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 September 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 November 15, 1997.
<PAGE>
PACESETTER OSTRICH FARM, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 1997 and December 31, 1996
Statement of Operations - Three Months Ended September 30, 1996, and Three
Months Ended September 30, 1997; Nine Months Ended September 30, 1996, and Nine
Months Ended September 30, 1997
Statements of Cash Flows - Nine Months Ended September 30, 1997 and Nine Months
Ended September 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>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PACESETTER OSTRICH FARM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
September 30,
(unaudited) December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and short term investments $ (3,566) --
Accounts receivable (net of allowance of $39,921 at
September 30, 1997 and December 31, 1996) 82,982 129,521
Livestock inventory 451,638 370,775
Other current assets --
------------ ------------
Total current assets 531,054 500,296
PROPERTY, PLANT, AND EQUIPMENT, net 950,518 1,110,666
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS 41,745 3,173
------------ ------------
$1,565,817 $1,656,635
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 297,749 $ 212,908
Notes payable 404,506 450,104
Accrued interest 40,653 11,253
Advances from stockholders 167,180 169,317
------------ ------------
Total current liabilities 910,088 843,582
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
3,665,244 and 3,590,244 issued and outstanding
as of September 30, 1997 and December 31, 1996, respectively 3,665 3,590
Additional paid-in-capital 3,801,642 3,779,217
Retained earnings (deficit) (3,149,578) (2,969,754)
------------ ------------
655,729 813,053
------------ ------------
$ 1,565,817 $ 1,656,635
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PACESETTER OSTRICH FARM, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 324,305 $ 374,615 $ 610,746 $ 776,069
COST OF SALES 125,552 223,986 137,035 398,879
-------------- ------------ ------------- --------------
Gross profit 198,753 150,629 473,711 377,190
OPERATING EXPENSES:
Operating 217,625 120,669 474,173 442,677
General and administrative 10,727 18,503 36,132 72,516
-------------- ------------ ------------- --------------
Operating Income (loss) (29,599) 11,457 (36,594) (138,003)
OTHER INCOME (EXPENSES):
Interest (14,225) (18,360) (38,501) (43,659)
Other 18,993 1,120 56,975 1,838
-------------- ------------ ------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (24,831) (5,783) (18,120) (179,824)
INCOME TAX (EXPENSE) BENEFIT -- -- -- --
-------------- ------------ ------------- --------------
Net income (loss) (24,831) $ (5,783) $ (18,120) $ (179,824)
============== ============ ============= ==============
NET INCOME (LOSS) PER SHARE $ (.01) (.00) $ (.01) $ (.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>
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (179,824) $ (18,120)
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 105,277 106,944
Amortization -- --
Change in deferred revenue -- --
Gain (Loss) on sale of assets -- 16,696
Decrease (increase) in :
Accounts receivable, net 46,539 (176,017)
Livestock Inventory (80,863) 82,876
Deposit -- --
Prepaid assets -- --
Other current assets (38,572) 9,733
Other assets -- --
Increase (decrease) in -
Accounts payable and accrued liabilities 84,841 (5,773)
Accrued interest payable 29,400 --
Borrowings from stockholders (2,137) 16,357
Deferred revenue -- --
------------ ------------
Net cash provided (used) by operating activities (35,339) 32,696
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 (45,598) --
------------ ------------
Net cash provided (used) by financing activities (23,098) --
Net increase (decrease) in cash (3,566) 32,696
CASH AND SHORT-TERM ------------ ------------
INVESTMENTS AT BEGINNING OF PERIOD -- --
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ (3,566) $ 32,696
============ ============
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 Nine months ended September 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 September 30, December 31,
(Lives) 1997 1996
<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
(655,660) (550,383)
----------- -----------
$ 950,518 $ 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 September 30, 1997, sales
increased by $50,310 from $324,305 for the quarter ended September 30,
1996 to $374,615 for the quarter ended September 30, 1997. Sales
increased from $610,746 for the nine months ended September 30, 1996,
to $776,069 for the nine months ended September 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 and began
preparations for its second shipment scheduled for October 1997.
Cost of sales as a percentage of sales increased
substantially, from $125,552, or 38% of sales, for the quarter ended
September 30, 1996, to $223,986, or 59% of sales, for the quarter ended
September 30, 1997. For the nine months ended September 30, 1996 and
1997, cost of sales increased from $137,035, or 22% of sales, to
$398,879, or 51% 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 shipments of live
ostriches to Sao Paulo, Brazil, the first during the second quarter of
1997, and the second scheduled for October 1997. Such shipping costs
have been recorded in full based on the date incurred, while only those
portions of the related revenues which were actually received from such
shipment have been recognized. As a result, the Company expects to
receive future revenues from sales in Brazil related to birds
previously shipped. The Company's gross profit decreased from $198,753
for the quarter ended September 30, 1996 to $150,629, or 24%, for the
quarter ended September 30, 1997, representing an decrease of $48,124.
For the nine months ended September 30, 1996 and 1997, gross profit
decreased by 20% from $473,711 to $377,190 respectively. Such decreases
are a result of the substantial shipping costs associated with the
Company's shipments to Brazil in the current year compared to the same
periods a year ago, as previously described.
Operating expenses decreased from $217,625 for the quarter
ended September 30, 1996 to $120,669 for the quarter ended September
30, 1997 representing a decrease of $96,956 or 45%. Operating expenses
decreased from $474,173 for the nine months ended September 30, 1996,
to $442,677 for the nine months ended September 30, 1997, representing
a decrease of $31,496 or 7%.
7
<PAGE>
Such decreases reflect continued measures taken by the Company to
reduce operating costs in consideration of the net operating losses
experienced in the past several years. General and administrative
expenses increased from $10,727 for the quarter ended September 30,
1996 to $18,503 for the quarter ended September 30, 1997, representing
an increase of $7,776, or 73%. General and administrative expenses also
increased from $36,132 for the nine months ended September 30, 1996, to
$72,516 for the nine months ended September 30, 1997, representing an
increase of $36,384, or 101%. 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 $5,783 or $0.00 per share
for the quarter ended September 30, 1997, compared to a net loss of
$24,831 or $0.01 per share for the same quarter a year ago. The company
incurred a net loss of $179,824 for the nine months ended September 30,
1997, compared to a net loss of $5,783 for the nine months ended
September 30, 1996. Such decreases reflect the increased initial costs
previously described related to the Company's shipments 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 $35,339 for the nine
months ended September 30, 1997 compared to cash provided of $32,696
for the nine months ended September 30, 1996 mostly as a result of the
increased net losses, as well as the increases in livestock inventory,
in the nine months ended September 30, 1997 compared to the small net
loss and the decreases in livestock inventory reported in the same
period a year ago. Cash provided from investing activities increased to
$54,871 for the nine months ended September 30, 1997 compared to $0 for
the nine months ended September 30, 1996, mostly due to the completion
during the second quarter of 1997 of the Company's sale of
8
<PAGE>
property owned in Willcox, Arizona and formerly operated as a
veterninary clinic. Cash flows used in financing activities was $22,238
for the nine months ended September 30, 1997, compared to $0 for the
nine months ended September 30, 1996, reflecting both the issuance of
restricted stock and repayments of notes payable in the current year.
Cash and short term investments for the Company decreased from $32,696
at September 30, 1996, to $(3,566) at September 30, 1997 reflecting the
Company's limited cash flows 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 September 30, 1997, the Company held proprietary
livestock with an original cost of $451,638, 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, and September
30, 1997, the Company further issued 250,000 and 150,000 non-qualified
options, respectively, at an option price of $.15 per share in lieu of
salaries. As a result, a total of 850,000 non-qualified options were
issued and unexercised as of September 30, 1997, not including the
total of 134,500 options issued and unexercised as of September 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 21st day of April, 1998.
PACESETTER OSTRICH FARM, INC.
By:S/S Walter R. Green, Jr.
------------------------
Walter R. Green, Jr.
Chief Financial &
Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> (3,566)
<SECURITIES> 0
<RECEIVABLES> 122,903
<ALLOWANCES> (39,921)
<INVENTORY> 451,638
<CURRENT-ASSETS> 84,245
<PP&E> 1,606,178
<DEPRECIATION> (655,660)
<TOTAL-ASSETS> 1,565,817
<CURRENT-LIABILITIES> 910,088
<BONDS> 0
0
0
<COMMON> 3,665
<OTHER-SE> 652,064
<TOTAL-LIABILITY-AND-EQUITY> 1,565,817
<SALES> 776,069
<TOTAL-REVENUES> 776,069
<CGS> 398,879
<TOTAL-COSTS> 914,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,659
<INCOME-PRETAX> (179,824)
<INCOME-TAX> 0
<INCOME-CONTINUING> (179,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (179,824)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
