacred Heart University
in Fairfield, Connecticut.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 27, 1998 ("1998 PERIOD") VS. THREE MONTHS
ENDED SEPTEMBER 28, 1997 ("1997 PERIOD")
Net revenues for the 1998 period were $1,957,540 as compared to $1,635,120
for the 1997 period. Accordingly, revenues increased $322,420 or
approximately 19.7% due in part to the aggressive program of adding new
facilities and maximizing revenue from existing facilities.
Cost of goods sold increased $289,540 and the gross profit percentage
decreased from 16.6% to 15.5% in 1998 when compared to 1997. The cost
increase and decline in gross profit percentage can be attributed to the
increase in the number of facilities being operated, changes in the food
items being offered and the "start up" expenses associated with getting the
new facilities operational.
The Company realized net income for the 1998 period of $6,060 as compared
to income of $30,870 in the 1997 period. This decreased net income in 1998
is partially due to the hiring of additional employees including a regional
sales and operations manager to gain additional market share and an
additional administrative person to support the growing operation.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity as evidenced by its current ratio has continued to
improve. The current ratio at September 27, 1998 and September 28, 1997
was 9.01:1 and 1.10:1, respectively. The proceeds from the public offering
is the main contributor to this improvement.
Net cash flows for the three months ended September 27, 1998 resulted in an
increase in cash and cash equivalents for the quarter of $3,139,282.
Operating activities resulted in a cash outflow during the period of
$920,229 primarily relating to the payment of liabilities upon receiving
the proceeds of the public offering. Purchases of equipment to support the
rapid expansion of facilities under management amounted to $52,942 and the
Company's financing activities resulted in cash inflow of $4,112,453 due
primarily to the receipt of proceeds from the public offering.
-7-
HOST AMERICA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Cash flows from operating activities in the 1997 period resulted in a cash
outflow of $19,374. The outflow was primarily due to the need to finance
a build-up in accounts receivable. Cash flows from investing activities
for the 1997 period reflected a net investment in new equipment to support
the expansion to new facilities.
Cash flows from financing activities in the 1997 period resulted in a net
inflow of cash of $54,535 due primarily to the Company obtaining a $75,000
demand note payable during the period.
The net effect of all these events resulted in an increase in cash of
$24,626 for the 1997 year and achieving and ending cash balance of $164,747
at September 28, 1997.
-8-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings NONE
Item 2 - Change in Securities See Notes A, B and C of Notes
to Condensed Financial
Statements
Item 3 - Defaults Upon Senior Securities NONE
Item 4 - Submission of Matters to a Vote of Security Holders
NONE
Item 5 - Other Information NONE
Item 6 - Exhibits and Reports on Form 8-K NONE
-9-
SIGNATURES
----------
Pursuant to the requirements of The Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HOST AMERICA CORPORATION
Date: November 12, 1998 By:/s/ GEOFFREY W. RAMSEY
- --------------------------- ----------------------------------
Geoffrey W. Ramsey, President
and Chief Financial Officer
-10-