FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 27, 1998 Commission File Number 33-11170-B
HOST AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1168423
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 Broadway Hamden, Connecticut 06518-2697
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (203) 248-4100
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University Dining Services, Inc.
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(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check whether the registrant
(1) has filed all reports required to be
files by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during
the preceding 12 months (or for such
shorter period that the registrant was Yes: X
required to file such report(s), and (2) -----
has been subject to such filing No:
requirements for the past 90 days. -----
Indicate the number of shares outstanding
of each of the issuer's classes of common
stock, as of the close of the period
covered by this report.
Number of shares outstanding at
Class March 27, 1998
- ------------------------------------ -------------------------------
Common Stock, $.001 par value 130,000 shares
<PAGE>
HOST AMERICA CORPORATION
(FORMERLY, UNIVERSITY DINING SERVICES, INC.)
MARCH 31, 1998 FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Balance Sheets - March 27, 1998 and June 30, 1997 3
Condensed Statements of Operations -three and nine months ended
March 27, 1998 and March 28, 1997 4
Condensed Statements of Cash Flows - nine months ended
March 27, 1998 and March 28, 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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HOST AMERICA CORPORATION
(FORMERLY, UNIVERSITY DINING SERVICES, INC.)
CONDENSED BALANCE SHEETS
ASSETS
March 27, 1998 June 29, 1997
(Unaudited) (Audited)
-------------- -------------
CURRENT ASSETS
Cash $ 100,257 $ 140,121
Accounts receivable, net of allowance
for doubtful accounts of $10,000
at March 27, 1998 and June 29, 1997 382,288 331,263
Inventory 183,611 173,759
Deferred offering costs 174,337 -
Prepaid expenses and other 94,689 73,082
Deferred income taxes 16,000 30,000
---------- ----------
Total current assets 951,182 748,225
PROPERTY AND EQUIPMENT, net 240,636 234,133
---------- ----------
$1,191,818 $ 982,358
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 175,643 $ 85,643
Accounts payable 577,690 580,190
Accrued expenses 163,532 96,393
Due to officer/director 13,340 10,641
---------- ----------
Total current liabilities 930,205 772,867
LONG-TERM DEBT, less current portion
included above 45,371 80,770
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
20,000,000 shares authorized,
700,000 shares issued and outstanding 700 -
Common stock, $.001 par value,
80,000,000 shares authorized, 130,000
shares issued and outstanding 130 130
Additional paid-in capital 419,258 244,958
Deficit (203,846) (116,367)
---------- ----------
Total stockholders' equity 216,242 128,721
---------- ----------
$1,191,818 $ 982,358
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED FINANCIAL STATEMENTS
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<PAGE>
HOST AMERICA CORPORATION
(FORMERLY, UNIVERSITY DINING SERVICES, INC.)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
----------------------------- ------------------------------
March 27, 1998 March 28, 1997 March 27, 1998 March 28, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET REVENUES $1,591,290 $1,390,036 $5,004,385 $4,290,622
COST OF GOODS SOLD 1,405,528 1,275,965 4,426,815 3,861,280
---------- ---------- ---------- ----------
Gross profit 185,762 114,071 577,570 429,342
GENERAL AND ADMINISTRATIVE EXPENSES 370,704 129,056 665,049 376,815
---------- ---------- ---------- ----------
Net (loss) income $ (184,942) $ (14,985) $ (87,479) $ 52,527
========== ========== ========== ==========
NET (LOSS) INCOME PER COMMON SHARE $ (1.42) $ (0.12) $ (0.67) $ 0.40
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED FINANCIAL STATEMENTS
-4-
<PAGE>
HOST AMERICA CORPORATION
(FORMERLY, UNIVERSITY DINING SERVICES, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended
------------------------------
March 27, 1998 March 28, 1997
(Unaudited) (Unaudited)
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (87,479) $ 52,527
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities 262,479 59,772
Changes in operating assets and
liabilities (26,128) 10,173
---------- ----------
Net cash provided by
operating activities 148,872 122,472
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (71,699) (54,865)
---------- ----------
Net cash used in investing
activities (71,699) (54,865)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 150,000 9,554
Increase in due to officer/director 2,699 2,440
Principal payments on long-term debt (95,399) (63,897)
Deferred offering costs (174,337) -
---------- ----------
Net cash used in financing
activities (117,037) (51,903)
---------- ----------
NET (DECREASE) INCREASE IN CASH (39,864) 15,704
CASH, beginning of period 140,121 72,746
---------- ----------
CASH, end of period $ 100,257 $ 88,450
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED FINANCIAL STATEMENTS
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<PAGE>
HOST AMERICA CORPORATION
(FORMERLY, UNIVERSITY DINING SERVICES, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - PUBLIC OFFERING
On February 11, 1998, the Company entered into a letter of intent with
an underwriter to conduct a firm commitment public offering of
1,200,000 shares of newly issued Common Stock at $5.00 per share and
1,200,000 Warrants to purchase Common Stock at $0.125 per Warrant. The
Company has commenced preparation of a registration statement with
respect to the securities and anticipates that the offering will occur
in the spring of 1998.
NOTE B - AMENDMENTS TO ARTICLES OF INCORPORATION
On March 9, 1998, the Company filed a certificate of amendment to its
articles of incorporation with the state of Delaware changing its name
from University Dining Services, Inc. to Host America Corporation.
Further, the Company amended its articles of incorporation to authorize
80,000,000 shares of Common Stock and 20,000,000 shares of Preferred
Stock of the then 100,000,000 authorized shares of Common Stock.
NOTE C - REVERSE SPLIT OF OUTSTANDING COMMON STOCK
On February 14, 1998, the Board of Directors of the Company authorized
the reverse split of all issued and outstanding shares of Common Stock
so that each one hundred shares outstanding converted to one share.
Accordingly, all share and per share amounts have been restated in the
accompanying condensed financial statements.
NOTE D - PREFERRED STOCK
During March 1998, the Company issued 700,000 shares of Preferred Stock
to certain officers and directors of the Company. Each share of
Preferred Stock is convertible into one share of Common Stock at a
conversion value of $5.00 per share. The conversion price can
potentially decrease should the Company meet certain revenue and pre-tax
earnings incentives over the next three years. The Preferred Shares
have been valued by the Board of Directors at $0.25 per share based on
certain factors including a lack of a trading market in the Company's
outstanding securities and the length of time for shares to be
convertible. The Preferred Shares are entitled to vote on all matters
that the Common Stock is entitled to vote on the basis of one vote per
share.
The transaction to record the Series A Preferred Stock resulted in the
recognition of $175,000 in compensation expense reflected in general
and administrative expenses in the accompanying statements of
operations.
NOTE E - EMPLOYMENT AGREEMENTS
On February 19, 1998, the Company entered into five-year employment
agreements with its President and Vice President, which provide for
compensation levels and other provisions.
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<PAGE>
(FORMERLY, UNIVERSITY DINING SERVICES, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE F - ASSUMPTION OF DEBT
On March 3, 1998, the Company obtained a six-month $75,000 working
capital loan from a bank. Interest only payments are due the first of
each month until maturity at 1.5% above the highest Wall Street Journal
Prime Lending Rate (10% at March 27, 1998).
On September 10, 1997, the Company obtained a five-year $75,000
promissory note from a bank which is payable in monthly installments
of principal and interest of $1,280. Interest is based on the bank's
prime lending rate plus one percentage point (9.5% at March 27, 1998).
NOTE G - RECENTLY ISSUED ACCOUNTING STANDARDS; EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share". The objective of SFAS No. 128
is to simplify the standards for computing earnings per share (EPS) and
make them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. SFAS No.
128 was effective for periods ending after December 15, 1997, including
interim periods; earlier application was not permitted.
Net (loss) income per common share was computed based upon 130,000
weighted average shares outstanding during each of the periods.
Dilutive earnings per share was not presented as the potentially
dilutive convertible preferred stock and stock purchase options are
anti-dilutive.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In February 1998, the Company commenced food service operations for
Bloomingdale's By Mail, Ltd., located in Cheshire, Connecticut. A key
component of this contract is the HOMEfood MARKET for home meal
replacement. The HOMEfood MARKET provides quality food service for evening
employees in a cost-effective manner. In addition to providing a cafeteria
and HOMEfood MARKET, the Company manages vending and office coffee
programs.
The Company's sales and marketing efforts were rewarded with a contract
from the Metro Twin Towers in Edison, New Jersey, effective March 30, 1998.
The Company incurred start up costs during the week prior to commencing
operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 27, 1998 ("1998 PERIOD") VS. THREE MONTHS ENDED
MARCH 28, 1997 ("1997 PERIOD")
Revenues from operations for the 1998 period were $1,591,290 as compared to
$1,390,036 for the 1997 period. Accordingly, revenues increased $201,254
or approximately 14.5% due in part to the aggressive program of adding new
facilities and maximizing revenue from existing facilities.
Cost of sales increased $129,563 from the 1997 period to the 1998 period.
The cost can be attributed in part to the increase in the number of
facilities being operated and changes in the food items being offered.
Gross profit increased from 8% in the 1997 period to 12% in the 1998 period
due primarily to an increase in subsidized coffee sales which typically
result in high profit margins.
The Company incurred a net loss for the 1998 period of $184,942 as compared
to a loss of $14,985 in the 1997 period. This increased loss in 1998 is
substantially due to a stock bonus given to management and directors of
$175,000 in the 1998 period. A minimal loss is expected for this period
under normal circumstances due to the seasonal impact of the Company's
operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 27, 1998 ("1998 PERIOD") VS. NINE MONTHS ENDED
MARCH 28, 1997 ("1997 PERIOD")
Revenues from operations for the 1998 period were $5,004,385 as compared to
$4,290,622 for the 1997 period. Accordingly, revenues increased $713,763
or approximately 16.6% due in part to the aggressive program of adding new
facilities and maximizing revenue form existing facilities. A significant
portion of this increase is due to increased servicing to Pitney Bowes and
Oxford Health ("Oxford"). Oxford has been expanding into several new
geographic locations and has sought the Company's assistance in
establishing in-house food service for its employees in certain of those
locations.
Cost of sales increased $565,535 from the 1997 period to the 1998 period,
representing a 14.7% increase. Although the increase was trending similar
to net revenues, the increase in cost of sales was less as a percentage
than the increase in net revenues reflecting the favorable impact on
margins that the change in product mix is having.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses increased $288,234 or 76.5% when
compared to expenses of the 1997 period. If the stock bonus of $175,000
was excluded from the 1998 amounts, general and administrative expenses
would reflect management's continuing efforts to exercise rigid cost
controls.
The Company incurred a net loss for the 1998 period of $87,479 as compared
to net income of $52,527 in the 1997 period. This significant loss in the
1998 period is primarily due to the stock bonus of $175,000 granted in
1998.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity as evidenced by its current ratio has continued to
improve. The current ratio at March 27, 1998 and June 29, 1997 was 1.02:1
and .968:1, respectively. Management of balance sheet items has
contributed to this improvement.
Net cash flows for the nine-month period ended March 27, 1998 resulted in
a decrease in cash for the nine months of $39,864. Operating activities
contributed $148,872 of cash inflow during the period. Purchases of
equipment to support the rapid expansion of facilities under management
amounted to $71,699 and the Company's financing activities resulted in cash
outflow of $117,037 due primarily to deferred offering costs incurred
during the period.
Cash flows from operating activities in fiscal 1997 amounted to $184,610.
The positive cash flow was primarily due to net income ($86,543) and non-cash
expenditures such as depreciation and amortization of ($82,299). The
remainder, $15,768 resulted from management of other current asset and
liability items during the period. Cash flows from investing activities
for the year ended June 29, 1997 reflected an outflow of $68,543 reflecting
a net investment in new equipment to support the expansion to new
facilities.
Cash flows from financing activities in the 1997 period also resulted in a
net outflow of cash of $48,692 representing a net repayment of debt when
considering the additional financing and repayment of existing notes.
The net effect of all these events resulted in an increase in cash of
$67,375 for the 1997 year and achieving and ending cash balance of $140,121
at June 29, 1997.
SEASONAL IMPACT
The Company's business is somewhat seasonal in nature. One of the
Company's major facilities experienced its slowest volume months during the
quarter ended March 27, 1998.
-9-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings NONE
Item 2 - Change in Securities See Notes B, C and D of Notes to
Condensed Financial Statements
Item 3 - Defaults Upon Senior Securities NONE
Item 4 - Submission of Matters to a Vote
of Security Holders NONE
Item 5 - Other Information NONE
Item 6 - Exhibits and Reports on Form 8-K NONE
-10-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of The Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HOST AMERICA CORPORATION
Date: May 14, 1998 By:/s/ GEOFFREY W. RAMSEY
--------------------------------------
Geoffrey W. Ramsey, President
and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1998
<PERIOD-START> JUN-30-1997
<PERIOD-END> MAR-27-1998
<CASH> 100,257
<SECURITIES> 0
<RECEIVABLES> 382,288
<ALLOWANCES> 10,000
<INVENTORY> 183,611
<CURRENT-ASSETS> 951,182
<PP&E> 246,636
<DEPRECIATION> 65,196
<TOTAL-ASSETS> 1,191,818
<CURRENT-LIABILITIES> 930,205
<BONDS> 0
0
700
<COMMON> 130
<OTHER-SE> 215,412
<TOTAL-LIABILITY-AND-EQUITY> 1,191,818
<SALES> 1,591,290
<TOTAL-REVENUES> 1,591,290
<CGS> 1,405,528
<TOTAL-COSTS> 1,776,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184,942)
<EPS-PRIMARY> (1.42)
<EPS-DILUTED> 0
</TABLE>
