U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File No. 1-11282
PACESETTER OSTRICH FARM, INC.
-----------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10135 Hereford Road, Folsom, Louisiana 70437
- -------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
--------------
(Issuer's Telephone Number, Including Area Code)
---------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X___ No _____
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 September 25, 1999.
1
<PAGE>
PACESETTER OSTRICH FARM, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 1999 and December 31, 1998
Statement of Operations - Three Months Ended June 30, 1999,
and Three Months Ended June 30, 1998; Six Months Ended June 30,
1999, and Six Months Ended June 30, 1998
Statements of Cash Flows - Six Months Ended June 30, 1999 and Six Months Ended
June 30, 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
2
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PACESETTER OSTRICH FARM, INC.
BALANCE SHEETS
ASSETS
------
June 30, December 31,
(unaudited)
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and short term investments $ 53,787 $ 23,149
Accounts receivable (net of allowance of $50,898 at
June 30, 1999 and December 31, 1998) 216,079 169,534
Prepaid Expenses 11,379 34,138
----------- -----------
Total current assets 281,245 226,821
PROPERTY, PLANT, AND EQUIPMENT, net 574,518 399,767
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS 3,173 3,173
----------- -----------
$ 901,436 $ 672,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 246,514 $ 257,730
Notes payable 666,033 600,303
Advances from stockholders 181,509 179,829
----------- -----------
Total current liabilities 1,094,056 1,037,862
LONG-TERM LIABILITIES:
Notes payable 349,063 200,682
----------- -----------
Total Liabilities 1,443,119 1,238,544
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares
authorized, 3,950,224 issued
and outstanding as of June 30, 1999 and
December 31, 1998, respectively 3,950 3,950
Additional paid-in-capital 3,779,217 3,779,217
Retained earnings (deficit) (4,324,850) (4,349,450)
----------- -----------
(541,683) (566,283)
----------- -----------
$ 901,436 $ 672,261
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PACESETTER OSTRICH FARM, INC.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 319,126 $ 48,504 $ 462,693 $ 212,521
COST OF SALES 116,414 82,904 240,752 100,204
----------- ----------- ----------- -----------
Gross profit 202,712 (34,400) 221,941 112,317
OPERATING EXPENSES:
Operating 40,917 96,590 88,744 177,103
General and administrative 14,151 13,954 60,392 24,048
----------- ----------- ----------- -----------
Operating Income (loss) 147,644 (144,944) 72,805 (88,834)
OTHER INCOME (EXPENSES):
Interest (28,298) (2,253) (48,204) (10,733)
Other -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 119,346 (147,197) 24,601 (99,567)
INCOME TAX (EXPENSE) BENEFIT -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ 119,346 $ (147,197) $ 24,601 $ (99,567)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ .03 $ (.04) $ .01 $ (.03)
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,950,224 3,665,244 3,950,224 3,665,244
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1998 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 24,601 $ (99,567)
Adjustments to reconcile net income to
Net cash provided (used) by operating activities:
Depreciation 29,706 12,766
Amortization -- --
Gain (Loss) on sale of assets -- --
Decrease (increase) in :
Accounts receivable, net (46,545) 74,486
Deposit -- --
Prepaid assets 22,759 --
Other current assets -- --
Other assets -- (11,575)
Increase (decrease) in -
Accounts payable and accrued liabilities (11,216) 26,975
Accrued interest payable -- --
Borrowings from stockholders 1,680 12,895
Deferred revenue -- --
--------- ---------
Net cash provided (used) by operating activities 20,985 15,980
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (204,456) --
Proceeds from sale of property -- --
--------- ---------
Net cash provided (used) by investing activities (204,456) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from notes payable 270,000 --
Repayment of notes payable (55,891) (376)
--------- ---------
Net cash provided (used) by financing activities 214,109 (376)
Net increase (decrease) in cash 30,638 15,604
CASH AND SHORT-TERM -- --
INVESTMENTS AT BEGINNING OF PERIOD 23,149 --
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 53,787 $ 15,604
========= =========
INCOME TAXES PAID $ -- $ --
========= =========
INTEREST PAID $ 28,298 $ 10,733
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Pacesetter Ostrich Farm, Inc.
Notes To Financial Statements
(unaudited)
1. Basis of Presentation:
---------------------
The financial information included herein reflects all adjustments
which are in the opinion of management, necessary for a fair statement
of results for the periods. All such adjustments, in the opinion of
management, are of normal recurring nature.
The results of operations for the six months ended June 30, 1999, 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 assets used for the
underground construction business. The balance of property, plant, and
equipment, stated at cost less accumulated depreciation, is as follows:
<TABLE>
<CAPTION>
Estimated Years June 30, 1999 December 31, 1998
(Lives)
<S> <C> <C>
Land -- $ 27,000 $ 27,000
Buildings and Improvements 10 to 30 18,370 18,370
Equipment 5 to 7 583,616 379,159
Vehicles 5 84,593 84,593
----------- -----------
$ 713,579 $ 509,122
Accumulated Depreciation
(139,061) (109,355)
----------- -----------
$ 574,518 $ 399,767
=========== -==========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following is management's discussion and analysis of
certain significant factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed financial statements.
RESULTS OF OPERATIONS
During 1998 the Company discontinued its ostrich operations
and completed the liquidation of its Willcox, Arizona facilities and
livestock inventory. Simultaneously, the Company obtained the services
of key personnel experienced in telecommunications construction and
began operations in the underground construction business. The Company
currently operates this construction business under the registered
trade name Pacesetter Communications until such time as a formal name
change of the corporation is completed. Accordingly, references to
prior year results of operations from January 1, 1998, through
September 30, 1998, relate mostly to ostrich operations, while the
period from October 1, 1998 through December 31, 1999, reflects the
initial stages of the underground construction business.
For the calendar quarter ended June 30, 1999, sales increased
by $270,622 from $48,504 for the quarter ended June 30, 1998 to
$319,126 for the quarter ended June 30, 1999. Sales increased from
$212,521 for the six months ended June 30, 1998, to $462,693 for the
six months ended June 30, 1999. The overall increase in sales reflects
the growth in the current periods of the underground construction
business compared to the declining revenues from the ostrich business
in the same periods in the prior year.
Cost of sales increased from $82,904 for the quarter ended
June 30, 1998, to $116,414 for the quarter ended June 30, 1999. For the
six months ended June 30, 1998 and 1999, cost of sales increased from
$100,204 to $240,752 respectively. The increase in cost of sales from
the prior year was attributable to the continued general decline in the
ostrich business in the prior year compared to the increase in the
underground construction business in the current year. The Company's
gross profit increased from a loss of $34,400 for the quarter ended
June 30, 1998 to a profit of $202,712 for the quarter ended June 30,
1999, representing an increase of $237,112. For the six months ended
June 30, 1998 and 1999, gross profit increased from $112,317 to
$221,941 respectively. Such increases are a result of the increase in
the underground construction business in the current year compared to
the general decline in the ostrich business in the same periods in the
prior year.
7
<PAGE>
Operating expenses decreased from $96,590 for the quarter
ended June 30, 1998, to $40,917 for the quarter ended June 30, 1999,
representing a decrease of $55,673. Operating expenses decreased from
$177,103 for the six months ended June 30, 1998, to $88,744 for the six
months ended June 30, 1999, representing a decrease of $88,359
reflecting the additional operating expenses during the prior year
related to the disposition of the Company's Willcox, Arizona facility
and livestock inventory as the Company completed its discontinuance of
its ostrich operations. General and administrative expenses increased
from $13,954 for the quarter ended June 30, 1998 to $14,151 for the
quarter ended June 30, 1999, representing an increase of $197. General
and administrative expenses also increased from $24,048 for the six
months ended June 30, 1998, to $60,392 for the six months ended June
30, 1999, representing an increase of $36,344. Such increases were
mostly due to the restoration in the current year of portions of
compensation to the Company's senior management which were not
available in the prior periods due to the continued decline in the
ostrich business which severely limited cash available for salaries.
The Company incurred a net profit of $119,346, or $0.03 per
share, for the quarter ended June 30, 1999, compared to a net loss of
$147,197, or $(0.04) per share, for the same quarter a year ago. The
company incurred a net profit of $24,601, or $0.01 per share, for the
six months ended June 30, 1999, compared to a net loss of $99,567, or
$(0.03) for the six months ended June 30, 1998. Such increases reflect
the continued decline in the ostrich business during the prior year
compared to the continuing increase in profitable operations from the
underground construction business in the current year.
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. Due to the uncertainty regarding
realization of such carryforwards through the generation of future
income, the Company has provided a valuation allowance for the entire
amount of the deferred tax asset.
QUARTER-TO-QUARTER HIGHLIGHTS
The following are highlights of financial information which
compare the quarter ended March 31, 1999, to the quarter ended June 30,
1999:
<TABLE>
<CAPTION>
Qtr Qtr % Change
Ended Ended from 3/31/99
% 3/31/99 % 6/30/99 Difference to 6/30/99
- ------- - ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales 100 $143,567 100 $319,126 $175,559 122%
Gross Profit 13.4 $19,228 63.5 $202,712 $183,484 954%
Gen.& Admin. Exp. 32.0 $45,874 19.0 $60,392 $14,518 31%
Net Income -- $(94,745) 37.0 $119,346 $214,091 --
</TABLE>
8
<PAGE>
The increase in gross profits for the quarter ended June 30,
1999, reflects the increase in average prices received for construction
services, as well as the decrease in the amount of idle or unproductive
time during the quarter, compared to the prior quarter which ended
March 31, 1999. Additionally, general and administrative expenses as a
percentage of sales was disproportionately large in the quarter ended
March 31, 1999, due to the small volume of business completed in that
quarter compared to the quarter ended June 30, 1999. During the quarter
ended March 31, 1999, the Company was engaged in cultivating existing
business relationships as well as developing new contacts. The Company
was also acquiring additional experienced personnel and training new
personnel which had limited experience. Such efforts have resulted in
improved pricing and efficiencies in the quarter ended June 30, 1999,
as illustrated above. At this time, management expects the Company to
be profitable for calendar year 1999, including increased sales and
profits quarter-over-quarter for the remainder of the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred substantial losses from its prior
ostrich operations (see 1998 10-KSB) for several years and experienced
cash flow difficulties which have caused it not to meet some of its
obligations as they have come due. This has raised substantial doubt
about the Company's ability to continue as a going concern. By October
1998 the Company had begun operations in the underground construction
business, and had satisfied substantially all of its troubled debt in
conjunction with the liquidation of the Company's ostrich assets and
inventory. At this time, management is negotiating a voluntary
arrangement whereby note holders will exchange up to $500,000 of
private placement notes payable for restricted common stock of the
Company. Following these transactions the Company will have eliminated
all of its past due obligations. Although the Company's construction
operations have been in existence for less than one year, the Company
is currently functioning solely from cash generated from its
underground construction operations which have continually increased
since its inception late in 1998.
Net cash provided by operating activities was $20,985 for the
six months ended June 30, 1999, compared to cash provided of $15,980
for the six months ended June 30, 1998, mostly as a result of the net
income produced from underground construction in the current period
compared to the net loss produced from the ostrich business in the same
period a year ago. Cash used by investing activities increased from $0
for the six months ended June 30, 1998 to $204,456 for the six months
ended June 30, 1999, reflecting substantial equipment acquisitions in
the current year related to the Company's underground construction
business compared to the same period a year ago in which the Company
was discontinuing its ostrich operations. Cash flows provided in
financing activities was $214,109 for the six months ended June 30,
1999, compared to $(376) for the six months ended June 30, 1998,
reflecting significant proceeds from notes payable in the current year
related to the acquisition of additional underground construction
equipment, compared to relatively no activity for the same period a
year ago. Cash and short term investments for the Company increased
from $15,604 at June 30, 1998 to $53,787 at June 30, 1999, reflecting
the improvement in the Company's cash position in the current year
resulting from the underground construction business as previously
described.
As of June 30, 1999, under the Company's 1992 Incentive
Stock Option Plan, a total of 110,000 options were issued.
Additionally, as of June 30, 1999, a total of 1,250,000 nonqualified
options were issued. As of the date of this filing none of either class
of these options have been exercised.
INFLATION
Inflation has not had a material effect on the operations of
the Company in the past. At the present time there is a substantial
doubt that it will effect the Company's operations for the foreseeable
future.
9
<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 Compnay 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 writtten 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 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 and international economic and political
conditions.
o Unexpected weather conditions including but not limited to
droughts, flooding, or other extreme acts of nature where the
company conducts its business operations.
10
<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 28th day of September
1999.
PACESETTER OSTRICH FARM, INC.
By:S/S Walter R. Green, Jr.
---------------------------
Walter R. Green, Jr.
Chief Financial &
Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 53,787
<SECURITIES> 0
<RECEIVABLES> 216,079
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 281,245
<PP&E> 574,518
<DEPRECIATION> 0
<TOTAL-ASSETS> 901,436
<CURRENT-LIABILITIES> 1,094,056
<BONDS> 0
0
0
<COMMON> 3,950
<OTHER-SE> (545,633)
<TOTAL-LIABILITY-AND-EQUITY> 901,436
<SALES> 319,126
<TOTAL-REVENUES> 319,126
<CGS> 116,414
<TOTAL-COSTS> 55,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,298
<INCOME-PRETAX> 119,346
<INCOME-TAX> 0
<INCOME-CONTINUING> 119,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,346
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
