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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, 2003
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 88-043120
- - -------------------------- -------------------------------------
(State of Incorporation) (I.R.S. EmployerIdentification No.)
9900 West Sample Road, Suite 300, Coral Springs, FL 33065
------------------------------------------
(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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act). Yes No X
At November 12, 2003, 44,400,282 shares of the Registrant's common stock were
issued and outstanding.
Throughout 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
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
PAVING STONE CORPORATION
AND SUBSIDIARIES
CONTENTS
PAGE 1 CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2003
(UNAUDITED) AND DECEMBER 31, 2002
PAGE 2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND
SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
PAGES 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
PAGES 5 - 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE
30, 2003 (UNAUDITED)
PAVING STONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
CURRENT ASSETS
Cash $ 62,931 $ 15,639
Accounts receivable - net 686,813 1,261,801
Costs in excess of billings on uncompleted contracts -- 159,335
Inventory 1,350,000 --
Prepaid expenses 663 4,738
Net assets of discontinued operations 104,098 2,513,620
------------ ------------
Total Current Assets 2,204,505 3,955,133
------------ ------------
PROPERTY AND EQUIPMENT - NET 146,801 108,111
------------ ------------
OTHER ASSETS
Security deposits and other assets - net of amortization 4,470 23,225
Other loans/advances receivable 3,497 2,391
------------ ------------
Total Other Assets 7,967 25,616
------------ ------------
TOTAL ASSETS $ 2,359,273 $ 4,088,860
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Cash overdraft $ -- $ 78,393
Line of credit 2,507,010 2,502,588
Accounts payable and accrued expenses 2,561,447 2,235,023
Accrued stock compensation 55,000 102,123
Billings in excess of cost on uncompleted contracts -- 218,317
Note and capital lease obligation payable - current portion 71,708 38,330
Notes payable - stockholder 130,628 --
Note payable - related party 700,000 --
Net liabilities of discontinued operations 2,513,946 3,672,450
------------ ------------
Total Current Liabilities 8,539,739 8,847,224
------------ ------------
LONG TERM LIABILITIES
Note and capital lease obligation payable -- 61,814
Notes payable - stockholder -- 143,047
Note payable - related party -- 700,000
------------ ------------
Total Long-Term Liabilities -- 904,861
------------ ------------
TOTAL LIABILITIES 8,539,739 9,752,085
------------ ------------
STOCKHOLDERS' DEFICIENCY
Common stock, $.00001 par value, 150,000,000 shares authorized, 43,680,282, and
26,177,382 shares issued and outstanding, respectively 436 262
Common stock to be issued, none and 779,300 shares, respectively -- 8
Additional paid-in capital 7,997,457 6,498,322
Accumulated deficit (14,178,359) (12,161,817)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (6,180,466) (5,663,225)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 2,359,273 $ 4,088,860
============ ============
See accompanying notes to condensed consolidated financial statements.
1
PAVING STONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- ------------
NET SALES $ 1,831,426 $ 4,084,668 $ 4,625,221 $ 6,618,540
COST OF SALES 1,494,935 2,667,005 3,504,806 4,437,462
------------ ------------ ------------ ------------
GROSS PROFIT 336,491 1,417,663 1,120,415 2,181,078
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling, general and administrative 830,553 1,607,616 1,783,477 2,600,755
Common stock issued for services 143,531 105,000 248,591 105,000
Common stock returned in consultant settlement -- (615,700) -- (615,700)
------------ ------------ ------------ ------------
Total Operating Expenses 974,084 1,096,916 2,032,068 2,090,055
------------ ------------ ------------ ------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (637,593) 320,747 (911,653) 91,023
------------ ------------ ------------ ------------
OTHER EXPENSE
Interest expense 27,479 9,319 75,501 10,815
Other expense 3,641 1,104 178 1,104
------------ ------------ ------------ ------------
Total Other Expense 31,120 10,423 75,679 11,919
------------ ------------ ------------ ------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (668,713) 310,324 (987,332) 79,104
LOSS FROM DISCONTINUED OPERATIONS (735,823) (289,893) (1,128,500) (556,639)
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (1,404,536) $ 20,431 $ (2,115,832) $ (477,535)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED
(Loss) income from continuing operations $ (.02) $ .01 $ (.03) $ .00
(Loss) from discontinued operations (.02) (.01) (.04) (.02)
------------ ------------ ------------ ------------
$ (.04) $ (.00) $ (.07) $ (.02)
============ ============ ============ ============
Weighted average shares outstanding during the period
- basic and diluted 32,078,903 24,302,951 29,285,195 23,158,922
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
2
PAVING STONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income from continuing operations $ (987,332) $ 79,104
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock issued for services 248,591 105,000
Stock returned in consultant settlement (615,700)
Loss from discontinued operations (1,128,500) (556,639)
Depreciation 37,352 46,422
Amortization 6,250 9,680
Bad debt expense 78,234 (12,760)
Loss on disposal of property and equipment 65,503 1,104
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 496,754 1,266,332
Prepaid expense (2,175) 41,109
Security deposits and other assets 17,649 (9,232)
Costs in excess of billings on uncompleted contracts 159,335 (342,825)
Other receivables -- (40,245)
Net assets of discontinued operations 2,267,977 --
Increase (decrease) in:
Accounts payable and accrued expenses 326,424 (650,714)
Billings in excess of cost on uncompleted contracts (218,317) (89,568)
Accrued stock compensation (47,123) --
Customer deposits payable -- (83,641)
Net liabilities of discontinued operations (1,158,504) --
----------- -----------
Net Cash Provided By (Used In) Operating Activities 162,118 (852,573)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on disposal of equipment -- 37,828
Purchase of property and equipment -- (40,470)
Other loans/advances receivable -- (6,800)
----------- -----------
Net Cash Used In Investing Activities -- (9,442)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft (78,393) (288,778)
Proceeds on issuance of stock for cash, net -- 1,000,000
Line of credit 4,422 268,215
Advances from related parties -- (113,602)
Payments on notes and capital lease obligations (28,436) (57,439)
Shareholder loan payable (12,419) 18,180
----------- -----------
Net Cash (Used In) Provided By Financing Activities (114,826) 826,576
----------- -----------
NET INCREASE (DECREASE) IN CASH 47,292 (35,439)
CASH - BEGINNING OF PERIOD 15,639 35,439
----------- -----------
CASH - END OF PERIOD $ 62,931 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 81,405 $ 61,068
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired by note payable $ -- $ 42,377
=========== ===========
Purchase of inventory for common stock $ 1,350,000 $ --
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed 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 the Company's consolidated 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 statements presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
The condensed consolidated balance sheet information as of December 31,
2002, was derived from the audited consolidated financial statements
included in the Company's Annual Report Form 10-KSB. It is suggested that
the interim condensed consolidated financial statements be read in
conjunction with the audited financial statements for the year ended
December 31, 2002, as filed with the Securities and Exchange Commission on
Form 10-K, from which the interim statements were derived.
In preparing condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the condensed
consolidated financial statements and revenues and expenses during the
reported period. Actual results could differ from those estimates.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation
The accompanying condensed 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.
(B) Fair Value of Financial Instruments
The carrying value of financial instruments including receivables,
accounts payable, accrued expenses and debt, approximates fair vales at
June 30, 2003 and December 31, 2002 due to the
4
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
relatively short-term nature of these instruments.
(C) Loss Per Common Share
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding during
each year. Common stock equivalents are not included in the computation of
diluted net loss per common share because the effect would be
anti-dilutive.
NOTE 3 INVENTORY
During the second quarter of 2003, the Company formed a wholly owned
subsidiary, PSC Equipment, Inc., to purchase and sell high-grade
commercial equipment. On May 30, 2003, the Company entered into an
Equipment Purchase Agreement ("EPA") with a vendor and purchased its first
block of equipment inventory. Under the EPA, the Company issued 15,000,000
restricted shares of its common stock and executed a $500,000 Money
Purchase Contract for the equipment inventory. The inventory is located at
four sites around the U.S.A. and will remain there until sold. Under the
EPA, the Company is not required to make lease, storage fee or insurance
payments for two years. The inventory is valued at $1,350,000 on the
condensed consolidated balance sheet as of June 30, 2003, based on the
value of the shares on the date of the EPA. The $500,000 money purchase
contract is not recorded as a liability on the condensed consolidated
balance sheet as of June 30, 2003 since it is contingent on the Company
obtaining cash proceeds from the sale of the inventory or from financing
secured by the inventory (See Note 10).
On June 25, 2003, the Company executed a second Equipment Purchase
Agreement ("EPA-2") with a vendor to purchase additional equipment
inventory located in one site in Texas. Under EPA-2, the Company is
obligated to pay for the inventory under a Money Purchase Contract using
900,000 shares of stock from the ultimate purchaser of the inventory. As
of June 30, 2003, the Company had not yet sold the inventory and therefore
had not yet made a payment under the Money Purchase Contract. As such, the
inventory is not valued on the June 30, 2003 balance sheet since EPA-2 was
not fully consummated. See Note 10 for the final consummation of this
transaction.
NOTE 4 DISCONTINUED OPERATIONS
During December 2002, the Company made the decision to discontinue its
Florida and New England Paving Stone operations. As of June 30, 2003, the
Florida and New England operations are completely discontinued. Both
operations have been accounted for as discontinued operations and
accordingly, amounts in the condensed consolidated financial statements
and related notes for all periods shown, reflect discontinued operations
accounting.
5
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
Concurrently, the Company entered into an agreement to assist a contractor
in acquiring all the Company's former customers in various Florida
markets. The agreement calls for the Company to receive a commission of 5%
of the actual gross margin earned during 2003. Through June 30, 2003, the
Company has not recorded any commissions under the contract. The Company
expects its Arizona/Texas, Georgia/Mid-Atlantic, Nevada and California
operations to be completely discontinued by the end of the third quarter.
Information relating to the Florida and New England operations for the six
months ended June 30, 2003 and 2002 are as follows:
2003 2002
----------- -----------
Revenues $ 919,453 $ 9,231,919
Costs and expenses 2,047,953 9,788,558
----------- -----------
Net (Loss) $(1,128,500) $ (556,639)
=========== ===========
Assets and liabilities of the discontinued operations were as follows:
June 30, 2003 December 31, 2002
------------- -----------------
Assets
Accounts receivable, net $ 85,619 $1,995,086
Cost in excess of billings -- 288,828
Inventories -- 17,500
Property and equipment 20,479 184,816
Other assets (2,000) 27,390
----------- ----------
Total Assets $ 104,098 $2,513,620
=========== ==========
Liabilities
Cash overdraft $ 91,363 $ 249,618
Billing in excess of cost -- 735,250
Accounts payable and accrued expenses 2,422,583 2,687,582
----------- ----------
Total Liabilities $ 2,513,946 $3,672,450
=========== ==========
NOTE 5 SEGMENT REPORTING
The Company has six geographic reportable segments: Arizona, Atlanta, Nevada,
California, Corporate and PSC Equipment. Each segment, with the exception of PSC
Equipment, installs
6
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
interlocking pavers on driveways and patios for residential and commercial use.
The Company evaluates segment performance based on income (loss) from
operations. Sales for each segment are based on the location of the third-party
customer. All intercompany transactions between segments have been eliminated.
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 (loss) for one segment
may not be comparable to another segment. Segment results for the six months
ended June 30, 2003 and 2002 are as follows:
Arizona/ Georgia/ PSC
Texas Mid-Atlantic Nevada California Corporate Equipment Total
----------- ------------ --------- ----------- --------- --------- -----------
2003
Net sales $ 1,749,631 $ 1,616,704 $ 439,099 $ 486,306 $ 333,481 $ -- $ 4,625,221
(Loss) from operations (158,165) (45,019) (33,462) (506,637) (244,049) -- (987,332)
Depreciation and
amortization 2,187 5,114 623 4,841 13,379 -- 26,144
Assets 274,989 444,030 33,119 75,913 77,124 1,350,000 2,255,175
2002
Net sales $ 2,482,496 $ 1,443,277 $ 824,647 $ 1,868,119 $ 52,814 $ -- $ 6,671,353
Income (loss) from
operations 189,438 (21,437) (12,158) (525,522) 393,635 -- 23,956
Depreciation and
amortization 1,495 6,233 934 931 -- -- 9,593
Assets 790,294 807,564 282,250 410,020 83,828 -- 2,373,956
Capital expenditures 6,213 42,377 -- 5,912 8,572 -- 63,074
NOTE 6 STOCK ISSUANCES
During the six months ended June 30, 2003, the Company issued 2,123,000
shares of common stock to consultants for services. The shares were valued
at $238,917, the fair market value based on closing prices on the
respective issuance dates.
During the six months ended June 30, 2003, the Company issued 600,000
restricted shares of common stock as collateral for services performed by
a vendor. These shares have not yet been applied as payment for amounts
owed (See Note 7(B)).
During the six months ended June 30, 2003, the Company issued 2,066,500
shares of common stock as collateral for amounts owed for services
performed by consultants and vendors. The vendors exercised their option
to convert $9,674 of the amount owed into 105,700 shares of the Company's
common stock and based on the dates exercised. The remaining 1,960,800
option shares were collateral at June 30, 2003 (See Note 7(B)).
During the six months ended June 30, 2003, the Company issued 15,000,000
restricted shares of common stock to purchase commercial equipment
inventory in conjunction with its equipment re-sale subsidiary, PSC
Equipment, Inc. The shares were valued at $1,350,000, based on the closing
market price of the Company's common stock on the date of the equipment
purchase transaction.
7
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
NOTE 7 COMMITMENTS AND CONTINGENCIES
(A) Ongoing Litigation
The Company is currently in a contractual dispute over agreements to issue
1,175,119 shares of common stock to former consultants. A legal opinion
has been issued to the transfer agent requesting to stop the transfer of
395,819 previously issued shares and the remaining 779,300 shares have not
been issued, pending a resolution of this dispute.
The Company is presently a defendant in twenty-five collection related
lawsuits totaling approximately $520,000, some of which judgments have
been obtained and some are pending. The majority of these legal actions
are a result of the Company's discontinued operations. Additionally, there
are presently eighteen potential lawsuits which are all collection related
matters totaling approximately $200,000.
(B) Collateralized Shares
During the six months ended June 30, 2003, the Company issued 2,560,800
shares of common stock as collateral for amounts owed for services
previously performed by vendors. The amounts due to these vendors are
recorded in accounts payable and accrued expenses as of June 30, 2003.
Upon payment of these outstanding invoices by the Company, the shares will
be returned to the Company and canceled. In addition, the vendor has the
option to satisfy amounts owed to them, after notifying the Company, by
either selling the shares in the open market or accepting the shares in
lieu of full payment of the debt. As of the date of this report, no shares
have been returned.
(C) Payroll and Payroll Taxes
As of June 30, 2003, the Company owes approximately $123,000 of payroll
and payroll taxes to its payroll processing company. This amount has been
accrued and is included in accounts payable and accrued expenses. On
August 1, 2003 the payroll processing company filed a civil action summons
for the payroll and payroll tax deficiency plus accrued interest at the
rate of 1.5% per month.
8
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
(D) Lack of Insurance
As of June 30, 2003, the Company has not maintained any liability
insurance or any other form of insurance. The Company is also lacking
insurance coverage for workman's compensation, disability and directors
and officers liability insurance. Although the Company is not aware of any
claims arising subsequent to June 30, 2003, there is no assurance that
none exist.
(E) Capitalized Leases
As of June 30, 2003, the Company was in default of capitalized equipment
leases. Certain of the assets pertaining to the leased equipment were
repossessed and as such have been removed from the Company's possession.
There is no assurance that legal action will not be taken against the
Company for the shortfalls on the balance of the leases.
Amount of assets taken off books $26,892
-------
Amount of debt taken off books $20,632
=======
NOTE 8 RELATED PARTIES
During the six months ended June 30, 2003, the Company repaid stockholder
loans in the amount of $12,419.
NOTE 9 GOING CONCERN
As reflected in the accompanying condensed consolidated financial
statements, the Company has a net loss of $2,115,832 for the six months
ended June 30, 2003, a working capital deficiency of $6,335,234 and a
stockholders' deficiency of $6,180,466. These factors raise substantial
doubt about its ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent on the Company's
ability to raise additional funds and implement its business plan. The
condensed consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
Management has discontinued its Florida and New England operations and
expects to discontinue all paver installation segments as of September 30,
2003 and has consolidated its California operations into one central
office. Management has also reduced other operating expenses during 2003
throughout the Company to return to profitable operations during 2003.
9
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
Management's future plans also include restructuring its revolving line of
credit for which they are currently in active negotiations with a
financial institution.
NOTE 10 SUBSEQUENT EVENT
(A) Equipment Inventory Sale
On July 29, 2003, the Company sold a portion of the first block of
equipment inventory acquired on May 30, 2003, under an EPA to a public
company located in the southwest U.S.A. Under the EPA, the selling price
was $7,500,000 comprising a $500,000 Money Purchase Contract, 7,000,000
shares of the purchasers restricted common stock valued at $3,500,000, and
7,000,000 shares of the purchasers convertible preferred stock valued at
$3,500,000. The valuation of both the preferred and common stock was based
on the fair market value of the public company's common stock as
determined by recent sales of the stock in private placements.
On September 18, 2003, the Company executed an amendment to the July 29th
$7,500,000 EPA as follows:
1. The Company purchased a new block of inventory using 1,800,000 of
the common shares received in the original July 29, 2003 transaction
per above and an additional 900,000 of these common shares were used
to fully consummate the EPA dated June 25, 2003 as described in the
Inventory footnote.
2. The original inventory sold as per the July 29, 2003 EPA was swapped
in its entirety for the two blocks of inventory described above.
The cost basis of the inventory sold in the $7,500,000 transaction was
based on the 2,700,000 common shares received from the purchaser, valued
at $1,350,000, which were used to acquire the applicable blocks of
inventory. The net sales proceeds in the transaction exclude the $500,000
Money Purchase Contract portion, since this amount has not yet been
received. Below is a summary of how the transaction was recorded during
the third quarter of 2003.
Sales $7,000,000
Less cost of goods sold inventory 1,350,000
Less commissions and other expenses (3,500,000 shares @$.50) 1,750,000
----------
Net profit $3,900,000
----------
Stock held by purchaser (7,800,000 shares @ $.50) $3,900,000
----------
10
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
(UNAUDITED)
Had this transaction been consummated prior to June 30, 2003, the second
quarter consolidated results would have been as follows:
Net profit for the 3 months ended March 31, 2003 $ 2,495,464
Earnings per share $ .08
Net profit for the 6 months ended June 30, 2003 $ 1,784,168
Earnings per share $ .06
Total assets at June 30, 2003 $ 6,259,272
Total stockholders' deficiency at June 30, 2003 $(2,280,466)
(B) Stock and Option Activity
Subsequent to June 30, 2003, 300,000 shares of common stock held as
collateral by consultants and vendors was applied as payment for amounts
owed. The common stock was valued at $24,000 on the date applied to the
debt.
Subsequent to June 30, 2003, the Company issued 720,000 shares to
consultants and vendors pursuant to its stock compensation plans, as
payment for fees owed. The shares were valued at $51,300 based on the
dates of issuance.
Subsequent to June 30, 2003, the Company issued 925,000 shares of common
stock to consultants and vendors as collateral for amounts owed for
services to be performed.
(C) Revolving Line of Credit
The Company had a revolving line of credit with a financial institution
with a maximum line of $2,500,000. The line of credit is payable on demand
with interest at the 30-day dealer commercial paper rate plus 2.55%. It is
secured by all the assets of the Company and Paving Stone Industries,
Inc., a corporation owned by the majority stockholder. The line of credit
was due for renewal as of April 30, 2003, and has not been renegotiated
for the renewal as of the date of this report. The financial institution
is currently negotiating a forbearance agreement with the Company to
restructure the debt.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as "anticipates", "believes", "forecasts", "plans", "hopes",
"predicts", "prognosticates", and the like are meant to indicate that such
statements are forward-looking and not historical in nature, and such statements
contain inherent risks and uncertainties which render them capable of not being
achieved. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which could cause the actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. Such factors include, among others:
* The Company's ability to continue as a going concern will be determined
by its ability to obtain additional funding and to implement its business plan.
* If financing does not become available on favorable terms, then the
Company will not have adequate funds to fulfill its long-term strategic plans.
* The Company may not be able to manage its expansion growth plan.
* The Company may not be able to manage its expanding operations
effectively.
* The Company does not maintain key man life insurance on its principal
employees.
* The Company may not be able to attract, motivate and retain skilled
employees to install pavers, or to engage sufficient outside contractors to meet
the Company's planned expansion needs.
* The Company is dependent upon several key customers and the loss of any of
these key customers could cause a material, negative effect on its financial
condition.
* The Company requires a high volume of quality products that are procured
from, and assembled by, third party suppliers and reliance on suppliers, as well
as industry supply conditions generally, involves several risks, including the
possibility of defective product, shortage of product, increases in costs and
reduced control over delivery schedules, any or all of which could adversely
affect the Company's financial results.
* The Company may not be able to collect accounts receivable or may retain
inadequate reserves for bad debt.
* There can be no assurance that shareholders of the Company will not be
negatively affected by the concentration of ownership of its Common Shares by
the management and directors of the Company.
* The Company faces the risk of default of debt obligations and negative
impacts of restrictive covenants.
* The Company has not and may not pay dividends to shareholders in the
foreseeable future.
* The Company could face claims of product liability, personal injury or
other legal claims.
* Competition may become more intense as a result of the introduction of new
competitors, consolidation, price discounting, and possibly weakening
demand.
* New laws and regulations could negatively impact the paver installation
industry, causing increased costs and decreased revenue earning
opportunities.
* Sales of the Company's common stock in the public market could impair the
market price of our common stock and also impair the ability to
complete successful financing efforts.
* The Company must comply with penny stock regulations which may render the
sale of shares of common stock by a stockholder more difficult.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Quarterly evaluation of the Company's Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Quarterly Report on Form 10-QSB,
the Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" (Disclosure Controls), and its "internal
controls and procedures for financial reporting" (Internal Controls). This
evaluation (the Controls Evaluation) was done under the supervision and with the
participation of management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO). Rules adopted by the SEC require that in this
section of the Quarterly Report we present the conclusions of the CEO and the
CFO about the effectiveness of our Disclosure Controls and Internal Controls
based on and as of the date of the Controls Evaluation.
CEO and CFO Certifications. Appearing immediately following the Signatures
section of this Quarterly Report there are two separate forms of
"Certifications" of the CEO and the CFO. The first form of Certification is
required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the
Section 302 Certification). This section of the Quarterly Report which you are
currently reading is the information concerning the Controls Evaluation referred
to in the Section 302 Certifications and this information should be read in
conjunction with the Section 302 Certifications for a more complete
understanding of the topics presented.
Disclosure Controls and Internal Controls. Disclosure Controls are procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934
(Exchange Act), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's (SEC) rules and forms. Disclosure Controls are also
designed with the objective of ensuring that such information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure. Internal Controls are
procedures which are designed with the objective of providing reasonable
assurance that (1) our transactions are properly authorized; (2) our assets are
safeguarded against unauthorized or improper use; and (3) our transactions are
properly recorded and reported, all to permit the preparation of our financial
statements in conformity with generally accepted accounting principles.
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that our Disclosure Controls or our
Internal Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation. The CEO/CFO evaluation of our Disclosure
Controls and our Internal Controls included a review of the controls' objectives
and design, the controls' implementation by the Company and the effect of the
controls on the information generated for use in this Quarterly Report. In the
course of the Controls Evaluation, we sought to identify data errors, controls
problems or acts of fraud and to confirm that appropriate corrective action,
including process improvements, were being undertaken. This type of evaluation
will be done on a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual
Report on Form 10-K. Our Internal Controls are also evaluated on an ongoing
basis by our independent auditors in connection with their audit and review
activities. The overall goals of these various evaluation activities are to
monitor our Disclosure Controls and our Internal Controls and to make
modifications as necessary; our intent in this regard is that the Disclosure
Controls and the Internal Controls will be maintained as dynamic systems that
change (including with improvements and corrections) as conditions warrant.
Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in the Company's
Internal Controls, or whether the Company had identified any acts of fraud
involving personnel who have a significant role in the Company's Internal
Controls. This information was important both for the Controls Evaluation
generally and because items 5 and 6 in the Section 302 Certifications of the CEO
and CFO require that the CEO and CFO disclose that information to our Board's
Audit Committee and to our independent auditors and to report on related matters
in this section of the Quarterly Report. In the professional auditing
literature, "significant deficiencies" are referred to as "reportable
conditions"; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize and report financial data in
the financial statements. A "material weakness" is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions. We also
sought to deal with other controls matters in the Controls Evaluation, and in
each case if a problem was identified, we considered what revision, improvement
and/or correction to make in accord with our on-going procedures.
In accord with SEC requirements, the CEO and CFO note that, since the date of
the Controls Evaluation to the date of this Quarterly Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Conclusions. Based upon the Controls Evaluation, our CEO and CFO have concluded
that, subject to the limitations noted above, our Disclosure Controls are
effective to ensure that material information relating to Intel and its
consolidated subsidiaries is made known to management, including the CEO and
CFO, particularly during the period when our periodic reports are being
prepared, and that our Internal Controls are effective to provide reasonable
assurance that our financial statements are fairly presented in conformity with
generally accepted accounting principles.
PART II: OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company is presently a defendant in 25 collection related lawsuits
totaling approximately $520,000 some of which judgements have been obtained and
the rest are pending. The majority of these legal actions are a result of the
company's discontinued operations. In addition, there are presently 18
threatened collection related lawsuits totaling approximately $200,000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the six months ended June 30, 2003, the Company issued 2,397,800
shares of common stock to consultants for services. The shares were valued at
$248,591, the fair value on the respective grant dates.
During the six months ended June 30, 2003, the Company issued 600,000
restricted shares of common stock as collateral for services performed by a
vendor. These shares have not yet been applied as payment for amounts owed.
During the six months ended June 30, 2003, the Company issued 2,066,500
option shares pursuant to its stock option plans as collateral for services
performed by consultants and vendors. Of these, 105,700 option shares were
exercised and valued at $10,570 based on the dates exercised. The remaining
1,960,800 option shares were collateral at June 30, 2003.
During the six months ended June 30, 2003, the Company issued 15,000,000
restricted shares of common stock to purchase commercial equipment inventory in
conjunction with its equipment re-sale subsidiary, PSC Equipment, Inc. The
shares were valued at $1,350,000, based on the date of the equipment purchase
transaction.
Subsequent to June 30, 2003, 300,000 of previously issued option shares
were exercised by consultants and vendors and applied as payment for amounts
owed. The option shares were valued at $24,000 based on the dates of exercise
Subsequent to June 30, 2003, the Company issued 720,000 shares to
consultants and vendors pursuant to its stock option plans, as payment for fees
owed. The shares were valued at $51,300 based on the dates of issuance.
Subsequent to June 30, 2003, the Company issued 925,000 option shares to
consultants and vendors pursuant to its stock option plans, as collateral for
services to be performed. These option shares have not yet been exercised as
payment for amounts owed.
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.
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: November 12, 2003
CERTIFICATION
I, Maurice F. Sigouin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Paving Stone
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Maurice F. Sigouin
-------------------------
Maurice F. Sigouin
Date: November 12, 2003 Chief Executive Officer
CERTIFICATION
I, Jace Simmons, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Paving Stone
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Jace Simmons
-------------------------
Jace Simmons
Date: November 12, 2002 Executive Vice President Finance
and Chief Financial Officer
ITEM 2. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and notes thereto included under
Item 1 above. In addition, reference should be made to the Company's audited
consolidated financial statements and notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's most recent Annual Report on Form 10-K.
During the second quarter of 2003, we formed a new subsidiary, PSC
Equipment, Inc., to buy and sell high grade commercial equipment. This
illustrates our continuing shift away from the unprofitable paver installation
business. To begin this new division, we purchased high grade food processing
equipment located in four sites around the USA with an appraised resale value of
$20,000,000. We issued 15,000,000 restricted common shares and executed a
$500,000 money purchase contract as consideration for this purchase. This
equipment is valued at cost on our June 30, 2003 balance sheet at $1,350,000.
During the third quarter of 2003, we purchased an additional $14,000,000 of
similar equipment (appraised resale value) and recorded a sale of $7,000,000.
This transaction is disclosed as a subsequent event in the footnotes to the
financial statements, and generated an individual profit of $3,900,000 in the
third quarter of 2003. We continue to aggressively market our equipment
inventory for resale and continue to search for new equipment inventory to
purchase.
The following explanations reflect continuing operations, comprised of our
paver installation divisions in California, Arizona, Nevada and the
Mid-Atlantic, and our newly formed equipment resale division.
FINANCIAL CONDITION
Total assets from continuing operations as of June 30, 2003 were
$2,255,175, an increase of $679,935 or 43.2%, from total assets of $1,575,240 at
December 31, 2002. The increase was primarily attributable to the purchase of
equipment inventory described above totaling $1,350,000, offset by a reduction
in accounts receivable of $574,988. This reduction reflects the continued down
sizing of existing paver installation operations.
Current liabilities from comtinuing operations increased by $851,019 or
16.4%, from $5,174,774 at December 31, 2002 to $6,025,793 at June 30, 2003. The
increase is primarily attributable to a reclassification of long-term debt to
short-term debt totaling $904,861.
Stockholders' deficit increased from $5,663,225 at December 31, 2002 to
$6,180,466, an increased deficit of $517,242. This was a result of losses in the
six months ended June 30, 2003 of $2,115,832 of which $1,128,500 came from
discontinued operations. This was offset by increased additional paid in capital
of $1,499,132, largely a result of the $1,350,000 equipment inventory purchase
for common stock, described above
RESULTS OF OPERATIONS
Net sales decreased by $2,253,242, or 55.2%, and $1,993,319 or 30.1%, for
the three month and six month periods ended June 30, 2003, respectively, as
compared to the same periods in the prior year. The decreases were primarily due
to the continued winding down of existing paver installation operations.
Cost of goods sold decreased by $1,172,070, or 43.9%, and $932,656 or
21.0%, for the three month and six month periods ended June 30, 2003,
respectively, as compared to the same periods in the prior year. The decreases
were primarily due to the continued winding down of existing paver installation
operations
Selling, general and administrative expenses decreased by $777,063, or
48.3%, and $817,278 or 31.4%, for the three month and six month periods ended
June 30, 2003, respectively, as compared to the same periods in the prior year.
The decreases were primarily due to the continued winding down of existing paver
installation operations.
We incurred a net loss from continuing operations of $668,713 for the
three-month period ended June 30, 2003 as compared to a net profit of $310,324
for the three-month period ended June 30, 2002. The reduction of $979,037 was
primarily due to the continued winding down of existing paver installation
operations.
We incurred a net loss from continuing operations of $987,332 for the
six-month period ended June 30, 2003 as compared to a net profit of $79,104 for
the six-month period ended June 30, 2002. The reduction of $1,066,436 was
primarily due to the continued winding down of existing paver installation
operations.
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2003
Our total assets at June 30, 2003 were $2,359,273 compared with $4,088,860 at
December 31, 2002, a decrease of $1,729,587. These balances include net assets
from discontinued operations of $104,098 at June 30, 2003 and $2,513,620 at
December 31, 2002, a decrease of $2,409,522, primarily the result of the winding
down of our Florida business. Our total assets excluding discontinued operations
were $2,255,175 and $1,575,240, respectively, at June 30, 2003 and December 31,
2002, an increase of $679,935. This increase was primarily due to the equipment
inventory purchase described above totaling $1,350,000, offset by a decrease in
net accounts receivable of $574,988, which was due to the winding down of
existing paver installation operations. Total assets at June 30, 2003 were
comprised mainly of $686,813 of accounts receivable, $1,350,000 of equipment
inventory and $146,801 of property and equipment. Total assets at December 31,
2002 were comprised principally of $1,261,801 of accounts receivable, $159,335
of cost in excess of billings on uncompleted contracts and $108,111 of property
and equipment. Total current assets at June 30, 2003 and December 31, 2002
amounted to $2,204,505 and $3,955,133, respectively, while total current
liabilities for those same periods amounted to $8,539,739 and $8,847,224
respectively, creating working capital deficits of $6,335,234 and $4,892,091,
respectively. These working capital deficits are principally attributable to
operating losses in the first two quarters of 2003 and in the full year of 2002.
Total liabilities at June 30, 2003 and December 31, 2002 were $8,539,739 and
$9,752,085, respectively, representing a decrease of $1,212,346. This decrease
is primarily due to a decrease in liabilities from discontinued operations of
$1,158,504, caused primarily by the winding down of operations in Florida.
Shareholders' deficit at June 30, 2003 and December 31, 2002 was $6,180,466 and
$5,663,225, respectively, representing an increased deficit of $517,241. The
increased deficit is due to losses in the first two quarters of 2003, offset by
the equipment inventory purchase for common stock described above.
During the second quarter of 2003, we received no significant outside financing.
The Company's net cash provided from operating activities for the six months
ended June 30, 2003 was $162,118 compared to cash used in operating activities
of $852,573 for the six months ended June 30, 2002, an increase of $1,014,691.
This increase resulted from the discontinuance of unprofitable paver
installation operations.
Our Company used no cash in investing activities for the six months ended June
30, 2003, as compared to $9,442 used in investing activities for the six months
ended June 30, 2002.
Our Company's net cash used in financing activities for the six months ended
June 30, 2003 was $36,433, compared to $1,115,352 net cas provided for the six
months ended June 30, 2002, a decrease of $1,151,785. The only source of
financing in 2003 was $4,422 from our revolving line of credit. The primary
sources of financing in 2002 were cash proceeds of $1,000,000 from an issuance
of stock and cash proceeds of $268,215 from our revolving line of credit.
Our Company had a revolving line of credit with a financial institution totaling
$2,500,000, which was up for renewal at April 30, 2003. The financial
institution declined to renew the line and is currently in negotiations with our
Company to restructure the debt. We believe this negotiation will be
successfully concluded by November 30, 2003.
The report of our independent accountants on our December 31, 2002 financial
statements includes an explanatory paragraph indicating that there is
substantial doubt about our ability to continue as a going concern due to
substantial recurring losses from operations and a significant accumulated
deficit and working capital deficit. Our ability to continue as a going concern
will be determined by our ability to obtain additional funding and to implement
our business plan, particularly pertaining to the new equipment resale division.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Our Company has no assured available financial resources to meet its June 30,
2003 working capital deficit of $6,335,234 and future operating costs. If our
Company is unable to fund its working capital deficit and future operating costs
through operating activities, the Company may be required to change its proposed
business plan and decrease its planned operations, which could have a material
adverse effect upon its business, financial condition, or results of operations.