U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1998
Commission File No. 1-11282
PACESETTER OSTRICH FARM, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
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(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)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock ($.001 par value) OTC Bulletin Board
Securities registered under Section 12(g) of the Exchange Act: None
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(Title of Class)
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___
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This report contains a total of ___ pages.
The Exhibit Index appears on page ___.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
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State issuer's revenues for its most recent fiscal year. $444,641
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
Common Stock, par value $.001 per share ("Common Stock"), was the only
class of voting stock of the Registrant outstanding on August 25,
1999. Based on the closing bid price of the Common Stock on the OTC
Bulletin Board as reported on August 25, 1999 ($5/16), the aggregate
market value of the 2,269,097 shares of the Common Stock held by
persons other than officers, directors and persons known to the
Registrant to be the beneficial owner (as that term is defined under
the rules of the Securities and Exchange Commission) of more than five
percent of the Common Stock on that date was approximately $709,093.
By the foregoing statements, the Registrant does not intend to imply
that any of these officers, directors or beneficial owners are
affiliates of the Registrant or that the aggregate market value, as
computed pursuant to rules of the Securities and Exchange Commission,
is in any way indicative of the amount which could be obtained for
such shares of Common Stock.
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has 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 REGISTRANTS
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, $.001 par value, as of August 25,
1999.
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DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Report
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Registration Statement on Form S-18, as IV
Amended, (Registration No. 33-49228-FW)
declared effective on December 15, 1992
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
Ostrich
Pacesetter Ostrich Farm, Inc. (the "Company") is engaged in the care,
management, breeding and sale of ostriches and ostrich products. The Company,
which owned and operated one of the largest ostrich farm facilities in the
United States, maintained and bred ostriches owned primarily by the Company as
well as for investors. The ostrich industry presently generates estimated
revenues in excess of $250 million for the Union of South Africa which controls
90% of the worldwide market for unprocessed ostrich products. The ostrich, which
is part of the flightless ratite family of birds, is valued worldwide for its
meat (which has a beef like taste and consistency but with the fat and
cholesterol content comparable to fish and less than other farm poultry), for
its durable and ornamental hide and for its wing, tail and body plumes which are
used for decorative, dusting and filtration purposes. Currently, ostrich
components and elements are supplied for the worldwide market predominantly by
South Africa which regulates the processing and dissemination of its raw
material and ostrich products.
The Company was incorporated on February 4, 1992 and executed a Plan and
Agreement of Merger with Pacesetter Ostrich Farms, Inc., a Louisiana
corporation, on February 14, 1992. The predecessor corporation was organized in
Louisiana on February 22, 1989 under the name Ostrich Breeders of North America,
Inc., and unless the context provides otherwise, all references to the Company
include Pacesetter Ostrich Farm, Inc., the predecessor corporation and the
operations previously undertaken by such predecessor corporation.
During the course of the Company's past several fiscal years, the Company
has experienced substantial net operating losses as well as significant
reductions in cash flows. Following the Company's initial public offering in
December 1992, a rapid expansion of operating facilities was commenced at the
Willcox, Arizona facilities. Such expansion initially produced expected net
operating losses during 1993. Since that time, and through 1998, however, the
Company experienced net operating losses which resulted from lower than expected
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revenues and losses resulting from the sale of the Company's facilities located
in Willcox, Arizona. Such decreases resulted from the reduction in prices
received from international shipments and continued decreases in market prices
for live ostriches within the United States compared to prior year prices. In
addition, domestic sales volumes were very sporadic due to uncertainty about the
future of the domestic commercial market.
Construction
During the fourth quarter of 1998 the company completed its disposition of
most of its assets used in the ostrich business. The company simultaneously
acquired its first piece of underground construction equipment, and together
with some of its existing trucks and equipment, began operations as a
sub-contractor placing underground conduit for fiber optic cable.
Background
While the ostrich industry has previously generated certain interest in the
United States as an alternative agricultural livestock business, ostrich farming
has never previously gained a strong foothold in this country based on a general
lack of knowledge and understanding concerning the care and breeding of
ostriches as well as an absence of protocol and husbandry relative to their
maintenance. For more than 100 years, however, the ostrich industry has been
nurtured, developed and monopolized by the Union of South Africa which controls
an estimated 90% of the worldwide market for raw material ostrich products. It
is further estimated that the Union of South Africa receives revenues in excess
of $250 million from the worldwide distribution of ostrich products. At an early
stage, South Africa realized that the financial benefits to be derived from the
species were multi-dimensional. As a consequence, the South African government
originally passed stringent laws forbidding exportation of sexually viable birds
or fertile eggs and established various protocols for the maintenance of its
virtual monopoly on ostrich development and commercial exploitation by limiting
the dissemination of information concerning ostrich farming and access to
ostrich rearing facilities. Despite these efforts, ostrich farming became a
growing alternative agricultural/livestock business in the United States,
Canada, Europe, and Australia. Even more recently, due to the political
uncertainties within the country of South Africa, there has been a
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disintegration of the monopolistic practices traditionally used in South Africa.
As a result, exportation of live ostriches from South Africa has now increased
and sales prices of ostrich products originating from South Africa have
decreased considerably. These developments have resulted in increased
competition in the worldwide market for both live ostriches and ostrich
products. In addition, during 1997 and continuing through 1998 domestic prices
for slaughter ostriches have consistently fallen below the cost of production.
These factors coupled with significant reductions in prices to be received for
international shipments of ostriches have led management to a decision to begin
the development of business other than ostrich farming.
Ostrich Data
The average adult ostrich is 7 to 9 feet tall and weighs in the range of
300 to 450 pounds with the male being both the larger and the more aggressive of
the species. Following hatching and during their rapid growth phase through six
months, ostriches gain an average of one foot of height per month and complete
their growth by the end of 12 months. Adult feathering and coloration will
generally begin at approximately 12 to 14 months of age. Blue necks, rednecks,
African blacks and crosses are all acceptable as commercially viable breeds of
ostriches, although the African black is smaller than the other birds. In the
United States, ostriches normally breed from two to three years of age and for a
period of 30 or more years. The rate of lay for a 2-year old female may be from
one to 30 eggs, while during their second and subsequent year of laying, they
may produce anywhere from 20 to 100 eggs per year. The eggs have generally a
42-day incubation period. The eggs generally weigh up to 3 1/2 pounds and are 24
times the size of the normal chicken egg. The rate of lay is generally
attributable to husbandry, nutrition, bonding and the overall comfort level of
the hen. The male ostrich achieves full fertility at two to three years of age
and generally increases with each subsequent year of breeding. While ostrich
breeding is generally confined to the period between March and October of each
calendar year, sales of ostriches occurs throughout the year.
Ostriches are by nature calm and docile birds with very few natural
predators. Chicks, however, are subject to attack by predators and are required
to be protected and closely scrutinized for the first six months of age at which
time they will have achieved the majority of their height and weight. It is
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generally believed that 30% of the eggs laid in the United States will hatch and
that a well organized and sanitized farm facility will achieve successful
hatching of approximately 50% of eggs laid. Young chicks are generally
vulnerable to bacterial and other infections during the initial four months of
their existence during which time special precautions need to be observed by the
farming facility to minimize exposure to infection and introduce the chicks to
proper nutritional substances. Ostriches may be bred under most climate
conditions, but since cold weather will inhibit egg laying, more temperate
climates promote a longer breeding season. Consequently, while ostriches exist
and breed in all sections of North America, the temperate climates of the lower
United States contain the most ostrich farms. Ostriches are vegetarians with
eating habits similar to cows and horses. They graze on grass and eat
commercially prepared ostrich feed. In general, it is estimated that each
ostrich will consume approximately $200 of commercial feed in each annual period
and consumes approximately two to four pounds of food per day.
Construction Data
The company's construction operations currently consist of underground
utility construction, including fiber optics, water, electrical, and sewage
lines construction. Due to the current substantial demand for high-speed broad
band communications infrastructure, the majority of work completed to date
relates to completion of fiber optic trunk lines. Currently, much of such
construction is concentrated in metropolitan areas with greater population
densities. Accordingly, these highly developed areas require less intrusive
methods of placement. As a result, directional boring is the preferred method of
construction for many of these systems. Directional boring equipment provides
the ability to steer, or "direct", a series of drilling rods at various depths
(typically not more than 40 feet deep) from one surface point to another. This
facilitates the ability to traverse streets, highways, rivers, railroads and
other obstructions without the disruption caused by trenching. Once the initial
"bore" is made, a conduit pipe (usually flexible plastic or steel) is pulled
back through the bore, resulting in an underground conduit pipe of generally
100-1500 feet in length. Such conduits are joined to each other with the
installation of manholes. Once complete, these conduits can house fiber cable,
electric cable, TV cable or telephone cable. Underground placement of such lines
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is necessary for placement of multi-duct fiber systems. Consequently, most of
the above ground copper lines in the United States are being systematically
replaced with underground fiber optic cable. Such infrastructure is underway to
facilitate the high-speed broad band type communications which have come into
demand along with the proliferation of multi-media computers and other high
speed electronic communication devices.
Ostrich Products and Industry Economics
There is a potential market for almost every part of the ostrich carcass.
However, the most significant products of the ostrich are its meat, leather, and
feathers.
An 11 to 14 month old ostrich produces approximately 70 to 100 pounds of
boneless meat which provides for wholesale prices of $1.00 to $8.00 per pound
following slaughter. The meat is served in certain establishments under the menu
designation "filet de comella" and is a red meat with a flavor and appearance
comparable to beef or veal. The meat is highly valued in countries such as Japan
and on the European continent because of its flavor as well as its low fat and
calories which are comparable to fish and less than most poultry. The meat is
considered a favorable source of protein, vitamins and minerals.
Ostrich plumes or feathers bring $25 to $500 per pound based on the color,
quality and consistency and are used for dusters, fashion accessories, pens and
decorative purposes and most recently have been introduced into the pristine
surroundings of microelectronics plants where the electrostatic quality of the
feathers represents an optimal precipitator of dust particles. The most sought
after feathers are the male ostrich's white plumes which are used primarily for
decorative purposes while the darker feathers are employed for dusting and
antiseptic functions. Feathers can be plucked commencing at six months and
thereafter at eight-month intervals. On an average, approximately two pounds of
feathers can be produced from an ostrich at each plucking.
The tanned hides of the ostrich are valued both for their beauty and their
durability, and range in size from 10 to 18 square feet bringing approximately
$20 to $32 per square foot of hide. The hide is tough, flexible and has a
distinctive appearance which makes it one of the premium exotic leathers in the
high fashion and Western wear markets. In the United States, ostrich boots range
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in price from $250 upwards to $2,000. The leather is also used for fashion
accessories, briefcases, shoes and clothing, with a full quill ostrich leather
briefcase marketing for generally above $1000 in the absence of customizing.
At the present time the market for ostrich components as well as live
ostriches is very sporadic within the United States. Prices to be received for
slaughter ostriches are $0 to $150 each. Due to the continued disintegration of
the domestic ostrich business pricing for fertile eggs, chicks, and mature
breeders during 1998 are unavailable. During 1998, many farmers including this
Company did not produce eggs. In addition, many farmers accepted $50 or less per
bird for mature breeders in an effort to exit the ostrich business. In September
1998, the Company sold its Willcox, Arizona facility for approximately $425,000
and shipped all of it approximately 800 birds, including all of its mature
breeders, in a package sale for approximately $50 per bird. Although such prices
are substantially lower than pricing received in prior years, there are no
assurances that prices will stabilize at these levels.
Construction Industry
It is generally estimated that the market for telecom infrastructure
services exceeded $15 billion in 1998. Management believes that this industry
presents substantial growth opportunities for companies which efficiently
provide comprehensive technical capabilities, and responsive quality service. To
date, growth in telecommunication (telecom) construction has been driven by the
following trends:
TELECOM DEREGULATION. The Telecommunications Act of 1996 substantially revised
prior law by preempting state and local government control over access to the
telecom market and eliminating certain regulatory barriers to competition.
Management believes the elimination of these entry barriers has and will
continue to increase competition among telecom providers. In addition, many
state regulatory commissions eliminated pricing regulations for telecom
providers, thus requiring such providers to be price competitive and thereby
become efficient in installing and maintaining their telecom infrastructure. As
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a result, telecom providers are entering new markets, offering services that
once were reserved for incumbent telecom providers, and expanding and improving
their existing networks.
GROWTH IN BANDWIDTH DEMAND. Growth in demand for telecommunications voice
traffic, electronic commerce, delivery of information and entertainment
services, and the growth, use and reliance on personal computers has created an
increased need for greater bandwidth. Bandwidth controls both the speed and
breadth of voice, video and data communications and is limited by the size of
the cable or other facilities through which communications flow. Because of the
physical limitations of existing network facilities, telecom providers are
upgrading facilities with new and innovative technology, expanding and, in many
cases, replacing existing telecom infrastructure to allow for increased
bandwidth in order to offer faster and greater volume of communications flow.
INCREASED OUTSOURCING. The need to upgrade and expand telecom infrastructure as
a result of deregulation and the growth in demand for enhanced telecom services
and bandwidth are expected to continue to increase the current level of
outsourcing to telecom infrastructure service providers. The outsourcing trend
has largely been driven by the efforts of telecom providers to expedite the
expansion, maintenance, replacement and enhancement of their infrastructure, to
reduce costs and to focus on their core competencies. Companies that specialize
in providing telecom infrastructure services are able to provide these services
on an effective and low cost basis.
INTERNAL GROWTH. Management's goal is to focus on generating internal growth by
(1)increasing the volume of services provided to existing customers in their
current markets, (2) expanding the scope of services provided to existing
customers, (3) broadening our customer base, and (4) geographically expanding
our service area.
Pacesetter Ostrich Farm
Pacesetter Ostrich Farm was organized in November 1988 by John Wade and Bob
Clemons based on their recognition of the potential for the industry in the
United States. Mr. Clemons had previous experience as a cattle farmer with over
100 registered Herefords. Dr. Wade is a practicing veterinarian with special
expertise in the treatment of ostriches and other avian or bird species.
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In December 1992, the company's initial public offering was concluded,
providing net proceeds of $3,600,000 which financed the planned substantial
expansion of the company's breeding and chick rearing facilities, as well a
substantial increase in the number of proprietary breeder ostriches of various
ages.
The Company has facilities located in Folsom, Louisiana. In September 1998
the Company sold its Willcox, Arizona facility for approximately $425,000. The
Louisiana facilities are located on 65 acres of improved farmland approximately
60 miles north of New Orleans which was previously employed for Mr. Clemons'
cattle operations. These facilities consist of a 1,500 square foot incubation
facility, a 144 square foot portable incubation building a 288 square foot
portable storage building, two barns comprising approximately 5,000 square feet,
office facilities and in excess of 7,000 square feet of fencing.
Marketing and Sales
Ostrich
The Company generally sold a combination of slaughter birds domestically as
well as limited numbers of international shipments of breeder ostriches. The
Company's marketing program is undertaken through word of mouth referrals based
on its reputation in the industry.
In addition to sales of live ostriches, the Company began limited sales of
ostrich leather and ostrich meat during 1995. The Company continued working with
a number of tanners in the U.S. and received acceptable tanned leather from
several of these tanners. However, in each case the Company experienced only
limited and sporadic success from U.S. tanners which to date have not completely
resolved and refined the process to equal that of South African tanning. As a
result, the Company has reduced its future plans regarding tanned leather
products until the quality and consistency provided by U.S. tanners has reached
a sufficient level.
In addition to leather the Company also began limited processing and sales
of ostrich meat in 1995. In November 1994, the Company had received U.S.D.A.
meat labeling approval to commercially process ostrich meat. Since that time the
Company began selling various cuts of ostrich meat to upscale restaurants and
specialty stores. Although customer acceptance of the product has been very
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positive based on quality, taste and tenderness, the Company did meet price
resistance at the initial pricing of $28 per pound. As processing and other
costs have decreased, the Company made adjustments in pricing. Such price
reductions have generally increased demand, but the Company experienced severe
limitations in the number of birds for which it could receive U.S.D.A.
inspection. By mid-1995 the limitation on available U.S.D.A. inspection had
caused the Company to experience difficulties in supplying customers. In some
cases, the Company purchased ostrich meat from other processors in order to
cover customer orders. As a result, the Company had to discontinue processing of
ostriches and forward its existing ostrich meat customers to other processors
until such time as the inspection problem could be eliminated. Generally, this
problem was experienced throughout the ostrich industry because U.S.D.A. ostrich
inspection is voluntary, not mandatory, and can only be provided when there are
no scheduling conflicts with regard to inspection of livestock with are
classified under mandatory inspection. This industry problem had been addressed
by the American Ostrich Association which made great strides since 1995 to
improve the availability of U.S.D.A. inspection for ostriches. Dr. Wade, as a
member of the Board of the American Ostrich Association has done extensive work
on this matter. Based on management's assessment of this matter, the industry
has made improvements in the availability of U.S.D.A. inspection. However,
processing costs have remained unacceptably high due to the voluntary inspection
issue. To date, only proprietary ostrich processors have achieved acceptable
processing costs. In 1997 and 1998, management pursued a number of strategic
alliances with several of the leading processors as well as substantial
financing packages in an effort to increase volume and reduce costs to a viable
level. However, during these years the Company was not able to reach any
satisfactory arrangements. As a result, the Company sold its Willcox, Arizona
facility and liquidated all of its ostrich inventory during 1998.
Construction
The Company uses a variety of methods to obtain new business including
trade publications, word-of-mouth referrals, and through repeat business based
on past performance. Upon entering this business, the Company retained the
services of several key personnel which, through existing professional
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relationships, have accelerated initial growth within the telecom construction
operations of the Company.
Competition and Price Uncertainty
Ostrich
During 1998 there were further decreases in pricing compared to 1997 as the
number of available commercial slaughter birds continued to outstrip the demand
for ostrich products. Furthermore, changes in policies by the Union of South
Africa involving the relaxation of export restrictions further impacted price
levels in the world market for both products and live ostriches.
Construction
The telecom construction industry is highly competitive and is served by
numerous small, owner-operated private companies, a few public companies and
several large regional companies. There are no substantial barriers to entry in
the industry and competition may intensify in the future. As a result, an
organization that has adequate financial resources, access to technical
expertise, and provides quality service may become highly successful in the
industry. Competition in the industry depends on a number of factors, including
price, quality of service, and the ability to complete projects in a timely
manner. Management believes it currently delivers a quality service at
competitive cost structures within specified time parameters.
Business Regulations and Insurance
Ostrich
The Company is subject to various city and county occupational licensing
laws that apply to its business, but at the present time is not subject to any
regulations or laws pertaining to livestock maintenance and care.
Construction
The Company is subject to various federal, state, and local regulations
with regard to its underground construction business. Among these are
safety/OSHA, traffic control, building code specifications, utility
notifications, and certain contractor licensing (where applicable) laws and/or
regulations. The Company maintains general liability, automobile, workers'
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compensation, and other relevant coverages under a master insurance policy
designed specifically for the underground construction industry.
Trademarks and Copyrights
Ostrich
The Company does not believe at the present time that its trademarks will
be critical to the success of its operations.
Construction
On October 30, 1998, the Company registered the trade name "Pacesetter
Communications" with the Louisiana Secretary of State for a term of ten years.
Such trade name facilitates business until such time as the company is able to
complete the requirements for a formal name change of the corporation.
Employees
As of December 31, 1998, the Company employed a total of 10 full time
employees including three executive officers, six construction workers, and one
clerical person.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's present facilities consist of its Folsom, Louisiana
facilities. The Willcox, Arizona facility was sold in September 1998.
The Louisiana location consists of improved farmland on 65 acres located
approximately 60 miles north of New Orleans. The present facilities consist of a
1,500 square foot incubation building, a 144 square foot portable building, a
288 square foot portable storage building, two barns comprising approximately
5,000 square feet, office facilities and in excess of 7,000 feet of fencing.
These facilities were originally acquired from Mr. Clemons, the Company's
Executive Vice President and a principal stockholder. The Company currently
leases the portion of such property which is used for farm operations and the
Company's headquarters.
Effective November 1, 1992, the Company leased additional farm facilities
from Poderco Limited Partnership and the LBR Trust, both of which are
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unaffiliated entities, consisting of approximately 320 acres of partially
improved farmland approximately 70 miles southeast of Tucson, Arizona. In
January 1993, the Company purchased this property for $225,000 payable by the
issuance of the Company's promissory note in the principal amount of $134,000
and the application of prior lease payments to the remaining balance. The
promissory note was repaid on April 21, 1993. Such facility, which was formerly
used for agricultural and livestock purposes, has been substantially improved
and now consists of state of the art breeding and chick rearing facilities
including approximately 90 acres of ostrich breeder facilities, 45 acres of
ostrich chick and juvenile facilities, 90 acres of alfalfa fields, incubation
facilities, storage and feeding facilities, fencing, irrigation wells, and
approximately 90 acres of additional land not developed. This Arizona facility
was sold in September 1998 for approximately $425,000.
During early 1994, the Company received zoning approval related to a house
in Willcox, Arizona which functioned as a full service veterinary clinic during
1995. The Company expanded its previous level of veterinary services which were
based out of existing facilities on the Willcox farm during the course of the
1993 fiscal year. However, by early 1996, many ostrich farmers began eliminating
the use of veterinary services related to ostriches in light of the decline in
market pricing. In May 1997 the Company completed the sale of this property to
the previous employee/veterinarian which supervised this facility.
ITEM 3. LEGAL PROCEEDINGS
On October 28, 1998, suit was filed against the Company by American
Superior Feeds, Inc. for approximately $32,000 related to overdue feed bills. On
January 13, 1999, the Company entered into a full settlement agreement in
exchange for cash payment totaling approximately $20,000.
On August 4, 1998, the Company received a formal demand for payment from
Corometrics Medical Systems, Inc. in the amount of $6,836.29 related to overdue
payments on veterinary medical equipment. On May 27, 1999, the Company settled
this matter in full by executing a Voluntary Surrender release agreement in lieu
of cash payment.
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On January 18, 1999, suit was filed against the Company by Poderco Limited
Partnership for approximately $140,000 related to their purchase of ostriches in
1993. On May 10, 1999, the Company settled this suit in full in exchange for
$1,000 plus rescinding the Company's counterclaim for unpaid boarding charges on
ostriches owned by Poderco which were maintained at the Willcox, Arizona
facility.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on OTC Bulletin Board under the
symbol "POFM". Prior to December 15, 1992, there was no market for the Company's
securities. The following table sets forth the high and low bid quotations for
the Common Stock for the periods indicated. These quotations reflect prices
between dealers, do not include retail mark-ups, markdowns or commission and may
not necessarily represent actual transactions.
High Low
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January 1-March 31, 1998 $0.50 $0.25
April 1-June 30, 1998 $1.09 $0.66
July 1-September 30, 1998 $0.66 $0.25
October 1-December 31, 1998 $0.25 $0.16
January 1-March 31, 1999 $0.18 $0.06
On August 25, 1999, the closing bid price for the Common Stock was $0.32.
(b) On August 25, 1999, the number of holders of the Company's Common Stock
was in excess of 500.
(c) The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. Future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company was incorporated on February 4, 1992 and executed a Plan and
Agreement of Merger with Pacesetter Ostrich Farms, Inc., a Louisiana
corporation, on February 14, 1992. The predecessor corporation was organized in
Louisiana on February 22, 1989 under the name Ostrich Breeders of North America,
Inc. All references to the Company include Pacesetter Ostrich Farm, Inc., the
predecessor corporation, and the operations undertaken by such predecessor
corporation. The Company's financial statements reflect the operating results
for the Company's fiscal years ended December 31, 1998 and 1997.
Since the Company's public offering in December 1992 until its sale in 1998
of its Willcox, Arizona farm and related ostrich inventory, the Company had
assumed the risks associated with direct ownership of ostriches. The Company
currently is engaged in the underground construction industry, and accordingly,
is subject to the risks associated with such business. The Company maintains
substantial insurance coverages including general liability, automobile,
workers' compensation, rented equipment, pollution, and other relevant coverages
under a master insurance policy specifically designed for the underground
construction industry.
Results of Operations
For the years ended December 31, 1998 and 1997, sales were $444,641 and
$920,084 respectively. The Company maintained and bred ostriches, both owned by
the Company as well as for independent owners, in return for which the Company
generally receives a boarding fee based on services rendered. Such services
included egg collection, hatching, chick boarding, and adult breeder boarding.
However, during 1998 the Company did not produce ostrich chicks. In September
1998, the Company sold its Arizona facilities and liquidated all of its
ostriches. During the fourth quarter of 1998 and simultaneous with the
disposition of the ostrich operations the company began it underground
construction operations.
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Cost of sales as a percentage of sales was 85% for the year ended December
31, 1998, compared to 74% for the year ended December 31, 1997. The increase in
cost of sales as a percentage of sales for the year ended December 31, 1997 was
attributable to low prices received during the Company's final liquidation of
live ostriches in the second half of 1998. The Company's gross profit decreased
from $247,060 for the year ended December 31, 1997 to a $112,561 loss for the
year ended December 31, 1998, representing a decrease of $359,621 mostly as a
result of the lower pricing previously described.
Operating expenses decreased from $614,212 for the year ended December 31,
1997 to $278,944 for the year ended December 31, 1998 representing a decrease of
$335,268 due primarily to the decrease in operations at the Willcox, Arizona
facility. General and administrative expenses increased slightly from $214,487
for the year ended December 31, 1997 to $237,695 for the year ended December 31,
1998, mostly due to an increase in insurance required for the construction
segment.
At December 31, 1998, the Company had for tax reporting purposes, net
operating loss carryforwards of $3,619,388 which expire in 2007 through 2015. As
the Company has incurred operating losses for several years, it is difficult to
predict if and when such tax losses would be utilized. Therefore, for financial
reporting purposes, the Company has provided a valuation allowance for the
entire amount of the net deferred tax asset resulting from these tax loss
carryforwards, as detailed in Note F of the financial statements.
The Company incurred a net loss of $617,787 or $0.17 per share for the year
ended December 31, 1998 compared to a net loss of $761,909 or $0.21 per share
for the year ended December 31, 1997. The substantial net loss for 1997 was due
primarily to the significant decline in market prices and writedown of inventory
and losses on writedown of impaired assets as described in Note C of the
financial statements. The loss for 1998 reflects the continued severe decline in
market prices while liquidating the Company's Arizona facility and all of its
live ostriches during the second half of 1998.
Liquidity and Capital Resources
As discussed in Note B of the financial statements, the Company has
incurred substantial losses for several years and experienced cash flow
20
<PAGE>
difficulties which have caused it not to meet many of its obligations as they
have come due. However, as of the date of this filing the Company has achieved
net positive cash flow from its underground construction business and expects to
be profitable for the 1999 calendar year. The Company believes that its ongoing
construction operations will be sufficient for the Company to meet its continued
obligations over the next twelve months.
Net cash used by operating activities was $430,499 for the year ended
December 31, 1998 compared to $200,847 for the year ended December 31, 1996
primarily as a result of the large increase in net operating losses for 1997,
partially offset by write-offs for loss on impairment of assets and inventory
write-downs. For 1999, the company expects to meet cash flow needs from
continued revenue generated by its underground construction business. Since
inception, the Company has been financed by advances from its principal
executive officers. At December 31, 1998, such advances, which are non-interest
bearing with no specified maturity date, aggregated to $179,829. The ratio of
current assets to current liabilities increased from 0.08:1 at December 31, 1997
to 0.22:1 at December 31, 1998 reflecting the increases in accounts receivable
generated during the fourth quarter of 1998 from the underground construction
operation.
Net cash provided/(used) in investing activities was $194,277 for 1998
compared to $109,052 for 1997, reflecting cash received from the sale in 1998 of
the Willcox, Arizona property and inventory. Cash outlays for capital
expenditures for property, plant and equipment increased from $5,129 for the
1997 fiscal year to $374,677 for 1998 reflecting the acquisition of equipment
used in the underground construction operations.
Between December 1991 and February 1992, the Company issued an aggregate of
$450,000 principal amount of its unsecured 10% promissory notes and 499,983
shares of its Common Stock for a cash investment of $450,000 by a group of
private investors. Interest on the notes is payable semiannually beginning July
1, 1992. The notes were due on December 1, 1995, but the Company did not have
sufficient cash to meet such obligations at that time. At December 31, 1997, the
Company had reduced the principal amount of these notes from $450,000 to
$384,263. By December 1998, following the sale of the Arizona property, this
debt had been reduced to $211,833. Most of the remaining holders of these notes
21
<PAGE>
represent significant stockholders of the Company. They are currently
considering either accepting additional Company stock in lieu of cash payment or
refinancing the obligation under terms that would not interfere with the
Company's ability to expand its construction operations.
As of December 31, 1998, a total of 110,000 shares of options had been
issued under the Company's 1992 Incentive Stock Options plan. Additionally, the
Company has issued a total of 1,150,000 of non-qualified options to several of
its key officers. As of the date of this filing none of either type of such
options have been exercised.
Inflation
Inflation has not had a material effect on the operations of the Company in
the past and is not anticipated to in the foreseeable future.
22
<PAGE>
Cautionary Statement
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in this report, including, without limitation, the statements under the
headings "Managements Discussion and Analysis or Plan of Operation" regarding
the Company's results of operations, liquidity and capital resources, future
development and production levels, business strategies, and other plans and
objectives of management of the Company for future operations and activities,
are forward-looking statements. Although management of the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate under the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, the Company's other filings with the Securities and Exchange Commission,
general economic and business conditions, business opportunities that may be
presented to and pursued by the Company, changes in law or regulations, and
other factors, many of which are beyond the control of the Company. Readers are
cautioned that any such statements are not guarantees of future performance and
the actual results or developments may differ materially from those projected in
the forward-looking statements. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements. Important
factors that could cause actual results to differ materially include, among
others:
o Fluctuations in the market price and/or availability of underground
construction work.
o Shortages in the availability of qualified personnel.
o Legal and financial implications of an unexpected catastrophic event which
may be associated with the Company's underground construction operation.
o General domestic economic and political conditions.
23
<PAGE>
o Unexpected weather conditions including but not limited to droughts,
flooding, or other extreme acts of nature where the company conducts its
business and/or operations.
o Unanticipated regulatory problems associated with the telecommunications
and/or construction industry.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data are included under Item
13(a)(1) and (2) of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
UNDER SECTION 16(a) OF THE EXCHANGE ACT
The following persons are the Directors and the officers of the Company.
All Directors are elected annually by the stockholders to serve until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. Officers are elected annually by the Board of Directors to serve at
the pleasure of the Board.
Name Position Age
---- -------- ---
John R. Wade Chairman of the Board, President 46
and Chief Executive Officer
Bob Clemons Executive Vice President, 56
Secretary and Director
Reid Green Treasurer, Chief Financial 39
Officer and Director
JOHN R. WADE, D.V.M. has served as Chairman of the Board and a Director of
the Company since its organization in February 1989 and President since February
1991. Dr. Wade graduated from the School of Veterinary Medicine at Louisiana
State University in June 1980 and has been a practicing veterinarian since
graduation with an emphasis on avian or bird care and medicine especially the
care and treatment of ostriches. On February 1, 1992, Dr. Wade was elected as a
Director of the American Ostrich Association, the foremost trade association in
the industry. Dr. Wade currently devotes substantially all of his business time
to the activities of the Company.
BOB CLEMONS has served as Executive Vice President, Secretary and a
Director of the Company since its organization in February 1989. Between 1982
and 1989, Mr. Clemons owned and was the principal in Hitch-n-Tow, Mandeville,
25
<PAGE>
Louisiana, which was engaged in trailer sales and services, U-Haul rentals and
custom hitches. Prior thereto between 1970 and 1982, Mr. Clemons was involved in
various executive capacities and ultimately as President of U-Haul Co. of
Southern LA, New Orleans, Louisiana, which was also engaged in various trailer
sales, services and U-Haul rentals. At the present time, Mr. Clemons devotes all
of his business time to the activities of the Company.
WALTER REID GREEN, JR. was elected Treasurer and Chief Financial Officer on
January 29, 1993 of the Company as part of the planned expansion of staff
following the Company's initial public offering in December 1992. Mr. Green
received a Bachelor of Science degree in Accounting from Southeastern Louisiana
University in December 1983 and successfully completed the uniform Certified
Public Accountants examination in July 1986. Mr. Green had approximately nine
years of previous experience in the field of accounting and taxation before
joining the Company in 1993. His experience includes approximately two years in
public accounting, four years as an income tax auditor for the Louisiana
Department of Revenue and Taxation, and three years as a tax accountant for The
Louisiana Land and Exploration Company. Mr. Green and Dr. Wade are first
cousins. Mr. Green currently devotes all of his business time to the activities
of the Company.
The underwriter of the Company's public offering was provided the right to
designate an observer to the Company's Board of Directors until December 15,
1997. The underwriter has never exercised this right. It is not anticipated that
any Directors will receive an annual fee or other compensation for serving as
Directors for the immediately foreseeable future. Directors, however, will be
reimbursed for reasonable expenses incurred in connection with their attendance
at meetings.
ITEM 10. EXECUTIVE COMPENSATION
(a) Cash Compensation
Total cash compensation paid to all executive officers as a group for
services provided to the Company in all capacities during the fiscal year
ended December 31, 1997 aggregated to $22,885. Set forth below is summary
compensation table in the tabular format specified in the applicable rules
of the Securities and Exchange Commission. As indicated, no officer of the
26
<PAGE>
Company or any of its subsidiaries received total salary and bonus which
exceeded $100,000 during the periods reflected.
Summary Compensation Table
<TABLE>
<CAPTION>
Re-
Name and Annual stricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Awards SARs(#) Payouts sation
- -------- ---- ------ ----- ------ -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John R. Wade 1998 -- -- -- -- -- -- --
Chairman, 1997 -- -- -- -- 282,000 -- --
President
And CEO 1996 2,404 -- -- -- 20,000 -- --
</TABLE>
(b)(1) Compensation Pursuant to Plans
See Employment Agreements below.
(b)(2) Employment Agreements
Dr. John Wade and Mr. Bob Clemons were parties to employment agreements
with the Company which expired on December 31, 1994 and which provided for
annual salaries of $50,000. Such agreements also provide for discretionary
bonuses upon unanimous approval of the Board of Directors (which consists of
Messrs. Wade, Clemons, and Green), which bonuses may not exceed 50% ($25,000) of
the respective base salaries. In consideraton of the Company's financial
position, Dr. Wade, Mr. Clemons, and Mr. Green have continued to work full-time
for the Company, without any employment agreements, at substantially reduced
levels of compensation. For the year ended December 31, 1997, no cash bonuses
were issued to any officers.
27
<PAGE>
(b)(3) Option Exercises and Values at Year End
AGGREGATED OPTION/SASR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Option/SARs In-the-Money
Shares at FY-End (#) Option/SARs at FY-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized Unexercisable Unexercisable
---- ----------- -------- --------------------- ---------------------
<S> <C> <C> <C> <C>
John R. Wade -- -- -- --
</TABLE>
On February 7, 1992, the Company adopted the 1992 Incentive Stock Option
Plan (the "Plan") under which 200,000 shares of Common Stock have been reserved
for issuance to employees of the Company upon exercise of options designated as
"Incentive Stock Options" within the meaning of Section 422A of the Internal
Revenue Code of 1986. The primary purpose of the Plan is to attract and retain
capable executives and employees by offering certain officers and employees a
greater personal interest in the Company's business by encouraging stock
ownership. Unless and until an executive committee of the Company's Board of
Directors is appointed, the Plan will be administered by the Company's Board of
Directors which will determine, among other things, the persons to be granted
options, the number of shares subject to each option and the option price. The
exercise price of any stock option granted under the Plan to an eligible
employee must be equal to the fair market value of the shares on the date of
grant, and with respect to persons owning more than 10% of the outstanding
Common Stock, the exercise price may not be less than 110% of the fair market
value of the shares underlying such option on the date of grant. The Board will
determine the term of each option and the manner in which it may be exercised
provided that no option may be exercisable more than ten years after the date of
grant except for optionees who own more than 10% of the Company's Common Stock,
in which case the option may not be for more than five years. Further, a
director of the Company will not be eligible to receive benefits unless such
director is also an employee of the Company. From the date of grant until three
months prior to the exercise, the optionee must be an employee of the Company in
order to exercise any options. Options are not transferable except upon the
death of the optionee. The Board of Directors has the power to impose additional
limitations, conditions and restrictions in connection with the grant of any
option.
In 1994, the Company issued a total of 39,000 of such options to 13 of its
key employees, of which 37,000 of such options have not expired. In 1995, the
28
<PAGE>
Company issued an additional 75,500 of such options to 13 of its key employees,
of which 62,000 of such options have not expired. During 1997, the Company
issued a total of 21,000 of such options of which none have expired. As of the
date of this filing, none of the options have been exercised.
In addition to the incentive stock options under the Company's 1992
Incentive Stock Option Plan, the Company issued non-qualified options to several
of its key personnel in lieu of compensation. During 1997, the Company issued a
total of 1,150,000 of such options to a total of 4 of its key personnel. As of
the date of this filing, none of these options have been exercised.
The Company may adopt additional compensation programs at a later date
suitable for its executive personnel. The Company is unable to predict at this
time the format or manner of compensation to be included in any such program.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) Security Ownership
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned on August 25, 1999 (i) by each person who is
known by the Company to own beneficially or exercise voting or dispositive
control over 5% or more of the Company's Common Stock, (ii) by each of the
Company's Directors, and (iii) by all executive officers and directors as a
group. In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within sixty (60) days. At
August 25, 1999, there were 3,950,224 shares of Common Stock outstanding.
29
<PAGE>
No. of Shares of Percentage of
Name and Address or Common Stock Beneficial
Identity of Group Beneficially Owned Ownership(1)
- ------------------- ------------------ -------------
John R. Wade(2) 851,897 23.7%
10135 Hereford Road
Folsom, LA 70437
Bobbie R. Clemons(3) 518,505 14.4%
10135 Hereford Road
Folsom, LA 70437
Walter Reid Green, Jr.(4) --- ---
10135 Hereford Road
Folsom, LA 70437
All Officers and
Directors as a
Group (3 Persons) 1,370,402 38.2%
(1) Does not include (i) up to 100,000 shares of Common Stock issuable upon the
exercise of the underwriters' warrants or (ii) up to 200,000 shares of
Common Stock reserved for issuance upon exercise of options under the
Company's Incentive Stock Option Plan.
(2) Dr. Wade is the Chairman of the Board, President and Chief Executive
Officer of the Company.
(3) Mr. Clemons is Executive Vice President, Secretary and a Director of the
Company.
(4) Mr. Green is Chief Financial Officer, Treasurer, and a Director of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
The Company was incorporated in Delaware on February 4, 1992 and on
February 14, 1992 executed a Plan and Agreement of Merger with Pacesetter
30
<PAGE>
Ostrich Farm, Inc., a Louisiana corporation, and the Company's parent
corporation and predecessor. In connection with this merger, the Company
exchanged 1,162,622 shares, 518,505 shares and 207,780 shares of Common Stock,
respectively, to Dr. John Wade, Mr. Bob Clemons and Mr. Bob Wade (retired in
1993) in exchange for their shares in the predecessor corporation. In addition,
the Company issued an aggregate of 499,983 shares of its Common Stock to the
participants in its private placements of units of its securities completed
between December 1991 and February 1992.
During 1992, Dr. Wade and Mr. Clemons made periodic advances of funds to
the Company for working capital purposes. The highest principal amount of such
advances amounted to approximately $15,000 in respect to Dr. Wade. All of such
advances were non-interest bearing and at December 31, 1994 aggregated to
$56,421. In July 1993, the company entered into a note receivable for $42,500
with Mr. Clemons bearing 8% per annum with no specified maturity date.
Effective as of March 31, 1992, Mr. Bob Clemons quit claimed and sold the
land and facilities consisting of Pacesetter Ostrich Farm to the Company in
consideration for the issuance by the Company of its promissory note in the
principal amount of $310,000 payable in sixty monthly installments of interest
only in the amount of $2,066 and a final payment of the entire principal balance
of $310,000 on March 31, 1997. Simultaneously therewith, the Company and Mr.
Clemons entered in a lease for the use of the residential portions of such
facilities by Mr. Clemons and providing for rental payments of $1,400 per month
through March 31, 1997. Mr. Clemons also received a second mortgage on such
property which is currently subject to a primary mortgage with the Federal Land
Bank in the aggregate amount of approximately $55,000 and which involves monthly
payments of $1,210 which Mr. Clemons will continue to pay. The property is also
subject to certain additional liens totaling approximately $23,000 previously
filed against Mr. Clemons. If the Company is required to make payments under
such prior mortgage or liens, the amount payable to Mr. Clemons will be reduced
by a corresponding amount, and the amount of the installments of interest to be
payable on a monthly basis will be correspondingly reduced. The Company believes
that it is unlikely that it will be called upon or be required to satisfy such
prior mortgage or liens. While the Company believes that the transaction with
Mr. Clemons represents a beneficial transaction from the standpoint of
31
<PAGE>
satisfying the Company's interests, there can be no assurance that the Company
and Mr. Clemons would have consummated the acquisition on the same terms if Mr.
Clemons had not been affiliated with the Company and the transaction had been
conducted on an arms-length basis. In March 1992, the Company received an
appraisal on such land and facilities from Scoggin, McClure & Associates, Inc.,
an independent appraiser, which estimated the Value In Use of such land and
related facilities to be $435,000. "Value In Use" refers to the value of
properties with special purpose uses which is filling an economic demand for the
service it provides or which it houses, and due consideration is given to the
property's functional utility in best serving the purpose for which it was
constructed. Mr. Clemons acquired Pacesetter Ostrich Farm in 1972, and
thereafter Mr. Clemons and the Company constructed various of the facilities and
housing that comprise Pacesetter Ostrich Farm. Mr. Clemons' adjusted basis in
Pacesetter Ostrich Farm was $258,478 at the time of the transaction. Adjustments
to the purchase price were made to give effect to improvements to the facilities
that were attributable to the Company. On May 16, 1994, the Company transferred
the property, consisting of $144,682 of buildings (net of $12,344 of accumulated
depreciation) and $101,422 of land back to Mr. Clemons in consideration of
cancellation of the $310,000 note payable.
As previously described, Dr. John Wade devotes substantially all of his
business time to the Company and the remaining portion of his time to his
veterinary practice which is conducted primarily from this personal residence.
As provided in Dr. Wade's employment agreement with the Company, Dr. Wade will
not charge the Company for professional services rendered for the Company's
proprietary or managed ostriches.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions with Promoters
Not applicable.
32
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The financial statements listed on the index to financial statements
on page F-1 are filed as part of this Form 10-KSB.
(b) Reports on Form 8-K
On September 17, 1998, the Company reported a change in its certifying
accountant.
On October 10, 1998 the Company reported the disposition of its
Willcox, Arizona facility and the acquisition of directional boring
equipment to be used in its underground construction business.
33
<PAGE>
(c) Exhibits
Exhibits Description of Document
-------- -----------------------
1(a) Form of Underwriting Agreement(1)
2 Plan and Agreement of Merger(1)
3(a) Certificate of Incorporation(1)
3(b) By-Laws(1)
4(a) Specimen Certificate of Common Stock(1)
4(b) Form of Warrant Agreement and Warrant to be sold to
Greenway Capital Corporation(1)
4(c) Form of 10% Promissory Note(1)
10(a) Employment Agreement with John Wade(1)
10(b) Employment Agreement with Robert Clemons(1)
10(c) Incentive Stock Option Plan(1)
10(d) Sale with Mortgage, Lease and Appraisal Summary(1)
10(e) Financial Consulting Agreement with Greenway Capital Corporation(1)
10(f) Lease Agreement with Poderco Limited Partnership and LBR Trust(1)
(1)Filed as the same enumerated exhibit to the Registrant's Registration
Statement (File No. 33-49228-FW) previously filed.
34
<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 7th day of September, 1999.
PACESETTER OSTRICH FARM, INC.
By: S/S John R. Wade
-------------------------------------
President and Chief Executive Officer
In accordance with the Exchange, this Report has been signed below by the
following person on behalf of the Registrant, and in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Signature
---------
<S> <C> <C>
Chairman of the Board,
President, and Chief
By: S/S John R. Wade Executive Officer September 7, 1999
----------------
Executive Vice President,
By: S/S Bobbie R. Clemons Secretary and Director September 7, 1999
---------------------
Treasurer, Director, and Chief
By: S/S Walter R. Green, Jr. Financial and Accounting Officer September 7, 1999
------------------------
</TABLE>
35
<PAGE>
C O N T E N T S
PAGES
-----
Independent Auditor's Report 37
Balance Sheets 38 - 39
Statements of Operations 40
Statements of Stockholders' Equity (Deficit) 41
Statements of Cash Flows 42
Notes to Financial Statements 43 - 51
36
<PAGE>
To the Stockholders of
Pacesetter Ostrich Farm, Inc.
Independent Auditor's Report
We have audited the accompanying balance sheets of PACESETTER OSTRICH FARM,
INC. (a Delaware corporation) as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PACESETTER OSTRICH FARM,
INC. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
Metairie, LA
June 9, 1999
37
<PAGE>
PACESETTER OSTRICH FARM, INC.
BALANCE SHEETS
ASSETS
December 31,
1998 1997
-------- -------
CURRENT ASSETS:
Cash and Cash Equivalents $ 23,149 $ --
Accounts Receivable (Net of Allowance for Doubtful
Accounts of $50,898 for 1998 and $47,603 for 1997) 169,534 77,781
Prepaid Expenses 34,138 --
-------- --------
Total Current Assets 226,821 77,781
PROPERTY AND EQUIPMENT, Net 399,767 50,625
NOTES RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS:
Net Assets of Discontinued Operations -- 796,220
Other 3,173 3,173
-------- --------
3,173 799,393
-------- --------
$672,261 $970,299
======== ========
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Cash Overdraft $ -- $ 1,398
Accounts Payable and Other Accrued Liabilities 257,730 199,818
Notes Payable 600,303 541,899
Advances from Stockholders 179,829 175,965
----------- -----------
Total Current Liabilities 1,037,862 919,080
COMMITMENTS AND CONTINGENCIES -- --
LONG-TERM LIABILITIES:
Notes Payable 200,682 --
----------- -----------
Total Liabilities 1,238,544 919,080
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.001 Par Value, 10,000,000 Shares
Authorized, 3,950,224 Issued and Outstanding December 31,
1998; 3,665,224 Issued and Outstanding December 31, 1997 3,950 3,665
Additional Paid-in Capital 3,779,217 3,779,217
Accumulated Deficit (4,349,450) (3,731,663)
----------- -----------
Total Stockholders' Equity (Deficit) (566,283) 51,219
----------- -----------
$ 672,261 $ 970,299
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
---------------------------
1998 1997
----------- ---------
<S> <C> <C>
REVENUES:
Directional Boring Revenue $ 186,132 $ --
COSTS AND EXPENSES:
Cost of Sales - Directional Boring 269,904 --
Selling, General and Administrative Expenses 263,457 295,272
----------- -----------
533,361 295,272
OPERATING LOSS (347,229) (295,272)
OTHER INCOME (EXPENSES):
Loss on Sale of Investments (14,030) --
----------- -----------
(14,030) --
----------- -----------
LOSS BEFORE INCOME TAXES (361,259) (295,272)
INCOME TAX PROVISION -- --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (361,259) (295,272)
DISCONTINUED OPERATIONS:
Loss from Operations of Ostrich Segment Disposed of
September 30, 1998 (Net of Income Taxes of $-0-) (278,374) (240,356)
Loss on Disposal of Ostrich Segment (Net of Income
Taxes of $-0-) -- (248,706)
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (639,633) (784,334)
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt (Net of Income Tax of $-0-) 21,846 22,425
----------- -----------
NET LOSS $ (617,787) $ (761,909)
=========== ===========
NET LOSS PER SHARE:
Loss from Continuing Operations $ (0.10) $ (0.08)
Loss from Discontinued Operations (0.07) (0.07)
Loss on Disposal of Business Segment -- (0.07)
----------- -----------
Loss Before Extraordinary Item (0.17) (0.22)
Extraordinary Item 0.01 0.01
----------- -----------
Net Loss $ (0.17) $ (0.21)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,720,991 3,647,142
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 3,590 $ 3,779,217 $(2,969,754) $ 813,053
Issuance of 75,000 Share 75 -- -- 75
Net Loss -- -- (761,909) (761,909)
BALANCE, December 31, 1997 3,665 3,779,217 (3,731,663) 51,219
Issuance of 285,000 Shares 285 -- -- 285
Net Loss -- -- (617,787) (617,787)
BALANCE, December 31, 1998 $ 3,950 $ 3,779,217 $(4,349,450) $(566,283)
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(617,787) $(761,909)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 25,534 133,331
Loss on Retirement or Write-Down of Assets -- 282,887
(Increase) Decrease in Accounts Receivable, Net (91,753) 51,740
Decrease in Livestock Inventory 227,267 143,508
Gain on Sale of Property and Equipment -- (34,181)
Increase in Prepaid Expenses (34,138) --
Acquisition of Trading Securities (14,030) --
Loss on the Expiration of Trading Securities 14,030 --
Increase (Decrease) in Accounts Payable and Accrued Liabilities 56,514 (22,871)
Increase in Borrowings from Stockholders 3,864 6,648
--------- ---------
Net Cash Used in Operating Activities (430,499) (200,847)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (374,677) (5,129)
Proceeds from Sale of Property 568,954 114,181
--------- ---------
Net Cash Provided by Investing Activities 194,277 109,052
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 285 --
Proceeds from Issuance of Long-Term Debt 617,411 150,000
Repayment of Notes Payable (358,325) (58,205)
--------- ---------
Net Cash Provided by Financing Activities 259,371 91,795
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 23,149 --
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR -- --
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 23,149 $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash Paid During the Year for:
Interest $ 43,499 $ 23,015
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The Company was incorporated on February 4, 1992 and executed a Plan and
Agreement of Merger with Pacesetter Ostrich Farm, Inc., a Louisiana corporation,
on February 14, 1992. The predecessor corporation was organized in Louisiana on
February 22, 1989 under the name Ostrich Breeders of North America, Inc. All
references to the Company include Pacesetter Ostrich Farm, Inc., the predecessor
corporation and the operations undertaken by such predecessor corporation.
The accompanying financial statements of the Company reflect the
combination of the Company, Pacesetter Ostrich Farm, Inc., (the Louisiana
corporation) and Ostrich Breeders of North America, Inc. The reorganization has
been accounted for as a reorganization of entries under common control in a
manner similar to a pooling of interests.
The Company was formerly a breeder of ostriches with sales primarily to
foreign breeder markets in 1997. During 1997, this business segment was
discontinued and the ostrich inventory and related property and equipment was
sold (see Note J).
Currently, the Company is in the business of directional boring for
creating underground conduits, and as such, grants credit to its customers, who
are located in the Southern United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
LIVESTOCK INVENTORY
The Company's inventory, included in net assets of discontinued operations
during 1997, is valued at the lower of cost (under the specific identification
method) or market and consists of live ostriches. During 1997, due to a
significant deterioration in the ostrich market, the Company recorded a
provision of approximately $235,877 for the decline in market value of ostriches
in inventory.
DEPRECIATION
Depreciation is computed using the straight-line method for financial
reporting purposes over the estimated useful lives of the respective assets
which range from five to seven years. Depreciation charged to operations for the
years ended December 31, 1998 and 1997 amounted to $25,534 and $133,331,
respectively.
43
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
For income tax reporting, the Company uses accounting methods that
recognize depreciation on an accelerated basis for property and equipment. As a
result, the basis for property and equipment for financial reporting exceeds its
tax basis by the cumulative amount that accelerated depreciation exceeds
straight-line depreciation. These and other temporary differences have been
accounted for under the provisions of Statement of Financial Accounting
Standards No. 109.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at their estimated net realizable value.
There were write-offs of $4,245 and $7,682 affecting bad debt expense during
1998 and 1997, respectively.
REVENUE
Ostrich revenue is recognized as ostriches are sold and delivered. The
Company made foreign sales of $237,920 and $778,773 in 1998 and 1997,
respectively.
EARNINGS PER SHARE
The earnings per share calculations are based on the weighted average
number of shares of common stock outstanding and common stock equivalents,
unless their effect would be anti-dilutive.
NON-DIRECT RESPONSE ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense
charged to operations totaled $1,203 and $263 for the years ended December 31,
1998 and 1997, respectively.
NOTE B
FINANCIAL AND OPERATING CONSIDERATIONS
The Company has incurred substantial operating losses in 1992 through 1998.
The Company has also experienced severe cash flow difficulties and has been
unable to meet certain of its obligations as they have come due. Included in
current liabilities at December 31, 1998 and 1997 are $211,833 and $391,899,
respectively, in notes payable which are in default (see Note E) and significant
past-due accounts payable. To date, the Company has been unable to reach a
sufficient operating level to meet its operating costs, and it may be unable to
meet its future commitments. As a result, there is substantial doubt about the
ability of the Company to continue as a going-concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
44
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE C
PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
1998 1997
-------- --------
Land $ 27,000 $ 27,000
Buildings and Improvements 18,370 18,370
Equipment 379,159 55,276
Vehicles 84,593 33,799
-------- --------
Total 509,122 134,445
Less: Accumulated Depreciation 109,355 83,820
-------- --------
Property and Equipment, Net $399,767 $ 50,625
======== ========
Effective December 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company
recorded a loss provision of approximately $282,887 in 1997 for the write-off
and retirement of fixed assets, which was not directly associated with this
adoption.
NOTE D
TRANSACTIONS WITH RELATED PARTIES
In July 1993, the Company entered into a note receivable for $42,400 with a
significant stockholder. The note bears interest at 8% per annum, and has no
specified maturity date.
The Company leases certain property in Folsom, Louisiana, on a month to
month basis, from a major stockholder, on which a portion of the Company's
operations is located. Total rent paid for December 31, 1998 and 1997 was
$8,400, respectively.
Advances from stockholders primarily consist of Company expenses paid by
two major stockholders. These advances are non-interest bearing with no
specified maturity date.
45
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE E
NOTES PAYABLE
A summary of outstanding notes payable at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Private Placement Notes Payable
(See Description Below) $211,833 $384,263
Notes payable for equipment purchase; interest at 13.2% per
annum, payable in monthly installments of principal and
interest through April 1, 1996; Secured by the equipment
purchased. -- 7,636
Line of Credit - Bank; Interest at 9%; Interest payable
monthly; Due March 30, 1999; Secured by second mortgage
from a major shareholder and guaranteed by two major
shareholders. 20,450 150,000
Note Payable Bank; Interest at 9.25%; Monthly payments of
$493; Maturing March 25, 2002 Secured by a truck and
guarantee of two major shareholders. 16,536 --
Note Payable Bank; Interest at 9.25%; Monthly payments of
$621; Maturing September 25, 2003; Secured by a truck and
guarantee of two major shareholders. 28,549 --
Note Payable Bank; Interest at 9.5%; Monthly payments of
$1,029; Maturing October 21, 2001; Secured by equipment and
guarantee of two major shareholders. 30,445 --
Note Payable for equipment purchase; Interest at 10.5%;
Monthly payments of $5,074; Maturing September 28, 2002;
Secured by equipment purchased. 187,874 --
Note Payable - Insurance premium financing; Interest at
10.43%; Monthly payments of $3,741. 25,298 --
1998 Private Placement Notes Payable
(See Description Below) 280,000 --
-------- --------
$800,985 $541,899
======== ========
</TABLE>
46
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE E
NOTES PAYABLE (Continued)
In late 1991, the Company commenced a private placement to accredited
investors, which offers to sell up to 80 units at $5,000 per unit. In early
1992, an additional private placement of 10 units was offered to one of the
investors in the previous private placement on terms identical to the previous
private placement. The Company received total subscriptions for 90 units
($450,000) upon completion of these offers. Each unit consisted of 5.555 shares
of common stock and a promissory note for $5,000 with interest thereon at 10%
per annum commencing at the closing. Interest is payable semi-annually.
The principal portion of the notes was due upon the earlier of December 1,
1995 or receipt of sufficient proceeds by the Company under contracts for the
sale of ostrich livestock anticipated to be fulfilled commencing July 1, 1992
(such determination to be made in the reasonable judgment of the Company's Board
of Directors). As of December 31, 1998, principal of $211,833 was still
outstanding. As a result, the Company is in default on these notes.
During 1998, the Company commenced a private placement notes payable for
terms similar to the previous private placement. The Company received total
subscriptions for 28 units ($280,000) upon completion of this offer. Each unit
consisted of 10,000 shares of common stock and a promissory note for $10,000
with interest thereon at 10% per annum commencing at the closing. Interest is
payable semi-annually.
Following are maturities of long-term debt:
December 31,
1999 $600,303
2000 69,367
2001 74,390
2002 51,553
2003 5,372
--------
$800,985
========
NOTE F
INCOME TAXES
The reconciliation of the Federal statutory tax rate to the effective tax
rate is as follows:
1998 1997
---- ----
Statutory Tax Rate 34% 34%
State Taxes 3 3
Benefit from NOL Carryforward not Recognized (37) (37)
---- ----
Effective Tax Rate 0% 0%
==== ====
47
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE F
INCOME TAXES (Continued)
Cumulative deferred taxes consist of the following temporary differences at
an estimated effective Federal and state tax rate of 37%.
1998 1997
----------- -----------
Deferred Tax Liabilities:
Property and Equipment $ 13,558 $ --
----------- -----------
Deferred Tax Assets:
Net Operating Loss Carryforward 1,339,174 1,023,535
Accounts Receivable Allowance 18,832 17,613
Property and Equipment -- 74,718
Less: Valuation Allowance (1,344,448) (1,115,866)
----------- -----------
Deferred Tax Assets 13,558 --
----------- -----------
Total Deferred Taxes $ -- $ --
=========== ===========
At December 31, 1998, the Company had, for tax reporting purposes,
operating loss carryforwards of approximately $3,619,388 which expire in 2007
through 2015.
The Company has generated losses from operations in 1992 through 1998. As a
result, the Company does not believe it is more likely than not, it will be able
to realize the NOL carryforwards through generation of future taxable income.
Therefore, the Company has provided a valuation allowance for the entire amount
of the deferred tax assets.
NOTE G
INCENTIVE STOCK OPTION PLAN
During February, 1992, the Company adopted the 1992 Incentive Stock Option
Plan (the "Plan") under which 200,000 shares of common stock have been reserved
for issuance to employees of the Company. The exercise price of any stock option
granted under the Plan to an eligible employee will be equal to the fair market
value of the shares on the date of grant and with respect to persons owning more
than 10% of the outstanding common stock, the exercise price will not be less
than 110% of the fair market value of the shares. On May 28, 1994, the Company
granted a total of 82,000 of such options to 13 of its key employees at $1.25
per share. None of these options were issued to Mr. Clemons (Vice President) or
Dr. Wade (President). On January 16, 1995, the Company granted an additional
99,500 options to 13 of its key employees, including 20,000 options to both Dr.
Wade and Mr. Clemons, at $0.75 per share. The 40,000 options issued to Dr. Wade
and Mr. Clemons expire in January, 2000. The remaining 59,500 options expire in
January, 2005.
48
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE G
INCENTIVE STOCK OPTION PLAN (Continued)
A summary of the status of the Plan as of December 31, 1998 and 1997 and
changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at Beginning of Year 135,500 $0.80 114,500 $0.92
Granted -- -- 21,000 0.15
Exercised -- -- -- --
Forfeited (25,500) 0.79 -- --
-------- ----- -------- -----
Outstanding at End of Year 110,000 $0.80 135,500 $0.80
======== ===== ======== =====
Options Exercisable at Year End 110,000 $0.80 135,500 $0.80
======== ===== ======== =====
Weighted Average Fair Value of
Options Granted During the Year $ -- $ 0.15
======== ========
</TABLE>
The Company applies APB Opinion 25 in accounting of its Plan. Accordingly,
no compensation cost has been recognized for the Plan. Had compensation cost for
the Plan been determined based on the fair value at the grant dates for awards
under the Plan made in 1995 consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1998 1997
--------- ---------
Net Loss as Reported Pro Forma $(622,287) $(767,112)
========= =========
Loss Per Share as Reported Pro Forma $ (.17) $ (.21)
========= =========
For purposes of the above computation, compensation cost was estimated
using the Black-Scholes model with the following assumptions for 1995 and 1997:
no dividend yield; on expected life of 5 to 10 years; expected volatility of
235.95 percent; and risk-free interest rate of 5.58 percent.
49
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE H
STOCKHOLDER'S EQUITY
The Company made a public offering of 1,000,000 shares of newly issued
common stock in December 1992 at $4 per share. In addition, 100,000 warrants to
purchase common stock were issued to the underwriters at an exercise price of
120% of the initial offering price. The warrants were exercisable commencing one
year after the effective date of the registration of the shares and will expire
four years thereafter (December 1997). In connection with the offering, the
Company also agreed, under certain circumstances and at its sole expense, to
register or qualify the underwriter's warrants and the warrant stock for sale.
In 1998, the Company issued 25,000 shares of stock for partial settlement
of private placement debt (Note K). In 1997, the Company issued 75,000 shares of
stock in exchange for legal services.
NOTE I
COMMITMENTS AND CONTINGENCIES
The Company is subject to the possibility of litigation in the ordinary
course of business. The Company is not aware of any matters, which would have a
significant impact on its financial condition or results of its operations.
NOTE J
DISCONTINUED OPERATIONS
During 1998 and 1997, the Company sold substantially all of the assets of
its ostrich breeding segment. These assets consisted primarily of property and
equipment and livestock inventory. Net assets sold, at their net realizable
values, have been separately classified in the accompanying balance sheet at
December 31, 1997.
As described in Note C, property and equipment were written down to fair
value, resulting in a $282,887 charge to operations in 1997. Sale of property
and equipment netted proceeds of $568,953 in 1998 and $114,181 in 1997,
resulting in a gain in 1997 on the sale of assets of $34,181.
As described in Note A, livestock inventory was adjusted to fair value in
1997, resulting in a $235,877 charge to operations in that year. Revenue
generated from livestock sales totaled $237,920 and $778,773 for the years
ending December 31, 1998 and 1997, respectively.
50
<PAGE>
PACESETTER OSTRICH FARM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE K
TROUBLED DEBT RESTRUCTURING
Due to the severe cash flow problems, the Company issued 75,000 shares of
the Company's $.001 par value stock in exchange for a payable for legal services
totaling $22,500 in 1997. This transaction resulted in an extraordianry gain of
$22,425 ($.01 per share), net of income tax of $-0-.
During 1998, the Company retired, at a discount, $34,500 in private
placement debt for $16,000 plus 25,000 shares of the Company's $.001 par value
stock. In addition, the Company exchanged equipment, pledged as collateral on
$7,636 of notes payable, in full settlement of the debt. These transactions
resulted in an extraordianry gain of $21,846 ($.01 per share), net of income tax
of $-0-.
51
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 23,149
<SECURITIES> 0
<RECEIVABLES> 169,534
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,173
<PP&E> 399,767
<DEPRECIATION> 0
<TOTAL-ASSETS> 672,261
<CURRENT-LIABILITIES> 1,037,862
<BONDS> 0
0
0
<COMMON> 3,950
<OTHER-SE> (570,233)
<TOTAL-LIABILITY-AND-EQUITY> 672,261
<SALES> 444,641
<TOTAL-REVENUES> 444,641
<CGS> 557,202
<TOTAL-COSTS> 557,202
<OTHER-EXPENSES> 263,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,499
<INCOME-PRETAX> (361,259)
<INCOME-TAX> 0
<INCOME-CONTINUING> (361,259)
<DISCONTINUED> (278,374)
<EXTRAORDINARY> 21,846
<CHANGES> 0
<NET-INCOME> (617,787)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
