U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission File No. 1-11282
PACESETTER OSTRICH FARM, INC.
-----------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10135 Hereford Road, Folsom, Louisiana 70437
- -------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
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(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No ____
APPLICABLE ONLY TO USERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes _____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,262,016 shares of Common
Stock at October 15, 1999.
PACESETTER OSTRICH FARM, INC.
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 1999 and December 31, 1998
Statement of Operations - Three Months Ended September 30, 1999, and Three
Months Ended September 30, 1998; Nine Months Ended September 30, 1999, and Nine
Months Ended September 30, 1998
Statements of Cash Flows - Nine Months Ended September 30, 1999 and Nine Months
Ended September 30, 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PACESETTER OSTRICH FARM, INC.
BALANCE SHEETS
ASSETS
------
September 30, December 31,
(unaudited)
1999 1998
---- ----
CURRENT ASSETS:
Cash and short term investments $ 71,509 $ 23,149
Accounts receivable (net of allowance of $58,580 at
September 30, 1999, and December 31, 1998) 547,150 169,534
Prepaid Expenses 19,321 34,138
----------- -----------
Total current assets 637,980 226,821
PROPERTY, PLANT, AND EQUIPMENT, net 559,368 399,767
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS 3,173 3,173
----------- -----------
$ 1,243,021 $ 672,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 294,755 $ 257,730
Notes payable 413,723 600,303
Advances from stockholders 183,309 179,829
----------- -----------
Total current liabilities 891,787 1,037,862
LONG-TERM LIABILITIES:
Notes payable 460,899 200,682
----------- -----------
Total Liabilities 1,352,686 1,238,544
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
4,199,016 and 3,950,224 issued and outstanding as of
September 30, 1999 and December 31, 1998, respectively 4,199 3,950
Additional paid-in-capital 4,027,760 3,779,217
Retained earnings (deficit) (4,141,624) (4,349,450)
----------- -----------
(109,665) (566,283)
----------- -----------
$ 1,243,021 $ 672,261
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
PACESETTER OSTRICH FARM, INC.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
SALES $ 718,778 $ 29,107 $ 1,181,471 $ 241,628
COST OF SALES 339,865 239,297 580,618 339,501
----------- ----------- ----------- -----------
Gross profit 378,913 (210,190) 600,853 (97,873)
OPERATING EXPENSES:
Operating 63,560 132,622 160,927 309,725
General and administrative 97,958 31,519 158,569 55,567
----------- ----------- ----------- -----------
Operating Income (loss) 217,395 (374,331) 281,357 (463,165)
OTHER INCOME (EXPENSES):
Interest (25,327) (22,206) (73,531) (32,939)
Other -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 192,068 (396,537) 207,826 (496,104)
INCOME TAX (EXPENSE) BENEFIT -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) 192,068 (396,537) $ 207,826 $ (496,104)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ .05 $ (.10) $ .05 $ (.13)
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,952,988 3,665,224 3,951,145 3,665,224
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
PACESETTER OSTRICH FARM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 207,826 $(496,104)
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 61,310 19,149
Amortization -- --
Gain (Loss) on sale of assets -- --
Decrease (increase) in :
Accounts receivable, net (377,616) 74,486
Livestock Inventory -- --
Prepaid assets 14,817 --
Other assets (11,575)
Increase (decrease) in -
Accounts payable and accrued liabilities 37,025 (44,960)
Accrued interest payable -- --
Borrowings from stockholders 3,480 3,661
Deferred revenue -- --
--------- ---------
Net cash provided (used) by operating activities (53,158) (455,343)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (220,912)
Proceeds from sale of net assets of discontinued operations 764,854
--------- ---------
Net cash provided (used) by investing activities (220,912) 764,854
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of restricted stock 248,792
Net Proceeds from notes payable 766,092 --
Repayment of notes payable (692,455) (144,884)
--------- ---------
Net cash provided (used) by financing activities 322,429 (144,884)
Net increase (decrease) in cash 48,359 164,627
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CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING OF PERIOD $ 23,149 --
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 71,508 $ 164,627
========= =========
INCOME TAXES PAID $ -- $ --
========= =========
INTEREST PAID $ 73,531 $ 32,939
========= =========
The accompanying notes are an integral part of these financial statements.
5
Pacesetter Ostrich Farm, Inc.
Notes To Financial Statements
(unaudited)
1. Basis of Presentation:
-------------------------
The financial information included herein reflects all adjustments
which are in the opinion of management, necessary for a fair statement
of results for the periods. All such adjustments, in the opinion of
management, are of normal recurring nature.
The results of operations for the nine months ended September 30, 1999,
are not necessarily indicative of the results to be expected for the
full year.
2. Property, Plant, and Equipment:
----------------------------------
Property, plant, and equipment consist primarily of special-use assets
for the underground construction business. The balance of property,
plant, and equipment, stated at cost less accumulated depreciation, is
as follows:
Estimated Years September 30, 1999 December 31, 1998
(Lives)
Land -- $ 27,000 $ 27,000
Buildings and Improvements
10 to 30 18,370 18,370
Equipment 5 to 7 600,070 379,159
Vehicles 5 84,593 84,593
----------- -----------
$ 730,033 $ 509,122
Accumulated Depreciation
(170,665) (109,355)
----------- -----------
$ 559,368 $ 399,767
=========== ===========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------- ---------------------------------------------------------
The following is management's discussion and analysis of
certain significant factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed financial statements.
Results of Operations
During 1998 the Company discontinued its ostrich operations
and completed the liquidation of its Willcox, Arizona facilities and
livestock inventory. Simultaneously, the Company obtained the services
of key personnel experienced in telecommunications construction and
began operations in the underground construction business. The Company
currently operates this construction business under the registered
trade name Pacesetter Communications until such time as a formal name
change of the corporation is completed. Accordingly, references to
prior year results of operations from January 1, 1998, through
September 30, 1998, relate mostly to ostrich operations, while the
period from October 1, 1998 through September 30, 1999, reflects the
initial stages of the underground construction business.
For the calendar quarter ended September 30, 1999, sales
increased by $689,671 from $29,107 for the quarter ended September 30,
1998, to $718,778 for the quarter ended September 30, 1999. Sales
increased from $241,628 for the nine months ended September 30, 1998,
to $1,181,471 for the nine months ended September 30, 1999. The overall
increase in sales reflects the continued substantial increase in the
underground construction business in 1999 compared to the general
decline in the ostrich business reflected in the prior year figures.
Cost of sales increased from $239,297 for the quarter ended
September 30, 1998, to $339,865 for the quarter ended September 30,
1999. For the nine months ended September 30, 1998 and 1999, cost of
sales increased from $339,501 to $580,618 respectively. The increase in
cost of sales as a percentage of sales from the prior year's figures
was attributable to the increased volume of construction business
compared to the ostrich business a year ago. The Company's gross profit
increased from a loss of $210,190 for the quarter ended September 30,
1998 to a profit of $378,913 for the quarter ended September 30, 1999,
representing an increase of $589,103, $0.14 per share. For the nine
months ended September 30, 1998 and 1999, gross profit increased by
$698,726, or $0.18 per share, from a loss of $97,873 to a profit of
$600,853 respectively. Such increases are a result of the continued
increase in the underground construction business compared to the
general decline in the ostrich business in the prior year.
7
Operating expenses decreased from $132,622 for the quarter
ended September 30, 1998 to $63,560 for the quarter ended September 30,
1999 representing a decrease of $69,062. Operating expenses decreased
from $309,725 for the nine months ended September 30, 1998, to $160,927
for the nine months ended September 30, 1999, representing a decrease
of $148,798. Such decreases reflect the costs, in the prior year
figures, associated with preparations to complete the sale of the
Company's Willcox, Arizona facility, as well as all of its livestock
inventory. General and administrative expenses increased from $31,519
for the quarter ended September 30, 1998 to $97,958 for the quarter
ended September 30, 1999, representing an increase of $66,439. General
and administrative expenses increased from $55,567 for the nine months
ended September 30, 1998, to $158,569 for the nine months ended
September 30, 1999, representing an increase of $103,002. Such
increases were mostly due to the increase in construction management
and the partial restorations of salaries of the Company's officers in
the current year, compared to the prior year figures which reflected
the preparation to discontinue operations at the Willcox facility.
The Company's operations produced a net profit of $192,068, or
$0.05 per share, for the quarter ended September 30, 1999, compared to
a net loss of $396,537, or $0.10 per share, for the same quarter a year
ago. The Company produced a net profit of $207,826, or $0.05 per share,
for the nine months ended September 30, 1999, compared to a net loss of
$496,104, or $(0.13) per share, for the nine months ended September 30,
1998. Such increases reflect the continued increase during the current
year of profitable underground construction operations, compared to
increased costs in the prior year related to the Company's
discontinuance of the operations at the Willcox facility in conjunction
with the continued general decline in ostrich prices and volumes.
At December 31, 1998, the Company had, for tax reporting
purposes, operating loss carryforwards of approximately $3,619,388
which expire in 2007 through 2015. Due to the uncertainty regarding
realization of such carryforwards through the generation of future
income, the Company has provided a valuation allowance for the entire
amount of the deferred tax asset.
8
Quarter-To-Quarter Highlights
The following are highlights of financial information which
compare the quarters ended March 31, 1999, June 30, 1999, and September
30, 1999 sequentially:
Qtr Qtr Qtr % Change % Change
Ended Ended Ended from 3/31/99 from 6/30/99
3/31/99 6/30/99 9/30/99 to 6/30/99 to 9/30/99
------- ------- ------- ---------- ----------
Sales $143,567 $319,126 $718,778 122% 125%
Gross Profit $19,228 $202,712 $378,913 954% 87%
Gen.& Admin. Exp. $45,874 $60,392 $97,958 32% 62%
Net Income $(98,745) $114,503 $192,068 -- 68%
The increase in gross profits for the quarter ended September
30, 1999, reflects the increase in average prices received for
construction services, as well as the decrease in the amount of idle or
unproductive time compared to the prior quarters within the current
year. Additionally, general and administrative expenses increased
during the quarter ended September 30, 1999, mostly related to certain
administrative costs in conjunction with the completion of all the
Company's financial audits and quarterly filings which had not
previously been completed. During the quarter ended March 31, 1999, the
Company was engaged in cultivating existing business relationships as
well as developing new contacts. The Company was also acquiring
additional experienced personnel and training new personnel which had
limited experience. Such efforts have resulted in improved pricing and
efficiencies in the quarters ended June 30 and September 30, 1999 as
illustrated above. At this time, management expects the Company to be
profitable for calendar year 1999, including increased sales and
profits for the remainder of the year.
Liquidity and Capital Resources
The Company has incurred substantial losses from its prior
ostrich operations (see 1998 10-KSB) for several years and experienced
cash flow difficulties which have caused it not to meet some of its
obligations as they have come due. This has raised substantial doubt
about the Company's ability to continue as a going concern. By October
1998 the Company had begun operations in the underground construction
business, and had satisfied substantially all of its troubled debt in
conjunction with the liquidation of the Company's ostrich assets and
inventory. At this time, management is negotiating a voluntary
arrangement whereby note holders will exchange up to $500,000 of
private placement notes payable for restricted common stock of the
Company. On September 30, 1999, the Company completed the first group
of such transactions which resulted in the elimination of $225,000 of
principal amount of notes payable and $23,792 of accrued interest, in
exchange for 248,792 shares of the Company's restricted common stock.
The Company plans to complete additional transactions of this type
during the fourth quarter of 1999. Following these transactions the
Company expects to have eliminated all of its past due obligations.
Although the Company's construction operations have been in existence
for less than one year, the Company is currently functioning solely
from cash generated from its underground construction operations which
have continually increased since its inception late in 1998.
9
Net cash used by operating activities was $53,158 for the nine
months ended September 30, 1999, compared to cash used of $455,343 for
the nine months ended September 30, 1998. The current year's figure
reflects mostly the substantial increase in accounts receivables, while
the prior year's figures were mostly as a result of the increased net
losses associated with the decline of the ostrich business and the
ultimate disposition of the Willcox facility. Cash used by investing
activities was $220,912 for the nine months ended September 30, 1999,
compared to cash provided of $764,854 for the nine months ended
September 30, 1998. Such differences were mostly due to the increase in
acquisitions of underground construction equipment during the current
year, compared to proceeds received from the disposition of the Willcox
facility in the prior year. Cash flows provided by financing activities
was $322,429 for the nine months ended September 30, 1999, compared to
cash used of $144,884 for the nine months ended September 30, 1998.
Such differences reflect the issuance of restricted stock and proceeds
from notes payable in the current year, compared to the prior year
figure which only included repayments of notes payable. Cash and short
term investments for the Company decreased from $164,627 at September
30, 1998, to $71,508 at September 30, 1999, reflecting the additional
cash in the prior year figure following the Company's liquidation of
the Willcox facility.
As of September 30, 1999, under the Company's 1992 Incentive
Stock Option Plan, a total of 110,000 options were issued.
Additionally, as of September 30, 1999, a total of 1,250,000
nonqualified options were issued. As of the date of this filing none of
either class of these options have been exercised.
Inflation
While inflation has not had a material effect on the
operations of the Company in the past, at the present time it is not
anticipated that inflation will be a material factor in the foreseeable
future.
10
SIGNATURE
---------
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 20th day of October 1999.
PACESETTER OSTRICH FARM, INC.
By:S/S Walter R. Green, Jr.
---------------------------
Walter R. Green, Jr.
Chief Financial &
Accounting Officer
11