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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 March 31, 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.)
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
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 May 23, 2003, 26,795,382 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.
1
PAVING STONE CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
PAVING STONE CORPORATION
AND SUBSIDIARIES
CONTENTS
PAGE 1 CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2003
(UNAUDITED) AND DECEMBER 31, 2002 (AUDITED)
PAGE 2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
PAGE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
PAGES 4 - 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
MARCH 31, 2003
PAVING STONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2003 December 31,
(Unaudited) 2002
------------------ -----------------
CURRENT ASSETS
Cash $ 28,062 $ 15,639
Accounts receivable - net of allowances 1,102,690 1,261,801
Costs in excess of billings on uncompleted contracts 354,545 159,335
Prepaid expenses 1,168 4,738
Net assets of discontinued operations 756,728 2,513,620
------------------ -----------------
Total Current Assets 2,243,193 3,955,133
------------------ -----------------
PROPERTY AND EQUIPMENT - NET 106,761 108,111
------------------ -----------------
OTHER ASSETS
Security deposits and other assets - net of amortization 23,225 23,225
Other loans / advances receivable 3,391 2,391
------------------ -----------------
Total Other Assets 26,616 25,616
------------------ -----------------
TOTAL ASSETS $ 2,376,570 $ 4,088,860
================== =================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Cash overdraft $ 54,166 $ 78,393
Lines of credit 2,508,306 2,502,588
Accounts payable and accrued expenses 2,553,730 2,235,023
Accrued stock compensation 55,000 102,123
Billings in excess of cost on uncompleted contracts 152,318 218,317
Note and capital lease obligation payable - current portion 38,062 38,330
Net liabilities of discontinued operations 2,406,107 3,672,450
------------------ -----------------
Total Current Liabilities 7,767,689 8,847,224
------------------ -----------------
LONG TERM LIABILITIES
Note and capital lease obligation payable 43,854 61,814
Notes payable - stockholder 134,488 143,047
Note payable - related party 700,000 700,000
------------------ -----------------
Total Long-Term Liabilities 878,342 904,861
------------------ -----------------
TOTAL LIABILITIES 8,646,031 9,752,085
------------------ -----------------
STOCKHOLDERS' DEFICIENCY
Common stock, $.00001 par value, 150,000,000 shares authorized,
26,795,382, and 26,177,382 shares issued and outstanding, respectively 268 262
Common stock to be issued, 779,300 shares 8 8
Additional paid-in capital 6,603,376 6,498,322
Accumulated deficit (12,873,113) (12,161,817)
------------------ -----------------
TOTAL STOCKHOLDERS' DEFICIENCY (6,269,461) (5,663,225)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 2,376,570 $ 4,088,860
================== =================
See accompanying notes to condensed consolidated financial statements.
1
PAVING STONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
For the Three For the Three
Months Ended March Months Ended March
31, 2003 31, 2002
--------------------- ---------------------
NET SALES $ 2,793,795 $ 2,533,872
COST OF SALES 2,009,871 1,770,457
--------------------- ---------------------
GROSS PROFIT 783,924 763,415
--------------------- ---------------------
OPERATING EXPENSES
Selling, general and administrative 952,924 993,139
Stock issued for services 105,060 -
--------------------- ---------------------
Total Operating Expenses 1,057,984 993,139
--------------------- ---------------------
LOSS FROM CONTINUING OPERATIONS (274,060) (229,724)
--------------------- ---------------------
OTHER INCOME (EXPENSE)
Interest expense (48,022) (1,496)
Other income 3,463 -
--------------------- ---------------------
Total Other Income (Expense) (44,559) (1,496)
--------------------- ---------------------
LOSS FROM CONTINUING OPERATIONS (318,619) (231,220)
INCOME TAX EXPENSE - -
--------------------- ---------------------
LOSS FROM CONTINUING OPERATIONS (318,619) (231,220)
DISCONTINUED OPERATIONS
Loss from discontinued operations (392,677) (266,563)
--------------------- ---------------------
NET LOSS $ (711,296) $ (497,783)
===================== =====================
NET LOSS PER SHARE - BASIC AND DILUTED
Loss from continuing operations $ (0.01) $ (0.01)
Loss from discontinued operations $ (0.02) $ (0.01)
--------------------- ---------------------
(0.03) (0.02)
===================== =====================
Weighted average shares outstanding during the period - basic and diluted 26,250,915 22,002,182
===================== =====================
See accompanying notes to condensed consolidated financial statements.
2
PAVING STONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (318,619) $ (231,220)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Loss from discontinued operations (392,677) (266,563)
Depreciation and amortization 26,194 33,271
Provision for doubtful accounts 19,839 -
Stock issued for services 105,060 -
Loss on disposal of property and equipment 61,862 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,523,330 897,464
Prepaid expense (1,178) 72,361
Security deposits and other assets 1,000 (56,587)
Costs in excess of billings on uncompleted contracts 93,617 278,155
Increase (decrease) in:
Accounts payable and accrued expenses (271,924) (446,517)
Cash overdraft 35,311 (246,074)
Billings in excess of cost on uncompleted contracts (801,249) (23,089)
Accrued stock compensation (47,123) (83,641)
-------------- ----------------
Net Cash Provided By (Used In) Operating Activities 33,443 (72,440)
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (20,686)
Other loans / advances receivable - (7,000)
-------------- ----------------
Net Cash Used In Investing Activities - (27,686)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligation (18,228) (43,719)
Line of credit 5,718 250,092
Advances from note payable - related party - (25,483)
Proceeds from (payments of) stockholder loan (8,559) -
Payments on notes payable - 39,003
-------------- ----------------
Net Cash (Used In) Provided By Financing Activities (21,069) 219,893
-------------- ----------------
NET INCREASE IN CASH 12,374 119,767
CASH - BEGINNING OF PERIOD 17,795 35,439
-------------- ----------------
CASH - END OF PERIOD $ 30,169 $ 155,206
============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 19,631 $ 36,992
============== ================
See accompanying notes to condensed consolidated financial statements.
3
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited 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 statements presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
It is suggested that the interim 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 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 financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
NOTE 2 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.
NOTE 3 INVENTORIES
Inventories consist of brick pavers and are included in net assets of
discontinued operations. Inventories are stated at the lower of cost or
market value, as determined using the first in, first out method.
NOTE 4 DISCONTINUED OPERATIONS
During December 2002, the Company made the decision to discontinued its
Florida and New England operations. Both operations have been accounted
for as discontinued operations and accordingly, amounts in the financial
statements and related notes for all periods shown, reflect discontinued
operations accounting. Concurrently, the Company entered into an
4
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
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 March 31, 2003, the Company has not recorded any
commissions under the contract. The Company expects its Florida and New
England operations to be completely discontinued by the second quarter.
Information relating to the Florida and New England operations for the
three months ended March 31, 2003 and 2002 are as follows:
2003 2002
------------------- -------------------
Revenues $ 755,075 $ 4,529,506
Costs and expenses 1,147,752 4,796,069
------------------- -------------------
Net (Loss) Income $ (392,677) $ (266,563)
=================== ===================
Assets and liabilities of the discontinued operations were as follows:
March 31, 2003 December 31, 2002
(Unaudited)
------------------- -------------------
Assets
Accounts receivable, net $ 611,028 $ 1,995,086
Cost in excess of billings - 288,828
Rebate receivable - -
Inventories 17,500 17,500
Property and equipment 104,360 184,816
Other assets 23,840 27,390
------------------- -------------------
Total Assets $ 756,728 $ 2,513,620
=================== ===================
Liabilities
Cash overdraft $ 309,156 $ 249,618
Billing in excess of cost 735,250
Accounts payable and accrued expenses 2,096,951 2,687,582
Other liabilities -
------------------- -------------------
Total Liabilities $ 2,406,107 $ 3,672,450
=================== ===================
5
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
NOTE 5 SEGMENT REPORTING
The Company has five geographic reportable segments: 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. 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. Quarterly segment results for
2003 and 2002 are as follows:
Arizona/ Georgia/ Nevada California Corporate Total
Texas Mid-Atlantic
------------- --------------- ------------- -- -------------- -- ------------- --- -------------
2003
Net sales $ 1,136,039 $ 901,048 $ 171,912 $ 407,436 $ 177,360 $ 2,793,795
Income (loss) from operations (51,632) 5,690 (134,823) (266,679) 173,384 (274,060)
Depreciation and amortization 1,093 2,557 349 2,410 6,250 12,659
Assets 609,694 571,873 84,573 263,050 90,652 1,619,842
Capital expenditures - - - - - -
------------- --------------- ------------- -- -------------- -- ------------- --- -------------
2002
Net sales $ 1,257,408 $ 338,854 $ 297,555 $ 640,055 $ - $ 2,533,872
Income (loss) from operations 150,436 (137,939) (11,211) (231,010) - (229,724)
Depreciation and amortization 685 3,228 467 407 - 4,787
Assets 871,428 482,001 223,454 250,868 50,000 1,575,240
Capital expenditures 1,425 - - - - 1,425
------------- --------------- ------------- -- -------------- -- ------------- --- -------------
NOTE 6 STOCK ISSUANCES
During the first quarter of 2003, the Company issued 618,000 shares of
common stock to consultants for services. The shares were valued at
$105,060, the fair value on the respective grant dates.
6
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
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 eleven collection related
lawsuits totaling approximately $359,000, 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 eleven potential lawsuits which are all collection
related matters totaling approximately $65,000.
(B) Collateralized Shares
During the first quarter of 2003, the Company issued 1,930,700 restricted
shares of common stock as collateral for services previously performed by
vendors. The amounts due to these vendors are recorded in accounts
payable and accrued expenses as of March 31, 2003. Upon payment of these
outstanding invoices by the Company, the shares will be returned to the
Company and canceled. As of the date of this report, no shares have been
returned.
NOTE 8 RELATED PARTIES
During the three months ended March 31, 2003, the Company repaid
stockholder loans in the amount of $8,559.
NOTE 9 GOING CONCERN
As reflected in the accompanying financial statements, the Company has a
net loss of $711,296, a working capital deficiency of $5,524,495 and a
stockholders' deficiency of $6,269,460. 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
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
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.
7
PAVING STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
Management's future plans also include obtaining additional financing for
which they are currently in active negotiations with several financing
institutions.
NOTE 10 SUBSEQUENT EVENT
Subsequent to March 31, 2003, the Company issued 405,000 common stock
options pursuant to its stock option plans at an average exercise price
of $0.075 to consultants for services. The options were valued at $35,735
or $0.088 per share, based on the exercise dates.
On April 3, 2003, the Company issued 40,000 collateral shares for
services performed by vendors (See Note 7(B)).
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 on April 30, 2003, and has not been
renegotiated for the renewal as of the date of this report.
8
ITEM 2. MANAGEMENT'S 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 first quarter of 2003, we discontinued our operations in Florida
and New England, and consolidated our three California offices into one central
office. These operations lost over $5 million in 2002. This restructuring
illustrates our continued shift towards higher margin business and should allow
us to focus on growing the more profitable areas of our operation. We continue
to provide installation services for the nations largest home remodeling
retailer in select markets in the western United States and plan to continue to
expand this relationship.
From continuing operations, in the first quarter we posted a 10% increase
in net sales over the first quarter of 2002. In addition, we increased our
year-to-date gross margins up to 28% as compared to 23% for all of 2002. This
growth in sales and margins reflects the positive shifting of our business as
described above.
The following explanations reflect continuing operations.
FINANCIAL CONDITION
Total assets from continuing operations as of March 31, 2003 were
$1,619,842, an increase of $44,602 or 2.8%, from total assets of $1,575,240 at
December 31, 2002. The increase was primarily attributable to an increase in
cost in excess of billings on uncompleted contracts of $195,210 offset by a
reduction in accounts receivable of $159,111. These reflect normal seasonal
fluctuations.
Current liabilities from comtinuing operations increased by $186,807, or
3.6%, from $5,174,774 at December 31, 2002 to $5,361,581 at March 31, 2003. The
increase is primarily attributable to an increase in accounts payable and
accrued expenses caused by normal seasonal fluctuations.
Stockholders' deficit increased from $5,663,225 at December 31, 2001 to
$6,269,460, an increased deficit of $606,235. This was a result of losses in the
first quarter of $711,296, of which $392,677 came from discontinued operations.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 2003 was $2,793,295 as
compared to $2,533,872 for the three months ended march 31, 2002, an increase of
$259,923, or 10.3%. The increase was primarily due to the continued growth of
our offices in Arizona, California and Georgia.
Cost of goods sold increased to $2,009,871 for the three months ended March
31, 2003 as compared to $1,770,457 for the three months ended March 31, 2002, an
increase of $239,414, or 13.5%. The increase was a result of the increases in
sales over the prior year plus material and labor price fluctuations.
Selling, general and administrative expenses decreased by $40,215, or 4%
from $993,139 to $952,924 for the comparable three-month period ended March 31,
2003. The decrease is primarily attributable to cost reductions implemented in
California.
We incurred a net loss from continuing operations of $318,619 for the
three-month period ended March 31, 2003 as compared to a net loss of $231,220
for the three-month period ended March 31, 2002. The increase in net loss of
$87,399 was primarily the result of the labor and material price fluctuations
described above.
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2003
Our total assets at March 31, 2003 were $2,376,570 compared with $4,088,860 at
December 31, 2002, a decrease of $1,712,290. These balances include net assets
from discontinued operations of $756,728 at March 31, 2003 and $2,513,620 at
December 31, 2002, a decrease of $1,756,892, primarily the result of the winding
down of our Florida business. Our total assets excluding discontinued operations
were $1,619,842 and $1,575,240, respectively, at March 31, 2003 and December 31,
2002, an increase of $44,602. This increase was primarily due to an increase in
cost in excess of billings on uncompleted contracts of $195,210, offset by a
decrease in accounts receivable of $159,111, both a result of normal seasonal
fluctuations. Total assets at March 31, 2003 were comprised mainly of $1,102,690
of accounts receivable, $354,545 of cost in excess of billings on uncompleted
contracts and $106,761 of property and equipment. Total assets at December 31,
2002 were comprised
9
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 March 31, 2003 and December 31, 2002 amounted to $2,243,193
and $3,955,133, respectively, while total current liabilities for those same
periods amounted to $7,767,688 and $8,847,224 respectively, creating working
capital deficits of $5,524,495 and $4,892,091, respectively. These working
capital deficits are principally attributable to operating losses in the first
quarter of 2003 and in the full year of 2002. Total liabilities at March 31,
2003 and December 31, 2002 were $8,646,030 and $9,752,085, respectively,
representing a decrease of 1,106,055. This decrease is primarily due to a
decrease in liabilities from discontinued operations of $1,266,343, caused
primarily by the winding down of operations in Florida. Shareholders' deficit at
March 31, 2003 and December 31, 2002 was $6,269,460 and $5,663,225,
respectively, representing an increased deficit of $606,235. The increased
deficit is due to losses in the first quarter of 2003.
During the first quarter of 2003, we received no significant outside financing.
The Company's net cash provided by operating activities for the quarter ended
March 31, 2003 was $33,433, compared to cash used in operating activities of
$72,440 for the quarter ended March 31, 2002, an increase of $105,883. This
increase resulted from increased collection efforts in 2003.
Our Company had no investing activities in the quarter ended March 31, 2003, as
compared to net cash used in investing activities of $$27,686 for the quarter
ended March 31, 2002.
Our Company's net cash used in financing activities for the quarter ended March
31, 2003 was $21,069, compared to net cash provided of $219,893 for the quarter
ended March 31, 2002, a decrease of $240,962. The source of financing in the
quarter ended March 31, 2003 was $5,718 from our line of credit as compared to
$250,092 from our line of credit in the quarter ended March 31, 2002.
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. 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 March 31,
2003 working capital deficit of $5,524,495 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.
To improve our cash flow, beginning in December 2002, we discontinued our
operations in Florida and New England, and consolidated our 3 California offices
into one central office. These markets accounted for over $5 million of losses
in 2002. In addition, we substantially reduced administrative costs at our
headquarters through the elimination of several personnel. We continue our
efforts to raise capital through the sale of stock.
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",
10
"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 may not be able to maintain its listing on the
Over-the-Counter Bulletin Board if it does not continue to meet the
Criteria necessary to maintain such listing.
* 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
11
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-QSB and Annual
Report on Form 10-KSB. 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.
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The Company is presently a defendant in 11 collection related lawsuits
totaling approximately $359,000, 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 11
threatened collection related lawsuits totaling approximately $65,000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the first quarter of 2003, the Company issued 618,000 restricted
shares of common stock as collateral for services to be performed by vendors. In
addition, 40,000 additional collateral shares were issued to a vendor on April
3, 2003. These shares have not yet been applied as payment for amounts owed.
During the first quarter of 2003, the Company granted 992,900 shares to
consultants and vendors pursuant to its common stock plans. These were valued at
$184,893 based on the date of exercise. On April 1, 2003, 230,000 additional
shares were granted to a consultant, valued at $23,000 based on the date of
exercise.
During the first quarter of 2003, the company issued 260,800 shares to
consultants and vendors pursuant to its stock option plans, as collateral for
services to be performed. These shares have not yet been applied as payment for
amounts owed.
Subsequent to March 31, 2003, the company issued 405,000 options pursuant
to its stock option plans at an average exercise price of $0.075 to consultants
for services. The options were valued at $35,735 or $0.088 per share, based on
the exercise dates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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: May 20, 2003
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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: May 20, 2003 Chief Executive Officer
15
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: May 20, 2002 Executive Vice President Finance
and Chief Financial Officer
16