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 26, 1999 Commission File Number 0-16196
HOST AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1168423
- -------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2 Broadway Hamden, Connecticut 06518-2697
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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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(Former name, former address and former fiscal year, if changed since last
report.)
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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 26, 1999
Common Stock, $.001 par value 1,130,000 shares
<PAGE>
HOST AMERICA CORPORATION
MARCH 26, 1999 FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - March 26, 1999 (Unaudited) and
June 28, 1998 (Audited) 3
Condensed Statements of Operations -three months ended
March 26, 1999 (Unaudited) and March 27, 1998 (Unaudited) 4
Condensed Statements of Operations -nine months ended
March 26, 1999 (Unaudited) and March 27, 1998 (Unaudited) 5
Condensed Statements of Cash Flows - nine months ended
March 26, 1999 (Unaudited) and March 27, 1998 (Unaudited) 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
HOST AMERICA CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 26, 1999 June 28, 1998
(Unaudited) (Audited)
------------------ ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,570,069 $ 49,529
Accounts receivable, net of allowance
for doubtful accounts of $8,300 as
of March 26, 1999 and June 28, 1998 446,270 380,989
Inventory 222,046 173,807
Deferred offering costs - 486,029
Prepaid expenses and other 155,539 117,909
Deferred income taxes 30,000 30,000
----------- -----------
Total current assets 3,423,924 1,238,263
PROPERTY AND EQUIPMENT, net 509,410 324,254
----------- -----------
$ 3,933,334 $ 1,562,517
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Demand note payable $ - $ 75,000
Current portion of long-term debt 68,569 123,661
Accounts payable 296,608 870,003
Accrued expenses 67,184 284,860
Due to officer/director - 17,041
----------- -----------
Total current liabilities 432,361 1,370,565
LONG-TERM DEBT, less current portion
included above 182,738 166,080
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 20,000,000
shares authorized, 700,000 shares issued
and outstanding 700 700
Common stock, $.001 par value, 80,000,000
shares authorized, 1,130,000 and 130,000
shares issued and outstanding as of March 26,
1999 and June 28, 1998, respectively 1,130 130
Additional paid-in capital 7,526,175 3,744,258
Deficit (4,209,770) (3,719,216)
----------- -----------
Total stockholders' equity 3,318,235 25,872
----------- -----------
$ 3,933,334 $ 1,562,517
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-3-
<PAGE>
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
---------------------------------
March 26, 1999 March 27, 1998
(Unaudited) (Unaudited)
---------------- ----------------
<S> <C> <C>
NET REVENUES $ 2,134,212 $ 1,591,290
COST OF GOODS SOLD 1,863,809 1,405,528
----------- -----------
Gross profit 270,403 185,762
GENERAL AND ADMINISTRATIVE EXPENSES 505,590 369,192
----------- -----------
Income from operations (235,187) (183,430)
OTHER INCOME (EXPENSE) 34,409 (1,512)
----------- -----------
Net loss $ (200,778) $ (184,942)
=========== ===========
NET LOSS PER COMMON SHARE $ (0.18) $ (1.42)
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-4-
<PAGE>
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months ended
---------------------------------
March 26, 1999 March 27, 1998
(Unaudited) (Unaudited)
---------------- ----------------
<S> <C> <C>
NET REVENUES $ 6,119,445 $ 5,004,385
COST OF GOODS SOLD 5,403,691 4,426,815
----------- -----------
Gross profit 715,754 577,570
GENERAL AND ADMINISTRATIVE EXPENSES 1,306,741 660,512
----------- -----------
Income from operations (590,987) (82,942)
OTHER INCOME (EXPENSE) 100,633 (4,537)
----------- -----------
Net loss $ (490,354) $ (87,479)
=========== ===========
NET LOSS PER COMMON SHARE $ (0.45) $ (0.67)
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS
-5-
<PAGE>
HOST AMERICA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
---------------------------------
March 26, 1999 March 27, 1998
(Unaudited) (Unaudited)
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (490,354) $ (87,479)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities 88,475 262,479
Changes in operating assets and liabilities (918,837) (26,128)
----------- -----------
Net cash (used in) provided by
operating activities (1,320,716) 148,872
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (273,731) (71,699)
----------- -----------
Net cash used in investing activities (273,731) (71,699)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
warrants, net 3,759,433 -
Deferred offering costs 486,029 (174,337)
(Payment) of proceeds from due to
officer/director (17,041) 2,699
(Payment) of proceeds from demand note payable
and long term debt (113,434) 54,601
----------- -----------
Net cash provided by (used in)
financing activities 4,114,987 (117,037)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,520,540 (39,864)
CASH AND CASH EQUIVALENTS, beginning of period 49,529 140,121
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,570,069 $ 100,257
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
FINANCIAL STATEMENTS.
-6-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - PUBLIC OFFERING
In July, 1998, the Company completed the issuance of an
additional 1,000,000 common shares and 1,000,000 common stock
warrants through a public offering, resulting in net proceeds
(after deducting issuance costs) of $3,759,433. The proceeds of
the offering will be used for acquisitions, sales and marketing,
working capital and product development.
NOTE B - REVERSE SPLIT OF OUTSTANDING COMMON STOCK
On February 14, 1998, the Board of Directors of the Company
authorized the reverse split of all issued and outstanding shares
of Common Stock so that each one hundred shares outstanding
converted to one share. Accordingly, all share and per share
amounts have been restated in the accompanying condensed
financial statements as of and for the three and nine months
ended March 27, 1998.
NOTE C - PREFERRED STOCK
On March 1, 1998, the Company issued 700,000 shares of Preferred
Stock to certain officers and directors of the Company. Each
share of Preferred Stock is convertible into one share of Common
Stock at a conversion value of $5.00 per share. The conversion
price can potentially decrease should the Company meet certain
revenue and pre-tax earnings incentives over the next three years
and in the event the Company does not attain any of the
incentives, each share of Series A Preferred Stock then
outstanding shall automatically convert, at no additional cost to
the holder into one (1) share of common stock at the end of five
(5) years. The Preferred Shares have been valued by the Board of
Directors at $5.00 per share based on the stock's conversion
value. The Preferred Shares are entitled to vote on all matters
that the Common Stock is entitled to vote on the basis of one
vote per share.
NOTE D - RECENTLY ISSUED ACCOUNTING STANDARDS; EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". The objective of
SFAS No. 128 is to simplify the standards for computing earnings
per share (EPS) and replaces the presentation of primary and
fully-diluted EPS with a presentation of basic and diluted EPS.
Implementation of SFAS No. 128 did not have any impact on the
Company's calculation of EPS.
Net income per common share was computed based upon 1,130,000 and
130,000 weighted average shares outstanding during the three
months ended March 26, 1999 and March 27, 1998, respectively, and
1,078,276 and 130,000 weighted average shares outstanding during
the nine months ended March 26, 1999 and March 27, 1998,
respectively. Dilutive earnings per share was not presented as
the potentially dilutive warrants, convertible preferred stock
and stock purchase options are anti-dilutive.
-7-
<PAGE>
HOST AMERICA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company experienced substantial growth in operations with the opening
of two new accounts at the Cummings Center in Beverly, Massachusetts
(including HOMEfood Market). The Company also obtained new accounts at the
Tyco Submarine facility in Eatontown, New Jersey, and the Company's sixth
Pitney Bowes account in Danbury, Connecticut. The Company has been winning
these long-term contracts in competition with the largest companies in the
business including, Sodexho Marriott, Eurest, and various other local
competitors.
Sales and marketing efforts are continuing to expand which enables the
Company to compete for larger contracts and business in related fields that
will strengthen the Company's strategic position with several new accounts
in Connecticut in the fourth quarter.
The Company has an aggressive merger and acquisition program and will
announce its results when appropriate.
RESULTS OF OPERATIONS
Net revenues for the three months ended March 26, 1999 were $2,134,212 as
compared to $1,591,290 for the three months ended March 27, 1998.
Accordingly, revenues increased $542,922 or approximately 34%. Net
revenues for the nine months ended March 26, 1999 increased $1,115,060, or
22%, when compared to the nine months ended March 27, 1998. The
aforementioned increases are primarily due to the aggressive program of
adding new facilities and maximizing revenue from existing facilities.
Cost of goods sold increased $458,281 and $976,876 for the three and nine
months ended March 26, 1999 and March 27, 1998, respectively. This
increase can be attributed to the developmental costs involved in opening
the Company's new accounts and recreational division. In opening the new
accounts, the Company incurred marketing, inventory, and other start-up
expenses. Additionally, certain one-time expenses were recognized in
upgrading the facilities of a major customer's installation.
The Company incurred a net loss of $200,778 and $490,354 for the three and
nine months ended March 26, 1999 as compared to a net loss of $184,942 and
$87,479 for the three and nine months ended March 27, 1998. The losses in
1999 are due primarily to the seasonal impact of the Company's operations
and expenses incurred in the opening of the Company's new accounts. The
expenses related to the new accounts included hiring and training expenses
for 29 new full-time employees, and transportation, overnight expenses,
rental expenses, computer consulting and smallware costs.
The Company anticipates a strong fourth quarter due to continued growth in
operations from new and existing accounts and a decrease in the
developmental costs incurred to open new facilities. Furthermore, the
Company manages a banquet facility and club bar at the Laurel View Country
Club that has traditionally been very profitable during the fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity as evidenced by its current ratio has continued to
improve. The current ratio at March 26, 1999 and June 28, 1998 was 7.92:1
and .90:1, respectively. The proceeds from the public offering is the main
contributor to this improvement.
-8-
<PAGE>
HOST AMERICA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash flows for the nine month period in 1999 resulted in a increase in
cash and cash equivalents of $2,520,540. Operating activities resulted in
a cash outflow during the period of $1,320,716 primarily relating to the
payment of liabilities upon receiving the proceeds of the public offering.
Purchases of equipment to support the rapid expansion of facilities under
management amounted to $273,731 and the Company's financing activities
resulted in a cash inflow of $4,114,987 due primarily to the receipt of
proceeds from the public offering.
Cash flows from operating activities in the 1998 period resulted in a cash
inflow of $148,872. Cash flows from investing activities for the 1998
period reflected a net investment in new equipment of $71,699 to support
the expansion to new facilities and cash flows from financing activities
resulted in a net outflow of cash of $117,037 due primarily to the Company
incurring deferred offering costs. The net effect of all these events
resulted in a decrease in cash of $39,864 for the 1998 period and achieving
an ending cash balance of $100,257 at March 27, 1998.
RECENT DEVELOPMENTS
On April 30, 1999, the Company's shareholders approved a change in the
Company's domicile from Delaware to Colorado. The change was to save
substantial annual franchise fees payable in Delaware.
-9-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings NONE
Item 2 - Change in Securities See Notes A, B and C of Notes
to Condensed Financial
Statements
Item 3 - Defaults Upon Senior Securities NONE
Item 4 - Submission of Matters to a Vote of Security Holders
NONE
Item 5 - Other Information In March 1999, Mr. Robert C.
Vaughan resigned as a Director of
the Company.
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 5, 1999 By:/s/ GEOFFREY W. RAMSEY
-----------------------------
Geoffrey W. Ramsey, President
and Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-25-1999 JUN-25-1999 JUN-25-1999
<PERIOD-END> SEP-27-1998 DEC-25-1998 MAR-26-1999
<CASH> 3,189 2,930 2,570
<SECURITIES> 0 0 0
<RECEIVABLES> 418 359 454
<ALLOWANCES> 8 8 8
<INVENTORY> 203 182 222
<CURRENT-ASSETS> 4,049 3,675 3,424
<PP&E> 740 843 942
<DEPRECIATION> 371 398 433
<TOTAL-ASSETS> 4,418 4,121 3,933
<CURRENT-LIABILITIES> 449 436 432
<BONDS> 0 0 0
0 0 0
1 1 1
<COMMON> 1 1 1
<OTHER-SE> 3,790 3,517 3,316
<TOTAL-LIABILITY-AND-EQUITY> 3,791 4,121 3,933
<SALES> 1,958 2,028 2,134
<TOTAL-REVENUES> 1,958 2,028 2,134
<CGS> 1,654 1,886 1,864
<TOTAL-COSTS> 1,654 1,886 1,864
<OTHER-EXPENSES> 319 437 506
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 7 8 7
<INCOME-PRETAX> 6 (295) (201)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 6 (295) (201)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6 (295) (201)
<EPS-PRIMARY> .01 (.26) (.18)
<EPS-DILUTED> 0 0 0
</TABLE>
