<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 1999.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ____________________ to __________________.
Commission File Number 33-89714
-----------------------
RED OAK HEREFORD FARMS, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 84-1120614
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2010 Commerce Drive, Red Oak, Iowa 51566
(Address of principal executive offices)
(712) 623-9224
(Registrant's telephone number)
-----------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 |X| No ____
The number of shares outstanding of the Registrant's common stock as of August
11, 1999, was as follows:
Common Stock, $.001 par value: 16,016,665 shares
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
Financial Statements Contents
<S> <C> <C> <C>
Condensed Consolidated Balance Sheets, as of June 30, 1999 and
December 31, 1998 3-4
Condensed Consolidated Statements of Operations, for three months
and six months ended June 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows, for six months
ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7-11
</TABLE>
2
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 39,932 $ 16,079
Restricted cash 210,392 208,742
Accounts receivable
Trade, less allowance for doubtful accounts of $10,000 1,719,306 765,262
Related parties 49,715 13,379
Receivable due from factor 341,630 262,102
Inventories 2,074,622 919,459
Prepaid expenses and other assets 207,081 106,668
----------- -----------
TOTAL CURRENT ASSETS 4,642,678 2,291,691
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Buildings & leasehold improvements 294,974 294,974
Vehicles and equipment 380,097 335,383
----------- -----------
675,071 630,357
Less: accumulated depreciation (314,399) (286,787)
----------- -----------
TOTAL PROPERTY, PLANT AND EQUIPMENT 360,672 343,570
----------- -----------
OTHER ASSETS
Investment in partnership 24,700 40,961
Other assets 242,662 294,480
----------- -----------
TOTAL OTHER ASSETS 267,362 335,441
----------- -----------
TOTAL ASSETS $ 5,270,712 $ 2,970,702
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 1,429,985 $ 850,000
Current maturities of long-term debt 1,097,572 1,115,424
Checks in excess of bank balance 3,498,841 -
Accounts payable
Trade 487,981 483,626
Related parties 1,953,764 1,747,358
Accrued expenses 547,390 641,334
Current maturities of deferred income 100,000 100,000
----------- -----------
TOTAL CURRENT LIABILITIES 9,115,533 4,937,742
----------- -----------
LONG-TERM LIABILITIES
Deferred income 200,000 200,000
Long-term debt, less current maturities 1,157,118 1,163,815
----------- -----------
TOTAL LONG-TERM LIABILITIES 1,357,118 1,363,815
----------- -----------
TOTAL LIABILITIES 10,472,651 6,301,557
MINORITY INTERESTS IN SUBSIDIARIES (149,542) (103,822)
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value per share, authorized 50,000,000
shares; issued and outstanding 16,010,415 shares for June 30, 1999
and 15,003,415 shares for December 31, 1998 16,010 15,003
Preferred stock, $.001 par value per share, authorized 5,000,000 shares
1997 Series A preferred stock; issued and outstanding 0 shares for
June 30, 1999 and 200,000 shares for December 31, 1998 - 200
Additional paid-in capital 7,391,426 7,384,359
Retained deficit (12,459,833) (10,626,595)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (5,052,397) (3,227,033)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,270,712 $ 2,970,702
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended June 30, Six months ended June 30,
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
NET SALES
Boxed beef $12,965,528 $ 8,465,362 $ 24,622,854 $14,873,876
Cattle trading sales 3,270,435 1,755,402 8,627,127 13,923,668
Cattle trading sales to related parties 427,443 5,447,399 1,499,156 3,577,432
----------- ----------- ------------ -----------
16,663,406 15,668,163 34,749,137 32,374,976
----------- ----------- ------------ -----------
COST OF GOODS SOLD
Cattle purchased for processing 5,455,286 3,750,109 11,840,952 6,216,066
Cattle purchased for processing from
related parties 5,536,659 4,393,013 10,354,505 7,817,349
Cattle purchased for trading 3,488,961 6,639,297 9,530,642 15,522,650
Cattle purchased for trading from
related parties 13,289 521,623 67,203 2,018,673
Other processing costs 1,545,385 390,938 1,923,917 762,714
Other trading costs 36,384 189,449 80,768 92,688
----------- ----------- ------------ -----------
16,075,964 15,884,429 33,797,987 32,430,140
----------- ----------- ------------ -----------
GROSS PROFIT 587,442 (216,266) 951,150 (55,164)
----------- ----------- ------------ -----------
OPERATING EXPENSES
Selling and distribution 692,876 596,673 1,347,759 1,544,481
General and administrative 536,119 532,016 1,059,556 1,107,615
----------- ----------- ------------ -----------
1,228,995 1,128,689 2,407,315 2,652,096
----------- ----------- ------------ -----------
LOSS FROM OPERATIONS (641,553) (1,344,955) (1,456,165) (2,707,260)
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSE)
Interest income 44 55 1,703 660
Interest expense (145,893) (81,755) (283,729) (191,120)
Loss on sale of accounts receivable (68,001) (37,932) (124,505) (37,932)
Losses from cattle feeding joint venture (3,760) (66,382) (16,262) (112,733)
----------- ----------- ------------ -----------
(217,610) (186,014) (422,793) (341,125)
----------- ----------- ------------ -----------
LOSS BEFORE MINORITY INTERESTS (859,163) (1,530,969) (1,878,958) (3,048,385)
MINORITY INTERESTS 26,211 - 45,720 -
----------- ----------- ------------ -----------
NET LOSS (832,952) (1,530,969) (1,833,238) (3,048,385)
PREFERRED STOCK DIVIDEND REQUIREMENT - (32,274) - (77,953)
----------- ----------- ------------ -----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $ (832,952) $(1,563,243) $ (1,833,238) $(3,126,338)
=========== =========== ============ ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.06) $ (0.11) $ (0.12) $ (0.21)
=========== =========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,014,481 14,732,456 15,008,979 14,583,915
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,833,238) $(3,048,385)
Adjustments to reconcile net loss to net cash
used in operating activities:
Items not requiring (providing) cash:
Depreciation and amortization 65,664 51,583
Loss from partnership 16,262 112,733
Services rendered in exchange for common stock 7,874 -
Minority interest in loss of susbsidiary (45,720) -
Changes in:
Accounts receivable (1,069,908) 82,470
Inventories (1,155,163) (483,612)
Prepaid expenses (100,413) (8,617)
Accounts payable and accrued expenses 116,817 1,968,983
Checks in excess of bank balance 3,498,841 -
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (498,984) (1,324,845)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (43,550) (47,832)
Investment in partnership - (250,000)
Restricted cash (1,650) -
Change in other assets 12,601 (52,413)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (32,599) (350,245)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock - 1,155,352
Net borrowings (payments) on line of credit 310,000 307,693
Proceeds from issuance of note payable 269,985 511,344
Proceeds from issuance of long-term debt 19,181 -
Payments on long-term debt (43,730) (312,292)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 555,436 1,662,097
----------- -----------
INCREASE IN CASH 23,853 (12,993)
CASH, BEGINNING OF PERIOD 16,079 12,993
----------- -----------
CASH, END OF PERIOD $ 39,932 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
(1) Nature of Operations and Principles of Consolidation
The condensed consolidated financial statements do not include all
footnotes and certain financial information normally presented annually under
generally accepted accounting principles and, therefore, should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year-ended December 31, 1998. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal accruals)
which, in the opinion of management, are necessary to present fairly its
consolidated financial position at June 30, 1999 and December 31, 1998, and its
consolidated results of operations and cash flows for the interim periods ended
June 30, 1999 and 1998. The results of operations for the interim periods shown
are not necessarily indicative of the results for the entire fiscal year ending
December 31, 1999.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries Red Oak Farms, Inc. ("ROF"),
Midland Cattle Company ("Midland"), Red Oak Feeders, LLC ("Feeders"), and its
80% owned subsidiaries, My Favorite Jerky ("MFJ") and Here's The Beef Corp.
("HTB"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
(2) Going Concern
The accompanying condensed consolidated financial statements have been
presented on a going concern basis which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The Company
has suffered recurring losses and negative cash flows from operations since its
inception due to its start-up nature in establishing a premium branded Hereford
beef product. The Company has not yet been successful in establishing profitable
operations and is in technical noncompliance with certain loan agreements. These
factors raise substantial doubt about the ability of the Company to continue as
a going concern.
Management is in the process of completing a private placement
offering. Efforts are also underway to increase product awareness and broaden
product lines through marketing efforts which should improve profitability and
cash flow. Sales efforts are being made to effect changes in the product mix of
Certified Hereford Beef ("CHB") sales and to increase the volume percentage of
branded versus commodity sales. In addition, management has developed an
operating plan including operating budgets to facilitate monthly analysis of
operations. Management believes these steps will enhance the Company's ability
to achieve favorable operating results.
There is no assurance that the Company will be successful in raising
additional capital or achieving profitable operations. The condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
7
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
(3) Related Party Transactions
The Company sells cattle to certain companies which are owned by
members of the Company's management or Board of Directors. The Company also
purchases cattle and feed from these same entities. Additionally, both Midland
and ROF utilize trucking companies that are owned by members of the Company's
management or Board of Directors.
The activity between the Company and these related parties at and for
the six months ended June 30, 1999 and 1998, and at December 31, 1998 are as
follows:
June 30, December 31, June 30,
1999 1998 1998
---------------- -------------- --------------
Sales $ 1,449,156 $ 3,577,432
Purchases 10,421,708 9,836,022
Accounts receivable 49,715 $ 13,379
Accounts payable 1,953,764 1,747,358
Additionally, ROF purchased cattle from Midland in the amount of $0 and
$29,536 respectively, for the quarters ended June 30, 1999 and 1998, and $0 and
$257,060 for the six months ended June 30, 1999 and 1998, respectively. During
the quarter and six months ended June 30, 1999, MFJ purchased $0 and $10,495,
respectively, of beef from ROF. Such intercompany purchases are eliminated in
consolidation.
Cattle financed by a related party for the Company under a financing
agreement totaled $28,766 and $966,316 for the quarters ended June 30, 1999 and
1998, and $377,237 and $2,104,285 for the six months ended June 30, 1999 and
1998, respectively.
The Company has notes payable to stockholders totaling $1,029,985 and
$860,000 at June 30, 1999 and December 31, 1998, respectively. In addition, the
Company has notes payable to joint venture partners totaling $1,187,500 and
$1,210,000 at June 30, 1999 and December 31, 1998, respectively.
(4) Factoring Agreement
The Company sells selected accounts receivable without recourse to KBK
Financial, Inc. ("KBK"). The Company received $9,066,872 and $16,600,704 in
proceeds from the transfer of its receivables during the three and six months
ended June 30, 1999, respectively. For the three and six months ended June 30,
1998, the Company received $5,057,588 in proceeds from the transfer of its
receivables. The reserve for delinquencies and claims held by KBK at June 30,
1999 was $341,630. The Company has paid $68,002 and $37,932 for the quarters
ended June 30, 1999 and 1998, respectively, and $124,505 and $37,932 for the six
months ended June 30, 1999 and 1998, respectively, for fixed discounts on sold
accounts.
8
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
(5) Inventories
Inventories at June 30, 1999 and December 31, 1998 consisted of the
following:
June 30, December 31,
1999 1998
----------- ------------
Boxed beef $ 1,063,412 $ 635,202
Packaged jerky 543,667 33,945
Cattle 341,422 121,454
Other 126,121 128,858
----------- ----------
$ 2,074,622 $ 919,459
=========== ==========
(6) Inventory Line of Credit
The inventory line of credit provided from KBK Financial provides
borrowings up to $1,500,000 based on eligible inventory. On July 15, 1999, the
lender renewed the promissory note and the inventory line of credit through
August 30, 1999.
(7) Stockholders' Equity
On June 23, 1999, the Company's Board ratified the redemption of the
Company's issued and outstanding 200,000 shares of 1997 Series A Preferred Stock
in exchange for 1,000,000 shares of restricted common stock. In addition, the
Company's Board resolved and authorized that no accrued dividends will be paid
on the Series A Preferred Stock as per the agreement with the holders of such
stock.
The redemption value of the series A Preferred Stock was $ 5.00 per
share plus accrued dividends. The fair market value of the common stock shares
was $ 1.03 on May 17, 1999, the date of redemption. In consideration of
forfeiting dividends by the preferred shareholders, a 5 to 1 conversion to
common shares was agreed upon.
9
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
(8) Reportable Segments
Reportable segment profit or loss and segment revenues for the three
months ended June 30, 1999, were as follows:
<TABLE>
<CAPTION>
Boxed Cattle Cattle All
Beef Trading Feeding Others Totals
----------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $12,944,573 $3,697,878 $ - $ 20,955 $16,663,406
Intersegment revenues - 31,870 - - 31,870
Segment profit (loss) (552,131) (22,865) (22,995) (234,961) (832,952)
</TABLE>
Reconciliation of reportable segment profit or loss for the three
months ended June 30, 1999, was as follows:
Profit or loss
Total profit or loss for reportable segments $ (597,991)
Other profit or loss (234,961)
----------
Income before income taxes and extraordinary items $ (832,952)
==========
Reportable segment profit or loss and segment revenues for the six
months ended June 30, 1999, were as follows:
<TABLE>
<CAPTION>
Boxed Cattle Cattle All
Beef Trading Feeding Others Totals
----------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $24,569,329 $10,126,283 $ - $ 32,010 $34,749,137
Intersegment revenues 10,495 61,740 - - 72,235
Segment profit (loss) (1,386,128) 12,961 (65,954) (394,117) (1,833,238)
</TABLE>
Reconciliation of reportable segment profit or loss for the six months
ended June 30, 1999, was as follows:
Profit or loss
Total profit or loss for reportable segments $ (1,439,121)
Other profit or loss (394,117)
------------
Income before income taxes and extraordinary items $ (1,833,238)
============
10
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
Reportable segment profit or loss and segment revenues for the three
months ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
Boxed Cattle Cattle All
Beef Trading Feeding Others Totals
-------------- -------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 8,465,362 $7,202,801 $ - $ - $15,668,163
Intersegment revenues - 29,536 - - 29,536
Segment loss (911,137) (128,530) (297,871) (193,431) (1,530,969)
</TABLE>
Reconciliation of reportable segment profit or loss for the three months ended
June 30, 1998, was as follows:
Profit or loss
Total profit or loss for reportable segments $ (1,337,538)
Other profit or loss (193,431)
-------------
Income before income taxes and extraordinary items $ (1,530,969)
============
Reportable segment profit or loss and segment revenues for the six
months ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
Boxed Cattle Cattle All
Beef Trading Feeding Others Totals
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $14,873,876 $17,501,100 $ - $ - $32,374,976
Intersegment revenues - 257,060 - - 257,060
Segment loss (1,842,553) (254,830) (563,725) (387,277) (3,048,385)
</TABLE>
Reconciliation of reportable segment profit or loss for the six months
ended June 30, 1998, was as follows:
Profit or loss
Total profit or loss for reportable segments $ (2,661,108)
Other profit or loss (387,277)
-------------
Income before income taxes and extraordinary items $ (3,048,385)
============
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
The matters discussed in this Form 10-Q contain forward-looking
statements that involve risks and uncertainties including risk of changing
market conditions with regard to livestock supplies and demand for products of
Red Oak Hereford Farms, Inc. (the "Company"), domestic and international
regulatory risks, competitive and other risks over which the Company has little
or no control. Consequently, future results may differ from management's
expectations. Moreover, past financial performance should not be considered a
reliable indicator of future performance.
Current Quarter Developments
The Company received a positive endorsement from the head of a large
regional retail supermarket distributor at the National Cattlemen's Beef
Association meeting in Denver during July. This and the testimonies from current
customers about the ongoing success of the program in their stores has been
helpful in the continuing expansion of the retail supermarket customer base. The
Company has been achieving positive gross margins for its beef while continuing
this expansion toward a profitable volume level.
The Company has an agreement to sell mail order Beef Steaks and Gourmet
Beef Burgers to the Home Shopping Network. Red Oak Farms' products will be
offered on the Home Shopping Network on a show to be aired during the third
quarter.
The "My Favorite Jerky" subsidiary has sales orders to roll out its
product into test markets during the 1999 third quarter. The Company has signed
broker and distribution agreements which cover the Northeast, Southeast, and
Midwest regions of the United States. The uniqueness of the packaging, and the
tender and flavorful beef jerky continues to attract the interest of brokers,
distributors, retailers, and consumers.
Liquidity and Capital Resources
As of June 30, 1999 and December 31, 1998, the Company had consolidated
cash and cash equivalents balance of $39,932 and $16,079, respectively.
Liquidity and Capital Resources Data:
As of June 30, 1999 and December 31, 1998
(in thousands)
1999 % chg 1998
----------- --------- --------
Working Capital (Deficit) $ (4,473) 40.8% $ (2,646)
Increase (Decrease) in Cash 24 284.6% (13)
Cash Beginning of Period 16 23.8% 13
Cash End of Period 40 - 0
Stock and Additional Paid-In Capital $ (5,052) 35.2% $(3,227)
12
<PAGE>
The Company must have additional funds to meet operational requirements
on an ongoing basis. Management has plans, including completion of a private
placement and continuing issuance of debt to affiliated parties, to provide this
cash until positive cash flows can be achieved. Management believes that with
funds, the Company can move into profitability through several planned steps.
o Continue to increase pricing in both branded and commodity beef through
refined management of promotional activity.
o Continue to reduce the percentage of its product sold into the
commodity beef trade.
o Continue to manage improving gross margins, through product mix
management.
o Secure strategic customers presently identified necessary to increase
volume to a profitable level.
o Continue to bring on higher margin products, such as beef jerky, to
increase the overall gross margins.
The Company's sources of cash have included issuance of Common and
Preferred Stock, sales of accounts receivable, and borrowings on asset based
lines of credit. The Company continues its investment in premium branded beef
product development and other quality synergistic products. The Company requires
additional resources to move to the next stage of development. Funding will be
critical to the continuing operations of the Company, and management is engaged
in discussions with sources of capital, as well as, conducting a private
placement offering.
Cash Flows from Operating Activities
The Company's cash flows from operating activities required cash of
$498,984 and $1,324,845 for the six months ended June 30, 1999 and 1998,
respectively. Reductions in operating losses resulted primarily from the
following activities:
o Increases in branded pricing for new retail supermarket customers and
refined management of promotional pricing of feature items have
contributed to improved performance.
o Significant improvement in the percentage of branded versus commodity
sales was achieved during the first six months of 1999 as compared to
substantial losses generated by commodity sales of product produced by
cattle harvested to fulfill customer demand for various cuts during the
respective 1998 period.
13
<PAGE>
o Losses were reduced through a realignment of the customer base into a
more efficiently served customer mix during the first six months of
1999. The 1998 losses were in part from implementing the Company's
strategy of building a track record and reputation for reliability into
the retail supermarket and food service industry. Continued increases
in sales volume and a significant shift to branded premium pricing
continue to reflect opportunity for favorable results.
o Losses were reduced through refocusing cattle trading activities, to
developing the supply of Certified Hereford Beef.
The Company continues to expand the development and marketing of
value-added consumer beef products.
Increases in depreciation and amortization, loss from partnership,
increases in credit from affiliates through accounts payable, accrued expenses,
and checks in excess of bank balances provided the cash to absorb the reduction
in operational losses during the six months ended June 30, 1999 and for the same
period in 1998.
Boxed beef customer demand continues to require increases in
receivables and inventories. June 30, 1999 accounts receivable was $2,110,651
compared to $1,040,743 at December 31, 1998. Inventories increased from $919,459
at December 31, 1998 to $2,074,622 at June 30, 1999.
Selected Cash Flow Data:
For the Six Months Ended June 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 % change 1998
---------- --------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,833) (39.9)% $(3,048)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation & amortization 66 27.3% 52
Services for common stock 8 - 0
Loss from partnership 16 (85.6)% 113
Minority interest in subsidiaries (46) - 0
Changes in:
Accounts receivables (1,070) (1,397.3)% 82
Inventories (1,155) 138.9% (484)
Prepaid expenses (100) 1,065.3% (9)
Accounts payable and accrued expenses 117 (94.1)% 1,969
Checks in excess of bank balance 3,499 - 0
---------- -------
Net Cash used in Operating Activities $ (499) (165.5)% $(1,325)
</TABLE>
14
<PAGE>
Cash Flows from Investing Activities
Investing activities required cash of $32,599 and $350,245 for the
first six months of 1999 and 1998, respectively. The Company used cash to
acquire assets, to invest in product procurement activities, and to reserve
funds for compliance with the "Packers and Stockyards Act".
Selected Cash Flow Data:
For the Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
------- ------- ------
Cash Flows from Investing Activities:
Purchases of equipment $ (44) (8.9)% $ (48)
Restricted cash (2) - 0
Changes in other assets 13 (124)% (52)
Investment in partnership 0 (100)% (250)
------- -------
Net Cash used in Investing Activities $ (33) (90.7)% $ (350)
Cash Flows from Financing Activities
Financing activities provided cash of $555,436 and $1,662,097 for the
first six months of 1999 and 1998, respectively.
The Company continues to receive an asset based line of credit, which
provides borrowings up to $1.5 million based on eligible inventory.
Substantially all of ROF assets and personal guarantees of the Company's
President and a Director collateralize the line of credit. The Company is in
technical non-compliance on certain financial conditions on this loan. On July
15, 1999, the lender renewed the promissory note and the inventory line of
credit through August 30, 1999. The Company intends to extend or secure another
asset based lender prior to August 30, 1999.
Affiliates are continuing to extend credit to ROF until the Company
secures other funding.
The Company, through ROF, is in technical non-compliance on its loan
agreement with MoorMan's, a feed company and cattle supplier, which gives
MoorMan's the right to call the loan. The loan amount of $1 million is due
October 2001. As of June 30, 1999, the loan is in default and is classified as a
current liability on the balance sheet. As of May 25, 1999 the Company executed
an agreement in principle with Archer Daniel's Midland Company ("ADM") for the
repayment of this obligation. This agreement does not change the current
classification of this loan.
15
<PAGE>
Issuance of a long-term note payable for investment in product
development and issuance of long-term notes for cattle procurement, provided
funding resources for the continued growth and development of premium branded
beef products.
The Company continues to finance operations through the sale of
accounts receivable and the asset based debt. Capital formation is critical for
the continuation of daily operations, for continued growth and development of
premium branded beef products, and for the marketing and distribution of other
quality synergistic products under development by the Company.
Selected Cash Flow Data:
For the Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
-------- ------- ------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock $ 0 (100)% $1,155
Net borrowing on line of credit 310 0.6% 308
Proceeds from issuance of notes payable 270 (47.2)% 511
Proceeds from long-term debt 19 - 0
Payments on long-term debt (44) (85.9)% (312)
-------- ------
Net Cash Provided by Financing Activities $ 555 (66.6)% $1,662
Market Risk
The Company continues to be exposed to the impact of changes in
interest rates, foreign exchange rates, and commodity prices. The Company
manages such exposures through the use of contracts when deemed prudent.
Current financing is predominately fixed or related to U.S. prime
interest rates. As the performance of the Company improves, the risk premium
paid above prime on asset based lending will be negotiated to lower levels.
Conversely, continued losses will continue the risk premium.
All exported products are currently sold in US dollars to US trading
companies for export. Asian currencies have improved during the first six months
of 1999 compared to the first six months of 1998. The Company has increased
sales to Asia during the first six months of 1999.
Hereford cattle purchased by Midland and ROF for further marketing,
processing, and distribution are exposed to the impact of changing commodity
prices. Commodity risk is present at various levels of the Company's business
cycle, including: procurement, production, processing, and distribution of Red
Oak Farms' Certified Hereford Beef. The procurement of yearlings and calves,
reselling of the certified animals to feeders, purchasing of the fat cattle for
processing, the related dressed cattle on the rail and related by-products, the
fabricated boxed primals, and several of the subsequent value-added consumer
products are all affected by commodity market risk.
16
<PAGE>
Hedging and contract purchases for the Hereford animals are
periodically utilized by ROF to minimize market risk and to insure that adequate
supply of Certified Hereford Cattle is available to meet the current and growing
sales demand.
ROF pays a market premium to the feeder for producing a Certified
Hereford that complies with certain genetic, diet, weight parameters, and
certain grading specifications. This premium above market generates market risk,
as this additional cost must be passed on to the distributor and ultimately the
consumer for this premium branded consumer product. While developing brand
equity, consumer demand, and consumer loyalty, ROF has been investing in market
penetration through pricing, which provides lower than preferred margins.
Results of Operations
Comparison of three months and six months ended June 30, 1999 and 1998.
Revenues-Net Sales
Three Month net sales of $16.7 million and $15.7 million were generated
by the Company for the three months ended June 30, 1999, and 1998, respectively.
A net sales increase of 6.4% from 1998 to 1999 was primarily attributable to a
53.2% increase in boxed meat sales that exceeded a 48.7% decrease in cattle
trading activities for the three month period.
Three Months Ended June 30, 1999
(in thousands)
1999 % chg 1998
----------- --------- --------
Net Sales:
Boxed beef $ 12,966 53.1% $ 8,465
Percentage of sales 77.8% 54.0%
Catle trading sales 3,270 86.3% 1,756
Percentage of sales 19.6% 11.2%
Cattle trading sales-related parties 427 (92.1)% 5,447
Percentage of sales 2.6% 34.8%
---------- -------
Total Net Sales $ 16,663 6.4% $15,668
Percentage of sales 100.0% 100.0%
Six Month net sales of $34.7 million and $32.4 million were generated
by the Company for the six months ended June 30, 1999, and 1998, respectively. A
net sales increase of 7.3% from 1998 to 1999 was primarily attributable to a
65.5% increase in boxed meat sales that exceeded a 42.1% decrease in cattle
trading activities for the six month period.
The Company focused on growth in volume during the three months and
six months ended June 30, 1999 and continues to increase its customer base with
emphasis on growth of branded beef product sales while continuing efforts to
integrate value-added products with significantly higher gross margins.
17
<PAGE>
The Company's cattle trading activities decreased for the three month
and six month periods ended June 30, 1999. Midland Cattle Company has been
refocused to have responsibility for developing the supply of Certified Hereford
Beef for feeding. Volume in both 1999 and 1998 continued to be reduced due to a
reduction of non-Certified Hereford Beef cattle business. Although the gross
revenue generated by trading is significant, Midland has refocused personnel by
moving them into Red Oak Farms, Inc. to assist with the procurement function.
Midland will continue to place cattle in the Red Oak Farms, Inc. supply channel
and engage in nominal non-Certified Hereford Beef cattle trade.
Six Months Ended June 30, 1999
(in thousands)
1999 % chg 1998
--------- ------- --------
Net Sales:
Boxed beef $ 24,623 65.5% $ 14,874
Percentage of sales 70.9% 46.0%
Cattle trading sales 8,627 (38.0)% 13,924
Percentage of sales 24.8% 43.0%
Cattle trading sales-related parties 1,499 (58.1)% 3,577
Percentage of sales 4.3% 11.0%
--------- --------
Total Net Sales $ 34,749 7.3% $ 32,375
Percentage of sales 100.0% 100.0%
Cost of Goods Sold.
Three Months cost of goods sold of $16.1 million and $15.9 million was
generated by the Company for the three months ended June 30, 1999 and 1998,
respectively. A cost of goods sold increase of 1.2% from 1998 to 1999 was
primarily attributable to a 35.0% increase in cattle purchases for boxed beef
and increases in other processing costs of 295.3% (predominately increases in
volume) that exceeded a 51.1% decrease in cattle trading activities for the
three months period.
Cattle purchased for processing, including processing costs for boxed
beef and inventory changes increased to75.2% of revenues for the three months
ended June 30, 1999 compared to 54.4% of revenues for 1998, reflecting the
continuing shift from cattle activities into branded consumer product marketing
of CHB.
Cattle purchased for trading, including other trading costs decreased
to 21.2% of revenues for the three months ended June 30, 1999 compared to 46.9%
of revenues for 1998.
18
<PAGE>
Live cattle costs and related boxed beef costs increased approximately
1.2% and 11.3%, respectively, for the three months ended June 30, 1999 as
compared to 1998 based on USDA and National Cattlemen's Beef Association
Cattle-fax. These commodity market based increases have improved the market
values for boxed beef products in 1999.
Three Months Ended June 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 % chg 1998
-------- ------ --------
<S> <C> <C> <C>
Cost of Goods Sold:
Cattle purchased for processing $ 5,455 45.5% $ 3,750
Percentage of sales 32.7% 23.9%
Cattle purchased for processing-RP 5,537 26.0% 4,393
Percentage of sales 33.2% 28.0%
Cattle purchased for trading 3,489 (47.4)% 6,639
Percentage of sales 20.9% 42.4%
Cattle purchased for trading -RP 13 (97.4)% 522
Percentage of sales 0.1% 3.3%
Other processing costs 1,545 295.3% 391
Percentage of sales 9.3% 2.5%
Other trading costs 36 (80.8)% 189
Percentage of sales 0.2% 1.2%
--------- ---------
Total Cost of Goods Sold $ 16,075 1.2% $ 15,884
Percentage of sales 96.4% 101.3%
</TABLE>
Note: RP equals Related Parties
Six Months cost of goods sold of $33.8 million and $32.4 million was
generated by the Company for the six months ended June 30, 1999 and 1998,
respectively. A cost of goods sold increase of 4.2% from 1998 to 1999 was
primarily attributable to a 58.2% increase in cattle purchases for boxed beef
and increases in other processing costs of 152.3% (predominately increases in
volume) that exceeded a 45.3% decrease in cattle trading activities for the
three months period.
The 1999 increases resulted from increased volume in boxed meat, and
other processing costs that exceeded significant decreases in cattle trading
activities.
Cattle purchased for processing, including processing costs for boxed
beef and inventory changes increased to 69.4% of revenues for the six months
ended June 30, 1999 compared to 45.7% of revenues for 1998, reflecting the
continuing shift from cattle activities into branded consumer product marketing
of CHB.
Cattle purchased for trading, including other trading costs decreased
to 27.8% of revenues for the six months ended June 30, 1999 compared to 54.5% of
revenues for 1998.
19
<PAGE>
Live cattle costs and related boxed beef costs increased approximately
1.1% and 7.5%, respectively, for the six months ended June 30, 1999 as compared
to 1998 based on USDA and National Cattlemen's Beef Association Cattle-fax.
These commodity market based increases have improved the market values of
revenue for boxed beef products in 1999.
Six Months Ended June 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 % chg 1998
--------- ------- -------
<S> <C> <C> <C>
Cost of Goods Sold:
Cattle purchased for processing $ 11,841 90.5% $ 6,216
Percentage of sales 34.1% 19.2%
Cattle purchased for processing-RP 10,354 32.5% 7,817
Percentage of sales 29.8% 24.1%
Cattle purchased for trading 9,531 (38.6)% 15,522
Percentage of sales 27.4% 47.9%
Cattle purchased for trading -RP 67 (96.7)% 2,019
Percentage of sales 0.2% 6.2%
Other processing costs 1,924 152.2% 763
Percentage of sales 5.5% 2.4%
Other trading costs 81 (12.9)% 93
Percentage of sales 0.2% 0.3%
---------- ---------
Total Cost of Goods Sold $ 33,798 4.0% $32,430
Percentage of sales 97.2% 100.1%
</TABLE>
Gross Profit
Increases in branded boxed meat sales and realignment of cattle trading
activities for the three month and six month periods ended June 30, 1999
contributed to the improvement in gross margin over the comparable 1998 periods.
Three Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
--------- ------ -----------
Gross Profit $ 587 371.6% $ (216)
Percentage of sales 3.5% (1.4)%
20
<PAGE>
Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
------- ------- ------
Gross Profit $ 951 1824.2% $ (55)
Percentage of sales 2.7% (0.2)%
Operating Expenses
Selling and Distribution Expenses. Selling and distribution expenses
for the three months ended June 30, 1999 and 1998 were 4.2% and 3.8% of net
sales, respectively.
The Company is committed to providing the necessary support and there
will be ongoing cash investment in developing, marketing, and distributing
branded beef products and related synergistic products.
Selling and distribution expenses are somewhat variable.
For the rights to market and distribute Certified Hereford Beef, the
Company pays a per head fee to the American Hereford Association, "AHA". The AHA
used some of those funds to provide cattle inspection, customer licensing,
customer personnel training, and marketing materials development and production.
General and Administrative Expenses. General and administrative
expenses for the three months ended June 30, 1999 and 1998 were 3.2% and 3.4% of
net sales, respectively.
The Company is committed to providing the necessary administrative
support to successfully build and manage the Company's products at the highest
value.
Three Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
--------- ------ --------
Operating Expenses:
Selling and distribution $ 693 16.1% $ 597
Percentage of sales 4.2% 3.8
General and administrative 536 .8% 532
Percentage of sales 3.2% 3.4%
-------- --------
Total Operating Expenses $ 1,229 9.9% $ 1,129
Percentage of sales 7.4% 7.2%
21
<PAGE>
Selling and Distribution Expenses. Selling and distribution expenses
for the six months ended June 30, 1999 and 1998 were 3.9% and 4.8% of net sales,
respectively.
The Company is committed to providing the necessary support and there
will be ongoing cash investment in developing, marketing, and distributing
branded beef products and related synergistic products.
General and Administrative Expenses. General and administrative
expenses for the six months ended June 30, 1999 and 1998 were 3.1% and 3.4% of
net sales, respectively.
The Company is committed to providing the necessary administrative
support to successfully build and manage the Company's products at the highest
value.
Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
-------- ------ ------
Operating Expenses:
Selling and distribution $ 1,348 (12.7)% $1,544
Percentage of sales 3.9% 4.8%
General and administrative 1,059 (4.3)% 1,108
Percentage of sales 3.1% 3.4%
-------- ------
Total Operating Expenses $ 2,407 (9.2)% $2,652
Percentage of sales 6.9% 8.2%
Loss from Operations. Loss from operations of $641,553 and $1,344,955
for the three months ended June 30, 1999 and the comparable period in 1998,
decreased by 52.3%.
Management believes continued improvement in the branded price mix will
be reflected in gross margins along with growth in volume will eventually turn
losses from operations into profits.
Loss from operations of $1,456,165 and $2,707,260 for the six months
ended June 30, 1999 and the comparable period in 1998, decreased by 46.2%
Three Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
--------- ------ --------
Loss from operations $ (642) (52.3)% $ (1,345)
Percentage of sales (3.8)% (8.6)%
22
<PAGE>
Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
-------- ------ --------
Loss from operations $ (1,456) (46.2)% $ (2,707)
Percentage of sales (4.2)% (8.4)%
Other Income and Expense. Interest expense of $145,893 and $81,755 for
the three months ended June 30, 1999 and the comparable period in 1998 increased
by 78.5%.
Interest expense of $283,729 and $191,120 for the six months ended June
30, 1999 and the comparable period in 1998 increased by 48.5%.
Interest expense increases resulted from higher borrowing levels.
Loss on sale of accounts receivable of $68,001 and $37,932 for the
three months ended June 30, 1999 and the comparable period in 1998 increased by
79.3%.
Loss on sale of accounts receivable of $124,505 and $37,932 for the six
months ended June 30, 1999 and the comparable period in 1998 increased by
228.2%.
The loss on sale of accounts receivable represents fixed discounts on
the accounts sold to the factor.
23
<PAGE>
Three Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
---------- ------ ------
Other Income (Expenses):
Interest expense $ (146) 78.0% $ (82)
Percentage of sales (.9)% (.8)%
Loss on sale of accounts receivable (68) 78.9% (38)
Percentage of sales (.4)% .0%
Loss from joint venture (4) (93.9)% (66)
Percentage of sales .0% (.4)%
--------- -----
Total Other Income (Expenses) $ (218) 17.2% $(186)
Percentage of sales (1.3)% (1.2)%
Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
-------- ------ ------
Other Income (Expenses):
Interest income $ 2 100.0% $ 1
Percentage of sales .0% .0%
Interest expense (284) 48.7% (191)
Percentage of sales (.8)% (.7)%
Loss on sale of accounts receivable (125) 228.9% (38)
Percentage of sales (.4)% .0%
Loss from joint venture (16) (85.8)% (113)
Percentage of sales .0% (.4)%
--------- -------
Total Other Income (Expenses) $ (423) 23.9% $(341)
Percentage of sales (1.2)% (1.1)%
24
<PAGE>
Net Loss and Loss per Share
Three Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
------- ----- --------
Loss before minority interest $ (859) (43.9)% $ (1,531)
Percentage of sales (5.2)% (9.8)%
Minority interest 26 - 0
------- ---------
Net loss (833) (45.6)% (1,531)
Percentage of sales (5.0)% (9.8)%
Preferred stock dividend required 0 (100.0)% (32)
Percentage of sales - (0.2)%
------- ---------
Net loss applicable to common (833) (46.7)% (1,563)
Percentage of sales (5.0)% (10.0)%
======= =========
Basic and diluted loss per share $ (0.06) (46.7)% $ (0.11)
======= =========
Weighted Average Shares Outstanding 15,014 1.9% 14,732
======= =========
Six Months Ended June 30, 1999 and 1998
(in thousands)
1999 % chg 1998
------- ----- --------
Loss before minority interest $(1,879) (38.4)% $ (3,048)
Percentage of sales (5.4)% (9.4)%
Minority interest 46 - 0
------- ---------
Net Loss (1,833) (39.9)% (3,048)
Percentage of sales (5.3)% (9.4)%
Preferred stock dividend required 0 (100.0)% (78)
Percentage of sales - (0.2)%
------- ---------
Net loss applicable to common (1,833) (41.4)% (3,126)
Percentage of sales (5.3)% (9.7)%
======= =========
Basic and diluted loss per share $ (0.12) (43.0)% $ (0.21)
======= =========
Weighted Average Shares Outstanding 15,009 2.9% 14,584
======= =========
25
<PAGE>
Inflation
While inflation has not had a material effect on the Company's
operations in the past, there can be no assurance that the Company will be able
to continue to offset the effects of inflation on the costs of its products
through price increases to its customers without experiencing a reduction in the
demand for its products or that inflation will not have an overall effect on the
beef market that would have a material effect on the Company.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Recent Sales of Unregistered Securities
On June 30, 1999, 1,000 shares each of the registrants common stock was
given for services to each of the following directors: Gordon Reisinger, John
Derner, Charles Kolbe, Dwayne Lewis, Jack Holden, Ron Daggett, and Mrs.
Florentine VanTiem. The transaction was made pursuant to Section 4(2) Rule 506
of Regulation D promulgated under the Securities Act of 1933, as amended.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Results of Votes of Security Holders
The Company held its Annual Meeting of Shareholders on Wednesday, May
26, 1999, at the Red Oak Country Club, 2038 200th Street, Red Oak, Iowa 51566,
at 10:15 a.m. The following matters were submitted to shareholders for a vote:
(a) To elect the following Directors to serve for the ensuing year and
until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
Nominee Number of Number of Votes Number of Abstentions
Votes For Against or Withheld and Broker Non-Votes
<S> <C> <C> <C>
Gordon Reisinger 12,120,044 25,665 12,550
John Derner 12,145,509 200 12,550
Charles Kolbe 12,145,509 200 12,550
Dwayne Lewis 12,145,509 200 12,550
Jack Holden 12,145,509 200 12,550
Ron Daggett 12,145,369 340 12,550
Florentine VanTiem 12,141,109 4,600 12,550
Johan A. Smit 12,141,109 4,600 12,550
</TABLE>
27
<PAGE>
(b) To transact such other business as may properly come before the meeting
and, if necessary, to adjourn the meeting from time to time.
Number of Number of Votes Number of Abstentions
Votes for Against or Withheld and Broker Non-Votes
12,070,829 19,600 67,830
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial data.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
June 30, 1999.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RED OAK HEREFORD FARMS, INC.
August 16, 1999 By: /s/ Gordon Reisinger
---------------------------
Gordon Reisinger, President
August 16, 1999 By: /s/ Harley Dillard
---------------------------
Harley Dillard, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS TEMPLATE IS INTENDED TO ALLOW YOU TO RECORD INFORMATION THAT WILL
SUBSEQUENTLY BE ENTERED INTO A FINANCIAL DATA SCHEDULE EXHIBIT. CHECK THAT THIS
IS THE CORRECT TEMPLATE FOR THE FILING BEING MADE AND THEN FILL OUT THE
INFORMATION AS INDICATED. (SEE APPENDIX E OF THE FILER MANUAL, OR THE BOWNE FDS
REPRINT, IF YOU NEED MORE SPECIFIC INSTRUCTION ON EACH FIELD.)
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,932
<SECURITIES> 0
<RECEIVABLES> 2,120,651
<ALLOWANCES> 10,000
<INVENTORY> 2,074,622
<CURRENT-ASSETS> 4,642,678
<PP&E> 675,071
<DEPRECIATION> 314,399
<TOTAL-ASSETS> 5,270,712
<CURRENT-LIABILITIES> 9,115,533
<BONDS> 0
0
0
<COMMON> 16,010
<OTHER-SE> (5,068,407)
<TOTAL-LIABILITY-AND-EQUITY> 5,270,712
<SALES> 34,749,137
<TOTAL-REVENUES> 34,749,137
<CGS> 33,797,987
<TOTAL-COSTS> 33,797,987
<OTHER-EXPENSES> 2,548,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,729
<INCOME-PRETAX> (1,878,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,878,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,833,238)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
