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, 1998
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
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(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
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(Issuer's Telephone Number, Including Area Code)
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(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: 3,950,224 shares of Common
Stock at August 25, 1999.
<PAGE>
PACESETTER OSTRICH FARM, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 1998 and December 31, 1997
Statement of Operations - Three Months Ended September 30, 1998, and Three
Months Ended September 30, 1997; Nine Months Ended September 30, 1998, and Nine
Months Ended September 30, 1997
Statements of Cash Flows - Nine Months Ended September 30, 1998 and Nine Months
Ended September 30, 1997
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>
September 30, December 31,
(unaudited)
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short term investments $ 164,627 $ --
Accounts receivable (net of allowance of $47,603 at
September 30, 1998 and December 31, 1997) 3,295 77,781
----------- -----------
Total current assets 167,922 77,781
PROPERTY, PLANT, AND EQUIPMENT, net 31,476 50,625
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
NET ASSETS OF DISCONTINUED OPERATIONS 31,366 796,220
OTHER ASSETS 14,748 3,173
----------- -----------
$ 288,012 $ 970,299
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 156,256 $ 201,216
Notes payable 397,015 541,899
Advances from stockholders 179,626 175,965
----------- -----------
Total current liabilities 732,897 919,080
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
3,665,224 and 3,665,224 issued and outstanding
as of September 30, 1998 and December 31, 1997, respectively 3,665 3,665
Additional paid-in-capital 3,779,217 3,779,217
Retained earnings (deficit) (4,227,767) (3,731,663)
----------- -----------
(444,885) 51,219
----------- -----------
$ 288,012 $ 970,299
=========== ===========
</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,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 29,107 $ 374,615 $ 241,628 $ 776,069
COST OF SALES 239,297 223,986 339,501 398,879
----------- ----------- ----------- -----------
Gross profit (210,190) 150,629 (97,873) 377,190
OPERATING EXPENSES:
Operating 132,622 120,669 309,725 442,677
General and administrative 31,519 18,503 55,567 72,516
----------- ----------- ----------- -----------
Operating Income (loss) (374,331) 11,457 (463,165) (138,003)
OTHER INCOME (EXPENSES):
Interest (22,206) (18,360) (32,939) (43,659)
Other -- 1,120 -- 1,838
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (396,537) (5,783) (496,104) (179,824)
INCOME TAX (EXPENSE) BENEFIT -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) (396,537) $ (5,783) $ (496,104) $ (179,824)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ (.10) (.00) $ (.13) $ (.05)
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,665,224 3,665,224 3,665,224 3,665,224
=========== =========== =========== ===========
</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,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(496,104) $(179,824)
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 19,149 105,277
Amortization -- --
Gain (Loss) on sale of assets -- --
Decrease (increase) in :
Accounts receivable, net 74,486 46,539
Livestock Inventory -- (80,863)
Prepaid assets -- --
Other current assets -- (38,572)
Other assets (11,575) --
Increase (decrease) in -
Accounts payable and accrued liabilities (44,960) 84,841
Accrued interest payable -- 29,400
Borrowings from stockholders 3,661 (2,137)
Deferred revenue -- --
--------- ---------
Net cash provided (used) by operating activities (455,343) (35,339)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (5,129)
Proceeds from sale of net assets of discontinued operations 764,854
Proceeds from sale of property 60,000
--------- ---------
Net cash provided (used) by investing activities 764,854 54,871
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of restricted stock 22,500
Offering costs -- --
Repayment of notes payable (144,884) (45,598)
--------- ---------
Net cash provided (used) by financing activities (144,884) (23,098)
Net increase (decrease) in cash 164,627 (3,566)
CASH AND SHORT-TERM -- --
INVESTMENTS AT BEGINNING OF PERIOD -- --
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 164,627 $ (3,566)
========= =========
INCOME TAXES PAID $ -- $ --
========= =========
INTEREST PAID $ 32,939 $ 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, 1998 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:
Estimated
Years September 30, December 31,
(Lives) 1998 1997
--------- ------------- ------------
Land -- $ 27,000 $ 27,000
Buildings and Improvements 10 to 30 18,370 18,370
Equipment 5 to 7 55,276 55,276
Furniture and Fixtures 5 33,799 33,799
Construction
in Progress
--------- --------
$ 134,445 $134,445
Accumulated Depreciation (102,969) (83,820)
--------- -------
$ 31,476 $ 50,625
========= ========
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, 1998, sales decreased by
$345,508 from $374,615 for the quarter ended September 30, 1997 to $29,107 for
the quarter ended September 30, 1998. Sales decreased from $776,069 for the nine
months ended September 30, 1997, to $241,628 for the nine months ended September
30, 1998. The overall decrease in sales reflects the continued general decline
in the ostrich business.
Cost of sales increased from $223,986 for the quarter ended September 30,
1997, to $239,297 for the quarter ended September 30, 1998. For the nine months
ended September 30, 1997 and 1998, cost of sales decreased from $398,879 to
$339,501 respectively. The increase in cost of sales as a percentage of sales
from the prior year's figures was attributable to the continued decline in the
ostrich business. The Company's gross profit decreased from $150,629 for the
quarter ended September 30, 1997 to a loss of $210,190 for the quarter ended
September 30, 1998, representing a decrease of $360,819. For the nine months
ended September 30, 1997 and 1998, gross profit decreased from $377,190 to a
loss of $97,873 respectively. Such decreases are a result of the continued
general decline in the ostrich business.
Operating expenses increased from $120,669 for the quarter ended September
30, 1997 to $132,622 for the quarter ended September 30, 1998 representing an
increase of $11,953. Operating expenses decreased from $442,677 for the nine
months ended September 30, 1997, to $309,725 for the nine months ended September
30, 1998, representing a decrease of $132,952. Such
7
<PAGE>
decreases reflect the costs associated with preparations to complete the sale of
the Company's Willcox, Arizona facility, as well as all of its livestock
inventory. General and administrative expenses increased from $18,503 for the
quarter ended September 30, 1997 to $31,519 for the quarter ended September 30,
1998, representing an increase of $13,016. General and administrative expenses
decreased from $72,516 for the nine months ended September 30, 1997, to $55,567
for the nine months ended September 30, 1998, representing a decrease of
$16,949. Such increases were mostly due to the preparation to discontinue
operations at the Willcox facility.
The Company incurred a net loss of $396,537 or $0.10 per share for the
quarter ended September 30, 1998, compared to a net loss of $5,783 or $0.00 per
share for the same quarter a year ago. The company incurred a net loss of
$496,104 for the nine months ended September 30, 1998, compared to a net loss of
$179,824 for the nine months ended September 30, 1997. Such decreases reflect
the increased costs previously described related to the Company's discontinuance
of the operations at the Willcox facility in conjunction with the continued
general decline in ostrich prices and volumes.
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. At this time, management has
exhausted all efforts to obtain what it believes would be a favorable
opportunity within the ostrich industry. As a result, the Company has begun
operations during the last two weeks of the quarter ended September 30, 1998,
related to the underground construction business. The Company has obtained key
personnel with substantial experience in many phases of construction,
particularly telecommunications construction. The Company plans to utilize the
proceeds from the sale of its Willcox, Arizona facility and inventory to
extinguish certain of its overdue obligations and begin developing its
telecommunications construction business. Refer also to the Company's Form
10-KSB for the year ended December 31, 1998, simultaneous with this report.
8
<PAGE>
Net cash used by operating activities was $455,343 for the nine months
ended September 30, 1998 compared to cash used of $35,339 for the nine months
ended September 30, 1997 mostly as a result of the increased net losses
associated with the decline of the ostrich business and the ultimate disposition
of the Willcox facility. Cash provided from investing activities increased to
$764,854 for the nine months ended September 30, 1998, compared to $54,871 for
the nine months ended September 30, 1997, mostly due to the disposition of the
Willcox facility. Cash flows used in financing activities was $144,884 for the
nine months ended September 30, 1998, compared to $23,098 for the nine months
ended September 30, 1997, reflecting both the issuance of restricted stock in
the prior year and repayments of notes payable in the current year. Cash and
short term investments for the Company increased from $(3,566) at September 30,
1997, to $164,627 at September 30, 1998 reflecting the Company's liquidation of
the Willcox facility and inventory in the current year.
As of September 30, 1998, under the Company's 1992 Incentive Stock Option
Plan, a total of 110,000 options were issued but not exercised. Additionally, as
of September 30, 1998, the Company had issued a total of 1,150,000 nonqualified
options, based on an option price of $.15 per share, to four of its senior
management in lieu of salary. As of the date of this filing none of either class
of these options have been exercised.
Inflation
While inflation has not had a material effect on the operations of the
Company in the past, at the present time it is not anticipated that inflation
will be a material factor in the foreseeable future.
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 25st day of August, 1999.
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-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 164,627
<SECURITIES> 0
<RECEIVABLES> 3,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,748
<PP&E> 62,842
<DEPRECIATION> 0
<TOTAL-ASSETS> 298,012
<CURRENT-LIABILITIES> 732,897
<BONDS> 0
0
0
<COMMON> 3,665
<OTHER-SE> (448,550)
<TOTAL-LIABILITY-AND-EQUITY> 288,012
<SALES> 29,012
<TOTAL-REVENUES> 29,012
<CGS> 239,297
<TOTAL-COSTS> 239,297
<OTHER-EXPENSES> 164,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,206
<INCOME-PRETAX> (396,537)
<INCOME-TAX> 0
<INCOME-CONTINUING> (396,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (396,537)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
