<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 December 31, 1997
[_] 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 3,638,576 on May 26, 1998.
<PAGE>
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, 1997, 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
December 31, 1997 and June 30, 1997
------------------
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
(Unaudited) (Audited)
------------ ---------
<S> <C> <C>
Current assets:
Cash $24,698 $ 0
Deposits 5,000
------- ------
Total assets $29,698 $ 0
======= ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3.
<PAGE>
FOCAL CORPORATION
BALANCE SHEET
December 31, 1997 and June 30, 1997
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
(Unaudited) (Audited)
------------ ---------
<S> <C> <C>
Current liabilities:
Bank overdraft $ 0 $ 11,600
Accounts payable 383,604 414,882
Accrued taxes 450 3,240
Accrued expenses 65,332 51,660
Accrued wages due officers and directors 216,833 234,233
Notes and loans payable 328,546 261,905
----------- -----------
Total current liabilities $ 994,765 $ 977,520
----------- -----------
Shareholders' equity (deficit)
Preferred stock (100,000,000 shares authorized,
no shares outstanding) - -
Common stock ($0.10 par value; 40,000,000 shares
authorized, 3,363,576 and 3,340,576 shares
issued and outstanding, respectively) 363,858 334,058
Paid in capital 2,302,553 2,183,353
Retained earnings (deficit) (3,631,478) (3,494,931)
----------- -----------
Total shareholders' (deficit) (965,067) (977,520)
----------- -----------
Total liabilities and shareholders' deficit $ 29,698 $ 0
=========== ===========
</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 six month periods ending
December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months ended December 31
----------------------------
1997 1996
---------- ---------
<S> <C> <C>
Revenues
Income from relief of debt $ 29,530 $ 77,631
--------- ---------
Operating costs and expenses 146,384 187,296
Other income (expenses)
Interest (expense) (19,693) (7,179)
--------- ---------
Net (loss) $(136,547) $(116,844)
========= =========
Loss per common share and common share equivalent $ (0.04) $ (0.04)
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5.
<PAGE>
FOCAL CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Year Ended June 30, 1997 and Six Months ended December 31, 1997
(Unaudited)
------------------
<TABLE>
<CAPTION>
Common Common Paid-in Retained
Shares Stock Capital Earnings Total
--------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Bal 6/30/96 2,690,676 $269,068 $1,923,393 $(2,994,628) $(802,167)
Stock issued
for services 409,900 40,990 163,960 204,950
Stock issued to
officers in
lieu of salary 240,000 24,000 96,000 - 120,000
Net loss - - - (500,303) (500,303)
--------- -------- ---------- ----------- ---------
Bal: 6/30/97 3,340,576 $334,058 $2,183,353 $(3,494,931) $(977,520)
Net (loss) (136,547) (136,547)
Stock issued to
officer in lieu
of salary 240,000 24,000 96,000 - 120,000
Stock issued for
payment of notes 50,000 5,000 20,000 - 25,000
Sale of stock 8,000 800 3,200 4,000
--------- -------- ---------- ----------- ---------
Bal: 12/31/97 3,638,576 $363,858 $2,302,553 $(3,631,478) $(965,067)
========= ======== ========== =========== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6.
<PAGE>
FOCAL CORPORATION
STATEMENT OF CASH FLOWS
For the six month periods ended
December 31, 1997 and 1996
Increase (Decrease) in Cash Equivalents
(Unaudited)
------------
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows (used) in operating activities:
Net (Loss) $(136,547) $(116,844)
Adjustments to reconcile net loss to net cash used
in operating activities:
Decrease (Increase) in deposits and advances (5,000) 114,300
Decrease (Increase) in prepaids and deferred
expenses 0 (174)
Increase (Decrease) in accounts payable and
accrued expenses (37,796) (14,176)
--------- ---------
Net cash provided by (used in) operating
activities (179,343) (16,894)
Cash flows provided (used) by financing activities:
Debt reduction (25,000) (150,000)
Borrowing 91,641 44,790
Issuance of Common stock 149,000 120,000
--------- ---------
Net cash provided by (used in) financing
activities 215,641 14,790
--------- ---------
Net (decrease) increase in cash 36,298 (2,104)
--------- ---------
Cash (overdraft) at beginning of period (11,600) (411)
--------- ---------
Cash (overdraft) at end of period $ 24,698 $ (2,515)
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
7.
<PAGE>
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 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. 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.
3. Common Stock Issued
-------------------
The Company issued 800,000 shares which are being held in an informal escrow
pending performance, with respect to a $5,000,000 loan for the Company. At
such time as the loan is obtained, the shares will be released. They are not
currently included in outstanding shares.
8.
<PAGE>
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 5 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.
<PAGE>
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 and Nevada. 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.
<PAGE>
Results of Operations
- ---------------------
The Company had no revenue from operations during the six months ended
December 31, 1997 and 1996.
The Company's expenses during the six months ended December 31, 1997 and
1996 amounted to $166,077 and $194,475, respectively. Expenses decreased by
$28,398 (15%) primarily the result of expenses in the prior year of a planned
acquisition of a shopping center which did not occur.
The net loss increased by $19,703 (17%) from the corresponding period of
the prior year because of a larger recognition of income from relief of debt in
the prior year.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity over the past four 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 December 31, 1997, the Company had total liabilities of $994,765, of
which (i) $270,072 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) $724,243 represented loans and
accounts payable to others (principally professional advisors and real estate
and financial consultants and loans needed for operations) and (iii) $450
represented accrued taxes. On that same date, the Company had cash totalling
$24,698 and total assets of $29,698.
11.
<PAGE>
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.
<PAGE>
Item 1. Legal Proceedings.
- --------------------------
The Company is not a party to any litigation and is not aware of any
pending or threatened litigation against the Company. James Collins, a former
financial consultant of the Company, has stipulated judgment against the Company
for $24,000 in unpaid consulting fees. Jackson, DeMarco & Peckenpaugh, the
Company's former counsel, has recorded a $71,000 judgment (and lien against the
Company's assets) for unpaid legal fees.
Item 2. Changes in Securities.
- ------------------------------
None
Item 3. Defaults Upon Senior Securities.
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
None
Item 5. Other Information.
- --------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
Exhibit 27 -- Financial Data Schedule
13.
<PAGE>
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: May 27, 1998 FOCAL CORPORATION
By: /s/ HOWARD M. PALMER
-----------------------------------
Howard M. Palmer
Chairman of the Board and President
By: /s/ GERALD W. MAY
-----------------------------------
Gerald W. May, Treasurer and
Principal Financial Officer
14.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 24,698 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 29,698 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 29,698 0
<CURRENT-LIABILITIES> 994,765 977,520
<BONDS> 0 0
0 0
0 0
<COMMON> 363,858 334,058
<OTHER-SE> 2,302,553 2,183,353
<TOTAL-LIABILITY-AND-EQUITY> 29,698 0
<SALES> 0 0
<TOTAL-REVENUES> 29,530 77,631
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 146,384 187,296
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,693 7,179
<INCOME-PRETAX> (136,547) (116,844)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (136,547) (116,844)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (136,547) (116,844)
<EPS-PRIMARY> (.04) (.04)
<EPS-DILUTED> (.04) (.04)
</TABLE>
