SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No.
December 31, 1999 02-27569
HEALTH EXPRESS USA, INC.
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(Name of small business issuer in its charter)
Florida 65-0847995
- ------------------------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
275 Commercial Boulevard, Suite 260
Fort Lauderdale, Florida 33308
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(Address of principal executive offices)
Issuer's telephone number: (954) 776-5401
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
Common Stock, $ 0.001 par value per share
-----------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year. $ 0
Based on the closing sale price on February 22, 2000 the aggregate market
value of the voting common stock held by non-affiliates of the registrant is $
1,877,305
As of February 22, 2000 the Registrant had 5,764,127 shares of common stock
outstanding
<PAGE>
Introductory Note
FORWARD-LOOKING STATEMENTS.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995(the "Reform Act"), Health Express USA, Inc.
("Health Express" or the "Company") is hereby providing cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements made
herein. Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions of future events or performance are not
statements of historical facts and may be forward-looking. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, including but not limited to, economic,
competitive, regulatory, growth strategies, available financing and other
factors discussed elsewhere in this report and in documents filed by the Company
with the Securities and Exchange Commission ("SEC"). Many of these factors are
beyond the Company's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
PART I
Item 1. Description of Business.
Business Development
Health Express USA, Inc. ("Health Express" or the "Company"), was
incorporated in Florida on July 2, 1998 to develop, construct and operate health
and gourmet fast food restaurants. The Company is completing construction in
Fort Lauderdale, Florida, of its first restaurant, which will serve as the model
for future company owned restaurants and franchise operations, under the trade
name "Healthy Bites Grill". The Company will operate the restaurant through a
wholly- owned subsidiary, Healthy Bites Grill, Inc. The restaurant offers
eat-in, take out and drive-thru service. The Company is waiting for final
inspections in order to commence operations.
<PAGE>
Industry Overview
The Company's vision is to merge two profitable growing industries: fast
food operations and health food restaurants. The fast food industry, a staple of
the American consumer, is a $110 billion-dollar industry dominated by hamburger
chains and followed by pizza or Italian food segments, according to a 1999
report by the National Restaurant Association. An increasing number of
restaurateurs have recognized the growing change in consumer eating habits
toward more healthy and nutritious foods. New supermarket chains, such as Wild
Oats and Whole Foods, offer eat in or take out gourmet healthy meals for the
increasing number of consumers interested in healthy and natural foods and
products, vitamins and supplements. The trend toward a lifestyle balanced by
proper exercise and nutrition naturally leads the health conscious consumer to
look for a place to eat that will provide healthy and tasty foods at a
reasonable price, without sacrificing convenience. Health Express seeks to fill
this current void in the fast food industry.
Operations of Flagship Restaurant
Current Developments
The Company is completing construction of its first restaurant and as of
February 22, 2000 is waiting for final approval to begin operations. The current
location in Fort Lauderdale represents the blueprint of success of established
franchise chains: it is located on a major thoroughfare within a commercial,
hospital and residential area of middle class to upscale neighborhoods. Mr.
David Maltrotti, executive vice-president, is in charge of restaurant operations
including overseeing food preparation. The Company recognizes that it will need
to succeed not just on the basis of nutrition but taste. Mr. Maltrotti has been
involved in the food service and hospitality industry for over 25 years and is
an experienced vegetarian\conventional Chef. He was also an instructor for the
Miami Dade Community College Health and Nutrition program. Mr. Maltrotti has
developed the initial menu for the restaurant which is comprised of burger bites
& grilled paninis, solo pizzas & salads, hip pockets whole grain pizza rolls,
organic smoothies and power drinks, an organic juice bar and gourmet coffees and
herbal teas. Bites and paninis include the "Healthy Bites Griller", grilled
turkey burger and chicken breast, Salmon Burger, teriyaki tofu, tuna filet,
grilled portabella mushroom and veggie. All pizzas are made with organic sauce
and served with soy cheese or all natural mozzarella with a variety of fresh
toppings. Salads are prepared daily with fresh greens and are served with a
variety of signature healthy low fat dressings. Oven fries, vegetarian chili and
pasta salads are included in the a la carte selection.
The Company had previously announced the expected opening of its first
restaurant for December of 1999, but construction and licensing delays have
pushed back that date. As of February 22, 2000 the Company is awaiting final
inspections before commencing operations and management is now poised to devote
its attention to the key factor in making this venture successful and
profitable: delivering to its customers the best possible products.
<PAGE>
Services and Distribution
All foods are prepared in the on-site kitchen. Customers can choose to eat
inside our restaurant, within very pleasant and clean surroundings, or order
meals for take out or via our drive-thru facility. A leased warehouse nearby
serves for storage of nonfood items and restaurant equipment. Food products are
delivered directly to the restaurant from the various suppliers on a regular
basis. The Company, however, anticipates and is planning to lease a facility to
develop as a commissary that will be used for distribution of those menu items
that allow for pre-preparation and delivery to new restaurant locations, whether
Company owned or franchised. The commissary will be used for preparation of the
Company's signature product lines, including the "Health Bites Griller", "Salmon
Burger" and "Organic French Fries". For both market and logistical purposes, the
Company expects to add additional restaurants within the South Florida area.
Competitive Business Conditions
The Company has substantial competition from the several existing fast food
chains offering conventional fast food near our present location. However, they
offer only a limited selection of health food items. In fact, these competitors
are the ones that offer the type of fast food that the health conscious American
consumer is now avoiding. Management anticipates that it may have competition
from established health food stores and small single proprietary health food
restaurants.
Management believes that there are limited direct competitors in the area
of healthy fast food in South Florida. It is also the opinion of management,
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 in less time and with consistently good taste. Competitors in the
health food market, such as Wild Oats or Whole Foods, which are operating in
Fort Lauderdale, are currently successful but do not offer fast food with the
convenience of a drive-thru.
Sources and Availability of Products and Supplies
The Company has selected to carry and use several products with national
brand name recognition which consumers already identify with as high quality
products in the health food industry. The products include meal supplements such
as Met-Rx protein shakes and protein bars, Myoplex protein shakes, Bell and
Evan's (chickens) and Muir Glen (tomato products).
Other health food distributors include Organica for bulk-food service
ingredients, United Distributors for all-natural dry goods, Kinfolk for soy,
cheese and tofu lines, Green Garden for greens and sprouts and Tree of Life for
vitamin supplement lines. Sysco Food Service, a conventional food service
supplier, will provide assorted restaurant paper products and supplies. The
Company does not have contracts with the above suppliers but has established
wholesale purchase agreements for bulk purchases, as is industry practice.
Management believes that there are ample additional sources of supplies
should one of the above vendors be unable to serve our restaurants.
<PAGE>
Trademarks
The Company has filed a federal registration for the trademark name "
Healthy Bites Grill" for use by all future restaurant locations, whether Company
owned and franchised, 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.
Governmental Approvals
There are no federal guidelines regulating the construction of the
restaurant. The Company has previously received all appropriate permits and
licensing for the site development from the City of Oakland Park, Florida,
including environmental issues.
At the present time there is no federal approval required for the Company's
principal products and services. Restaurant operations are generally subject to
local, county and state restaurant guidelines for operation, health and
sanitation. They are also subject to standard hospitality, food safety and
sanitation guidelines. At the state level restaurants are regulated by the
Florida State Division of Hotels and Restaurants. Inspections by the state
include design compliance, environmental impact review and physical inspection.
Upon completion of all inspections the City of Oakland Park, Florida issues an
occupational license and the State of Florida issues a Business Regulations
License. After opening, the restaurant is inspected every four months by the
State for compliance with health and sanitation codes. Fire codes are inspected
by the local fire marshal. The Company does not foresee any additional material
costs associated with government regulations or compliance thereof at the
present time.
Consumer Research
The Company will be conducting internally generated surveys through the use
of consumer response cards collected at the restaurant where they are available
at the counter for voluntary use by customers. It is anticipated that the
responses generated by these cards will provide management with valuable
information concerning consumer preferences and demands. The Company will then
be able to make menu changes to keep pace with these preferences.
Facilities and Employees
The Company leases corporate headquarters in Fort Lauderdale, Florida for
management, accounting and administrative services. A warehouse facility near
the restaurant serves for storage of non-food items and equipment. The
restaurant is on a leased property located approximately two miles from the
corporate office.
There are currently five employees at the corporate level and
approximately 14 employees that will work at our restaurant location, once
operations commence. None of the present employees are represented by a labor
union and it is anticipated that none of the restaurant employees will be union
represented. The Company considers its employee relations to be good.
<PAGE>
Each additional restaurant location, whether Company owned or franchised,
will require approximately 12 to 20 employees. The Company will require
accounting on a regular basis from all locations for centralized management
reporting of results of operations, accomplished through the use of a standard
point-of-sale system by all restaurant operations.
The Company, presently, does not own or plan to own real estate. However,
management may decide to invest in real estate, if the right opportunity
presents itself.
Item 2. Description of Property.
The Company leases approximately 1,000 square feet for its corporate
headquarters in Fort Lauderdale, Florida. The lease is on a month to month basis
with monthly rent of $ 525.
The restaurant is on a leased property located two miles from the
headquarters at 1538 E. Commercial Blvd., Fort Lauderdale. On January 25, 1999
the Company entered into a five-year lease for this property with three renewal
options of three years each. Monthly payments are $4,350 with yearly increases.
The existing structure comprised of 3,129 square feet has been renovated and
improved to serve as the Company's flagship restaurant operation. It is located
on 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 streets
including Interstate 95 and US 1. There is Gold's Gym directly across the street
from the restaurant and a new Bally's fitness center recently opened within a
mile. The northeast section of Fort Lauderdale contains several middle class and
upper class neighborhoods with waterfront homes and three major high schools.
Commercial Boulevard is also used for access to the intracoastal and the
beaches, which attracts visitors and residents year-round for recreation and
shopping.
Item 3. Legal Proceedings.
The Company is not involved, nor has been involved in any legal proceedings
since its inception.
Item 4. Submission of Matter to a Vote of Security Holders.
No matter was submitted to the vote of security holders during the year
ended December 31, 1999.
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock currently trades on the Over-The-Counter
Bulletin Board (OTC:BB) under the trading symbol "HEXS".
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 in January 1999, 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.
1999 High Low
- ---- ---- ---
First Quarter 1.59 0.13
Second Quarter 1.72 0.75
Third Quarter 3.75 1.31
Fourth Quarter 2.00 1.00
2000
- ----
First Quarter through
February 29, 2000 3.75 2.13
The Company presently is authorized to issue 50,000,000 shares of Common
Stock, of which 5,764,127 are outstanding as of February 22, 2000.
The Company is authorized to issue 10,000,000 shares of $ 0.01 par value
preferred stock, none of which is outstanding. The preferred stock, which is
commonly known as "blank check preferred", may be issued by the Board of
Directors with rights, designations, preferences and other terms, as may be
determined by the Directors in their sole discretion, at the time of issuance.
Holders
There were approximately 34 holders of record of the Company's Common Stock
as of February 22, 2000.
Dividends
The Company has not declared or paid cash dividends on its Common Stock
since its inception and does not anticipate paying such dividends in the
foreseeable future. The Company plans to retain any future earnings for use in
the Company's business.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
General
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, and the Notes thereto included herein.
The information contained below includes statements of the Company's or
management's beliefs, expectations, hopes, goals and plans that, if not
historical, are forward-looking statements subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. For a discussion on
forward-looking statements, see the information set forth in the Introductory
Note to this Annual Report under the caption "Forward Looking Statements", which
information is incorporated herein by reference.
Restaurant Opening - Recent Developments
The Company is completing the construction of the restaurant and inspections
by the City of Oakland Park, Florida are underway as of February 22, 2000. There
are six types of inspections: mechanical, electrical, plumbing, zoning, fire and
structural. The Company is waiting for the final inspection, which is zoning.
All other inspections have been approved.
Upon completion of the above inspections the City of Oakland Park will
issue a Certificate of Occupancy ("CO"). The last inspection will be from the
State of Florida Health Department, which, upon satisfactory completion, will
issue a Business Regulations License, and restaurant operations can commence.
While no assurances can be given that the Company will not incur any substantial
delays, management does not expect major changes or alterations resulting from
the various inspections.
Overview
The Company did not report any revenues for the period from July 2, 1998
(date of inception) to December 31, 1999, the period included herein in the
Consolidated Financial Statements. The Company's revenue-generating operations
will begin after completion of all inspections and state licensing. Accordingly,
the following discussion focuses on the Company's plan of operation over the
next twelve months.
The overall plan of operation has been developed to mirror management's
vision of the Company's objectives and can be outlined in the following general
format:
1. Completion of construction phase
2. Initial restaurant opening and operation
3. Preparation of franchise circulars and agreements
4. Franchising efforts.
<PAGE>
Completion of Construction Phase
Management' budget for the total cost of its initial flagship restaurant is
approximately $250,000. For this purpose the Company, as of February 14, 2000,
has raised approximately $618,000 from the sale of securities and the exercise
of common stock purchase warrants and stock options. Of this amount $ 289,000
has been expended for general operating expenses and $276,000 for the
construction of the restaurant including deposits and prepaid expenses. Cash on
hand, as of the above date is $53,000.
The completion of the restaurant has faced construction and licensing
delays, which have pushed back the opening of the restaurant from a beginning
projected date of December 1999. Since the Company has incurred general and
administrative expenses averaging approximately $20,000 monthly, the cash
position has been directly affected. It is the opinion of management that actual
restaurant costs are within tolerable levels of variance from budget costs.
Construction delays were due in part to major improvements and
modifications of an existing structure on the leased property. Management could
have selected an existing drive-thru with full kitchen facilities. However,
management desired an initial restaurant to serve as its flagship restaurant and
thus a model for future operations. A pre-existing structure, ideally located on
a major thoroughfare in Fort Lauderdale, gave the Company the opportunity to
construct a restaurant with its own distinct format with color combinations
which will distinguish it from all other fast food restaurants. The inside of
the restaurant also displays a unique interior layout with various types of
seating arrangements: tables, banquettes or counter seating inside the
restaurant and tables outside in our patio area. The restaurant is also located
on a corner lot for easy access through a side street tangent to the main
thoroughfare. There is a sign on top of the main entrance to the restaurant and
a large street sign, both depicting the Company's logo. Colorful awnings and
pleasant landscape give the restaurant the instant appeal of a clean and
friendly establishment. Our flagship restaurant will serve as the model for
future restaurants. However, management expects that, for future franchise
operations, existing drive-thru restaurants will be remodeled to conform to
Company's standards of appearance, internal layout and presentation. As a
result, it is expected that franchise set-up costs up will be considerably less
then the costs incurred by the Company to build its flagship restaurant.
Management may still, however, decide to build Company owned restaurants such as
our initial restaurant, depending on a best-location factor and availability of
capital.
Management believes that the above-stated delays and additional costs
involved are part of the business risk undertaken toward the completion of the
initial phase of their plan and that the expected opening of the restaurant
moves the Company closer to its intended goal of servicing franchise operations.
The Company's balance sheet is debt free (outside of normal and recurring
accounts payable resulting from continuing operation) and management feels
strongly that the second phase, which is restaurant operations, will provide the
stepping stone toward launching the franchising phase. While management projects
that cash flow from restaurant operations will be sufficient to meet the
Company's current working capital requirements, additional funds may be
necessary to finance the development of franchise operations in South Florida
and a commissary facility to support and service them.
<PAGE>
To raise additional funds the Company may seek additional financing through
the sale of its debt and/or securities. Toward this end, the Company, in January
2000, extended the expiration date of the remaining outstanding warrants to
April 1, 2000. The Company's directors also may provide additional funds by
exercising their stock options. If all of 1,457,700 outstanding warrants and
3,623,500 options are exercised at an exercise price of $ 0.35, the Company will
receive $ 510,195 and $ 1,268,225, respectively. 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' officers. However, no
assurances can be given that the Company will be able to meet its needs through
the sale of securities or otherwise. Further, the availability of any future
financing may not be on terms that are satisfactory to the Company.
Restaurant Operations
The inside restaurant layout of approximately 3,129 square feet represents
an open kitchen, a main ordering station with one register, a juice bar, a
drive-thru window with separate register, and various seating arrangements
comprised of tables, banquets, window counter seating and seating around the
juice bar. An outside patio allows for additional table seating. Total seating
allows for approximately 45 customers.
The restaurant personnel totals 14 employees and is comprised of the
following:
- -General Mangers and Assistant General Managers
- -Customer Service Managers, in charge of juice bar and cashiers
- -Kitchen Manager in charge of food production
- -Line cooks (3) and Cashiers (4)
The hours of operations will be 10AM to 9PM, seven days a week, for inside
consumption or take out and 7AM to 9PM Monday through Friday for drive-thru
service. The restaurant will serve a limited breakfast (mainly coffees, shakes
and smoothies), lunch and dinner. The breakfast selection will be expanded as
food preparation and production is coordinated. Display cases will offer a
selection of vitamins, supplements, power bars and other natural products. A
television screen will provide patrons with health-related news and information.
The food items on the menu have been developed by Mr. David Maltrotti, Vice
President in charge of restaurant operations, and represent the most important
factor for the success of the Company. The Company's management, with the
imminent opening of the restaurant, will now focus its attention on giving the
consumer what it purports to deliver: a healthy and nutritious meal with
convenience and at a reasonable price. Mr. Maltrotti has created a menu, which
comprises of items that contain the freshest and healthiest ingredients
available on the market. This has been accomplished without materially affecting
the cost margin because of a combination of bulk purchase discounts and lower
costs for vegetarian items as compared to conventional meat based products.
Profits, in this type of operation, will be a result of sales and not lower
costs. The philosophy of management is that integrity of the quality of our
products must always be maintained by any restaurant carrying the "Healthy Bites
Grill" logo and lower quality ingredients can only result in erosion of consumer
confidence and eventual loss of revenues.
<PAGE>
It is also important to appeal to the palate of the consumer by providing
tasty meals without jeopardizing health. As a result, Mr. Maltrotti has created
healthy low fat sauces and dressings, which will enhance the flavors of our
products. Of course, a customer will have a choice of dressings and or sauces.
Internally generated consumer surveys are also a key element in keeping up with
consumer demands. Customers will be able, on a voluntary basis, to fill out
response cards, which will provide management with valuable information
concerning their preferences, suggestions and concerns. Management, in
coordination with the restaurant's general manager, will then be able to make
the menu changes, additions or deletions necessary to keep up with consumer
preferences. The Company is cognizant that the health conscious consumer is
demanding in nature and that our menu must keep up with new trends.
Preparation of Franchise Circulars and Agreements
The key element for the expansion, growth and profitability of the Company
is to enter into franchise agreements with potential and qualified franchisees
to open and operate restaurants under the "Healthy Bites Grill" name. The
Company is currently interviewing franchise attorneys for the preparation of
franchise circulars and agreements and will be looking for a
franchise-consulting firm to handle all aspects of marketing and franchise
sales.
Franchising Efforts
Management is conscious that franchising the Company's restaurant
operations is dependent on the success and profitability of their flagship
restaurant. Therefore, while management's attention will be focused on
restaurant operations, franchising efforts have been devoted primarily to direct
mail marketing and telephone interviews conducted with interested parties who
have already inquired in regards to franchise opportunities. As a result, the
Company has compiled a data base list of numerous potential franchisees. It is
anticipated that initial franchises will be issued to qualified parties in the
South Florida area.
Management has not yet priced a franchise package, but is expected to
include an initial franchise fee and royalties paid to the Company based on a
percentage of sales. It is management's current plan to operate additional
Company owned restaurants in South Florida and the Company also expects to enter
into franchise agreements within the next twelve months.
The Company will not finance franchise operations.
A commissary for production and delivery of the Company's signature
products will compliment this expansion phase. The Company plans to grow
conservatively and cautiously during its initial growing phase. 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.
<PAGE>
Year 2000 Disclosure
The Company does not anticipate any problems 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.
Item 7. Financial Statements
The financial statements of the Company required by Regulation S-B are
attached to this report. Reference is made to Item 13 below for an index to the
financial statements and financial statements schedules.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
On August 12, 1999 the Company's independent accounting firm of Sartori
CPA, PA resigned. There were no disagreements with Sartori CPA, PA and Sartori
CPA, PA issued an unqualified audit report for the Company's initial period
ended December 31, 1998. The Company experienced no disagreements with Sartori
CPA, PA on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Sartori CPA, PA, would have had a connection with its
report.
The Board of Directors on November 22, 1999 engaged the accounting firm of
Ahearn, Jasco + Company, P.A. as the new independent auditors, who have issued
an unqualified report for the year ended December 31, 1999 and for the initial
period ended December 31, 1998. As a result of Ahearn, Jasco + Company, P.A.'s
re-audit of the initial period ended December 31, 1998, the report of Sartori
CPA, PA does not appear herein.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
As of February 22, 2000 the Directors and Executive Officers of the
Company, their age, positions in the Company, the dates of their initial
election or appointment as Directors or Executive Officers, and the expiration
of the terms are as follows:
<TABLE>
<CAPTION>
Name of Director/
Executive Officer Age Position Period Served
- ----------------- --- -------- -------------
<S> <C> <C> <C>
Douglas Baker 37 Director, President and July 2, 1998
Chief Executive Officer to date
Marco D'Alonzo 34 Director, Secretary and July 2, 1998
Chief Operating Officer to date
Bruno Sartori 44 Chief Financial Officer January 4, 2000
to date (a)
David Maltrotti 40 Executive Vice President February 3, 1999
of Operations to date (b)
</TABLE>
- ------------------------------------------------------------------------------
(a) Under employment agreement expiring January 4, 2002.
(b) Under employment agreement expiring February 3, 2002.
There are no family relationships between the directors, executive officers
or any other person who may be selected as a director or executive officer of
the Company. None of the Company's directors or executive officers is a director
of any company that files reports with the Securities and Exchange Commission.
The Company's Directors are elected at the annual meeting of stockholders
and hold office until their successors are elected. The Company's officers are
appointed by the Board of Directors and serve at the pleasure of the Board and
are subject to employment agreements, if any, approved and ratified by the
Board.
Douglas Baker
Mr. Baker has more than 10 years of sales experience in the competitive
financial service industry. He has 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 Vice President and
co-owner with Marco D'Alonzo of First Equity Group, Inc. a financial public
relations company where he was in charge of company operations including cash
flow management, budgeting, public relations and human resources. Previously he
was an insurance manager with Aachen Insurance Company from 1992 to 1993 and a
stockbroker for various South Florida brokerage firms from 1986 to 1991.
<PAGE>
Marco D'Alonzo
Mr. 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 was also co-owner with
Mr. Baker of First Equity Group, Inc., where he acted as President, with duties
including marketing, business development and client relations. From 1986 to
1991 he was a stockbroker with various brokerage firms in South Florida.
Bruno Sartori
Mr. Sartori is a Certified Public Accountant with a background in
international banking and public accounting specializing in international
consulting. Mr. Sartori is the owner of Sartori CPA, PA and served as the
Company's independent auditor up until his resignation on August 12, 1999. He
has owned and operated his accounting firm from 1995 up to the present. From
1985 to 1995 he has worked in various public accounting firms in South Florida,
including Arthur Young & Co. in 1987. From 1979 to 1982 Mr. Sartori was a
banking trainee with Banca Commerciale Italiana, an Italian international
banking institution at their New York Branch.
David Maltrotti
Mr. Maltrotti has a long track record with various South Florida gourmet
establishments as the 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 Consulting Chef for the
North Broward Hospital District located in Fort Lauderdale, Florida. From 1995
to 1998 he was Executive Chef for Natural Food Markets of South Florida. From
1989 to 1995 he was Executive Chef for Whole Earth Market located in Boca Raton,
Florida.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's officers and directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish the Company with copies.
Based on its reviews of the copies of the Section 16(a) forms received by
it, or written representations from certain reporting persons, the Company
believes that, during the last fiscal year, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with.
<PAGE>
Item 10. Executive Compensation.
The following table sets forth, for the calendar year ended December 31,
1999 and for the period ended December 31, 1998, certain information regarding
the compensation earned by the Company's Chief Executive Officer and each of the
Company's most highly compensated executive officers whose aggregate annual
salary and bonus for calendar 1999 exceeds $100,000, (the "Named Executive
Officers"), with respect to services rendered by such persons to the Company and
its subsidiaries.
The Company compensated Messrs. D'Alonzo and Baker $11,624 and $10,332,
respectively, in 1999. Mr. Maltrotti has received compensation in 1999 in the
amount of $22,180 plus 10,000 shares (restricted) of the Company's common stock
thorough an employment agreement. None of the Company's executive officers
earned more than $100,000 during the year ended December 31, 1999 and for the
period ended December 31, 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
-Annual Compensation- -Long Term Compensation-
----------------------------------------------
Other Restricted Under- Other
Name and Compen- Stock lying Compen-
Principal Position Year Salary Bonus sation Awards Options sation
- ------------------ ---- ------ ----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas Baker, CEO 1999 none none $10,332 none 2,000,000 none
and President 1998 none none none none none none
Marco D'Alonzo, COO 1999 none none $11,624 none 2,000,000 none
and Director 1998 none none none none none none
David Maltrotti, Executive 1999 none none $22,180 $12,000 200,000 none
Vice President 1998 none none none none none none
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Option Grants
The following table contains information concerning the stock option grants
to each of the Named Executive Officers for the calendar year ended December 31,
1999. No stock appreciation rights were granted to these individuals during such
year.
<PAGE>
Individual Grants
Number of
Securities % of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Granted Calendar Year ($/Sh)(1) Date
------- ------------- --------- ----
Name
----
Douglas Baker 2,000,000 47.62 $ 0.35 (3)
Marco D'Alonzo 2,000,000 47.62 $ 0.35 (3)
David Maltrotti 200,000 4.76 (2) (4)
- ------------------------------------------------------------------------------
(1) The exercise price is to be paid in cash.
(2) For the first, second and third year of employment 50,000 are exercisable
at $ 0.75 per share and 50,000 at $ 1.00 per share. For the second and
third year of employment 50,000 are exercisable at $ 1.25 per share and
50,000 at $ 1.50 per share.
(3) 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.
(4) 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
Calendar Year-End Option Values
The following table sets forth information regarding each exercise of stock
options and the value realized and the number and values of unexercised options
held by each of the Named Executive Officers as of December 31, 1999.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options at 12/31/99 Options at 12/31/99
Shares Acquired
Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas Baker 97,000 $33,950 1,903,000 -0- (1) $3,863,090 -0-
Marco D'Alonzo 220,000 $77,000 1,780,000 -0- (1) $3,613,400 -0-
David Maltrotti none 100,000 100,000 $150,500 $100,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equal to the fair market value of securities underlying the option at the
fiscal year end ($ 2.38) minus the exercise price ($ 0.35) payable for
those securities.
The Company has not entered into any Long-Term Incentive Plan Awards since
inception.
<PAGE>
Compensation of Directors
The Company has not compensated its Directors since inception and no plan
for compensation has been established.
Employment Agreements
On January 3, 1999 the Company entered into an employment agreement with
Mr. David Maltrotti to serve as Executive Vice President. The agreement is for a
period of three years expiring January 3, 2002. Mr. Maltrotti received 10,000
restricted shares of the Company's common stock upon the execution of the
agreement. Mr. Maltrotti will also receive 10,000 additional shares upon the
opening of each additional Company owned restaurant. The agreement also grants
Mr. Maltrotti an option to buy 200,000 of the Company's common stock, as
described in Item 12 below.
On January 4, 2000 the Company entered into an employment agreement with
Mr. Bruno Sartori to serve as Chief Financial Officer. The agreement is for a
period of two years expiring February 4, 2002. Mr. Sartori received 10,000
shares upon execution of the agreement. The agreement calls for the Company to
compensate Mr. Sartori for his services a total of 15,000 shares for the first
year employment. The agreement also grants Mr. Sartori option to buy 100,000
shares of the Company's common stock, as described in Item 12 below.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect of the beneficial
ownership as of February 22, 1999 for any 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 of Amount and Nature of Percentage
Title of Class Beneficial Owner Beneficial Ownership of Class (3)
- -------------- ---------------- -------------------- ------------
<S> <C> <C> <C>
Common Douglas Baker 3,955,170 (1) 40.83
5206 NW 28 St.
Margate, Fl. 33063
Common Marco D'Alonzo 3,977,818 (1) 41.06
3557 Dunes Vista Dr.
Pompano Beach, Fl.33063
- --------------------------------------------------------------------------------
<PAGE>
Security Ownership of Management
Common Douglas Baker 3,955,170 (1) 40.83
5206 NW 28 St.
Margate, Fl. 33063
Common Marco D'Alonzo 3,977,818 (1) 41.06
3557 Dunes Vista Dr.
Pompano Beach, Fl.33063
Common Bruno Sartori 144,000 (2) 1.49
231 Marine Court, #2
Lauderdale b/t Sea, Fl. 33308
Common David Maltrotti 218,500 (2) 2.26
4501 W.Atlantic Blvd., #1510
Coconut Creek, Fl. 33066
All Officers and Directors
as a group, (4) persons 8,295,488
---------
- --------------------------------------------------------------------------------
</TABLE>
(1) Mr. D'Alonzo and Mr. Baker have options to purchase 1,780,000 and 1,843,500
shares respectively, of common stock at an exercise price of $ 0.35 per
share. The options are exercisable for a period of ten years from June 15,
1999 and are included in the calculation of ownership in accordance with
Rule 13(d) of the Securities Act
(2) Mr. Sartori and Maltrotti have options to purchase, respectively, 100,000
and 200,000 shares currently exercisable, which are included in the
calculation of ownership.
(3) All percentages are calculated based upon 5,764,127 shares issued and
outstanding and 3,623,500 presently exercisable by Messrs. D'Alonzo and Mr.
Baker and 100,000 and 200,000 shares exercisable by Mr. Sartori and Mr.
Maltrotti, respectively.
Item 12. 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 directors, 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
Mr. D'Alonzo and Mr. Baker to purchase 2,000,000 shares of common stock at a
purchase price of $ 0.35 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. As of February 22, 2000 Mr. D'Alonzo has
exercised 220,000 of his options and Mr. Baker has exercised 156,500 of his
options.
<PAGE>
Mr. David Maltrotti, Executive Vice President of Operations, is employed under a
three-year employment agreement. He received 10,000 shares of the Company's
Common Stock (restricted) upon the execution of the agreement on February 3,
1999. Under the agreement he will also 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 table:
First, Second and Third Year 50,000 shares exercise price $ 0.75
First, Second and Third Year 50,000 shares exercise price $ 1.00
Second and Third Year 50,000 shares exercise price $ 1.25
Second and Third Year 50,000 shares exercise price $ 1.50
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
Mr. Bruno Sartori, Chief Financial Officer, is employed under a two year
employment agreement. He received 10,000 shares of the Company's Common Stock
(restricted) upon execution of the agreement dated January 4, 2000. Under the
agreement he will receive an additional 15,000 shares for services performed in
the current year in accordance to the following schedule:
January , February, March 2,000 shares for each month
April to December 1,000 shares for each month
The agreement also grants Mr. Sartori options to acquire 100,000 shares of the
Company's common stock at a purchase prince of $ 1.31 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 two year from the date of the grant
<PAGE>
Item 13. Exhibits, Financial Statements and reports on Form 8-K.
(a) Documents filed as part of this report:
See Index to Financial Statements attached, which are included as an
integral part of this report.
(b) No reports on Form 8-K have been filed by the Company.
(c) Exhibits
Exhibit No. Description
- ----------- -----------
(2) Articles of Incorporation, as amended (1)
(3) ii By-laws (1)
(10) Lease between Health Express USA, Inc. and Saul Strachman (1)
(16) Letter of Change of Certifying Accountant (2)
- ------------------------------------------------------------------------------
(1) previously filed as an exhibit to Form 10-SB on October 6, 1999 and
incorporated herein by such reference
(2) previously filed as an exhibit to amendment number 2 to Form 10-SB on
December 1, 1999 and incorporated herein by such reference
<PAGE>
HEALTH EXPRESS USA, INC.
AND SUBSIDIARY
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
(A development stage company)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
----------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-14
------------------------------------------
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of
Health Express USA, Inc.
We have audited the accompanying consolidated balance sheets of Health Express
USA, Inc. and its subsidiary (collectively, the "Company"), a development stage
company, as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1999 and for the period July 2, 1998 (date of inception)
through December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Health Express USA,
Inc. and its subsidiary as of December 31, 1999 and 1998 and the results of
their operations and their cash flows for the year ended December 31, 1999 and
for the period July 2, 1998 (date of inception) through December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered cumulative losses
from operations since inception. This raises substantial doubt about the
Company's ability to continue as a going concern. Management's plan in regard to
these matters is also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Ahearn Jasco + Company, P.A.
--------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
January 14, 2000
F-1
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
----------- -----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 70,553 $ 78,495
Prepaid expenses 7,950 --
----------- -----------
TOTAL CURRENT ASSETS 78,503 78,495
PROPERTY AND EQUIPMENT, gross 256,243 --
DEPOSITS 4,350 --
----------- -----------
TOTAL $ 339,096 $ 78,495
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 47,161 $ --
Current portion of capital lease obligation 3,884 --
Notes payable, stockholders -- 1,000
Note payable, related entity -- 3,000
----------- -----------
TOTAL CURRENT LIABILITIES 51,045 4,000
----------- -----------
LONG TERM PORTION - Capital lease obligation 15,174 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized in 1999, zero shares issued and outstanding -- --
Common stock, $0.001 par value; 50,000,000 and 15,000,000 shares
authorized in 1999 and 1998, respectively; 5,640,627 and 4,311,000
shares issued and outstanding in 1999 and 1998, respectively 5,640 4,311
Additional paid-in capital 4,955,484 75,474
Deficit accumulated during the development stage (4,688,247) (5,290)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 272,877 74,495
----------- -----------
TOTAL $ 339,096 $ 78,495
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Cumulative
from inception
through
December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
----------- ----------- -----------
EXPENSES:
Compensation 4,454,169 2,750 4,456,919
Office expense 90,826 1,342 92,168
Advertising 57,091 -- 57,091
General and administrative 45,205 198 45,403
Professional fees 20,158 1,000 21,158
Other operating expenses 11,656 -- 11,656
Contract labor 3,852 -- 3,852
----------- ----------- -----------
TOTAL EXPENSES 4,682,957 5,290 4,688,247
----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (4,682,957) (5,290) (4,688,247)
PROVISION FOR INCOME TAXES -- -- --
----------- ----------- -----------
NET LOSS $(4,682,957) $ (5,290) $(4,688,247)
=========== =========== ===========
LOSS PER COMMON SHARE:
Basic and diluted $ (0.95) $ (0.00)
=========== ===========
Weighted average common shares outstanding 4,905,673 3,477,577
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
---------------------- Additional during the
Shares at Par Paid-in Development
Issued Value Capital Stage Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
At inception, July 2, 1998 -- $ -- $ -- $ -- $ --
Issuance of 200,000 shares of unrestricted
stock at $0.10 per share 200,000 200 17,916 -- 18,116
Issuance of 91,000 shares of unrestricted
stock at $0.70 per share - exercise of warrants 91,000 91 57,558 -- 57,649
Issuance of 4,000,000 shares of restricted
stock at par value to officers and directors 4,000,000 4,000 -- -- 4,000
Issuance of 20,000 shares of restricted
stock for offering costs at par value 20,000 20 -- -- 20
Net loss for the period ended December 31, 1998 -- -- -- (5,290) (5,290)
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY, December 31, 1998 4,311,000 4,311 75,474 (5,290) 74,495
Issuance of 116,333 shares of unrestricted
stock at $0.70 per share - exercise of warrants 116,333 116 81,317 -- 81,433
Issuance of 878,134 shares of restricted
stock at $0.35 per share - exercise of warrants 878,134 878 306,469 -- 307,347
Issuance of 317,000 shares of restricted
stock at $0.30 per share 317,000 317 110,633 -- 110,950
Issuance of 14,900 shares of restricted stock at
$1.20 per share - compensation and equipment 18,160 18 21,774 -- 21,792
Additional paid in capital for stock options -- -- 4,359,817 -- 4,359,817
Net loss for the year ended December 31, 1999 -- -- -- (4,682,957) (4,682,957)
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY, December 31, 1999 5,640,627 $ 5,640 $ 4,955,484 $(4,688,247) $ 272,877
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HEALTH EXPRESS USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Cumulative
from inception
through
December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,682,957) $ (5,290) $(4,688,247)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock issued for services 21,792 -- 21,792
Issuance of stock options 4,359,817 -- 4,359,817
Changes in certain assets and liabilities:
Prepaid expenses (7,950) -- (7,950)
Accounts payable 47,161 -- 47,161
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (262,137) (5,290) (267,427)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (235,521) -- (235,521)
Changes in other assets (4,350) -- (4,350)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (239,871) -- (239,871)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings - notes payable, shareholders (1,000) 1,000 --
(Repayments) borrowing - note payable, related entity (3,000) 3,000 --
Payment on capital lease obligation (1,664) -- (1,664)
Net proceeds from issuance of common stock 499,730 79,785 579,515
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 494,066 83,785 577,851
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (7,942) 78,495 70,553
CASH, Beginning of year 78,495 -- --
----------- ----------- -----------
CASH, End of year $ 70,553 $ 78,495 $ 70,553
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ -- $ -- $ --
=========== =========== ===========
Cash paid during the period for income taxes $ -- $ -- $ --
=========== =========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
During the year ended December 31, 1999, the Company entered into a
capital lease for $20,722 of restaurant equipment.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (date of inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
-------
Health Express USA, Inc. was incorporated in the State of Florida
on July 2, 1998. Healthy Bites Grill, Inc., which was incorporated on
January 26, 1999, is its wholly-owned subsidiary. The consolidated
financial statements are presented following the elimination of any
inter-company balances and transactions. Health Express USA, Inc. and its
subsidiary are collectively referred to herein as the "Company". 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 representation 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.
Going Concern Considerations
----------------------------
The Company's financial statements have been prepared on a going
concern basis that contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. The Company incurred a net loss of $4,682,957 and $5,290 for the
period ended December 31, 1999 and for the period July 2, 1998 (date of
inception) through December 31, 1998, respectively, and has an accumulated
deficit of $4,688,247 at December 31, 1999. Management recognizes that the
Company must generate additional resources to enable it to continue
operations. Management is planning to obtain additional capital through
the sale of equity securities. The realization of assets and satisfaction
of liabilities in the normal course of business is dependent upon the
Company obtaining additional equity capital and ultimately obtaining
profitable operations. However, no assurances can be given that the
Company will be successful in these activities. Should any of these events
not occur, the accompanying consolidated financial statements will be
materially affected.
Development Stage Operations
----------------------------
The Company has raised sufficient capital from a Rule 504 Private
Placement Offering to develop its initial flagship restaurant. The Company
has begun construction and expects the opening of its first restaurant in
March 2000. 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.
Basis of Consolidation
----------------------
All significant intercompany balances and transactions are
eliminated in consolidation.
Property and Equipment
----------------------
Property and equipment are recorded at acquisition cost and
depreciated using the straight-line method over the estimated useful lives
of the assets, which, in management's option, will commence upon the start
of restaurant operations. Expenditures for routine maintenance and repairs
are charged to expense as incurred.
F-6
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (date of inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
Income Taxes
------------
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards ("SFAS") 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
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 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 are recorded on the basis of fair
value of the services received or the fair value of the equity instruments
issued, whichever was more readily measurable.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents, if any, include all highly liquid debt
instruments with an original maturity of three months or less at the date
of purchase. The Company occasionally maintains cash balances in financial
institutions in excess of federally insured limits.
Fair Value of Financial Instruments
-----------------------------------
Cash and accounts payable are reflected in the financial
statements at cost, which approximates fair market value because of the
short-term maturity of those instruments.
Statement of Comprehensive Income
---------------------------------
A statement of comprehensive income has not been included, per
SFAS No. 130, "Reporting Comprehensive Income", as the Company has no
items of other comprehensive income.
Reclassifications
-----------------
Certain 1998 amounts have been reclassified to conform to the
presentation used for the 1999 financial statements.
F-7
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (date of inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 2 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at December 31, 1999 consists of $256,243
of restaurant equipment. No depreciation expense was charged to operations
for the year ended December 31, 1999 since actual operation of the
Company's first restaurant is not anticipated to begin until March 2000.
NOTE 3 - CAPITAL LEASE OBLIGATION
- ---------------------------------
The Company acquired restaurant equipment under the provisions of
a long-term lease and has capitalized the minimum lease payments. The
lease is for a three-year term beginning from the date the equipment is
installed, which is expected in February 2000. As of December 31, 1999,
the leased property has a recorded cost of $20,722. Depreciation expense
has not been charged to operations for the year ended December 31, 1999
since the equipment has not yet been placed in service.
Future minimum lease payments under the capital lease and the net
present value of the future minimum lease payments subsequent to December
31, 1999 are as follows:
Future minimum lease payments (net of deposit) $29,944
Amount representing interest 10,886
-------
Present value of minimum lease payments 19,058
Less: Current portion 3,884
-------
Long-term capital lease obligation $15,174
=======
Future annual minimum Lease payments subsequent to December 31,
1999 are as follows:
Year Ending December 31,
2000 $ 3,884
2001 6,090
2002 8,274
2003 810
--------------
$ 19,058
==============
NOTE 4 - NOTES PAYABLE, STOCKHOLDERS
- ------------------------------------
The notes payable, stockholders consisted of two non-interest
bearing, due on demand promissory notes totaling $1,000 with the Company's
majority stockholders. These notes were paid in full during 1999.
F-8
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (date of inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 5 - NOTE PAYABLE, RELATED ENTITY
- -------------------------------------
The Company was indebted to a corporation owned by the majority
stockholders under a non-interest bearing, due on demand promissory note
in the amount of $3,000. This note was paid in full during 1999.
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
As of December 31, 1998, the Company was authorized to issue
15,000,000 shares of common stock having a par value of $0.001 per share.
On June 10, 1999, the shareholders approved an increase in the authorized
shares of the Company's common stock to 50,000,000 and authorized
10,000,000 shares of $0.01 par value preferred stock. The preferred stock,
which is commonly known as blank check preferred, may be issued by the
Board of Directors with rights, designations, preferences, and other
terms, as may be determined by the Directors in their sole discretion, at
the time of issuance. As of December 31, 1999, the Company has issued
5,640,627 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, with each unit consisting of
one share of common stock at a price of $0.10 and warrants to purchase
seven shares of common stock at $0.70 per share. Total common stock
available to be issued through the exercise of the warrants is 1,400,000.
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 the outstanding warrants by one-half, to $0.35 per
share, and increasing the number by a multiple of two, as follows:
Warrants outstanding as of August 1, 1998 1,400,000
Less: Warrants exercised (207,333)
----------
Balance of warrants at June 3, 1999 1,192,667
Warrant split two-for-one 1,192,667
Less: Warrants exercised after the split (878,134)
----------
Warrants outstanding at December 31, 1999 1,507,200
==========
As of December 31, 1999, warrants totaling 1,085,467 shares of
common stock have been exercised.
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 and, in their meeting on October 28, 1999, the expiration
date was extended to February 1, 2000.
F-9
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
- -----------------------------
Common Stock Issuances
----------------------
From inception through December 31, 1998, the Company issued
4,311,000 shares of common stock. During 1999, an additional 1,329,627
shares were issued, for a total of 5,640,627 as of December 31, 1999. The
issuances and their effect on certain capital accounts are as follows:
<TABLE>
<CAPTION>
Number $0.001 Paid-in
of Shares Price Par Value Capital Total
------------ --------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Unrestricted stock:
Private placement 200,000 $ 0.10 $ 200 $ 19,800 $ 20,000
Exercise of warrants 91,000 0.70 91 63,609 63,700
Less: Offering costs -- -- (7,935) (7,935)
--------- --------- --------- ---------
Total unrestricted stock 291,000 291 75,474 75,765
--------- --------- --------- ---------
Restricted stock:
Officers and directors 4,000,000 0.001 4,000 -- 4,000
Legal counsel (non-cash, for
services) 20,000 0.001 20 -- --
Total restricted stock 4,020,000 4,020 -- 4,020
--------- --------- --------- ---------
Total shares issued as of
December 31, 1998 4,311,000 4,311 75,474 79,785
--------- --------- --------- ---------
Unrestricted stock:
Exercise of warrants 116,333 $ 0.700 116 81,317 81,433
--------- --------- --------- ---------
Restricted stock:
Exercise of warrants 878,134 0.350 878 306,469 307,347
Options exercised 317,000 0.350 317 110,633 110,950
Issued for compensation 15,660 1.200 16 18,776 18,792
Issued for equipment 2,500 1.200 2 2,998 3,000
--------- --------- --------- ---------
Total restricted stock 1,213,294 1,213 438,876 440,089
--------- --------- --------- ---------
Total shares issued in 1999 1,329,627 1,329 520,193 521,522
--------- --------- --------- ---------
Total shares issued as of
December 31, 1999 5,640,627 $ 5,640 $ 595,667 $ 601,307
========= ========= ========= =========
</TABLE>
The values of the shares issued to legal counsel during 1998, and
for compensation and equipment in 1999, represents the fair value of the
goods or services provided at the time of each transaction.
F-10
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
- -----------------------------
Stock Option Compensation
-------------------------
On February 3, 1999, the Company granted stock options to a key
employee and, on June 14, 1999, the Company granted stock options to its
officers/directors. The Company has authorized and reserved common stock
for these grants.
The options granted on February 3, 1999, grants a key employee
the option to purchase 200,000 shares exercisable as follows: 50,000
shares at $0.75 per share, 50,000 shares at $1.00 per share, 50,000 shares
at $1.25 per share and the remaining 50,000 shares at $1.50 per share. The
options granted on June 14, 1999, grants officers/directors the option to
purchase 4,000,000 shares at $0.35 per share.
SFAS No. 123 requires entities that account for awards for
stock-based compensation to employees to estimate the 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 the
Black-Scholes option-pricing model. The option-pricing model uses the
following weighted average assumptions; a risk-free interest rate of 5%, a
zero dividend yield, a stock price volatility of 22% for the key employee
and 24% for officers/ directors, and a weighted average expected life of
three years. As a result of this computation, approximately $47,000 for
the key employee and approximately $4,313,000 for officers/directors was
charged to expense for the year ended December 31, 1999. As of December
31, 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 that 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.
NASD Approval
-------------
In October 1998, the Company submitted an application to be
listed on the NASD OTC Bulletin Board under rule 15c2-11 of the Securities
Exchange Act of 1934. On January 5, 1999, the Company's shares were
approved for public trading under the symbol HEXS.
F-11
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 8 - INCOME TAXES
- ---------------------
A summary of the provision for income taxes for the periods ended
December 31, 1999 and 1998 is as follows:
1999 1998
----------- -----------
Currently payable $ -- $ --
Deferred benefit 1,779,500 2,010
Less: Valuation allowance (1,779,500) (2,010)
----------- -----------
Provision for income taxes $ -- $ --
=========== ===========
Net deferred tax assets at December 31, 1999 and 1998 are as
follows:
1999 1998
----------- -----------
Available net operating loss carryovers $ 124,710 $ 2,010
Stock option compensation charge 1,656,800 --
Less: Valuation allowance (1,781,510) (2,010)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The Company has used an 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 that 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 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, 1999 of approximately $330,000. The NOLs will expire
beginning in 2018. Certain provisions of the tax law may limit the NOL
carryfowards 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 NOL
carryover to be limited.
F-12
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 9 - LEASE COMMITMENTS
- --------------------------
Restaurant
----------
The Company leases property for its restaurant operations with
scheduled annual increases. The total rental payments are being amortized
over the lives of the leases on a straight-line basis in accordance with
SFAS No. 13. The lease commenced February 1, 1999 and is for a five-year
period terminating on January 31, 2004.
Future annual minimum rental payments subsequent to December 31,
1999 are as follows:
Year Ending
December 31,
-------------------
2000 $ 40,100
2001 41,300
2002 47,450
2003 50,750
2004 4,250
--------------
$ 183,850
==============
Total rent expense for the year ended December 31, 1999 was
$37,777.
Warehouse
---------
On May 4, 1999, the Company leased warehouse space for the
storage of non-perishable products and supplies. The lease calls for
monthly rent of $165 on a month-to-month basis.
Corporate Offices
-----------------
Office space is leased from unrelated party for $525 per month on
a month to month basis.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Related Party Agreement
-----------------------
On July 15, 1998, the Company entered into an Attorney Fee
Agreement that includes the issuance of 20,000 shares at par, totaling $20
which management believes to be the fair value of services performed. The
shares were issued as an incentive to provide services. 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.
Other Agreements
----------------
The Company has entered into an agreement with Creative
Connections, 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-13
<PAGE>
HEALTH EXPRESS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
JULY 2, 1998 (Date of Inception) THROUGH DECEMBER 31, 1998
================================================================================
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
- ---------------------------------------
The Company signed an agreement with Data Central USA, Inc. for
database 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 its 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 during
the year ended December 31, 1999. Accordingly, the Company has not
recorded the value of the non-monetary assets in the accompanying
financial statements. 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 franchise
operations. As an incentive to provide services, 1,000 shares were issued
to Mr. Luria. The agreement calls for a rate of $75 per hour for
consultation services. No services were provided during the year ended
December 31, 1999.
The Company is 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 December 31, 1999.
Litigation, Claims, and Assessments
-----------------------------------
In the ordinary course of business, the Company is exposed to
various claims, threats, and legal proceedings. In management's opinion,
the outcome of all such existing matters will not have a material impact
upon the Company's financial position and results of operations.
NOTE 11 - NET LOSS PER COMMON SHARE
- -----------------------------------
For the periods ended December 31, 1999 and 1998, weighted
average common shares include only common shares outstanding. The
inclusion of common share equivalents would be anti-dilutive and, as such,
they are not included.
A reconciliation of the number of common shares shown as
outstanding in the consolidated financial statements with the number of
shares used in the computation of weighted average common shares
outstanding is shown below:
1999 1998
---------- ----------
Common shares outstanding at December 31st 5,640,627 4,311,000
Effect of weighting (734,954) (833,423)
---------- ----------
Weighted average common shares outstanding 4,905,673 3,477,577
========== ==========
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTH EXPRESS USA, INC.
March 2, 2000
By: /s/ Douglas Baker
---------------------------------
Douglas Baker, President
By: /s/ Bruno Sartori
---------------------------------
Bruno Sartori, Chief Financial Officer
