U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File No. 1-11282
PACESETTER OSTRICH FARM, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
- ------------------------------------ -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10135 Hereford Road, Folsom, Louisiana 70437
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) has 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 issuer was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
Yes _____ No __X__
APPLICABLE ONLY TO USERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes _____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,665,244 shares of Common
Stock at August 11, 1997.
<PAGE>
PACESETTER OSTRICH FARM, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 1997 and December 31, 1996
Statement of Operations - Three Months Ended June 30, 1996, and Three Months
Ended June 30, 1997; Six Months Ended June 30, 1996, and Six Months Ended June
30, 1997
Statements of Cash Flows - Six Months Ended June 30, 1997 and Six Months Ended
June 30, 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
2
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PACESETTER OSTRICH FARM, INC.
BALANCE SHEETS
ASSETS
------
June 30,
(unaudited) December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and short term investments $ (6,724) --
Accounts receivable (net of allowance of $39,921 at
June 30, 1997 and December 31, 1996) 50,998 129,521
Livestock inventory 453,919 370,775
Other current assets --
------------ ------------
Total current assets 498,193 500,296
PROPERTY, PLANT, AND EQUIPMENT, net 984,499 1,110,666
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS 20,718 3,173
------------ ------------
$1,545,910 $1,656,635
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 273,749 $ 212,908
Notes payable 405,366 450,104
Accrued interest 30,853 11,253
Advances from stockholders 174,430 169,317
------------ ------------
Total current liabilities 884,398 843,582
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
3,665,244 and 3,590,244 issued and outstanding
as of June 30, 1997 and December 31, 1996, respectively 3,665 3,590
Additional paid-in-capital 3,801,642 3,779,217
Retained earnings (deficit) (3,143,795) (2,969,754)
------------ ------------
661,512 813,053
------------ ------------
$ 1,545,910 $ 1,656,635
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PACESETTER OSTRICH FARM, INC.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 172,342 $ 240,010 $ 286,441 $ 401,454
COST OF SALES 11,283 157,051 11,483 174,893
----------------- -------------- -------------- --------------
Gross profit 161,059 82,959 274,958 226,561
OPERATING EXPENSES:
Operating 140,318 112,867 256,548 321,001
General and administrative 15,589 20,855 25,405 55,021
---------------- -------------- -------------- --------------
Operating Income (loss) 5,152 (50,763) (6,995) (149,461)
OTHER INCOME (EXPENSES):
Interest (11,250) (19,600) (24,276) (25,298)
Other 18,992 717 37,982 717
---------------- --------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 12,894 (69,646) 6,711 (174,012)
INCOME TAX (EXPENSE) BENEFIT -- -- -- --
---------------- --------------- --------------- --------------
Net income (loss) 12,894 $ (69,646) $ 6,711 $ (174,712)
================ =============== =============== ==============
NET INCOME (LOSS) PER SHARE $ .00 (.02) $ .00 $ (.05)
================ =============== =============== ==============
AVERAGE COMMON SHARES OUTSTANDING 3,590,224 3,665,244 3,590,224 3,665,244
================ =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (174,012) $ 6,711
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 71,296 71,296
Amortization -- 24,750
Change in deferred revenue -- --
Gain (Loss) on sale of assets (372) 5,799
Decrease (increase) in :
Accounts receivable, net 78,523 (98,012)
Livestock Inventory (83,144) 11,483
Deposit -- --
Prepaid assets -- --
Other current assets (17,545) --
Other assets -- --
Increase (decrease) in -
Accounts payable and accrued liabilities 60,841 3,066
Accrued interest payable 19,600 (11,250)
Borrowings from stockholders 5,113 --
Deferred revenue -- --
------------ ------------
Net cash provided (used) by operating activities (39,700) 343
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (5,129)
Proceeds from sale of property 60,000 --
------------ ------------
Net cash provided (used) by investing activities 54,871 --
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of restricted stock 22,500 --
Offering costs -- --
Repayment of notes payable (44,738) --
------------ ------------
Net cash provided (used) by financing activities (22,238) --
Net increase (decrease) in cash (7,067) 343
CASH AND SHORT-TERM ------------ ------------
INVESTMENTS AT BEGINNING OF PERIOD 343 --
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ (6,724) $ 343
============ ============
INCOME TAXES PAID $ -- $ --
============ ============
INTEREST PAID $ 25,298 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Pacesetter Ostrich Farm, Inc.
Notes To Financial Statements
(unaudited)
1. Basis of Presentation:
---------------------
The financial information included herein reflects all adjustments
which are in the opinion of management, necessary for a fair statement
of results for the periods. All such adjustments, in the opinion of
management, are of normal recurring nature.
The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the full
year.
2. Property, Plant, and Equipment:
------------------------------
Property, plant, and equipment consist primarily of special-use assets
for the production and raising of ostriches. The balance of property,
plant, and equipment, stated at cost less accumulated depreciation, is
as follows:
<TABLE>
<CAPTION>
Estimated Years June 30, 1997 December 31, 1996
(Lives)
<S> <C> <C>
Land -- $ 144,727 $ 144,727
Buildings and Improvements 10 to 30 967,995 1,027,995
Equipment 5 to 7 401,816 396,687
Furniture and Fixtures 5 60,447 60,447
Construction
in Progress 31,193 31,193
----------- -----------
$ 1,606,178 $ 1,661,049
Accumulated Depreciation
(621,679) (550,383)
----------- -----------
$ 984,499 $ 1,110,666
=========== ===========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following is management's discussion and analysis of
certain significant factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed financial statements.
Results of Operations
For the calendar quarter ended June 30, 1997, sales increased
by $67,668 from $172,342 for the quarter ended June 30, 1996 to
$240,010 for the quarter ended June 30, 1997. Sales increased from
$286,441 for the six months ended June 30, 1996, to $401,454 for the
six months ended June 30, 1997. The overall increase in sales reflects
increased international sales compared to the same periods in the prior
year, as the Company made its first shipment to Brazil during the
second quarter of 1997.
Cost of sales as a percentage of sales increased
substantially, from $11,283, or 7% of sales, for the quarter ended June
30, 1996, to $157,051, or 65% of sales, for the quarter ended June 30,
1997. For the six months ended June 30, 1996 and 1997, cost of sales
increased from $11,483, or 4% of sales, to $174,893, or 44% of sales,
respectively. The increase in cost of sales as a percentage of sales
from the prior year's figures was attributable to the shipping costs
associated with the Company's first shipment of live ostriches to Sao
Paulo, Brazil, during the second quarter of 1997. Such shipping costs
have been recorded in full during the second quarter of 1997 based on
the date incurred, while only those portions of the related revenue
which were actually received from such shipment have been recognized.
As a result, the Company expects to receive future revenues related to
its sales in Brazil related to birds shipped in the second quarter of
1997. The Company's gross profit decreased from $161,059 for the
quarter ended June 30, 1996 to $82,959, or 48%, for the quarter ended
June 30, 1997, representing an decrease of $78,100. For the six months
ended June 30, 1996 and 1997, gross profit decreased by 18% from
$274,958 to $226,561 respectively. Such decreases are a result of
substantial shipping costs associated with the Company's shipment to
Brazil in the current quarter compared to the same periods a year ago,
as previously described.
Operating expenses decreased from $140,318 for the quarter
ended June 30, 1996 to $112,867 for the quarter ended June 30, 1997
representing a decrease of $27,451 or 20%, reflecting continued
measures taken by the Company to reduce operating costs in
consideration of the net operating losses experienced in the past
several years. Operating expenses increased from $256,548 for the six
months ended June 30, 1996, to $321,001 for the six months ended June
30, 1997, representing an increase of $64,453 or 25%, due mostly to
increased costs related to certain sales
7
<PAGE>
transactions during the first quarter of 1997 which did not occur in
the second quarter of 1997 or in any of the same periods a year ago.
General and administrative expenses increased from $15,589 for the
quarter ended June 30, 1996 to $20,855 for the quarter ended June 30,
1997 representing an increase of $5,266, or 34%. General and
administrative expenses also increased from $25,405 for the six months
ended June 30, 1996, to $55,021 for the six months ended June 30, 1997,
representing an increase of $29,616, or 117%. Such increases were
mostly due to the restoration of a portion of salaries of some of the
Company's senior management which had been voluntarily reduced in prior
years.
The Company incurred a net loss of $69,646 or $0.02 per share
for the quarter ended June 30, 1997 compared to a net profit of $12,894
or $0.00 per share for the same quarter a year ago. The company
incurred a net loss of $174,712 for the six months ended June 30, 1997,
compared to a net profit of $6,711 for the six months ended June 30,
1996. Such decreases reflect the increased initial costs previously
described related to the Company's first shipment of ostriches to Sao
Paulo, Brazil, as well as the conservative treatment utilized on
recognition of related revenue which also is previously described. The
Company also had increased general and administrative costs previously
described which contributed to the net losses in the current year as
compared to a year ago.
Liquidity and Capital Resources
The Company has incurred substantial losses for several years
and experienced cash flow difficulties which have caused it not to meet
some of its obligations as they have come due. As a result, there can
be no assurances that the Company will continue as a going concern. The
Company believes that its ostrich inventory could be liquidated at an
amount in excess of book value, if required. However, there is no
guarantee that sales at such prices would be possible.
Net cash used by operating activities was $39,700 for the six
months ended June 30, 1997 compared to cash provided of $343 for the
six months ended June 30, 1996 mostly as a result of the increased net
losses in the six months ended June 30, 1997 compared to the small net
income of $6,711 reported the same period a year ago. Cash provided
from investing activities increased to $54,871 for the six months ended
June 30, 1997 compared to $0 for the six months ended June 30, 1996,
mostly due to the completion of the Company's anticipated sale of
property owned in Willcox, Arizona and formerly operated as a
veterninary clinic. The Company had previously reported such
transaction in its audited statements included with its 1996 Form
10-KSB and
8
<PAGE>
recorded a loss during 1996 based on the estimated sales price. Cash
flows used in financing activities was $22,238 for the six months ended
June 30, 1997, compared to $0 for the six months ended June 30, 1996,
reflecting both the issuance of restricted stock and repayments of
notes payable in the current quarter. Cash and short term investments
for the Company decreased from $343 at June 30, 1996 to $(6,724) at
June 30, 1997 reflecting the limited cash flow during both periods and
as previously described.
The value of ostrich progeny produced by the Company's
proprietary ostriches or derived by the Company as a result of the
management of non-proprietary ostriches has not been reflected in the
Company's financial statements, nor has the appreciation in value of
ostrich chicks and yearlings acquired by the Company. In addition, no
related costs associated with the maintenance of progeny from the
Company's ostriches or independent owned ostriches have been assigned
to inventory.
As of June 30, 1997, the Company held proprietary livestock
with an original cost of $453,919, which management estimates to have a
current fair market value in excess of book cost. There can be no
assurances, however, that the Company will be able to realize such
aggregate market value at the time of sale or other disposition.
As of March 13, 1997, under the Company's 1992 Incentive Stock
Option Plan, a total of 114,500 options were issued but not exercised.
On March 30, 1997, 10,000 additional options were issued to two of the
Company's key employees based on an option price of $.15 per share. On
June 15, 1997, another 10,000 options were issued to several key
employees based on an option price of $.15 per share. As a result, a
total of 134,500 options were issued and unexercised as of June 30,
1997, under this Plan.
Additionally, as of March 31, 1997, the Company had issued
450,000 nonqualified options, based on an option price of $.15 per
share, to four of its senior management. As of June 30, 1997, the
Company further issued 250,000 non-qualified options at an option price
of $.15 per share in lieu of salary. As a result, a total of 700,000
non-qualified options were issued and unexercised as of June 30, 1997,
not including the total of 134,500 options issued and unexercised as of
June 30, 1997 under the Company's 1992 Incentive Stock Option Plan as
previously described.
Inflation
While inflation has not had a material effect on the
operations of the Company in the past, at the present time there is a
substantial worldwide demand for ostrich products. It is anticipated
that such market conditions will continue for the next several years,
although as with any new commodity market, market trends and prices
could fluctuate substantially.
9
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 17th day of April, 1998.
PACESETTER OSTRICH FARM, INC.
By:S/S Walter R. Green, Jr.
-----------------------------
Walter R. Green, Jr.
Chief Financial &
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,724
<SECURITIES> 0
<RECEIVABLES> 90,919
<ALLOWANCES> (39,921)
<INVENTORY> 453,919
<CURRENT-ASSETS> 63,218
<PP&E> 1,606,178
<DEPRECIATION> (621,679)
<TOTAL-ASSETS> 1,545,910
<CURRENT-LIABILITIES> 884,398
<BONDS> 0
0
0
<COMMON> 3,665
<OTHER-SE> 657,847
<TOTAL-LIABILITY-AND-EQUITY> 1,545,910
<SALES> 401,454
<TOTAL-REVENUES> 0
<CGS> 174,893
<TOTAL-COSTS> 174,893
<OTHER-EXPENSES> 376,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,298
<INCOME-PRETAX> (174,712)
<INCOME-TAX> (174,712)
<INCOME-CONTINUING> (174,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174,712)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
