<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the period ended September 30, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
For the transition period
from __________________ to ___________________
Commission File No. 0-22968
FOCAL CORPORATION
(Name of small business issuer as specified in its charter)
Utah 87-0363789
- ---------------------- ---------------------------
State of Incorporation I.R.S. Employer I.D. Number
1415 West North Avenue Anaheim, California 92801
- --------------------------------------------------------------------------
Address of principal executive office Zip code
(714) 635-8821
-------------------------
(Issuer's telephone number, including area code)
-------------------------
Check whether the issuer (1) 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 registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
----- -----
The number of shares outstanding of issuer's only class of Common Stock,
$0.10 par value was 2,930,676 on June 16, 1997.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Introduction
The financial statements included herein have been prepared by Focal Corporation
("Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("Commission"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with the Company's financial statements for the year ended
June 30, 1996, contained in the Company's Form 10-KSB filed with the Commission.
The financial information presented reflects all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of Management,
necessary for a fair statement of the results for the interim periods presented.
2.
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FOCAL CORPORATION
BALANCE SHEET
September 30, 1996 and June 30, 1996
------------------
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited) (Audited)
------------ ---------
<S> <C> <C>
Current assets:
Advances to officers $ 2,400 $ 0
Deferred expenses 174 0
Deposit-Loan Commitment 120,000 120,000
-------- --------
Total assets $122,574 $120,000
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3.
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FOCAL CORPORATION
BALANCE SHEET
September 30, 1996 and June 30, 1996
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited) (Audited)
------------ ---------
<S> <C> <C>
Current liabilities:
Bank overdraft $ 129 $ 411
Accounts payable 388,905 388,905
Accrued payroll 120,333 190,333
Accrued taxes 35,874 35,874
Interest payable 8,393 6,517
Accrued expenses due officers and
directors 35,412 35,412
Notes and loans payable 286,565 264,715
----------- -----------
Total current liabilities $ 875,611 $ 922,167
----------- -----------
Shareholders' equity (deficit)
Preferred stock (100,000,000 shares
authorized, no shares outstanding) - -
Common stock ($0.10 par value; 40,000,000
shares authorized, 2,930,676 and
2,690,676 shares issued and outstanding
respectively) 293,068 269,068
Paid in capital 2,019,393 1,923,393
Retained earnings (deficit) (3,065,498) (2,994,628)
----------- -----------
Total shareholders' (deficit) (753,037) (802,167)
----------- -----------
Total liabilities and shareholders'
deficit $ 122,574 $ 120,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4.
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FOCAL CORPORATION
STATEMENT OF OPERATIONS
For the three month periods ending
September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------
1996 1995
---------- ---------
<S> <C> <C>
Revenues
Income from relief of debt 0 2,140
--------- --------
Operating costs and expenses $ 67,727 $ 45,478
Other income (expenses)
Interest (expense) (3,143) (228)
--------- --------
Net (loss) $ (70,870) $(43,566)
========= ========
Loss per common share and common
share equivalent $ (0.02) $ (0.02)
========= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5.
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FOCAL CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Year Ended June 30, 1996 and Three Months ended September 30, 1996
(Unaudited)
------------------
<TABLE>
<CAPTION>
Common Common Paid-in Retained
Shares Stock Capital Earnings Total
--------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Bal: 6/30/95 2,690,676 $269,068 $1,923,393 $(2,725,692) $(533,231)
Net loss - - - (268,936) (268,936)
Bal 6/30/96 2,690,676 269,068 1,923,393 (2,994,628) (802,167)
Stock issued to
officers in
lieu of salary 240,000 24,000 96,000 - 120,000
Net loss - - - (70,870) (70,870)
--------- -------- ---------- ----------- ---------
Bal: 9/30/96 2,930,676 $293,068 $2,019,393 $(3,065,498) $(753,037)
========= ======== ========== =========== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6.
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FOCAL CORPORATION
STATEMENT OF CASH FLOWS
For the three month periods ended
September 30, 1996 and 1995
Increase (Decrease) in Cash Equivalents
(Unaudited)
------------
<TABLE>
<CAPTION>
September 30,
1996 1995
--------- --------
<S> <C> <C>
Cash flows (used) in operating
activities:
Net (Loss) $ (70,870) $(43,566)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Decrease (Increase) in prepaids
and deferred expense (174) 0
Increase (Decrease) in accounts
payable and accrued expenses (68,124) 31,469
Decrease (Increase) in advance
to officers (2,400) (12,000)
--------- --------
Net cash provided by (used in)
operating activities (141,568) (24,097)
Cash flows provided (used) by
financing activities:
Borrowing 21,850 21,000
Issuance of Common stock 120,000 0
--------- --------
Net cash provided by (used in)
financing activities 141,850 21,000
--------- --------
Net (decrease) increase in cash 282 (3,097)
--------- --------
Cash (overdraft) at beginning of period (411) 3,702
--------- --------
Cash (overdraft) at end of period $ (129) $ 605
========= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
7.
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FOCAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------
1. Management Plan
---------------
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company currently has no operations and is
dependent upon funds from borrowing and private placement for funding its
day to day cash requirements. The Company has been directing its efforts to
acquiring well-leased, existing ten to twenty acre discount shopping
centers, anchored by major national retail tenants. The Company has located
properties in Arizona, California and Nevada that fit their investment
criteria and it is exploring ways to finance the acquisition of these
properties so they may generate adequate resources for the Company. Focal's
President, who has been in the discount shopping center development business
for over twenty-five years, is currently working with representatives of
national retail chains to select possible sites in various areas for future
development of shopping centers. The Company proposes to construct the
facilities and lease them back to the retailers on long term leases. At the
present time there is no assurance that these events will take place. If the
Company is unable to acquire any properties or obtain additional private
financing, there is no assurance that it will continue to operate.
2. Loss Per Common Share
---------------------
Primary loss per common and common equivalent share, assuming no dilution,
are computed based on the weighted average number of shares of common stock
and common stock equivalents outstanding during each year. Fully diluted per
share data is not presented as the effect would not be dilutive.
8.
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Item 2. Management's Discussion and Analysis or Plan of Operations.
Plan of Operations
- ---- -- ----------
The Company's current plan of operations is to acquire commercial shopping
centers in the Western United States. The Company expects to target centers
anchored by long term leases with national, credit-rated retail tenants and
which generate positive cash flows. The Company intends to acquire existing
shopping centers of approximately eight to 20 acres, which are expected to
include a major discount department store and several credit-rated retailers
strategically spaced around the larger anchor. Some complexes also will include
separate out-lots suitable for family type restaurants. In addition, as the
Company's financial condition improves and as appropriate opportunities arise,
the Company plans to option or contract for strategically located vacant land
suitable for the development of shopping centers, such options or contracts to
be subject to negotiating pre-building leases with major retail tenants.
The Company's investment objective in considering each potential
acquisition is to achieve long-term capital appreciation through increased cash
flow and increased value of the acquired property. The Company will seek to
accomplish this investment objective through (i) selective acquisitions of
shopping centers which are strategically located and which generally provide
positive cash flows, (ii) improved operations of the shopping centers and
lease-up of unleased space, and (iii) where deemed appropriate, expansions,
renovations and redevelopments of these properties. A key criterion for
property investments will be that they offer the opportunity for growth in
revenues from operations. The Company may purchase or lease properties for
long-term investment or sell such properties, in whole or in part, when
circumstances warrant. The Company may also participate with other entities in
property ownership, through joint ventures or other types of co-ownership.
Equity investments may be subject to existing mortgage financing and other
indebtedness which have priority over the equity interest of the Company.
Currently, the Company does not own or manage any shopping centers or other
real properties. In addition, the Company does not have funds necessary for
the acquisition or development of shopping centers. However, the Company
intends to rely on its management to successfully
9.
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negotiate the acquisition of existing shopping centers and vacant land in
exchange for shares of the Company's Common Stock or Convertible Preferred
Stock. It is anticipated that each such acquisition will be separately
negotiated based on the Owner's equity or tax base in the subject property. The
Company is currently conducting due diligence on certain shopping centers
located in California, Nevada and Arizona. However, as of current date, the
Company had no formal commitments, arrangements or understandings with regard to
the acquisition of any specific properties.
The Company currently intends to adhere to a policy of limiting the
incurrence of debt so that the Company's ratio of total debt to total equity on
its portfolio of shopping center properties does not exceed 70%. The Company
may from time to time modify its debt policy in light of then current economic
conditions, relative costs of debt and equity capital, the market value of
acquired properties, general conditions in the market for debt and equity
securities, fluctuations in the fair market value of the Company's Common Stock
and Convertible Preferred Stock, growth and acquisition opportunities and other
factors. Accordingly, the Company may increase or decrease the total debt to
total equity ratio beyond the limits described above.
Although the Company currently intends to acquire shopping centers in
exchange for shares of the Company's Common Stock or Convertible Preferred
Stock, if the Board of Directors determines that additional or other funding is
required to acquire the shopping centers, the Company may raise such funds
through equity offerings, debt financing or retention of cash flow, or a
combination of these methods. If the Board of Directors determines to raise
equity capital, it has the authority, without shareholder approval, to issue
shares of Common Stock or Convertible Preferred Stock in any manner (and on such
terms and for such consideration) it deems appropriate, including in exchange
for property. Existing shareholders have no preemptive right to purchase shares
issued in any offering, and any such offering might cause a dilution of a
shareholder's investment in the Company. Indebtedness incurred by the Company
may be in the form of bank borrowings, purchase money obligations to the sellers
of properties, secured and unsecured, and publicly and privately placed debt
investments. Such indebtedness may be recourse to all of the properties of the
Company or may be limited to the particular property to which the indebtedness
relates. The proceeds from any borrowings by the Company may be used for
working capital, to refinance existing indebtedness or to finance acquisitions,
expansions or development of new properties.
10.
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Results of Operations
- ------- -- ----------
The Company had no revenue from operations during the three months ended
September 30, 1996 and 1995.
The Company's expenses during the three months ended September 30, 1996 and
1995 amounted to $70,870 and $45,706, respectively. Expenses increased by
$25,164 (55%) primarily the result of increased interest and additional salary
expense required as the company seeks sources of capital needed to continue
operations and acquire property. The net loss increased from the corresponding
quarter of the prior year by $27,304 (63%) for the reasons stated above and
during the corresponding quarter, income was recognized from relief of debt.
Liquidity and Capital Resources
- --------- --- ------- ---------
The Company's liquidity over the past two years has been materially and
adversely affected by continuing operating losses. The Company currently has no
operations and is dependent on private financing to fund its day to day cash
requirements.
The Company is currently seeking to raise working capital through private
offering of Common Stock at $0.50 per share and warrants to purchase additional
shares of Common Stock at an exercise price between $1.00 and $3.00 per share.
Although there is no assurance that funds will be raised, all funds will be used
to finance general operating expenses while the Company locates and negotiates
for the acquisition of shopping centers which meet the Company's investment
criteria.
At September 30, 1996, the Company had total liabilities of $875,611, of
which (i) $165,264 represented accounts payable to officers and directors (all
of whom have agreed to defer payment until such time as the Company is
financially able to pay such payments), (ii) $674,473 represented loans and
accounts payable to others (principally professional advisors and real estate
and financial consultants and loans needed for operations) and (iii) $35,874
represented accrued taxes. On that same date, the Company had assets totalling
$122,574 of which $120,174 represented prepaid and deferred expenses.
11.
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Management believes that proceeds from the private offering will generate
sufficient working capital to conduct the business of the Company during the
period that the Company negotiates for the acquisition of its first shopping
center. Once the Company has acquired a shopping center that meets the Company's
investment criteria, which includes among other things, the ability to generate
positive cash flows, management believes that such cash flows will provide the
liquidity and capital resources necessary to conduct the business of the
Company, Management of the Company believes that between the funds generated by
the private placement and any cash flows resulting from the acquisition of a
shopping center, the Company will generate enough cash to support its
operations.
12.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 25, 1997 FOCAL CORPORATION
By: /s/ Howard M. Palmer
-----------------------------------
Howard M. Palmer
Chairman of the Board and President
By:
-----------------------------------
A. G. Kading, Treasurer and
Principal Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 2,400 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 122,574 120,000
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 122,574 120,000
<CURRENT-LIABILITIES> 875,611 922,167
<BONDS> 0 0
0 0
0 0
<COMMON> 293,068 269,068
<OTHER-SE> 2,019,393 1,923,393
<TOTAL-LIABILITY-AND-EQUITY> 122,574 120,000
<SALES> 0 0
<TOTAL-REVENUES> 0 2,140
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 67,727 45,478
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,143 228
<INCOME-PRETAX> (70,870) (43,566)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (70,870) (43,566)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (70,870) (43,566)
<EPS-PRIMARY> (.07) (.02)
<EPS-DILUTED> (.07) (.02)
</TABLE>
