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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________ to _________________
000-30051
-------------------
(Commission File No.)
PAVING STONE CORPORATION
-----------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0443120
---------------- --------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1760 N.W. 22nd Court, Pompano Beach, FL 33069
---------------------------------------------
(Address of principal executive offices)
(954) 971-3235
---------------------------
(Registrant's telephone number)
Cottage Investments, Inc.
---------------------------
(Registrant's Former Name)
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 [ ]
At August 13, 2002, 24,347,182 shares of the Registrant's common stock were
issued and outstanding.
Through out this Report, the terms "we", "us", "our" and other similar pronouns
refer to the Paving Stone Corporation. The terms "PVNG", the "Company," or
"Registrant" also refer to the Paving Stone Corporation.
================================================================================
PART I: FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
PAVING STONE CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF JUNE 30, 2002 (CONSOLIDATED)
AND 2001 (COMBINED)
PAVING STONE CORPORATION AND SUBSIDIARIES
CONTENTS
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PAGE 1 CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002
(UNAUDITED) AND DECEMBER 31, 2001
PAGE 2 STATEMENTS OF OPERATIONS FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 2002 (CONSOLIDATED) AND 2001
(COMBINED) (UNAUDITED)
PAGES 3 - 4 STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2002 (CONSOLIDATED) AND 2001 (COMBINED)
(UNAUDITED)
PAGES 5 - 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 30, 2002
(i)
PAVING STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
June 30, 2002 December 31,
(Unaudited) 2001
-------------- --------------
CURRENT ASSETS
Cash $ - $ 35,439
Accounts receivable - net of allowances 4,314,749 5,568,321
Inventories 37,065 37,065
Prepaid expenses 42,836 83,945
Rebate receivable 330,438 330,438
Other receivables 40,245 -
Advance to related party 132,338 18,736
Costs in excess of billings on uncompleted contracts 847,361 504,536
-------------- --------------
Total Current Assets 5,745,032 6,578,480
-------------- --------------
PROPERTY AND EQUIPMENT - NET 293,853 306,040
-------------- --------------
OTHER ASSETS
Security deposits and other assets - net of amortization 48,785 39,553
Other loans / advances receivable 23,117 16,317
-------------- --------------
Total Other Assets 71,902 55,870
-------------- --------------
TOTAL ASSETS $ 6,110,787 $ 6,940,390
- -------------- ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES
Cash overdraft $ 38,158 $ 326,936
Accounts payable and accrued expenses 2,876,326 3,527,040
Customer deposits payable - 83,641
Billings in excess of cost on uncompleted contracts 89,408 178,976
Note and capital lease obligation payable - current portion 31,964 33,111
Notes payable - stockholder 411,942 395,693
Lines of credit 2,508,486 2,240,271
-------------- --------------
Total Current Liabilities 5,956,284 6,785,668
-------------- --------------
LONG TERM LIABILITIES
Note and capital lease obligation payable 62,086 76,001
Notes payable - stockholder 66,284 64,353
-------------- --------------
Total Long-Term Liabilities 128,370 140,354
-------------- --------------
TOTAL LIABILITIES 6,084,654 6,926,022
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $.00001 par value, 150,000,000 shares authorized,
24,312,182 and 2,260,083 shares issued and outstanding 243 23
Common stock to be issued, 1,520,000 and 19,742,099 shares 15 197
Additional paid-in capital 5,731,865 5,242,603
Accumulated deficit (5,705,990) (5,228,455)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 26,133 14,368
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,110,787 $ 6,940,390
- -------------------------------------------- ============== =============
See accompanying notes to financial statements.
1
PAVING STONE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
For the Six
For the Three For the Three For the Six Months
Months Ended Months Ended Months Ended Ended June
June 30, 2002 June 30, 2001 June 30, 2002 30, 2001
(Consolidated) (Combined) (Consolidated) (Combined)
--------------- ------------ --------------- ------------
NET SALES $ 8,787,081 $ 8,462,500 $ 15,850,459 $15,114,582
COST OF SALES 6,514,491 6,742,381 12,000,069 12,300,218
--------------- ------------ --------------- ------------
GROSS PROFIT 2,272,590 1,720,119 3,850,390 2,814,364
OPERATING EXPENSES
Selling, general and administrative 2,708,058 1,736,265 4,746,649 3,108,125
Common stock issued for services 105,000 - 105,000 -
Common stock issued in settlement (615,700) - (615,700) -
--------------- ------------ --------------- ------------
Total Operating Expenses 2,197,358 1,736,265 4,235,949 3,108,125
--------------- ------------ --------------- ------------
INCOME (LOSS) FROM OPERATIONS 75,232 (16,146) (385,559) (293,761)
--------------- ------------ --------------- ------------
OTHER EXPENSES
Interest expense 53,880 36,965 90,872 74,837
Other expense 1,104 2,113 1,104 3,342
--------------- ------------ --------------- ------------
Total Other Expense 54,984 39,078 91,976 78,179
--------------- ------------ --------------- ------------
NET INCOME (LOSS) $ 20,248 $ (55,224) $ (477,535) $ (371,940)
- ------------------- =============== ============ =============== ============
Net income (loss) per share - basic and
diluted $ - $ - $ (.02) $ (.02)
=============== ============ =============== ============
Weighted average shares outstanding
during the period - basic and diluted 24,302,951 16,040,000 23,158,922 16,040,000
=============== ============ =============== ============
See accompanying notes to financial statements.
2
PAVING STONE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (CONSOLIDATED)
-----------------------------------------------------
AND 2001 (COMBINED)
-------------------
(UNAUDITED)
For the Six For the Six
Months Ended Months Ended
June 30, 2002 June 30, 2001
(Consolidated) (Combined)
--------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (477,535) $ (371,940)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issued for services 105,000 -
Stock returned in settlement (615,700) -
Depreciation and amortization 56,102 44,931
Provision for doubtful accounts (12,760) 222,679
Loss on disposal of equipment 1,104 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,266,332 116,895
Prepaid expense 41,109 6,238
Rebate receivable - (33,414)
Security deposits and other assets (9,232) (69,015)
Costs in excess of billings on uncompleted contracts (342,825) (502,485)
Other receivables (40,245) -
Increase (decrease) in:
Accounts payable and accrued expenses (650,714) 423,020
Cash overdraft (288,778) -
Billings in excess of cost on uncompleted contracts (89,568) 22,141
Customer deposits payable (83,641) -
--------------- -----------
Net Cash Used In Operating Activities (1,141,351) (140,951)
--------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on disposal of equipment 37,828 -
Purchase of property and equipment (40,470) (67,987)
Other loans / advances receivable (6,800) -
--------------- -----------
Net Cash Used In Investing Activities (9,442) (67,987)
--------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on issuance of stock for cash, net 1,000,000 -
Advances from related parties (113,602) 25,316
Payments on notes and capital leases (57,439) (6,939)
Proceeds from lines of credit 268,215 380,211
Distributions to stockholders - (208,438)
Shareholder loan payable 18,180 -
--------------- -----------
Net Cash Provided By Financing Activities 1,115,354 190,150
--------------- -----------
NET DECREASE IN CASH (35,439) (18,788)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 35,439 42,698
--------------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ - $ 23,910
- ------------------------------------------ =============== ===========
See accompanying notes to financial statements.
3
PAVING STONE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (CONSOLIDATED)
-----------------------------------------------------
AND 2001 (COMBINED)
-------------------
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE CASH FLOW INFORMATION:
- ----------------------------------------------
Cash paid for interest $ 61,068 $ 72,999
========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired by note payable $ 42,377 $ -
========== ============
See accompanying notes to financial statements.
4
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002
-------------------
NOTE 1 BASIS OF PRESENTATION
- ------- ------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in The United States
of America and the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all the information necessary for a comprehensive presentation of financial
position and results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for a fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
For further information, refer to the financial statements and footnotes for the
year ended December 31, 2001 included in the Company's Form 10-KSB.
NOTE 2 PRINCIPLES OF CONSOLIDATION
- ------- -----------------------------
The accompanying consolidated financial statements include the accounts of
Paving Stone Corporation and its wholly owned subsidiaries. All significant
inter-company transactions and balances have been eliminated in consolidation.
NOTE 3 PRINCIPLES OF COMBINATION
- ------- ---------------------------
The 2001 financial statements are presented on a combined basis, which
represents The Paving Stone Company, Inc. and its affiliates, which include
Paving Stone Company of Atlanta, Inc., The Paving Stone Company of Arizona,
Inc., Paving Stone of Nevada, Inc., and The Paving Stone Company of California,
Inc., all of which were owned by one stockholder. Significant intercompany
balances and transactions were eliminated in the combination.
NOTE 4 INVENTORIES
- ------ -----------
Inventories consist of brick pavers and installation supplies. Inventories are
stated at the lower of cost or market value, as determined using the first in,
first out method.
NOTE 5 SEGMENT REPORTING
- ------ -----------------
The Company has six geographic reportable segments: Florida, Arizona, Atlanta,
Nevada, California and corporate. Each segment installs interlocking pavers on
driveways and patios for residential and commercial use. The accounting policies
of the segments are the same as described in the summary of significant
accounting policies. The Company evaluates segment performance based on income
from operations. Sales for each segment are based on the location of the
third-party customer. All intercompany transactions between segments have been
eliminated.
5
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002
-------------------
The Company's selling, general and administrative expenses and engineering
expenses are charged to each segment based on the region where the expenses are
incurred. As a result, the components of operating income for one segment may
not be comparable to another segment. Segment results for 2002 and 2001 are as
follows:
Georgia/
Arizona/ Mid-
Florida Texas Atlantic Nevada California Corporate Total
------------ ----------- ----------- ----------- ------------ ---------- -------------
2002
- -----
Net sales $ 9,179,106 $2,482,496 $1,443,277 $824,647 , $ 1,868,119 $ 52,814 $15,850,459
Income (loss) from operations (409,515) 189,438 (21,437) (12,158) (525,522) 393,635 (385,559)
Depreciation and amortization 46,509 1,495 6,233 934 931 - 56,102
Assets 3,736,831 840,294 807,564 282,250 410,020 83,828 6,110,787
Capital expenditures 19,773 6,213 42,377 - 5,912 8,572 82,847
----------------------------------------------------------------------------------------
2001
- -----
Net sales $11,931,741 $1,321,640 $1,128,554 $ 357,664 $ 374,983 $ - $ 15,114,582
Income (loss) from operations (86,961) (13,254) (54,926) (49,203) (89,417) - (293,761)
Depreciation and amortization 38,081 894 5,022 934 - - 44,931
Assets 5,387,044 139,524 452,395 (34,153) 45,969 - 5,990,779
Capital expenditures 60,089 4,689 3,209 - - - 67,987
----------------------------------------------------------------------------------------
NOTE 5 STOCK ISSUANCES
- ------ ---------------
On June 6, 2002, the Company issued 300,000 shares of common stock to a
consultant for services. The shares were valued at $105,000, the fair value on
the date of grant.
On April 30, 2002, the Company issued 4,000,000 shares of common stock for cash
proceeds of $1,000,000.
On April 2, 2002, a consultant returned 470,000 shares of common stock per a
settlement agreement. The shares were valued at $615,000, the fair value on the
date of grant.
6
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002
-------------------
NOTE 6 SUBSEQUENT EVENT
- ------ ----------------
(A) COMMON STOCK ISSUANCE
- ----------------------------
On July 15, 2002, the Company issued 35,000 shares of common stock to its
employees, as consideration for services rendered to the Company. The shares
were valued for financial accounting purposes at $.21 per share, the fair value
at the date of grant, resulting in employee benefits expense of $7,350. The
shares were issued to all employees who were employed on or before December 15,
2001.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
During the second quarter of 2002, in spite of an unusually high amount of
rainfall in our Florida markets, we posted a 4% increase in net sales over the
second quarter of 2001. In addition, we increased our gross margins up to 26%
from 20% over the second quarter of 2001, resulting in a 137% increase of net
income. We continue to shift our business away from the high volume and low
margin work (primarily in Florida), which characterized our company in prior
years. As a result of our expansion into new markets around the country over the
last two years, and our shift towards remodeling work, we are making a
deliberate transition into higher priced and more profitable business.
The second quarter also marked the beginning of the roll out of our exclusive
installation program with Home Depot in Florida and Eastern Massachusetts. We
are pleased with the initial success in new sales volume, and expect this
program to continue to expand and have a positive impact on sales during the
second half of this year.
Lastly, at the beginning of the second quarter, we closed on our first round of
equity financing and set the stage for additional funding for our expansion.
FINANCIAL CONDITION
Total assets as of June 30, 2002 were $6,110,787, a decrease of $829,603, or
12%, from total assets of $6,940,390 at December 31, 2001. The decrease was
primarily attributable to a reduction in accounts receivable of $1,253,572,
which reflects a normal seasonal decline in volume from the fourth quarter of
the prior year. This reduction was offset by an increase in costs in excess of
billings of $342,825, which reflects an increase in uncompleted jobs in
progress, caused by the heavy rainfall in June 2002.
Current liabilities decreased by $829,384, or 12%, from $6,785,668 at December
31, 2001 to $5,956,284 at June 30, 2002. The decrease is primarily attributable
to a decrease in accounts payable and accrued expenses of $939,492.
Stockholders' equity increased from $14,368 at December 31, 2001 to $26,133 at
June 30, 2002, an increase of $11,765, or 82%. The increase is primarily
attributable to an increase in paid in capital of $439,262, offset by a
year-to-date net operating loss of $477,535.
8
RESULTS OF OPERATIONS
Net sales increased by $324,581, or 3.8%, and $735,877, or 4.9%, for the
three-month and six-month periods ended June 30, 2002, respectively, as compared
to the same periods in the prior year. The increases were primarily due to the
expansion into new markets in 2001.
Cost of goods sold decreased $227,890, or 3.4%, and $300,149 or 2.4%, for the
three-month and six-month periods ended June 30, 2002, respectively, as compared
to the same periods in the prior year. The decreases reflect efficiencies gained
in labor and material costs over the prior year.
Selling, general and administrative expenses increased by $971,793, or 56.0%,
and $1,127,824 or 36.3%, for the three-month and six-month periods ended June
30, 2002, respectively, as compared to the same periods in the prior year. The
increases are primarily attributable to the expansion into new markets in the
prior year.
We generated a net profit of $20,248 for the three-month period ended June 30,
2002 as compared to a net loss of $55,224 for the three months ended June 30,
2001. The increase in net profit of $75,472, or 137%, was largely a result of
the increases in gross margins described above along with a net gain on stock
issuances and settlements of certain consulting contracts. We incurred a net
loss of $477,535 for the six-month period ended June 30, 2002 as compared to a
net loss of $371,940 for the same period in the prior year. The increase in net
loss of $105,595 or 28% occurred primarily in the first quarter of 2002 and was
the result of expansion in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
During the six-month period ended June 30, 2002, operating activities consumed
$1,141,350 of cash as compared to $140,951 for the same period in the prior
year. The increase in cash consumed was partially due to our national expansion
in the last half of 2001. In addition, cash inflows decreased over 2001 in our
southernmost Florida operation as a result of new construction declines caused
by full saturation of the new construction market. The primary sources of
funding came from an equity financing with a private investor totaling
$1,000,000 in gross proceeds, along with an increase in our line of credit of
$250,000, bringing the total credit facility up to $2,500,000. We continue to
monitor our cash situation and may continue to pursue additional equity funding
as appropriate.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II: OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company knows of no material legal proceedings at this time.
Periodically, the Company becomes party to legal claims that arise in the
ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities. On April 12, 2002, the
------------------------------------------
Company conducted a private placement of equity securities. Under the terms of
the subscription agreement, the Company received consideration equivalent to
$1,000,000, in exchange for 4,000,000 shares of common stock, $0.00001 par
value, and a warrant to purchase 1,500,000 shares of common stock, $0.00001 par
value. The shares of common stock were issued on April 18, 2002. The warrant is
exercisable beginning six months and ending thirty months after April 17, 2002,
at a price equal to a 30% discount to the average closing bid price of the
common stock of the Company as trading on the over-the-counter bulletin board
market, for a period of 10 days prior to exercise, not to exceed $1.00. The
10
Company believes that the sale of the Common Stock was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder by the Securities and Exchange Commission. The Company
has agreed to file a registration statement for the shares issued and underlying
the warrant to be effective on or before December 31, 2002. The Company has
used the proceeds to reduce debt and to fund working capital needs and
expansion.
The Company entered into an Acquisition Agreement on October 11, 2001, a
copy of which was filed with the Securities and Exchange Commission as an
Exhibit to a Report on Form 8-K on October 17, 2001. The acquisition closed on
December 17, 2001, as reported on a Report on Form 8-K filed with the Securities
and Exchange Commission on January 4, 2002. Under the terms of the Acquisition
Agreement, the Company acquired five corporations, which became operating
subsidiaries of the Company, in exchange for a total of 20,000,000 shares of
common stock, $0.00001 par value, to be issued to certain directors, officers
and consultants of the Company. The financial statements for this report have
assumed the issuance of such shares for the purpose of determining earnings per
share and other equity-related calculations. The number of shares had been
placed in reserve pending actions by the board of directors to authorize the
transfer of shares. On April 25, 2002, at the direction of the board of
directors, the Company issued 17,360,000 shares of common stock, par value
$0.00001, in accordance with the Acquisition Agreement, of which 16,040,000
shares were issued to Maurice Sigouin, the Chief Executive Officer, President,
and Chairman of the Board of Directors, and 1,320,000 shares were issued to Jace
Simmons, the Executive Vice President of Finance, Chief Financial Officer and a
Director of the Company. The Company believes that the issuance of the shares
was exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended.
On June 6, 2002, the Company issued 300,000 shares of common stock to a
consultant for services. The shares were valued at $105,000, the fair value on
the date of grant. The Company believes that the issuance of the shares was
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
99.1 (CEO) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 (CFO) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. The Company did not file any reports on Form
--------------------
8-K during the fiscal quarter.
11
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 hereunto duly authorized.
PAVING STONE CORPORATION
By: /s/ Jace Simmons
---------------------
Jace Simmons, Executive Vice President-Finance,
Chief Financial Officer, and Director
(Duly Authorized Officer and Principal Financial
Officer)
Dated: August 14, 2002
12