FORM 10-QSB
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 September 29, 2000 Commission File Number 33-11170-B
HOST AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 06-1168423
--------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 Broadway Hamden, Connecticut 06518-2697
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (203) 248-4100
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
--------------------------------------------------------------------------
Indicate by check whether the registrant
(1) has filed all reports required to be
filed 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 September 29, 2000
Common Stock, $.001 par value 1,337,318 shares
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
SEPTEMBER 29, 2000 FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets - September 29, 2000
(Unaudited) and June 30, 2000 (Audited) 3
Consolidated Condensed Statements of Operations -for the
three months ended September 29, 2000 (Unaudited) and
September 30, 1999 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows - for the
three months ended September 29, 2000 (Unaudited) and
September 30, 1999 (Unaudited) 5
Notes to Consolidated 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 29, 2000 June 30, 2000
(Unaudited) (Audited)
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 190,461 $ 1,720,407
Accounts receivable, net of allowance for
doubtful accounts of $34,000 and $21,000 as of
September 29, 2000 and June 30, 2000,
respectively 2,534,788 934,202
Inventory 472,221 258,977
Prepaid expenses and other 171,500 152,588
------------ ------------
Total current assets 3,368,970 3,066,174
PROPERTY AND EQUIPMENT, net 975,871 670,263
OTHER ASSETS
Other 36,126 -
Goodwill, net 4,018,072 -
------------ ------------
4,054,198 -
------------ ------------
$ 8,399,039 $ 3,736,437
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Demand note payable $ 547,889 $ -
Current portion of long-term debt 72,802 145,035
Accounts payable 1,193,075 690,532
Accrued expenses 569,246 313,452
------------ ------------
Total current liabilities 2,383,012 1,149,019
LONG-TERM DEBT, less current portion included above 2,548,870 152,162
OTHER 19,385 -
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 2,000,000 shares
authorized, 700,000 shares issued and outstanding 700 700
Common stock, $.001 par value, 80,000,000 shares
authorized, 1,337,318 and 1,138,895 shares issued
and outstanding as of September 29, 2000 and
June 30, 2000, respectively 1,337 1,139
Additional paid-in capital 8,555,559 7,546,566
Deficit (5,109,824) (5,113,149)
------------ ------------
Total stockholders' equity 3,447,772 2,435,256
------------ ------------
$ 8,399,039 $ 3,736,437
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS.
-3-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
--------------------------------------
September 29, 2000 September 30, 1999
(Unaudited) (Unadited)
--------------------------------------
<S> <C> <C>
NET REVENUES $ 4,860,233 $ 2,653,255
COST OF GOODS SOLD 3,745,572 2,307,573
------------ ------------
Gross profit 1,114,661 345,682
GENERAL AND ADMINISTRATIVE EXPENSES 1,107,174 572,716
------------ ------------
Income (loss) from operations 7,487 (227,034)
OTHER INCOME (EXPENSE) (4,162) 28,081
------------ ------------
Net income (loss) $ 3,325 $ (198,953)
============ ============
NET LOSS PER COMMON SHARE $ NIL $ (0.18)
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS.
-4-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
--------------------------------------
September 29, 2000 September 30, 1999
(Unaudited) (Unaudited)
--------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,325 $ (198,953)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 119,213 51,333
Changes in operating assets and liabilities 111,406 114,962
------------ ------------
Net cash provided by (used in) operating
activities 233,944 (32,658)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (47,668) (144,468)
Cash paid for business acquired (2,090,608) -
------------ ------------
Net cash used in investing activities (2,138,276) (144,468)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 547,889 89,971
Deferred financing costs (12,500) -
Principal payments on long-term debt (161,003) (31,650)
------------ ------------
Net cash provided by financing activities 374,386 58,321
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,529,946) (118,805)
CASH AND CASH EQUIVALENTS, beginning of period 1,720,407 2,590,515
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 190,461 $ 2,471,710
============ ============
Details of business acquired was as follows:
Fair value of assets acquired $ 6,560,285 $ -
Liabilities assumed 3,469,677 -
------------ ------------
Purchase price, net of cash received 3,090,608 -
Common stock issued for acquired business (1,000,000) -
------------ ------------
Net cash paid for acquired business $ 2,090,608 $ -
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS.
-5-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated condensed financial statements for the three
months ended September 29, 2000 and September 30, 1999 have been
prepared by Host America Corporation and subsidiary (the
"Company") pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") for interim
financial reporting. These consolidated condensed financial
statements are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal recurring
accruals) and disclosures necessary to present fairly the balance
sheets, statements of operations and statements of cash flows for
the periods presented in accordance with generally accepted
accounting principles. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been omitted in accordance with the rules and regulations of the
SEC. These consolidated condensed financial statements should be
read in conjunction with the audited financial statements, and
accompanying notes, included in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 2000.
BASIS OF CONSOLIDATION
The consolidated condensed financial statements presented as of
September 29, 2000 and the three months then ended include the
accounts of Host America Corporation (Host) and its wholly-owned
subsidiary Lindley Food Service Corporation (Lindley) (combined
"the Company"). All significant intercompany transactions and
balances have been eliminated.
The financial statements presented at June 30, 2000 and for the
three months ended September 30, 1999 only include the accounts
of Host.
INVENTORY
Inventory consists primarily of food supplies and is stated at
the lower of cost or market, with cost determined on a first-in,
first-out basis.
EARNINGS PER SHARE
Net loss per common share was computed based upon 1,270,256 and
1,130,000 weighted average shares outstanding during the three
months ended September 29, 2000 and September 30, 1999,
respectively. Dilutive earnings per share was not presented as
the potentially dilutive warrants, convertible preferred stock
and stock purchase options are anti-dilutive.
-6-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE B - ACQUISITION
On July 31, 2000, the Company purchased all of the issued and
outstanding shares of Lindley Food Service Corporation (Lindley),
plus acquisition costs, resulting in a total purchase price of
approximately $5,012,000. The acquisition was partially financed
by a $2,500,000 five-year term loan (See Note C). Lindley is
engaged in the manufacturing of meals for various governmental
programs primarily under fixed-price contracts. The acquisition
was accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon their fair
values at the date of acquisition. The excess of the purchase
price over the fair value of the net assets acquired was
approximately $4,072,000, and has been recorded as goodwill.
The following information reflects the pro forma results of
operations of the Company for the three months ended September 29,
2000 and September 30, 1999 assuming the Lindley acquisition
occurred at the beginning of the respective periods:
2000 1999
---------- ----------
Net revenues $5,756,580 $5,096,708
Income from continuing operations 65,625 58,102
Net income 80,016 70,844
Income per share .06 .06
NOTE C - DEMAND NOTE PAYABLE AND LONG TERM DEBT
In connection with the July 31, 2000 acquisition of Lindley, the
Company obtained a $2,500,000 term loan and a $1,200,000 demand
note payable. The term loan requires monthly principal
installments ranging from $30,000 to $47,500 plus interest at
LIBOR plus 2.5% (9.127% at September 29, 2000) and matures on
August 1, 2005. Total principal outstanding under the term loan
at September 29, 2000 was $2,470,000.
The demand note payable provides for borrowings, based on a
collateral formula, up to a maximum of $1,200,000 maturing on
November 1, 2001. Interest is payable monthly on amounts
outstanding at 9.5%. Total borrowings outstanding at September
29, 2000 totaled $547,889.
The term note and demand note payable are collateralized by
substantially all of the assets of the Company.
NOTE D - STOCK ISSUANCE
On July 10, 2000 the Board of Directors authorized the issuance
of 301 shares of the Host's common stock to an employee for the
achievement of certain incentive goals. Total compensation
expense recognized in connection with the issuance of these
shares totaled $1,505.
On July 31, 2000, Host issued 198,122 shares of common stock
valued at $1,000,000 in connection with the acquisition of Lindley.
-7-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking information made on behalf of the Company. Certain
statements in this quarterly report on Form 10-QSB are "forward-looking
statements". These forward-looking statements include, but are not limited
to, statements about our plans, objectives, expectations and intentions and
other statements contained in the annual report on Form 10-KSB for the year
ended June 30, 2000 and this current report that are not historical facts.
When used in this annual report, the words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate," and similar expressions
are generally intended to identify forward-looking statements. Because
these forward-looking statements involve risks and uncertainties, there are
important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including
our plans, objectives, expectations, and intentions and other factors
discussed in this report. We assume no obligation to update such forward-
looking statements.
OVERVIEW
On July 31, 2000, the Company purchased all of the issued and outstanding
shares of Lindley Food Service Corporation (Lindley). Lindley specializes
in providing full-service contract feeding programs to schools, senior
citizens, day care centers, charitable organizations and other government
funded agencies; as well as the private sector. Annual revenues for
Lindley totaled $8,415,000 for their fiscal year ending March 31, 2000.
The management of Host and Lindley have a long-standing business
relationship, similar goals, and a shared excitement for the competitive
synergies of the combined companies. As a wholly-owned subsidiary, Lindley
will continue its established presence throughout Connecticut and remain
one of the largest senior food service, summer food service, and unitized
breakfast providers in the state. The addition of this subsidiary to Host
not only helps to diversify the services we provide, but also strengthens
the management team and allows us to develop markets that were previously
unavailable to Host and Lindley as separate companies. Lindley's
management, consisting of Gilbert Rossomando and Mark Cerreta, is
responsible for Lindley's past success and will play a major role in
Lindley's future expansion plans. Mr. Gilbert Rossomando joined Host's
Board of Directors in July, 2000.
The Company's acquisition team continues to actively pursue opportunities
for growth. The Company feels that acquiring strong, food-related
companies will strengthen our base of revenue and the probability of
continued growth.
In September, 2000, the Company entered into a multi-year contract with JDS
Uniphase to provide a full array of corporate dining services at JDS
Uniphase's new Product Development and Manufacturing Center in Windsor,
Connecticut. JDS Uniphase is the world's leading merchant supplier of
fiber optic components for the telecommunications industry. The estimated
date of opening is during the second fiscal quarter. The Company also
opened three new corporate dining facilities during the quarter ending
September 29, 2000. It is anticipated that these facilities will generate
approximately $915,000 in annual sales.
ADMINISTRATIVE DEVELOPMENTS
The Company hired a corporate controller to coordinate the integration of
Lindley's financial operations with that of Host, reduce the costs
associated with services provided by outside consultants, make
recommendations for continued financial growth, and oversee various other
financial, accounting, management and administrative functions. The
corporate controller is scheduled to commence
-8-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
ADMINISTRATIVE DEVELOPMENTS (CONTINUED)
employment with the Company in mid-November.
The Company's Regional Operational Manager, Timothy Hayes, with the help of
the District and Unit Managers, has developed a weekly flash reporting
system that enables the Company's management to see trouble spots and make
appropriate corrections as it relates to monthly budgeted revenues, costs
and profitability.
RESULTS OF OPERATIONS
Net revenues for the three months ended September 29, 2000 were $4,860,233
as compared to $2,653,255 for the three months ended September 30, 1999.
Accordingly, revenues increased $2,206,978 or approximately 83%. The
increase in revenues was primarily a result of the acquisition of Lindley
($1,314,410) and the Company's continued ability to aggressively add new
facilities and maximize revenue from existing facilities.
Gross profit increased $768,979 for the three months ended September 29,
2000 when compared to the three months ended September 30, 1999. Gross
profit as a percentage of sales increased from 13% for the three months
ended September 30, 1999 to 23% for the three months ended September 29,
2000 primarily due to the Lindley acquisition, but also resulting from
changes in product mix and operating efficiencies at the unit level.
The Company realized net income of $3,325 for the three months ended
September 29, 2000 as compared to net a net loss of $198,953 for the three
months ended September 30, 1999. The significant improvement was due to
the acquisition as well as the continued effort by the Company to cut costs
and maximize revenue. The Company continues to incur expenses relating to
the opening of new accounts including hiring and training expenses for new
full-time employees, and transportation, overnight expenses, rental
expenses, and smallware costs.
Although the Company expects its growth rate to continue, the impact of the
start-up costs on income from operations will diminish as the customer base
grows. Further, profitability of existing units is expected to increase as
operating costs stabilize, and as management continues to move sales and
product mix to achieve optimum market penetration.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity as evidenced by its current ratio has declined.
The current ratio at September 29, 2000 and June 30, 2000 was 1.41:1 and
2.67:1, respectively. This decline is due mainly to the use of cash in the
acquisition of Lindley. Additionally, payables increased due a change in
the Company's banking relationship and a build up of payables associated
with the acquisition costs.
Net cash flows for the three month period ended September 29, 2000 resulted
in a decrease in cash and cash equivalents of $1,529,946. Operating
activities resulted in a cash inflow during the period of $233,944 due
primarily to management's ability to manage current assets and liabilities
effectively. The acquisition of Lindley accounted for the majority of the
$2,138,276 use of cash for investing activities and the Company's financing
activities resulted in a cash inflow of $374,386 due primarily to proceeds
from financing sources, net of repayments for long term debt.
-9-
<PAGE>
HOST AMERICA CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash flows for the three month period ended September 30, 1999 resulted
in a decrease in cash and cash equivalents of $118,805. Operating
activities resulted in a cash outflow during the period of $32,658
primarily due to the net loss for the period. Purchases of equipment to
support the rapid expansion of facilities under management amounted to
$144,468 and the Company's financing activities resulted in a cash inflow
of $58,321 due primarily to proceeds from financing sources.
-10-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings NONE
Item 2 - Change in Securities NONE
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 Disclosure of the acquisition
of Lindley Food Service
Corporation was filed on Form
8K on August 9, 2000.
-11-
<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: November 13, 2000 By:/s/ GEOFFREY W. RAMSEY
----------------------------
Geoffrey W. Ramsey, President
and Chief Executive Officer
-12-
