UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G)
OF THE SECURITIES EXCHANGE ACT OF 1934
HEALTH EXPRESS USA, INC.
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(Name of Small Business Issuer in its Charter)
Florida 65-0847995
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
275 Commercial Blvd., Suite 260
Fort Lauderdale, FL 33308
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(Address of Principal Executive (Zip Code)
Offices)
Issuer's Telephone Number:
(954) 776-5401
Securities to be Registered Pursuant to Section 12(B) of the Act:
None
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Securities to be Registered Pursuant to Section 12(G) of the Act:
Common Stock, Par Value $.001 Per Share
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(Title of Class)
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Health Express USA, Inc. ("Health Express" or the "Company"), was
incorporated in Florida on July 2, 1998 to develop, construct and operate
gourmet, fast food restaurants. Since inception, the Company has had no
operations and has conducted no business. It is currently in the development
stage and is in the process of completing construction of its first restaurant,
which is expected to open for business in late December 1999.
(b) Business of the Issuer
(1) Principal Products and Services and their Markets.
Management's present focus is the completion and opening of its first
restaurant and satisfying consumer demands and preferences in the healthy and
nutritious fast food arena in the local market. The Company's initial restaurant
and all future restaurants, if any, will operate under the name "Healthy Bites
Grill". The principal products that will be offered by the Company through its
restaurants are gourmet, healthy and nutritious fast food items. These items are
expected to include vegetable (veggie) burgers, mushroom burgers, salads,
smoothies and natural, healthy beverages. The items will be available for
consumption on site or as take-out items purchased in the restaurant or at the
drive-thru.
Under an agreement with data central usa, inc. A data base management
company, the company is assembling a select group of high profile product lines
for its joint marketing effort. These high profile product lines consist of
those products with already established national brand name recognition which
health conscious consumers already identify as high quality products in the
health food industry. The products will include meal supplements such as Met-Rx
protein shakes and protein bars (dietary supplements) and Myoplex protein
shakes, Barnie's coffee, Bell and Evans' ( chickens ) and Muir Glen (tomato
products). based in Ocala, Florida, data central manages the frequent-dining
programs for multi-unit restaurant chains by providing turnkey electronic
loyalty/frequency solution services this is a sales tracking database specific
to each customer. Each of the restaurant's customers will be provided with a
healthy bites grill identification card with a magnetic strip. The card is then
swiped on each visit, sales information is accumulated and the customer is
awarded points relative to the frequency of patronage. These points are
redeemable for company discounts. This data-based sales information will assist
the company in identifying the frequent customer. Through the loyalty discount
program, the company will then be able to reward that customer through dining
discounts based on the number of points accumulated during each visit to the
company's restaurant thereby encouraging the customer to return. Management
anticipates that this program will increase sales by bringing the customer back
in order to use the earned discounts. It is expected that such increased sales
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will foster customer loyalty. Management expects to use the database it obtains
through the program identification card for promotional and advertising
purposes. It is anticipated that such promotional materials will include gift
certificates for birthdays and announcements of new products and locations. The
company has entered into an agreement with data central to provide the database
management services described once the restaurant is in operation. As of the
date hereof, no retainer has been paid and no fixed fees have been determined.
The fees for this service will be negotiated when the restaurant opens and when
management determines that it is appropriate to commence the program.
As a restaurant operation designed with the goal to ultimately expand
nationwide, management has focused its attention on gaining an understanding of
consumer demands in healthy foods. Management is currently developing the
restaurant's initial menu selections with the assistance of its menu and food
preparation team comprised of Mr. David Maltrotti, Executive Vice President of
Operations, and Mr. Roy A. Kindberg, General manager.
In an effort not to duplicate consumer taste tests already fully
implemented by major players in the health food industry, such as Wild Oats and
WholeFoods, the Company is creating its initial menu based on currently known
consumer preferences and by including new menu items not traditionally found in
fast food restaurants such as complete protein vegi-burgers and grilled
portobella pannini. This is an ongoing process, the results of which will not be
fully known until the Company's first restaurant is opened and consumer surveys
are completed and analyzed. The results of such surveys will play a key role in
the addition, deletion and modification of menu items. Management expects the
expansion of the Company's restaurant operations will require the establishment
of a department dedicated to market survey and testing in order to refine its
menu items in response to internally generated market surveys.
A key element of the Company's business plan is to enter into franchise
agreements with potential and qualified franchisees to open and operate
restaurants under the "Healthy Bites Grill" name. The Company has retained the
services of an experienced franchise consultant, Donald Luria, to assist in this
process. Mr Luria previously worked with subway restaurants as a vice president
of operations and as a franchise consultant for ten years. He was responsible
for assisting and developing over 100 subway franchises in the southeastern
united states. Mr. Luria has also been a franchise consultant for the Coffee
Beanery and Miami Subs in the South Florida region. Mr. Luria will assist in the
development and implementation of the Company's franchise operations and will be
involved in helping franchisees in product development, hiring and training,
site selection, lease negotiation, store design. In consideration for these
services, in consideration for providing these services to the Company, Mr.
Luria has received 1000 restricted shares of the Company's common stock and will
be paid on an hourly basis at the rate of $75 per hour. Management believes that
the Company has found a niche in the fast food industry by being the sole
provider of healthy food on a fast food format. It is expected that the
franchise agreements will include royalty fees based on sales volume and require
operational and quality control.
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Mr. David Maltrotti, executive vice president of operations will be in
charge of all aspects of restaurant operations, including equipment purchasing
decisions and restaurant layout recommendations. Although Mr. Maltrotti has not
started any franchises, he has been actively involved in the food service and
hospitality industry for over 25 years and is an experienced
vegetarian\conventional chef. He was instrumental in starting Whole Earth
Markets in Boca Raton, Florida where he assisted in developing the restaurant's
menu. He was also responsible for starting and developing the menu at the
Natural Food Market of South Beach, Miami, a successful vegetarian and
macrobiotic gourmet food store with multi-establishment operations. Mr.
Maltrotti was an instructor for the Miami Dade Community College health and
nutrition program. He has recently designed recipes for the Broward General
Medical Center, Fort Lauderdale, and the Dean Ornish Wellness Center. Mr.
Maltrotti has consulted on numerous projects including the Sundy House of Delray
Beach, Florida where he developed a traditional southern style menu to reflect
the historical significance of the property on which it is located. Mr.
Maltrotti designed the food service program for the Gas Light Club restaurant
located in Boca Raton florida.
(2) Distribution Methods
It is anticipated that the initial restaurant will serve food prepared
in its on-site kitchen. A warehouse/storage facility is planned to be leased for
short-term distribution items such as ancillary food products and supplies.
Management anticipates that once franchise operations commence, the Company will
operate a drop shipment facility for the distribution of certain menu items that
allow for the pre-preparation and delivery to various franchises within regional
boundaries based on logistical factors such as distance and delivery time. The
"drop shipment facility" is a storage/warehouse that will serve initially to
store the restaurant's non-perishable items such as paper products and supplies.
The Company is already leasing warehouse space for this purpose. A drop shipment
facility with kitchen facilities will be used only when sufficient franchise
operations have commenced. Since the Company has not yet entered into any
franchise agreements, a drop shipment facility with kitchen facilities is only
in the planning stages at this time. The kitchen facilities, when operational,
will be used for the production of the company's signature line products,
including the "Health Bites Burger", "Salmon Burger" and "Organic Baked French
Fries". Thereafter, management anticipates that additional distribution
facilities will be needed if franchise restaurants are opened in different
geographic regions of the country. The Company's initial franchises are expected
to be in the South Florida area.
The Company has received local, regional and nationwide attention with
various write-ups in several industry publications such as "Restaurant News",
"Crittendens Restaurant Chain Report", "Sunbelt Food Service Magazine" and
"Natural Products Industry Provider". The Company has also joined with Barnie's
Coffee Co., a major specialty coffee Company, which is distributed by Standard
Coffee Service Company. The Company currently has a contract with Standard
Coffee Service Company to distribute Barnie's Coffee in exchange for the free
use of its equipment, provided that the Company only sell the Barnie's Coffee
line which will be purchased on a C.O.D. basis. The Company is currently
involved in aligning supplier relationships with SYSCO Food Service, a
conventional food service supplier that will provide assorted supplies including
cleaning agents, trash bags, paper towels and plastic ware; Organica, an
all-natural organic products distributor which will supply wholesale bulk food
service ingredients; cornucopia, also known as United Distributors, which will
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supply most of the all-natural dry goods and produce goods; Kinfolk, a
distributor of health products, will provide soy, cheese and tofu lines; Green
Garden, A live foods distributor which will provide sprouts, sprouted beans and
wheat grass; and Tree of Life, a multi-faceted national distributor of natural
product labels which will supply vitamin supplement lines, gourmet specialty
lines and a variety of specific industry products. The Company does not have
contracts with the above suppliers but is in the process of establishing lines
of credit with most of them, as it is the industry practice to make bulk
purchases on credit.
Management believes that the site chosen for its flagship restaurant
represents the ideal type of location for all of the Company's planned future
restaurants. It is expected that this model will serve as the blueprint for such
future restaurants. Location represents one of the factors to the success of the
Company's restaurants, with other factors being food related (quality, price,
timeliness and convenience) and quality of service. Management believes that its
restaurant will attract the attention of the local consumer because the
restaurant will be the only gourmet health food restaurant in South Florida with
both a drive-thru and sit-down facility. It is expected that the initial
customers will come from the local area, attracted by a Bally's Scandinavian Gym
which is being built approximately one half mile from the restaurant. The
restaurant site is also in close proximity to two hospitals, two high schools
and various apartment complexes. Management anticipates that it will initially
draw customers from these locations. If the operations of the initial restaurant
are profitable then management believes that it will have found the ideal target
area for future expansion, both for company-owned restaurants as well as
franchise operations.
(3) Status of Publicly Announced New Products or Services
On September 28, 1999, the Company announced the opening of its initial
flagship restaurant for the fall of 1999. This news release to Business Wire
introduced Health Express as a fast food restaurant chain offering healthy food
and announced the opening of its first restaurant for the fall of 1999. As of
today, the Company has begun construction and is planning a grand opening for
the late December, 1999. The delays experienced in the opening of the restaurant
are directly attributable to the process of obtaining various local building
permits. All permits have since been obtained and construction, which began on
september 28, 1999, is nearing completion,
(4) Competitive Business Conditions
The Company has competition from existing fast food chains offering
conventional fast food. However none offer the type of products that the Company
is specializing in. In fact, the major competitors are the ones that offer the
type of fast food that the health conscious American consumer is now avoiding.
Additionally, management anticipates that it may have competition from
established health food stores and small single proprietary health food
restaurants. There are no direct competitors in the area of healthy fast food.
Management believes that the Company can develop name identification with
specific menu items offered in the healthy gourmet fast food industry, which is
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expected to enable the Company to compete in its niche market. Management
believes, although no assurances can be given, that the Company has a
competitive edge which is based on a combination of consumer demands for a
reasonably priced healthy meal served in less time and with consistently good
taste. Competitors in the health food market such as Wild Oats and Whole Foods,
which are operating in Fort Lauderdale, are currently successful but do not
offer fast food service with convenient drive-thru.
(5) Dependence on Major Customers
The Company, as a fast food restaurant, is not dependent on any major
customers but will seek to gain the patronage of the local consumers within a
strategic location. The current sight for the initial restaurant represents what
management perceives as an ideal location for a flagship operation. It is
centrally located in a business and medical community within a few mile radius
of two popular health clubs, a karate center and apartment and residential
areas.
It is also on a busy thoroughfare which links a major highway and the
ocean with substantial traffic flow of business people, tourists and local
residents. The mission of the Company is to ensure repeat business and customer
loyalty by providing a high quality nutritious and delicious meal at a
reasonable price in relatively short time and within pleasant surroundings.
(6) Intellectual Property
The Company has filed a trademark application for a federally
registered trademark for the name "Healthy Bites Grill" which is intended to be
used as the name for all restaurants and has received provisional approval from
the U.S. Patent and Trademark Office for its use. Confidentiality agreements
will be required from all production personnel on the Healthy Bites Grill
recipes.
(7) Governmental Approval
At the present time there is no government approval required for the
Company's principal products or services. Restaurant operations are generally
subject to local, county and state restaurant operation, health, sanitation and
quality guidelines. The Company's operations are also subject to standard
hospitality, food safety and sanitation guidelines. The majority of governmental
regulations regarding restaurant operations are handled at the state level by
The Florida State Division of Hotels and Restaurants. The first step of the
approval process is completed at the Plan Review Office to insure design
compliance. Next, the design is submitted to the Department of Natural Resource
Protection, a county agency, for environmental impact review. After construction
is completed, the State Division of Hotels and Restaurants and the City Building
and Zoning Department physically inspect the facility. On approval, the City of
Oakland Park will issue an Occupational License and a Business Regulations
License will be issued by the State of Florida. After opening, the restaurant
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will be inspected every four months by the State of Florida For compliance with
the health and sanitation code and every year by the local fire marshal. The
Company expects to incur approximately $500 in license fees in its first year of
operation and approximately $400 each year thereafter. The Company does not
foresee any additional costs associated with government regulations or
compliance thereof at the present time.
(8) Governmental Approval, Regulation and Environmental Compliance
The Company is and will be subject, both directly and indirectly, to
various laws and regulations relating to its business, including city and county
occupational licenses and health and sanitation inspections. At the present
time, management believes that it is in material compliance with all applicable
ordinances, rules and regulations, however, new rules, ordinances and
regulations may be enacted in the future, which may require compliance by the
Company in the future. The Company anticipates that it will have no material
costs associated with compliance with current federal, state and local
environmental laws.
(9) Research and Development
The Company retained Southern Hospitality Services, an independent
contractor, to conduct market surveys and similar studies. The survey results
obtained by the Company from such surveys support management's belief that the
consumer market in the food industry is positively receptive to a healthy food
restaurant with a fast food format. After receiving the results of such surveys,
management conducted an internal evaluation of the potential success of the
company's business model and concluded that the current trend is for healthier
foods without sacrificing time or good taste. Therefore, management does not
anticipate that it will conduct any research and development in the foreseeable
future with outside market survey companies. Management expects to conduct
internally generated surveys by utilizing customer response cards collected at
its restaurant which will be available at the counter for voluntary completion
by customers. It is anticipated that the responses generated by these cards will
provide management with valuable information concerning consumer preference and
demands. Management will then be able to make menu and other changes necessary
to keep pace with its customers preferences and concerns. Management expects
that this will be an on-going process to satisfy the changing tastes of its
customers and by quickly responding to these internal customer surveys.
(10) Employees and Facilities
As of November 15, 1999, the Company had four (4) full-time and
two (2) part-time employees. The Company also employs independent contractors
and other temporary employees. None of the Company's employees is represented by
a labor union, and the Company considers its employee relations to be good.
The Company expects the number of employees to grow significantly over
the next twelve months once its initial restaurant opens and it commences
operations. The Company believes that its future success will depend in part on
its continued ability to attract, hire and retain qualified personnel.
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The Company expects growth by both franchising and direct ownership in
various locations. Each restaurant is expected to require approximately twelve
employees. It is expected that all accounting functions will be highly
centralized and will be interfaced or linked to the Company's accounting
program. It is expected that both Company-owned restaurants and franchise
operations will use the same point of sale system and they, in turn, will report
on a monthly basis to a centralized accounting department of the company for
managerial and financial reporting purposes.
The Company's first restaurant operation will be in leased space
located at 1538 East Commercial Blvd, Fort Lauderdale, Florida. See Item 3.
Description of Property. The Company's executive offices are at 275 Commercial
Boulevard, Suite 260, Fort Lauderdale, Florida. The Company believes that
additional space will be required as its business expands and that it will be
able to obtain suitable space as needed. The Company does not own any real
estate.
(c) Reports to Security Holders
Prior to filing this Form 10-SB, the Company has not been required to
deliver annual reports. To the extent that the Company is required to deliver
annual reports to security holders through its status as a reporting company,
the Company shall deliver annual reports. Also, to the extent the Company is
required to deliver annual reports by the rules or regulations of any exchange
upon which the Company's shares are traded, the Company shall deliver annual
reports. If the Company is not required to deliver annual reports, the Company
will not go to the expense of producing and delivering such reports. If the
Company is required to deliver annual reports, they will contain audited
financial statements as required.
Prior to the filing of this Form 10-SB, the Company has not filed
reports with the Securities and Exchange Commission. Once the Company becomes a
reporting company, management anticipates that Forms 3, 4, 5, 10-KSB, 10-QSB,
8-K and Schedules 13D along with appropriate proxy materials will have to be
filed as they come due. If the Company issues additional shares, the Company may
file additional registration statements for those shares.
The public may read and copy materials the Company files with the
Securities and Exchange Commission at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The Internet
address of the Commission's site is (http://www.sec.gov).
(d) Year 2000 Disclosure
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The Company does not anticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at its
facilities. All of the Company's computer systems are new and have been Year
2000 compliant since their acquisition. The Company keeps current with all
updates and revisions with all software the Company currently uses. It is
anticipated that the software updates reflect required revisions to accommodate
transactions in the Year 2000 and thereafter. Nonetheless, management recognizes
the problems that may arise in connection with the Year 2000 issue.
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using A00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Company does not believe that it has material exposure
to the Year 2000 issue with respect to its own information systems since its
existing systems correctly define the year 2000. The Company intends to survey
its major vendors to determine the extent to which their computer systems
(insofar as they relate to the Company's business) are Year 2000 compliant. The
Company is currently unable to predict the extent to which the Year 2000 issue
will affect its vendors, or the extent to which it would be vulnerable to the
vendor's failure to remediate any Year 2000 issues on a timely basis. The
failure of a major vendor subject to the Year 2000 to convert its systems on a
timely basis or a conversion that is incompatible with the Company's systems
could have an adverse effect on the Company. In addition, in a worst case
scenario, if the Company's vendor's computer systems do not contain the
necessary software updates to be Year 2000 compliant, a multitude of problems
could occur which may include, among others, lost orders, supplies not shipped
or shipped to incorrect addresses and credit card purchases incorrectly credited
or debited. As a result, the Company's operations could be adversely affected
which could result in lost business, which may have a material adverse effect on
its business and its financial condition
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
Plan of Operation
The Company's plan of operations has been developed using a step by
step approach, with each phase of the plan closely monitored and implemented
prior to implementation of the next phase of the plan. The phases can be divided
as follows:
1. Completion of construction phase
2. Initial restaurant opening and operation
3. Preparation of franchise circulars and agreements
4. Franchising efforts
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Management originally expected that the total cost for its initial
flagship restaurant would be approximately $250,000 including approximately
$213,000 for construction, equipment, furniture, supplies and opening inventory,
and approximately $37,000 as a reserve for overhead expenses and unexpected
costs. The Company raised approximately $525,000 from the sale of securities and
the exercise of common stock purchase warrants and stock options. Of this
amount, approximately $245,000 has been expended on general operating expenses
which includes salaries, commissions, advertising and overhead, $140,000 on
construction related costs, kitchen equipment and restaurant furniture and
supplies, and $18,000 for deposits and expenses related to the Company's private
placement offering . The remaining balance of cash on hand of $122,000 is
expected to satisfy the Company's cash flow requirements of approximately
$73,000 for the completion of the first restaurant and overhead expenses over
the next three months.
Management has developed a preliminary monthly budget of cash flows
from restaurant operations based upon anticipated restaurant sales with an
average meal ticket sale of approximately $8.00 and 180 customers per day.
Management believes, based upon such budget, that there is sufficient cash on
hand for the next three months to attain a steady revenue stream from restaurant
operations. Management further believes that after approximately two months of
operations, there will be sufficient restaurant revenues to satisfy the
Company's cash requirements during the next 12 months. If cash flow from
restaurant operations is not sufficient to support the Company's financial
obligations after February 2000 or the restaurant opening is date is extended
due to unexpected last minute construction delays, management may seek
additional financing through the sale of its debt and/or equity securities.
Toward this end, the Company has extended the expiration date of the warrants to
February 1, 2000 to raise additional capital. The Company's officers also may
provide additional funds by exercising their stock options. If all 1,670,200
outstanding warrants and 3,683,000 options are exercised at an exercise price of
$.35 per warrant and option, the Company will receive $584,570 and $1,289,050,
respectively, in additional financing. It may also seek alternative sources of
financing, including from more conventional sources such as bank loans and
credit lines or loans from the Company's officers. However, no assurances can be
given that the Company will be able to raise sufficient capital to meet its
needs through the sale of its securities or otherwise. Further, the availability
of any future financing may not be on terms which are satisfactory to the
Company.
After opening the initial restaurant and developing a standard menu
during approximately two to three months of operations, management expects to
commence the sale of restaurant franchises. Through the use of direct mail
marketing as well as numerous telephone interviews conducted by management with
potential franchisees, management has generated a number of potential
franchisees. It is management's belief, based on the responses received through
such marketing efforts, that up to five franchises can be sold by the end of
2000. Franchising efforts will require that the Company respond to inquires
concerning franchise opportunities although management expects to locate its
initial franchise in the South Florida area. It is anticipated that Donald
Luria, the Company's franchise consultant, will assist in all franchising
efforts and activities. It is currently anticipated that each franchise sold
will generate a franchise fee of $ 15,000 to $ 20,000 and there will be
royalties payable to the Company of between 6% and 8% of gross sales.
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It is management's current intention to operate one Company-owned
restaurant in early 2000 and possibly open and operate one additional Company
restaurant in Boca Raton, Florida with agreements for three to five franchise
restaurants by the end of the year. For the year 2001, it is management's goal
to own a total of four restaurants and to have sold between five and 10
franschises. The Company plans to grow conservatively through cash flow from
operations and franchise revenues, if any. However, there are no assurances that
the Company will be able to franchise its restaurant operations at the
anticipated level or at all.
From time to time the Company may evaluate potential acquisitions
involving complementary businesses, content, products or technologies. The
Company has no present agreements or understanding with respect to any such
acquisition. The Company's future capital requirements will depend on many
factors, including growth of the Company's restaurant business, the success of
its franchising operations, economic conditions and other factors including the
results of future operations.
The Company currently has four (4) full time employees. Management
expects to hire approximately 12 additional people for the operations of its
initial restaurant as follows:
<TABLE>
<CAPTION>
NO. OF EMPLOYEES DEPARTMENT JOB DESCRIPTIONS.
---------------- ---------- -----------------
<S> <C> <C> <C>
2 Management General Manager and
Assistant
2 Production Food Preparation
3 Line Food Preparation
5 Cashiers Cashier/Customer
Service
</TABLE>
ITEM 3. DESCRIPTION OF PROPERTY
On January 25, 1999 the Company entered into a five-year lease with
three renewal options of three years each for the location of its flagship
restaurant comprised of 3,129 square feet at a rate of $12.50 per square foot.
The current monthly rent is $3,250 with scheduled annual increases. The leased
property is located at 1538 E. Commercial Boulevard, Fort Lauderdale, Florida,
which is a major east-west thoroughfare in the northeast section of the city.
The location is adjacent to or near sprawling businesses, medical centers and
hospitals. The restaurant is easily accessible by several major thoroughfares
including Interstate 95 and US 1. The Company received approval for final city
and county building permits and began construction in late September 1999. The
opening of the first restaurant is scheduled for late December 1999.
The current lease contains provisions for hazard, liability and flood
insurance, which, in the opinion of management, are adequate for coverage from
potential property damage. In addition, the Company will acquire additional
coverage under an umbrella policy to cover potential liability arising from
restaurant operations. Employee worker compensation coverage is mandatory and
covered under separate policy.
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The Company's executive offices are located at 275 Commercial
Boulevard, Suite 260, Fort Lauderdale, Florida. It leases 1,000 square feet at a
monthly rental rate of $ 500 on a month-to-month basis. Management believes that
it will be able to obtain suitable space as needed and has the physical ability
to acquire additional office space at its current location. The Company leases
its office space and does not own any real estate. The Company is not in the
business of investing in real estate or real estate mortgages.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) 5% Shareholders.
The following information sets forth certain information as of November
15, 1999 about each person who is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percentage
Title of Class of Beneficial Owner of Beneficial Ownership (1) of Class (2)
- -------------- ------------------- --------------------------- ------------
<S> <C> <C> <C>
Common Douglas Baker 4,000,000 43.2%
5206 NW 28th St.
Margate, Fla. 33063
Common Marco D'Alonzo 4,000,000 43.2%
3557 Dunes Vista Dr.
Pompano Beach, Fla. 33068
(b) Security Ownership of Management:
Common Douglas Baker 4,000,000 43.2%
5206 NW 28th St.
Margate, Fla. 33063
Common Marco D'Alonzo 4,000,000 43.2%
3557 Dunes Vista Dr.
Pompano Beach, Fla. 33068
Common David Maltrotti 110,000 2.0% *
4501 W. Atlantic Blvd., #1510
Coconut Creek, FL 33066
All Officers and
directors as a group 8,110,000 88.4%
(3) persons
</TABLE>
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(1) Messrs. D'Alonzo and Baker have options to purchase 1,780,000 and 1,903,000
shares, respectively, of common stock at an exercise price of $0.35 per share.
The options are exercisable for a period of 10 years from June 15, 1999 and are
included in the calculation of ownership in accordance with Rule 13(d) of the
Securities Act.
(2) All percentages are calculated based upon 5, 476,817 shares issued and
outstanding and 3,683,000 presently exercisable options for Messrs. D'Alonzo and
Baker and 100,000 presently exercisable for Mr. Maltrotti as of November 15,
1999.
(c) Changes in Control:
There is no arrangement, which may result in a change of control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Directors and Executive Officers [UPDATE AGES]
As of November 15, 1999, the directors and executive officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
<TABLE>
<CAPTION>
NAME OF AGE POSITION PERIOD SERVED
- ------- --- -------- -------------
DIRECTOR
- --------
<S> <C> <C>
Douglas Baker 37 Director, President and Chief July 2, 1998 to
Executive Officer date
Marco D'Alonzo 34 Director, Secretary and Chief July 2, 1998 to
Operating Officer date
David Maltrotti 40 Executive Vice President Feb. 3, 1999 to
date
</TABLE>
- ------------------------------------------------------
* The Company's directors are elected at the annual meeting of stockholders and
hold office until their successors are elected and qualified. The Company's
officers are appointed by the Board of Directors and serve at the pleasure of
the Board and subject to employment agreements, if any, approved and ratified by
the Board.
13
<PAGE>
(b) Business Experience
Douglas Baker has more than 10 years of sales experience in the
competitive financial services industry. He had been actively involved in the
financial public relations industry since 1994. He has been a licensed
stockbroker, 220 insurance agent and mortgage broker. From 1994 to 1998 he was
co-owner with Marco D'Alonzo and Vice President of First Equity Group, a
financial public relations company where he was in charge of company operation
including cash flow management, budgeting, public relations and human resources.
From 1992 to 1993 he was an insurance manager with Aachen Insurance Company.
From 1986 to 1991, he was a stockbroker of various brokerage firms in South
Florida. From 1981 to 1985, he owned Bakers Forrest Floor Service, a tile
refinishing company.
Marco D'Alonzo is experienced in all aspects of corporate, financial
and business affairs. He has owned and operated two financial related
businesses. He owned Equity Management Group, a full service public relations
firm specializing in corporate promotions where his duties included marketing,
business development and client relations. From 1994 to 1998 he also was
co-owner of First Equity Group, Inc. with Mr. Douglas Baker where he acted as
President, with duties including marketing, business development and client
relations. From 1986 to 1991, he was a stockbroker in various brokerage firms in
South Florida.
David Maltrotti has a long track record with various South Florida
gourmet establishments as a chef in charge of designing healthy menus. His 25
years experience includes management positions in the area of restaurant design
and operational implementation. From 1998 to 1999, he was Executive Chief for
the North Broward Hospital District located in Fort Lauderdale, Florida. From
1995 to1998 he was Executive Chef for Natural Food Markets of South Florida.
From 1989 to1995 he was Executive Chef for Whole Earth Market located in Boca
Raton, Florida.
The Company currently does not have any employees expected to make a
significant contribution to the business. The Company has engaged Creative
Connections of Pompano Beach, Florida, a professional marketing firm as a
consultant for their local and national campaign. The agreement is on a
month-to-month basis at a monthly fee of $3,500. Management expects that some
individuals who are currently working on a consulting basis may be retained as
full time employees at the operational/managerial level in the future. The
Company is currently reviewing several portfolios in order to add key personnel
at the executive/directorship level.
c) Directors of Other Reporting Companies:
None of the Company's executive officers or directors is a director of
any company that files reports with the Securities and Exchange Commission.
14
<PAGE>
(d) Employees:
The Company currently has four full time employees. Messrs. D'Alonzo
and Mr. Baker, the principal shareholders and officers and directors of the
Company, have not yet formulated a formal compensation plan. David Maltrotti is
employed pursuant to the terms OF an employment agreement with no stated
monetary compensation package. Mr. Maltrotti has been issued 10,000 shares of
restricted common stock as part of an incentive package.
(e) Family Relationships:
There are no family relationships between the directors, executive
officers or any other person who may be selected as a director and executive
officer of the Company.
(f) Involvement in Certain Legal Proceedings:
None of the officers, directors, promoters or control persons of the
Company have been involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior
to that time;
(2) Any conviction in a criminal proceedings or being subject to a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, or any Court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities laws
or commodities law, and the judgment has not been reversed,
suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
The Company did not compensate management in the year ended December
31, 1998. The Company has compensated Messrs. D'Alonzo and Baker $ 7,576 each in
1999. They have also each been granted certain stock options as additional
monetary compensation in 1999. Mr. Maltrotti has received compensation in the
amount of $ 15,170 and shares of common stock through an employment agreement.
None of the Company's executive officers earned more than $100,000 during the
years ended December 31, 1998.
15
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Restricted Under- Other
Name and Compen- Stock lying LTIP Comp-
Principal Position Year Salary Bonus Sation Awards Options Payouts Ensation
- ------------------ ---- ------ ----- ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas Baker President, CEO
and Director 1998 None None None None None None None
1997 None None None None None None None
1996 None None None None None None None
Marco D'Alonzo, Secretary, CEO
and Director 1998 None None None None None None None
1997 None None None None None None None
1996 None None None None None None None
David Maltrotti, Executive
Vice President 1998 None None None None None None None
1997 None None None None None None None
1996 None None None None None None None
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two (2) years, the Company has not entered into a
transaction with a value in excess of $60,000 with a director, officer or
beneficial owner of 5% or more of the Company's Common Stock, except as
disclosed in the following paragraphs:
On June 14, 1999 the Company's Board of Directors granted options to
each of Mr. D'Alonzo and Baker to purchase 2,000,000 shares of common stock at a
purchase price of $.035 per share. The options are exercisable in whole or in
part at any time until the earlier to occur of (i) the exercise of all options;
(ii) he is no longer employed by the Company; and (iii) the expiration of ten
years from the date of grant.
Mr. David Maltrotti, executive vice president of operations, is
employed under a three-year employment agreement. He received 10,000 shares upon
the execution of the agreement dated February 3, 1999. Under the agreement, he
will receive 10,000 shares of common stock upon the opening of each Company
owned restaurant. The agreement also grants Mr. Maltrotti options to acquire
200,000 shares of the Company's common stock.. The options are exercisable
pursuant to the following schedule:
16
<PAGE>
First Year: 50,000 shares exercise price = $.75 per share
First Year: 50,000 shares exercise price = $1.00 per share
Second Year: 50,000 shares exercise price = $1.25 per share
Second Year: 50,000 shares exercise price = $1.50 per share
The options are exercisable in whole or in part at any time until the earlier to
occur of (i) the exercise of all options: (ii) he is no longer employed by the
Company; and (iii) the expiration of three years from the date of the grant.
ITEM 8. DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, $.001 par value per share. Holders of shares
of Common Stock are entitled to one vote for each share on all matters to be
voted on by the stockholders. Holders of shares of Common Stock are entitled to
share ratably in dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefore. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of Common Stock have
no preemptive or other subscription rights, and there are no conversion rights
or redemption or sinking fund provisions with respect to such shares. All of the
shares of Common Stock issued and outstanding are fully paid and non-assessable.
The Company has authorized the issuance of 10,000,000 shares of
preferred stock, $.01 par value per share of which no shares are currently
issued and outstanding. The Company does not plan to offer the preferred stock
to the public.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information:
The Company's Common Stock currently trades on the Over-The-Counter
Bulletin Board (OTC:BB) under the trading symbol "HEXS". As of January 1999 the
Company began trading on the NASD Bulletin Board. Since such time, there has
been a limited trading market for the Company's Common Stock.
The following table sets forth the highest and lowest bid prices for
the Common Stock for each calendar quarter and subsequent interim period since
the Common Stock commenced actual trading, as reported by the National Quotation
Bureau, and represent interdealer quotations, without retail markup, markdown or
commission and may not be reflective of actual transactions:
17
<PAGE>
HIGH BID LOW BID
-------- -------
FISCAL 1999
- ------------
First Quarter 1.59 .13
Second Quarter 1.72 .75
Third Quarter 3.75 1.31
Fourth Quarter through 2.00 1.00
November 12, 1999
There can be no assurance that an active public market for the Common
Stock will develop or be sustained. In addition, the shares of Common Stock are
subject to various governmental or regulatory body rules, which affect the
liquidity of the shares.
Holders:
There were approximately 31 holders of record of the Company's Common
Stock as of November 15, 1999.
Dividends:
The Company has never paid cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. The Company currently intends to
retain its earnings for the operation and expansion of its business. The
Company's continued need to retain earnings for operations and expansion are
likely to limit the Company's ability to pay dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to, and none of the Company's property is
subject to any pending or threatened legal, governmental, administrative or
judicial proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On August 12, 1999 the Company's independent accounting firm of Sartori
CPA, resigned. There were no disagreements with Sartori CPA and Sartori CPA
issued an unqualified audit report for the period ended December 31, 1998. The
Company's Board of Directors is in the process of interviewing qualified CPA
firms to engage as the Company's independent auditor for its 1999 audit and on a
going-forward basis.
18
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1998, the Company sold 200,000 units at $ 0.10 per unit to
residents in the states of Florida and Delaware in a private placement offering.
Each unit consisted of one share of common stock and seven common stock purchase
warrants. Each warrant entitled the holder to purchase one share of common stock
of the Company at a purchase price of $ 0.70 per share. In June 1999 the
exercise price was reduced to $.35 per share. The warrants will expire February
1, 2000. As of November 15, 1999, warrants to purchase 632,467 shares and
options to purchase 317,000 shares of common stock were exercised, which
together with the sale of all units, has resulted in total gross proceeds to the
Company of approximately $525,000. The offering of units was conducted in
reliance on an exemption from registration under Rule 504 of Regulation D of the
Securities Act of 1933, as amended (the "Securities Act").
All certificates representing the shares of common stock comprising the
units and the shares issued upon exercise of the warrants prior to April 7, 1999
do not bear a restrictive legend restricting transferability under the
Securities Act. All shares of common stock issued upon exercise of warrants and
options subsequent to April 7, 1999 bear a restrictive legend restricting
transferability under the Securities Act.
As of September 30, 1999, 13,500 shares of Common Stock were issued by
the Company. Of this amount, 10,000 shares were issued to David Maltrotti
pursuant to the terms of his employment agreement. David Luria was issued 1,000
shares as compensation for franchise consulting services valued at $1,200 based
upon the then current market price of the Common Stock of $1.20 per share which
management believed to be the fair value for the services provided. Gary Newman
was issued 2,500 shares as payment for refrigeration equipment valued at $3,000
based upon the then current market price of the Common Stock of $1.20 per share
which management believed to be the fair value for the equipment. All of the
foregoing shares were issued in reliance on Section 4(2) of the Securities Act
and each share certificate bears a restrictive legend restricting
transferability under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act (the "FBCA")
allows the Company to indemnify any person who was or is a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the Company, by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
liability incurred in connection with such proceeding, including any appeal
thereof, if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contende or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in,
or not opposed to, the best interests of the Company or, with respect to any
criminal action or proceeding, such person had reasonable cause to believe that
his or her conduct was unlawful.
Section 607.0850 of the FBCA also allows the Company to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed proceeding by or in the right of the Company to
procure a judgment in the Company's favor by reason of the fact that such person
is or was a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
19
<PAGE>
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Company. Indemnification shall not be made for any claim, issue
or matter as to which such a person has been adjudged by a court of competent
jurisdiction determining, after exhaustion of all appeals there from, to be
liable to the Company or for amount paid in settlement to the Company, unless
and only to the extent that, the court in which the proceeding was brought, or
any other court of competent jurisdiction, determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
Section 607.0850 of the FBCA also provides that to the extent that a
director, officer, employee or agent of the Company has been successful on the
merits or otherwise in defense of any proceeding referred to in the paragraphs
above, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses actually and reasonably incurred by him or her in
connection therewith.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. The Company's Articles of Incorporation provide
for similar indemnification as provided by the FBCA.
PART F/S
UNAUDITED FINANCIAL STATEMENTS September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Statements
Balance Sheet F-1
Statement of Operations F-2
Statement of Stockholders' Equity F-3
Statement of Cash Flows F-4
Notes to Financial Statements F-5-11
20
<PAGE>
AUDITED FINANCIAL STATEMENTS December 31, 1998
Accountant's Report F-12
Financial Statements
Balance Sheet F-13
Statement of Operations F-14
Statement of Stockholders' Equity F-15
Statement of Cash Flows F-16
Notes to Financial Statements F-17-20
PART III.
ITEM 1. Index to Exhibits
The following exhibits are filed with this Form 10-SB:
ASSIGNED NUMBER DESCRIPTION
- --------------- -----------
(2) Articles of Incorporation, as amended*
(3)(ii) By-laws*
(10) Lease between Health Express USA, Inc. and
Saul Strachman*
(16) Letter on Change of Certifying Accountant**
(27) Financial Data Schedule**
</TABLE>
- --------------------------------
* previously filed as an exhibit to Form 10-SB on October 6, 1999
** previously filed as an exhibit on December 1, 1999
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment Number 3 to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: December 9, 1999. HEALTH EXPRESS USA, INC.
By:/s/ Douglas Baker
-------------------------
Douglas Baker, President
22
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
(unaudited)
ASSETS
Current Assets
Cash $ 225,119
-----------
Total Current Assets 225,119
-----------
Property and Equipment
Leasehold improvements 10,830
Construction in progress 24,404
Restaurant equipment 35,866
Office equipment 500
Sign 9,228
-----------
Total Property and Equipment 80,828
-----------
Other Assets
Prepaid Rent 5,305
Rent deposit 4,350
-----------
Total Other Assets 9,655
-----------
TOTAL ASSETS $ 315,602
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accrued Rent Expense $ 10,706
Notes payable to stockholders 1,000
Note payable 3,000
-----------
Total Current Liabilities 14,706
-----------
STOCKHOLDERS' EQUITY
Common Stock, $0.001 par value, 50,000,000 authorized
5,472,967 shares issued and outstanding 5,473
Additional Paid-In Capital 4,573,192
Deficit Accumulated During the Development Stage (4,277,769)
-----------
300,896
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 315,602
===========
F-1
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Six Months Ended 7/2/98
September 30, June 30, (Inception)
1999 1998 1999 1998 to 9/30/99
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- -----------
0 0 0 0 0
Expenses
General and Administrative 219,279 5,255 142,038 0 224,569
Officers compensatory stock options 4,000,000 0 4,000,000 0 4,000,000
Employee compensatory stock options 40,000 0 40,000 0 40,000
Compensatory stock issued 13,200 0 13,200 0 13,200
----------- ----------- ----------- ----------- -----------
4,272,479 5,255 4,195,238 0 4,277,769
Net loss before income taxes (4,272,479) (5,255) (4,195,238) 0 (4,277,769)
----------- ----------- ----------- ----------- -----------
Income tax expense 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Net Loss $(4,272,479) $ (5,255) $(4,195,238) $ 0 $(4,277,769)
=========== =========== =========== =========== ===========
Loss per weighted average share
Basic and diluted $ (0.91) $ (0.00) $ (0.95) $ 0 $ (1.02)
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding 4,701,950 2,587,330 4,433,366 0 4,214,001
=========== =========== =========== =========== ===========
</TABLE>
F-2
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Period from July 2, 1998 (Inception) to September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Additional
Amount $0.001 Paid-In
Per Share Shares Par Value Capital Deficit Total
--------- ------ --------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Issuance of 20,000 shares for services 0.001 20,000 $ 20 $ 0 -- $ 20
Issuance of 4,000,000 shares 0.001 4,000,000 4,000 -- -- 4,000
Issuance of 200,000 shares 0.10 200,000 200 17,916 -- 18,116
Issuance of 91,000 shares 0.70 91,000 91 57,558 -- 57,649
Net Loss (5,290) (5,290)
------------------------------------------------------------------
Balance December 31, 1998 4,311,000 $ 4,311 $ 75,474 ($5,290) $ 74,495
------------------------------------------------------------------
Issuance of 11,000 shares for services 1.20 11,000 11 13,189 -- 13,200
Issuance of 2,500 shares for equipment 1.20 2,500 3 2,997 3,000
Issuance of 116,333 shares 0.70 116,333 116 81,317 -- 81,433
Issuance of 254,800 shares 0.35 254,800 255 88,925 -- 89,180
Options granted for 100,000 shares 0.40 -- -- 40,000 -- 40,000
Options granted for 4,000,000 1.00 -- -- 4,000,000 -- 4,000,000
Exercise of options for 317,000 shares 0.35 317,000 317 110,633 -- 110,950
Issuance of 460,334 shares 0.35 460,334 460 160,657 -- 161,117
Net Loss -- -- -- (4,272,479) (4,272,479)
------------------------------------------------------------------
Balance September 30, 1999 5,472,967 $ 5,473 $ 4,573,192 ($4,277,769) $ 300,896
==================================================================
</TABLE>
F-3
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Six Months Ended July 2, 1998
September 30, June 30, (inception) to
1999 1998 1999 9/30/99
---- ---- ---- -------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $(4,272,479) $ (5,255) $(4,195,238) $(4,277,769)
Adjustments to reconcile net loss to net
cash used by operating activities
Options granted-market over price 4,040,000 4,040,000 4,040,000
Common stock issued for services 13,200 13,200 13,200
Changes in assets and liabilities
Increase in deposits (4,350) -- (4,350) (4,350)
Increase in prepaid expenses (5,305) -- (9,550) (5,305)
Increase in accrued expenses 10,706 9,680 10,706
----------- ----------- ----------- -----------
Net cash utilized by operating activities (218,228) (5,255) (146,258) (223,518)
INVESTING ACTIVITIES
Increase in property and equipment (77,828) -- (33,472) (77,828)
----------- ----------- ----------- -----------
Net cash utilized by investing activities (77,828) (33,472) (77,828)
FINANCING ACTIVITIES
New borrowings - notes payable to shareholders -- 1,000 -- 1,000
New borrowings - note payable -- 3,000 -- 3,000
Net proceeds from issuance of common stock 442,680 80,164 281,563 522,465
----------- ----------- ----------- -----------
Net cash provided by financing activities 442,680 84,164 281,563 526,465
Net increase in cash and cash equivalents 146,624 78,909 101,833 225,119
----------- ----------- ----------- -----------
Cash - Beginning of Period 78,495 0 78,495 0
----------- ----------- ----------- -----------
Cash - End of Period $ 225,119 $ 78,909 $ 180,328 $ 225,119
=========== =========== =========== ===========
</TABLE>
Supplemental Schedule of Noncash Investing Activities
2,500 shares were issued toward the purchase of restaurant equipment. These
shares were valued at $ 1.20 which management believed to be the fair value of
the equipment.
Supplemental Schedule of Noncash Financing Activities
20,000 shares were issued to counsel as incentive to provide services. These
shares were valued at par which management believed to be the fair value of
services. These shares were issued when there was no market for the Company's
stock
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 0 $ 0 $ 0 $ 0
----- ----- ------ -----
Income Taxes $ 0 $ 0 $ 0 $ 0
----- ----- ------ -----
F-4
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
1. Summary of Significant Accounting Policies:
Unaudited Interim Financial Statements
The accompanying financial statements of Health Express USA, Inc. have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The financial
statements as of and for the period ended September 30, 1999 is unaudited.
The results of operations for the interim periods shown in this report are
not necessarily indicative of the results of operations to be expected for
the fiscal year. These interim financial statements should be read in
conjunction with the annual financial statements and footnotes for the
period ended December 31, 1998 included in the Company's Form 10-SB.
General
Health Express USA, Inc. (the "Company") is a Florida corporation, formed on
July 2, 1998. The Company is in development stage and has raised capital for
a gourmet, fast-food health and nutrition restaurant.
Development Stage Operations
The Company has raised sufficient capital from a Rule 504 Private Placement
Offering to develop its initial flagship restaurant, which will serve
healthy food in a fast food format, with drive-in and sit down consumption .
The Company has begun construction and expects the opening of its first
restaurant in December of 1999. The Company is planning to enter into
franchise agreements as well as developing additional Company owned
restaurants.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Property and Equipment
Property and equipment are valued at cost. Maintenance and repair costs are
charged to expense as incurred. Gain and losses on the disposition of
property and equipment are reflected in income. Depreciation is computed on
a straight-line basis for financial reporting purposes, based on the
estimated useful lives of the assets, which, in the opinion of management
will commence upon the start of restaurant operations.
F-5
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
Leases
The Company leases property for its restaurant operations from February 1,
1999. The lease calls for scheduled yearly increases. Total rental payments
are being amortized over the life of the lease on a straight line basis in
accordance with SFAS 13.
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires the recognition of deferred tax liabilities and assets at
currently enacted tax rates for the expected future consequences of events
that have been included in the financial statements or tax returns. A
valuation allowance is recognized to reduce the net deferred tax asset to an
amount that is more likely than not to be realized.
Net Loss per Share
The Company follows the provisions of SFAS No. 128, "Earnings Per Share",
which requires companies with complex capital structures or common stock
equivalents to present both basic and diluted earnings per share ("EPS") on
the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as previously described by Accounting
Principles Board Opinion No. 15 "Earnings Per Share." The effect of common
shares issuable under the outstanding warrants are excluded from the
calculation of diluted EPS since the effect is antidilutive.
Stock Based Compensation
The Company accounts for stock based compensation under the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." For stock and
options issued to employees, and for transactions with other than employees
in which services were performed in exchange for the Company's common stock,
the transactions were recorded on the basis of the fair value of the
services received or the fair value of the equity instrument issued,
whichever was more readily measurable.
F-6
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
2. Notes Payable - Shareholders
As of September 30, 1999 notes payable to shareholders consisted of the
following:
Due to majority shareholder, dated August 7, 1998.
The note is due on demand and carries no interest
rate. $ 500
Due to majority shareholder, dated August 7, 1998.
The note is due on demand and carries no interest
rate. 500
-------
Total notes payable to shareholders $ 1,000
=======
3. Note payable
As of September 30, 1999 the note payable consisted of the following:
Due to corporation owned by majority shareholders.
The note is dated August 31, 1998, is due on demand
and carries no interest $ 3,000
=======
4. Stockholders' Equity
On June 10, 1999 the Board of Directors increased the authorized shares of
the Company' common stock from 15,000,000 shares to 50,000,000 shares,
having a par value of $0.001 per share and 10,000,000 shares of "blank
check" preferred stock. As of September 30, 1999 the Company has issued
5,472,967 shares of common stock. No preferred stock has been issued.
The Company's private placement dated August 1, 1998 represented the
issuance of 200,000 Units, each unit consisting of one share of common stock
at a price of $ 0.10 and warrants for the purchase of seven (7) shares at
$0.70 per share. The expiration date for the exercise of the warrants was
originally August 31, 1999. On June 3, 1999, the Company split the warrants
by reducing the exercise price of outstanding warrants by one-half, to $0.35
per share, and increasing the number by a multiple of two.
Warrants outstanding - 8/1/98 1,400,000
Warrants Exercised (207,333)
Balance 6/3/99 1,192,667
Warrant Split 1,192,667
Warrants Exercised (715,134)
----------
Warrants outstanding - 9/30/99 1,670,200
==========
As of September 30, 1999 warrants totaling 922,467 shares of common stock
have been exercised. Warrants for 1,670,200 shares of common stock remained
unexercised
On July 28, 1999, the Board of Directors of the Company voted to extend the
expiration date for the exercise of the outstanding warrants to November 1,
1999.
On October 28, 1999, the Board of Directors of the Company voted to extend
the expiration date for the exercise of the outstanding warrants to February
1, 2000.
F-7
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
4. Stockholders' Equity (continued)
During the current period the Company has issued the following shares of
common stock:
<TABLE>
<CAPTION>
$0.001
No. of Par Paid In
Shares Price Value Capital Total
------ ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Unrestricted Stock
Exercise of warrants 116,333 0.70 $ 116 $ 81,317 $ 81,433
Restricted Stock
Exercise of warrants 254,800 0.35 255 88,925 89,180
Exercise of warrants 460,334 0.35 460 160,657 161,117
Issued for compensation 11,000 1.20 11 13,189 13,200
Issued for equipment 2,500 1.20 3 2,997 3,000
Options exercised 317,000 1.30 317 110,633 110,950
Total 1,161,967 $ 1,162 $ 457,718 $ 458,880
========= ========= ========= =========
</TABLE>
Stock Based Compensation
The Company issued 11,000 shares of common stock for consultation services,
including 10,000 shares to an officer/employee. The amount of compensation
was valued at the then market price of $ 1.20 per share, which management
believed to be the fair value of services provided.
The Company issued 2,500 shares toward the purchase of restaurant equipment.
These shares were valued at $ 1.20, the market price of the shares, which
management believed to be the market value of the equipment.
Stock Option Compensation
On February 3, 1999 the Company granted stock options to a key employee and
on June, 1999 the Company granted stock options to its officers/directors.
The Company has authorized and reserved common stock for these grants.
The option grant dated February 3, 1999 grants a key employee the option to
purchase 100,000 shares, 50,000 exercisable at $1.00 and 50,000 exercisable
at $0.75 per share. The option plan dated June 14, 1999 grants
officers/directors the option to buy 4,000,000 shares at $0.35 per share.
F-8
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
Stock Option Plan (Continued)
SFAS No. 123 requires entities that account for awards for stock based
compensation to employees to estimate fair value of the options and include
them in expense at the option's grant date. The fair value of these options
was estimated at the date of the grant using a Black-Scholes option pricing
model with the following weighted-average-assumptions: a risk-free interest
rate of 5 percent, no dividend yield, stock price volatility of 8% for the
key employee and 24% for officers/directors and a weighted average expected
life of one and three years respectively.
As a result of this computation $ 40,000 for the key employee and $
4,000,000 for officers/directors were included as an expenses for the period
ended September 30, 1999.
As of September 30, 1999 all options granted to the key employee were
outstanding. The officers directors exercised options for 317,000 shares.
Options for 3,683,000 shares remain unexercised.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
5. Income Taxes
A summary of the provision for income taxes for the period ended September
30, 1999 is as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Current payable $ --
Deferred tax benefit at federal statutory rate 34% 1,452,600
Deferred tax benefit at state statutory rate,
net of federal effect 4% 170,900
Less: Valuation allowance 38% (1,623,500)
-----------
Provision for income taxes $ --
===========
Net deferred tax assets at September 30, 1999 are as follows:
1999
----
Stock option compensation $ 1,535,200
Available net operating loss carryovers 90,310
Less: Valuation allowance (1,625,510)
-----------
Net deferred tax assets $ 0
===========
</TABLE>
F-9
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
5. Income Taxes (Continued)
The Company has used estimated tax rate of 34% and a net effective state
rate of 4% for all interim tax computations. There are no significant
deferred tax liabilities. The Company has recorded a valuation allowance in
accordance with the provisions of SFAS No. 109 to reflect the estimated
amount of deferred tax assets which may not be realized. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in periods in which
temporary differences and/or carryforward losses become deductible.
The Company has available tax net operating carryovers ("NOLs") as of
September 30, 1999 of approximately $237,800. The NOLs expire beginning in
2018. Certain provisions of the tax law may limit the net operating loss
carryforwards available for use in any given year in the event of a
significant change in ownership interest. There have already been
significant changes in stock ownership: however, management believes that an
ownership change has not yet occurred which would cause the net operating
loss carryover to be limited.
6. Lease Commitments
The Company is obligated under a lease agreement on its restaurant location.
The rental expense for the period ending September 30, 1999 was $ 36,530.
Lease expense represents total lease payments amortized over the life of the
lease on a straight line basis. The lease is for a five year period ending
January 31, 2004. The future annual minimum rental payments as of September
30, 1999 were as follows:
1999 $ 12,735
2000 52,212
2001 53,484
2002 60,480
2003 63,660
The Company has leased warehouse space on May 4, 1999 for the storage of
non- perishable products and supplies. The lease calls a for monthly rent of
$ 165 on a month to month basis.
7. Agreements
The Company has entered into an agreement with Creative Connections of
Pompano Beach, Florida, a professional marketing firm, to provide consulting
services for their local and national campaign. The agreement is on a month
to month basis with a monthly fee of $ 3,500. The agreement calls for
services to be provided on a monthly basis upon the Company's request.
F-10
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
7. Agreements (continued)
The Company signed an agreement with Data Central USA, Inc. of Ocala,
Florida for data base management services for customer sales tracking. The
agreement calls for services to be provided upon the start of restaurant
operations. There is no commitment for the use of the services and price
negotiations will be entered into prior to the commencement of the services.
The Company entered into a contract with Standard Coffee Services to carry
their line of Barnie's Coffee. The contract calls for free use of coffee
machines provided the Company sells Barnie's Coffee exclusively. Purchases
of coffee are on a COD, 30 day payment basis. The coffee machines have not
been delivered and no purchases have been made in the current period.
Accordingly, the Company has not recorded the value of the non monetary
assets. No purchase commitments have been entered into.
The Company has entered into an agreement with Mr. Donald Luria, a franchise
consultant, to assist in the development of their franchise operations. As
an incentive to provide services 1,000 shares were issued. The agreement
calls for a rate of $ 75 per hour for consultation services. No services
were provided during the current period.
The Company is also establishing supplier relationships with various food
and supplies distributors. No contracts or commitments have been entered
into and purchases are on a COD basis.
There were no purchase commitments as of September 30, 1999
F-11
<PAGE>
Sartori CPA, P.A.
Accounting & Consulting
275 Commercial Boulevard, Suite 260 Phone (954) 351-1154
Lauderdale by the Sea, Florida 33308 Fax (954) 351-7760
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Health Express USA, Inc.
Fort Lauderdale, Florida
I have audited the accompanying balance sheet of Health Express USA, Inc. (a
Florida
development stage company) as of December 31, 1998 and the related statement of
operations, stockholders' equity, and cash flows for the period July 2, 1998
(inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan 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. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Health Express USA, Inc. as of
December 31, 1998 and the results of its operations and cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
Sartori CPA, P.A.
May 21, 1999
F-12
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 1998
ASSETS
Current Assets
Cash $ 78,495
--------
TOTAL ASSETS $ 78,495
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to shareholders $ 1,000
Note payable 3,000
--------
4,000
--------
STOCKHOLDERS' EQUITY
Common Stock,$0.001 par value, 15,000,000 shares
authorized, 4,311,000 shares issued and outstanding 4,311
Additional Paid-In Capital 75,474
Deficit Accumulated During the Development Stage (5,290)
--------
74,495
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 78,495
========
See accompanying notes
F-13
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Period from July 2, 1998 (Inception) to December 31, 1998
Revenues $ 0
-----------
Expenses
Accounting 1,000
Bank fees 109
Contract labor 1,250
Licenses 89
Office expense 1,342
Officer's Compensation 1,500
-----------
Total Expenses 5,290
-----------
Net Loss $ (5,290)
===========
Loss per weighted average share-Basic and diluted $ (0.00)
===========
Weighted average number of shares outstanding 3,477,577
===========
See accompanying notes
F-14
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from July 2, 1998 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Additional
$0.001 Paid-In
Shares Par Value Capital Deficit Total
------ --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Restricted stock
Issuance of 20,000 shares
for offering costs at par value 20,000 $ 20 $ 0 -- 20
Restricted stock
Issuance of 4,000,000 shares at par
to officers and directors 4,000,000 4,000 -- -- 4,000
Unrestricted stock
Issuance of 200,000 shares
at $ 0.10 per share 200,000 200 17,916 -- 18,116
Unrestricted stock
Issuance of 91,000 shares
at $ 0.70 per shares 91,000 91 57,558 -- 57,649
Net Loss (Development Stage) -- -- -- (5,290) (5,290)
--------- --------- --------- --------- ---------
Balance December 31, 1998 4,311,000 $ 4,311 $ 75,474 ($ 5,290) $ 74,495
========= ========= ========= ========= =========
</TABLE>
See accompanying notes
F-15
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Period from July 2, 1998 (Inception) to December 31, 1998
Cash flows from operating activities
Net Loss $ (5,290)
--------
Net cash used by operating activities (5,290)
--------
Cash flows from financing activities
New borrowings - notes payable to shareholders 1,000
New borrowing - note payable 3,000
Net proceeds from issuance of common stock 79,785
--------
Net cash provided by financing activities 83,785
--------
Net Increase in Cash 78,495
--------
Cash-Beginning of Period 0
--------
Cash-End of Period $ 78,495
========
Supplemental Schedule of Noncash Financing Activities
During the period 20,000 shares at par value $0.001 totaling $ 20
were issued as offering costs and netted against the proceeds from
the issuance of common stock
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year For:
Interest $ 0
--------
Income Taxes $ 0
--------
See accompanying notes
F-16
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Summary of Significant Accounting Policies:
General
Health Express USA, Inc. (the "Company") is a Florida corporation, formed on
July 2, 1998. The Company is a development stage enterprise engaged in
raising capital for a gourmet, fast-food health and nutrition restaurant.
The financial statements and notes are the representations of the Company's
management, which is responsible for their integrity and objectivity. The
accounting policies of the Company are in accordance with generally accepted
accounting principles and conform to the standards applicable to development
stage companies.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to makes estimates and
assumptions that affect reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." SFAS
No. 109 require the recognition of deferred tax liabilities and assets at
currently enacted tax rates for the expected future consequences of events
that have been included in the financial statements or tax returns. A
valuation allowance is recognized to reduce the net deferred tax asset to an
amount that is more likely than not to be realized.
Net Loss per Share
The Company follows the provisions of SFAS No. 128, "Earnings per Share,
which requires companies with complex capital structures or common stock
equivalents to present both basis and diluted earnings per share ("EPS") on
the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as previously prescribed by Accounting
Principles Board of Opinion No. 15,"Earnings Per Share". The effect of
common shares issuable under the outstanding warrants are excluded from the
calculation of diluted EPS since the effect is antidulitive.
F-17
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
2. Related Party Transactions
As described in note 5, the Company is indebted to stockholders in the
amount of $ 1,000. The loans carry no interest rate and are due on demand.
The Company is also indebted to a corporation owned by the majority
stockholders, in the amount of $ 3,000. The loan carries no interest and is
payable on demand (note 6).
3. Related Party Agreements
On July 15, 1998 the Company entered into an Attorney Fee Agreement which
includes the issuance of 20,000 shares at par, totaling $ 20, as offering
costs netted against the proceeds from the issuance of common stock. The
shares were issued as an incentive to provide services. These shares were
valued at par value which management believed to be fair value. These shares
were issued when there was no market for the Company's stock. Counsel did
not value the shares toward costs of services provided.
4. Notes Payable - Shareholders
As of August 31, 1998 notes payable to shareholders consisted of the
following:
Due to majority shareholder, dated August 7, 1998. The note
is due on demand and carries no interest rate. $ 500
Due to majority shareholder, dated August 7, 1998. The note
is due on demand and carries no interest rate. 500
Total notes payable to shareholders $ 1,000
=======
5. Note payable
As of December 31, 1998 notes payable consisted of the following:
Due to corporation owned by majority shareholders. The note
is dated August 31, 1998, is due on demand and carries
no interest. $ 3,000
=======
F-18
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
6. Stockholders' Equity
The Company is authorized to issue 15,000,000 shares of common stock having
a par value of $0.001 per share. As of December 31, 1998 the Company has
issued 4,311,000 shares to its shareholders.
<TABLE>
<CAPTION>
0.001 Paid-in
Shares Par Value Capital
------ --------- -------
<S> <C> <C> <C>
Unrestricted Stock 291,000 $ 291 $ 83,409
Offering Costs (7,935)
--------
75,474
Restricted Stock
Corporate Officers 4,000,000 4,000
Legal counsel-non cash 20,000 20
Total Restricted Stock 4,020,000 4,020
Total 4,311,000 $4,311 $ 75,474
========= ====== ========
</TABLE>
The value of the shares issued to the legal counsel is included at par and
included in offering costs netted against the proceeds of the public
offering. As disclosed in Note 4, since there was no market, this value
represents what management believed to be the fair value of the services
provided.
Unrestricted stock represents the issuance of 200,000 Units, each unit
consisting of one share of Common Stock at a price of $0.10 with Warrants,
which entitle the record owner to purchase seven (7) shares of Common Stock
at $ 0.70 per share. Total common stock to be issued through the exercise
of the warrants is 1,600,000. As of December 31, 1998 the Company issued
all of its Units at $0.10 per unit and 91,000 shares were issued through
the exercise of warrants. The warrants expire August 31, 1999. On July 28,
1999, the Board of Directors voted to extend the expiration date of the
warrants to November 1, 1999.
$0.001 Paid-in
Price Par Value Capital
----- --------- -------
Issuance of 200,000 shares $ 0.10 $ 200 $17,916
Warrants for 91,000 shares $ 0.70 91 57,558
Total 291,000 shares $ 291 $75,474
======= =======
F-19
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
7. Income Taxes
A summary of the provision for income taxes for the period ended December
31, 1998 is as follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Current payable $ --
Deferred tax benefit at federal statutory rate 34% 1,800
Deferred tax benefit at state statutory rate
net of federal effect 4% 210
Less: Valuation allowance 38% (2,010)
-------
Provision for income taxes $ --
=======
Net deferred tax assets at December 31, 1998 are as follows:
1998
----
Available net operating loss carryovers $ 2,010
Less: Valuation allowance 2,010
-------
Net deferred tax assets $ --
=======
</TABLE>
The Company has used estimated federal tax rate of 34% and a net effective
state tax rate of 4% for all deferred tax computations. There are no
significant deferred tax liabilities. The Company has recorded a valuation
allowance in accordance with the provisions of SFAS No. 109 to reflect the
estimated amount of deferred tax assets which may not be realized. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation future taxable income using the
periods in which temporary differences and/or carryforward losses become
deductible.
The Company has available tax net operating carryovers ("NOLs") as of
December 31,1998 of approximately $ 5,000 . The NOLs expire beginning in
2018. Certain provisions of the tax law may limit the net operating loss
carryforwards available for use in any given year in the event of a
significant change in ownership interest. There have already been
significant changes in stock ownership: however, management believes that an
ownership change has not yet occurred which would cause the net operating
loss carryover to be limited.
F-20
