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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998
/_/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
For the transistion 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 St. #302 Anaheim, California 92801
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Address of principal executive office Zip code
714-635-8821
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(Issuer's telephone number, including area code)
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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 5,175,176 on June 15, 1999.
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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, 1998, 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, 1998 and June 30, 1998
-----------------------
ASSETS
September 30, June 30,
1998 1998
(Unaudited) (Audited)
------------- --------------
Current assets:
Cash $ 881 $ 219
--------- ---------
Total assets $ 881 $ 219
========= =========
The accompanying notes are an integral part of the
consolidated financial statements
3.
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FOCAL CORPORATION
BALANCE SHEET
September 30, 1998 and June 30, 1998
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
September 30, June 30,
1998 1998
(Unaudited) (Audited)
----------- ------------
Current liabilities:
Accounts payable $ 432,646 $ 425,124
Accrued taxes 225 900
Accrued expenses 32,381 27,980
Accrued wages due officers
and directors 159,233 294,233
Interest payable 38,713 34,617
Notes and loans payable 327,772 312,671
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Total current liabilities $ 990,970 $ 1,095,525
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Shareholders' equity (deficit)
Preferred stock (100,000,000
shares authorized, no shares
outstanding) - -
Common stock ($0.10 par value;
40,000,000 shares authorized,
4,036,837 and 3,676,837 shares
issued and outstanding
respectively) 403,684 367,684
Paid in capital 2,477,527 2,333,527
Retained earnings(deficit) (3,871,300) (3,796,517)
----------- -----------
Total shareholders' (deficit) (990,089) (1,095,306)
----------- -----------
Total liabilities and share-
holders' deficit $ 881 $ 219
=========== ===========
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, 1998 and 1997
(Unaudited)
Three months ended September 30
-------------------------------
1998 1997
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Revenues
Income from relief
of debt $ 0 $ 29,530
Operating costs and
expenses $ 57,513 $ 71,898
Other income (expenses)
Interest (expense) (17,270) (10,333)
----------- -----------
Net (loss) ($ 74,783) ($ 52,701)
=========== ============
Loss per common share
and common share
equivalent ($0.02) ($0.01)
=========== ============
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, 1998 and Three Months ended September 30, 1998
(Unaudited)
-------------
Common Common Paid-in Retained Total
Shares Stock Capital Earnings
---------- --------- ----------- ----------- ------------
Bal 6/30/97 3,340,576 334,058 2,183,353 (3,494,931) (977,520)
Retirement of
common stock (31,339) (3,134) 3,134 0
Stock issued
for services 4,600 460 1,840 2,300
Stock issued
to officers in
lieu of salary 240,000 24,000 96,000 - 120,000
Stock issued
for payment of
notes and
advances 123,000 12,300 49,200 61,500
Net loss - - - (301,586) (301,586)
---------- --------- ----------- ----------- ------------
Bal: 6/30/98 3,676,837 $367,684 $2,333,527 ($3,796,517) ($1,095,306)
Stock issued
to officers in
lieu of salary 360,000 36,000 144,000 - 180,000
Net Loss ( 74,783) ( 74,783)
---------- --------- ----------- ----------- ------------
Bal:9/30/98 4,036,837 $403,684 $2,477,527 ($3,871,300) ($990,089)
========== ========= =========== =========== ============
The accompanying notes are an integral part of the consolidated
financial statements.
6.
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FOCAL CORPORATION
STATEMENT OF CASH FLOWS
For the three month periods ended
September 30, 1998 and 1997
Increase (Decrease) in Cash Equivalents
(Unaudited)
-------------------
September 30,
1998 1997
---------- ----------
Cash flows (used) in operating
activities:
Net (Loss) ($ 74,783) ($ 52,701)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Increase (Decrease) in accounts
payable 7,522 ( 50,370)
Increase (Decrease) in accrued
expense (127,178) 61,485
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Net cash provided by (used in)
operating activities (194,439) ( 41,586)
Cash flows provided (used) by financing activities:
Borrowing 15,101 55,500
Issuance of Common stock 180,000 0
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Net cash provided by (used in)
financing activities 195,101 55,500
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Net increase (decrease) in cash 662 13,914
---------- ----------
Cash (overdraft) at beginning of period 219 (11,600)
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Cash (overdraft) at end of period $ 881 $ 2,314
========== ==========
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 eight to twenty acre shopping centers,
anchored by a major discount department store, a major supermarket and
several credit rated 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 also 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.
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 twenty 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 negotiate
9.
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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.
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Results of Operations
- ---------------------
The Company had no revenue from operations during the three months ended
September 30, 1998 and 1997. The only income recognized was from relief of debt.
The Company's expenses during the three months ended September 30, 1998 and
1997 amounted to $74,783 and $82,231, respectively. Expenses decreased by $7,448
(9%). This is mainly due to underwriting fees of $15,000 incurred in the quarter
ended September 30, 1997 less increased interest of $6,937 in the current
quarter as the company has continued to require borrowing funds to continue
operations. The net loss increased from the corresponding period of the prior
year by $22,082 (42%) because income was recognized from relief of debt in the
quarter ended September 30, 1997.
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 of approximately
$500,000 through a private offering of Convertible Notes to accredited
investors. The offering is pursuant to Regulation D of the Securities Act of
1933. The purchasers of the notes will also receive Warrants to purchase
additional shares of Common Stock. The 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, 1998, the Company had total liabilities of $990,970, of
which (i)$121,731 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 make such payments. (ii)$869,014 represented loans and accounts payable
to others (principally professional advisors and real estate and financial
consultants and loans needed for operations), and (iii)$225 represented accrued
taxes. On that same date, the Company had cash totalling $881 which was the only
asset.
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
shopping centers, the Company will generate enough cash to support its
operations.
12.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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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.
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None
Item 5. Other Information.
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None
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
None
13.
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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 15, 1999 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
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