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 December 25, 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 December 25, 1998
Common Stock, $.001 par value 1,130,000 shares
HOST AMERICA CORPORATION
DECEMBER 25, 1998 FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - December 25, 1998 (Unaudited)
and June 28, 1998 (Audited) 3
Condensed Statements of Operations -three months
ended December 25, 1998 (Unaudited) and
December 26, 1997 (Unaudited) 4
Condensed Statements of Operations -six months
ended December 25, 1998 (Unaudited) and
December 26, 1997 (Unaudited) 5
Condensed Statements of Cash Flows - six months
ended December 25, 1998 (Unaudited) and
December 26, 1997 (Unaudited) 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
HOST AMERICA CORPORATION
BALANCE SHEETS
ASSETS
December 25, 1998 June 28, 1998
(Unaudited) (Audited)
----------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 2,930,059 $ 49,529
Accounts receivable, net of allowance for
doubtful accounts of $8,300 as of
December 25, 1998 and June 28, 1998 350,899 380,989
Inventory 182,495 173,807
Deferred offering costs - 486,029
Prepaid expenses and other 181,690 117,909
Deferred income taxes 30,000 30,000
----------- -----------
Total current assets 3,675,143 1,238,263
PROPERTY AND EQUIPMENT, net 445,729 324,254
----------- -----------
$ 4,120,872 $ 1,562,517
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Demand note payable $ - $ 75,000
Current portion of long-term debt 68,569 123,661
Accounts payable 251,892 870,003
Accrued expenses 115,319 284,860
Due to officer/director - 17,041
----------- -----------
Total current liabilities 435,780 1,370,565
LONG-TERM DEBT, less current portion
included above 166,080 166,080
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 20,000,000
shares authorized, 700,000 shares issued and
outstanding 700 700
Common stock, $.001 par value, 80,000,000 shares
authorized, 1,130,000 and 130,000 shares issued
and outstanding as of December 25, 1998 and
June 28, 1998, respectively 1,130 130
Additional paid-in capital 7,526,175 3,744,258
Deficit (4,008,993) (3,719,216)
----------- -----------
Total stockholders' equity 3,519,012 25,872
----------- -----------
$ 4,120,872 $ 1,562,517
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-3-
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended
--------------------------------------
December 25, 1998 December 26, 1997
(Unaudited) (Unaudited)
----------------- -----------------
NET REVENUES $ 2,027,690 $ 1,777,973
COST OF GOODS SOLD 1,886,363 1,552,469
----------- -----------
Gross profit 141,327 225,504
GENERAL AND ADMINISTRATIVE EXPENSES 436,777 158,919
----------- -----------
Net (loss) income $ (295,450) $ 66,585
=========== ===========
NET (LOSS) INCOME PER COMMON SHARE $ (0.26) $ 0.51
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-4-
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the six months ended
--------------------------------------
December 25, 1998 December 26, 1997
(Unaudited) (Unaudited)
----------------- -----------------
NET REVENUES $ 3,985,230 $ 3,413,093
COST OF GOODS SOLD 3,539,883 2,916,449
----------- -----------
Gross profit 445,347 496,644
GENERAL AND ADMINISTRATIVE EXPENSES 734,737 399,189
----------- -----------
Net (loss) income $ (289,390) $ 97,455
=========== ===========
NET (LOSS) INCOME PER COMMON SHARE $ (0.30) $ 0.75
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-5-
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended
--------------------------------------
December 25, 1998 December 26, 1997
(Unaudited) (Unaudited)
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (289,390) $ 97,455
Adjustments to reconcile net (loss) income
to net cash used in operating activities 52,893 41,894
Changes in operating assets and liabilities (877,693) (169,879)
----------- -----------
Net cash used in operating activities (1,114,190) (30,530)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (103,609) (59,667)
----------- -----------
Net cash used in investing activities (103,609) (59,667)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
warrants, net 3,759,433 -
Decrease in deferred offering costs 486,029 -
Decrease in due to officer/director (17,041) (2,801)
(Payment) of proceeds from demand note
payable and long term debt (130,092) 19,558
----------- -----------
Net cash provided by financing activities 4,098,329 16,757
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,880,530 (73,440)
CASH AND CASH EQUIVALENTS, beginning of period 49,529 140,121
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,930,059 $ 66,681
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-6-
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 and six months ended
December 26, 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 1,130,000 and
130,000 weighted average shares outstanding during the three
months ended December 25, 1998 and December 26, 1997,
respectively, and 963,333 and 130,000 weighted average shares
outstanding during the six months ended December 25, 1998 and
December 26, 1997, respectively. Dilutive earnings per share was
not presented as the potentially dilutive warrants, convertible
preferred stock and stock purchase options are anti-dilutive.
-7-
HOST AMERICA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company experienced substantial growth in operations with three new
accounts including the opening of a new recreational division to manage
food services at entertainment facilities. Substantial development costs
were incurred to lay the groundwork for the next four recreational
facilities expected in 1999 and 2000. Substantial sales efforts by the
Company's sales and marketing department in Massachusetts and New Jersey
are producing new and larger accounts that will open in the third and
fourth quarters of this year.
The Company's merger and acquisition programs are establishing contacts
with many new target companies, and are building relationships that will
produce strong acquisition candidates.
During this quarter the Company updated and expanded its communication
technology allowing all units to be connected on-line to the corporate
office. This was a necessary investment to streamline operational
reporting and insure year 2000 compliance.
Also during this quarter, the Company's marketing department developed and
produced high quality glossy brochures that promote all of the Company's
competitive advantages and will be used for mass mailings and sales
efforts.
Finally, the Company elected to terminate the letter of intent with
Corporate Dining Services, Inc. to pursue larger acquisition candidates.
RESULTS OF OPERATIONS
Net revenues for the three months ended December 25, 1998 were $2,027,690
as compared to $1,777,973 for the three months ended December 26, 1997.
Accordingly, revenues increased $249,717 or approximately 14%. Net
revenues for the six months ended December 25, 1998 increased $572,137, or
17%, when compared to the six months ended December 26, 1997. The
aforementioned increases are primarily due to the aggressive program of
adding new facilities and maximizing revenue from existing facilities.
Cost of goods sold increased $333,894 and $623,434 for the three and six
months ended December 25, 1998 and 1997, respectively. This increase can
be attributed to the developmental costs involved in opening the Company's
new recreational division. In opening the new accounts, the Company
incurred marketing, inventory, and other start-up expenses. Additionally,
certain one-time expenses were recognized from a major customer's
reorganization.
The Company incurred a net loss of $295,450 and $289,390 for the three and
six months ended December 25, 1998, respectively, as compared to net income
of $66,585 and $97,455 for the three and six months ended December 26,
1997, respectively. This loss in the 1998 periods is due primarily to the
high labor costs involved in opening the new accounts and recreational
division along with the training and systems development required to
automate each of the Company's field locations. Lastly, legal and
accounting expenses incurred in connection with potential acquisitions, and
increased insurance costs added to the loss.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity as evidenced by its current ratio has continued to
improve. The current ratio at December 25, 1998 and June 28, 1998 was
8.43:1 and .90:1, respectively. The proceeds from the public offering is
the main contributor to this improvement.
-8-
HOST AMERICA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash flows for the six month period in 1998 resulted in an increase in
cash and cash equivalents of $2,880,530. Operating activities resulted in
a cash outflow during the period of $1,114,190 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 $103,609 and the Company's financing activities
resulted in cash inflow of $4,098,329 due primarily to the receipt of
proceeds from the public offering.
Cash flows from operating activities in the 1997 period resulted in a cash
outflow of $30,530. 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 of $59,667
to support the expansion to new facilities and cash flows from financing
activities resulted in a net inflow of cash of $16,757 due primarily to the
Company obtaining a $75,000 demand note payable. The net effect of all
these events resulted in a decrease in cash of $73,440 for the 1997 period
and achieving and ending cash balance of $66,681 at December 26, 1997.
-9-
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
-10-
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: February 12, 1999 By:/s/ GEOFFREY W. RAMSEY
- ------------------------ --------------------------
Geoffrey W. Ramsey, President
and Chief Financial Officer
-11-