10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ___________ to _________________ 000-30051 ------------------- (Commission File No.) PAVING STONE CORPORATION ----------------------------------- (Exact name of registrant as specified in its charter) NEVADA 88-0443120 ---------------- -------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 1760 N.W. 22nd Court, Pompano Beach, FL 33069 --------------------------------------------- (Address of principal executive offices) (954) 971-3235 --------------------------- (Registrant's telephone number) Cottage Investments, Inc. --------------------------- (Registrant's Former Name) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X] No [ ] At August 13, 2002, 24,347,182 shares of the Registrant's common stock were issued and outstanding. Through out this Report, the terms "we", "us", "our" and other similar pronouns refer to the Paving Stone Corporation. The terms "PVNG", the "Company," or "Registrant" also refer to the Paving Stone Corporation. ================================================================================ PART I: FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. PAVING STONE CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF JUNE 30, 2002 (CONSOLIDATED) AND 2001 (COMBINED) PAVING STONE CORPORATION AND SUBSIDIARIES CONTENTS --------

~~TABLE~~PAGE ~~OF CONTENTS ---------------------------------------------------------------------------------------------------------- PART~~ 1~~...................................................................................................1~~ ~~ITEM 1. FINANCIAL STATEMENTS.............................................................................2~~ CONSOLIDATED BALANCE ~~SHEET~~SHEETS AS OF ~~MARCH~~JUNE 3130, ~~2001.................................................2~~2002 ~~CONSOLIDATED~~(UNAUDITED) ~~STATEMENTS~~AND OFDECEMBER ~~OPERATIONS - THREE MONTHS ENDED MARCH~~ 31, ~~2000 AND~~ 2001~~..........................................................................3~~ ~~CONSOLIDATED~~PAGE 2 STATEMENTS OF ~~CASH~~OPERATIONS ~~FLOWS~~FOR -THE THREE AND SIX MONTHS ENDED ~~MARCH~~JUNE 3130, ~~2000~~2002 (CONSOLIDATED) AND 2001~~..........................................................................4~~ ~~NOTES~~(COMBINED) TO(UNAUDITED) ~~CONSOLIDATED~~PAGES ~~FINANCIAL~~3 ~~STATEMENTS......................................................5~~- ~~ITEM~~4 2.STATEMENTS ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN~~ OF ~~OPERATION........................................6~~CASH ~~PART~~FLOWS ~~II..................................................................................................8~~FOR ~~ITEM~~THE 1.SIX ~~LEGAL~~MONTHS ~~PROCEEDINGS................................................................................8~~ENDED ~~ITEM~~JUNE 2.30, ~~CHANGES~~2002 IN(CONSOLIDATED) ~~SECURITIES~~ AND ~~USE~~2001 OF(COMBINED) ~~PROCEEDS........................................................8~~(UNAUDITED) ~~ITEM~~PAGES 3.5 ~~DEFAULTS~~- ~~UPON~~7 ~~SENIOR~~NOTES ~~SECURITIES..................................................................8~~TO ~~ITEM~~CONSOLIDATED 4.FINANCIAL ~~SUBMISSION~~STATEMENTS OFAS ~~MATTERS TO A VOTE~~ OF ~~SECURITY~~JUNE ~~HOLDERS..............................................8~~30, ~~ITEM~~2002 5. OTHER INFORMATION................................................................................8 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A.......................................................9 EXHIBIT 1...............................................................................................11(i)

PAVING STONE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ---------------------------

ASSETS ~~CASH~~------ $June 2930,~~025~~ ~~OTHER~~2002 December 31, (Unaudited) 2001 -------------- -------------- CURRENT ASSETS 1Cash $ - $ 35,~~356~~439 Accounts receivable - net of allowances 4,314,749 5,568,321 Inventories 37,065 37,065 Prepaid expenses 42,836 83,945 Rebate receivable 330,438 330,438 Other receivables 40,245 - Advance to related party 132,338 18,736 Costs in excess of billings on uncompleted contracts 847,361 504,536 -------------- -------------- 30Total Current Assets 5,~~369~~745,032 ~~FIXED~~6,578,480 ~~ASSETS~~-------------- -------------- PROPERTY AND EQUIPMENT - NET 293,853 306,040 -------------- -------------- OTHER ASSETS ~~400~~Security deposits and other assets - net of amortization 48,785 39,553 Other loans / advances receivable 23,117 16,317 -------------- -------------- Total Other Assets 71,902 55,870 -------------- -------------- TOTAL ASSETS 30$ 6,~~769~~110,787 $ 6,940,390 -------------- ============== ============== LIABILITIES AND STOCKHOLDERS'~~/MEMBERS'~~ EQUITY ~~(DEFICIT)~~-------------------------------------- CURRENT LIABILITIES: Cash overdraft $ 38,158 $ 326,936 Accounts payable and accrued expenses 12,~~158~~876,~~771~~326 ~~Loans~~3,527,040 ~~Payable~~Customer ~~675,628~~deposits ~~Lease~~payable ~~Obligations~~- 5283,641 ~~Net~~Billings in excess of cost on uncompleted contracts 89,408 178,976 Note and capital lease obligation payable - current portion 31,964 33,111 Notes payable - stockholder 411,942 395,693 Lines of credit 2,508,486 2,240,271 -------------- -------------- Total Current Liabilities ~~from~~5,956,284 ~~MyFavoriteShoe.com~~6,785,668 ~~Inc.~~-------------- 1-------------- LONG TERM LIABILITIES Note and capital lease obligation payable 62,~~687~~086 76,~~771~~001 Notes payable - stockholder 66,284 64,353 -------------- -------------- ~~TOTAL~~Total ~~CURRENT~~Long-Term Liabilities 128,370 140,354 -------------- -------------- TOTAL LIABILITIES 36,~~574~~084,~~810~~654 6,926,022 -------------- -------------- STOCKHOLDERS'~~/MEMBERS'~~ EQUITY ~~(DEFICIT)~~ Common stock, $.00001 par value, ~~350~~150,000,000 shares authorized, ~~161~~24,~~976~~312,~~538~~182 and ~~175~~2,~~608~~260,~~298~~083 shares issued asand ofoutstanding ~~March~~243 ~~2001~~23 ~~and~~Common ~~2000,~~stock ~~respectively~~to be issued, 1,~~620~~520,000 and 19,742,099 shares 15 197 Additional paid-in capital 85,~~095~~731,~~492~~865 ~~Deficit~~5,242,603 ~~accumulated~~Accumulated ~~during~~deficit ~~the~~(5,705,990) ~~development stage~~ (115,~~641~~228,~~153~~455) ~~TOTAL STOCKHOLDERS'/MEMBERS'~~ -------------- -------------- TOTAL STOCKHOLDERS' EQUITY ~~(DEFICIT)~~26,133 (314,~~544,042)~~368 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS'/ EQUITY $ 6,110,787 $ 6,940,390 -------------------------------------------- ~~MEMBERS' EQUITY (DEFICIT) 30,769~~ ============== =============

See accompanying notes to financial statements. 1 PAVING STONE CORPORATION AND SUBSIDIARIES STATEMENTS OF OPERATIONS ------------------------ (UNAUDITED)

For the Six For the Three For the Three For the Six Months Months Ended ~~March~~Months 31Ended Months Ended Ended June June 30, 2002 June 30, 2001 ~~2000~~June 30, 2002 30, 2001 (Consolidated) (Combined) (Consolidated) (Combined) --------------- ------------ ~~REVENUES:~~--------------- ------------ 4NET SALES $ 8,~~840~~787,081 $ 8,462,500 $ 15,850,459 $15,114,582 COST OF ~~GOODS~~SALES ~~SOLD~~6,514,491 -6,742,381 512,~~814~~000,069 12,300,218 --------------- ------------ --------------- ~~Gross~~------------ ~~margin~~GROSS -PROFIT ~~(974)~~2,272,590 1,720,119 3,850,390 2,814,364 OPERATING EXPENSES ~~103~~Selling,~~174~~ general and administrative 2,~~561~~708,~~505~~058 1,736,265 4,746,649 3,108,125 Common stock issued for services 105,000 - 105,000 - Common stock issued in settlement (615,700) - (615,700) - --------------- ------------ --------------- ~~OPERATING~~------------ ~~LOSS~~Total ~~(103,174)~~Operating (Expenses 2,~~562~~197,~~479)~~358 ~~OTHER~~1,736,265 4,235,949 3,108,125 --------------- ------------ --------------- ------------ INCOME (~~EXPENSES~~LOSS): ~~Interest~~FROM ~~expense~~OPERATIONS -75,232 (116,~~372~~146) ~~Interest~~(385,559) ~~income 134 2~~(293,~~916~~761) --------------- ------------ --------------- ~~Total~~------------ ~~other~~OTHER ~~income~~EXPENSES ~~(expenses)~~Interest ~~134~~expense 153,~~544~~880 ~~Loss~~36,965 ~~from~~90,872 ~~Continuing~~74,837 ~~Operations~~Other ~~(103~~expense 1,~~040)~~104 (2,~~560~~113 1,~~935)~~104 ~~Discontinued~~3,342 ~~Operations~~--------------- ~~Net~~------------ ~~Loss~~--------------- ~~(Gain)~~------------ ~~from~~Total ~~operations~~Other ofExpense ~~MyFavoriteShoe.com~~54,984 ~~Inc.~~39,078 591,~~917~~976 -78,179 --------------- ------------ --------------- ------------ NET INCOME (LOSS) $ 20,248 $ (9755,~~123~~224) $ (2477,~~560~~535) $ (371,~~935~~940) ------------------- =============== ============ =============== ~~WEIGHTED~~============ ~~AVERAGE~~Net ~~COMMON~~income ~~SHARES~~(loss) ~~157,536,562~~per ~~175,108,298~~share ~~USED~~- INbasic ~~COMPUTING~~and ~~BASIC~~diluted ~~AND~~$ ~~DILUTED~~- ~~LOSS~~$ ~~PER~~- ~~SHARE BASIC AND DILUTED LOSS PER~~ $ (0.0002) $ (0.0102) ~~COMMON~~=============== ~~SHARE~~============ =============== ============ Weighted average shares outstanding during the period - basic and diluted 24,302,951 16,040,000 23,158,922 16,040,000 =============== ============ =============== ============

See accompanying notes to financial statements. 2 PAVING STONE CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (CONSOLIDATED) ----------------------------------------------------- AND 2001 (COMBINED) ------------------- (UNAUDITED)

~~Three~~For the Six For the Six Months Ended ~~March~~Months 31Ended June 30, 2002 June 30, 2001 ~~2000~~(Consolidated) (Combined) --------------- ----------- CASH FLOWS ~~FORM~~FROM OPERATING ACTIVITIES: Net loss $ (97477,~~123~~535) $ (2371,~~560,935~~940) Adjustments to reconcile net loss to net cash used in operating activities: ~~Depreciation~~Stock -issued 24for services 105,~~347~~000 - Stock ~~issued~~returned in settlement (615,700) - Depreciation and amortization 56,102 44,931 Provision for ~~consulting~~doubtful ~~services~~accounts (12,760) 222,679 Loss on disposal of equipment 1,~~799~~104 - Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable -1,266,332 4116,~~662~~895 ~~Inventory~~Prepaid -expense ~~(31~~41,~~055)~~109 ~~Prepaid~~6,238 ~~expenses~~Rebate ~~2,775~~receivable ~~848~~- ~~Accounts~~(33,414) ~~payable~~Security deposits and ~~accrued~~other ~~expenses~~assets (399,~~404~~232) (~~138~~69,~~406~~015) ~~Deferred~~Costs ~~Payroll~~in &excess ~~Payroll~~of ~~Liabilities~~billings ~~113~~on uncompleted contracts (342,~~500~~825) -(502,485) ~~Tax~~Other ~~Liability~~receivables (40,245) - Increase (~~141~~decrease) ~~Deferred~~in: ~~revenue~~Accounts -payable and accrued expenses (1650,~~677~~714) ~~Net~~423,020 ~~Liabilities~~Cash ~~from~~overdraft ~~MyFavoriteShoe.com~~(288,778) ~~Inc.~~- Billings in excess of cost on uncompleted contracts (589,~~917~~568) ~~246~~22,~~886~~141 Customer deposits payable (83,641) - --------------- ----------- Net Cash Used In Operating Activities (1,141,351) (140,951) --------------- ----------- ~~Total~~CASH ~~adjustments~~FLOWS 72FROM INVESTING ACTIVITIES: Proceeds on disposal of equipment 37,~~753~~828 ~~105~~- Purchase of property and equipment (40,~~463~~470) (67,987) Other loans / advances receivable (6,800) - --------------- ----------- Net Cash Used In Investing Activities (9,442) (67,987) --------------- ----------- ~~Net~~CASH ~~cash~~FLOWS ~~used~~FROM inFINANCING ~~operating~~ACTIVITIES ~~activities~~Proceeds ~~(24~~on issuance of stock for cash,~~370)~~ (2net 1,~~455~~000,~~471)~~000 ~~CASH~~- ~~FLOWS~~Advances ~~FROM~~from ~~INVESTING~~related ~~ACTIVITIES:~~parties ~~Purchase~~ (~~Write down~~113,602) ~~of Property~~25,316 ~~Equipment~~Payments &on ~~Investments~~notes and capital leases (057,439) (16,~~343,263~~939) ~~CASH~~Proceeds ~~FLOWS~~from ~~FROM~~lines ~~FINANCING~~of ~~ACTIVITIES:~~credit ~~Loans~~268,215 -380,211 ~~750~~Distributions ~~Lease~~to ~~Obligations~~stockholders - (3208,~~333~~438) ~~Proceeds~~Shareholder ~~from~~loan ~~stockholder~~payable ~~contributions~~18,180 ~~net~~ - ~~805,613~~ --------------- ----------- Net Cash Provided By Financing Activities 1,115,354 190,150 --------------- ----------- ~~Net~~NET ~~cash~~DECREASE ~~provided~~IN byCASH (~~used~~35,439) in(18,788) ~~financing~~CASH ~~activities~~AND -CASH ~~803,030~~EQUIVALENTS ~~NET~~- ~~INCREASE~~BEGINNING ~~(DECREASE)~~OF INPERIOD ~~CASH~~35,439 ~~AND~~42,698 ~~CASH~~ --------------- -----------~~----------------------~~ ~~EQUIVALENTS (24,370) (2,995,704) ================================================~~ CASH AND CASH EQUIVALENTS, ~~BEGINNING~~- END OF PERIOD ~~53,394~~$ ~~3,411,554~~- ~~CASH~~$ ~~AND CASH EQUIVALENTS~~23,910 ~~END~~ ------------------------------------------~~------~~ ~~OF PERIOD 29,025 415,850~~ =============== ===========~~====================== Suplemental disclosure of cash flow information: Stock issued for settlement of payables $306,929 $ -~~

See accompanying notes to financial statements. 3 PAVING STONE CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (CONSOLIDATED) ----------------------------------------------------- AND 2001 (COMBINED) ------------------- (UNAUDITED)

~~Proforma~~SUPPLEMENTAL ~~zebramart~~DISCLOSURE &CASH ~~Adjusting~~FLOW ~~ProForma~~INFORMATION: ~~Consolidated MyFavoriteShoe Entries Cottage ASSETS CURRENT ASSETS $ 30,369 $ 11,173 $~~ - ~~$ 19,195 OTHER ASSETS $ 400 $~~ - $ - ~~$ 400~~ -------------------------------------------~~-----------------------~~ ~~TOTAL~~Cash ~~ASSETS~~paid $for ~~30,769~~interest $ 1161,~~173~~068 $ ~~- $ 19~~72,~~595~~999 ========== ============~~============================================~~ ~~LIABILITIES & STOCKHOLDERS EQUITY CURRENT LIABILITIES $ 3,574,810 $ 3,070,556 $~~ NON-CASH $INVESTING ~~504,254~~AND ~~SHAREHOLDERS'~~FINANCING ~~EQUITY~~ACTIVITIES: ~~(DEFICIT)~~Equipment ~~$(3,544,042)~~acquired $by ~~(3,059,383)~~note $payable - $~~(484,659)~~ ~~------------------------------------------------------------------ TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 30~~42,~~769~~377 $ ~~11,173 $~~ - ~~$ 19,595~~ ========== ============~~============================================~~

See accompanying notes to financial statements. 4 PAVING STONE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 ------------------- NOTE 1 BASIS OF PRESENTATION ------- ------------------------ The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. For further information, refer to the financial statements and footnotes for the year ended December 31, 2001 included in the Company's Form 10-KSB. NOTE 2 PRINCIPLES OF CONSOLIDATION ------- ----------------------------- The accompanying consolidated financial statements include the accounts of Paving Stone Corporation and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. NOTE 3 PRINCIPLES OF COMBINATION ------- --------------------------- The 2001 financial statements are presented on a combined basis, which represents The Paving Stone Company, Inc. and its affiliates, which include Paving Stone Company of Atlanta, Inc., The Paving Stone Company of Arizona, Inc., Paving Stone of Nevada, Inc., and The Paving Stone Company of California, Inc., all of which were owned by one stockholder. Significant intercompany balances and transactions were eliminated in the combination. NOTE 4 INVENTORIES ------ ----------- Inventories consist of brick pavers and installation supplies. Inventories are stated at the lower of cost or market value, as determined using the first in, first out method. NOTE 5 SEGMENT REPORTING ------ ----------------- The Company has six geographic reportable segments: Florida, Arizona, Atlanta, Nevada, California and corporate. Each segment installs interlocking pavers on driveways and patios for residential and commercial use. The accounting policies of the segments are the same as described in the summary of significant accounting policies. The Company evaluates segment performance based on income from operations. Sales for each segment are based on the location of the third-party customer. All intercompany transactions between segments have been eliminated. 5 PAVING STONE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 ------------------- The Company's selling, general and administrative expenses and engineering expenses are charged to each segment based on the region where the expenses are incurred. As a result, the components of operating income for one segment may not be comparable to another segment. Segment results for 2002 and 2001 are as follows:

~~Proforma~~Georgia/ ~~zebramart~~Arizona/ &Mid- ~~Adjusting~~Florida ~~Consolidated~~Texas ~~MyFavoriteShoe~~Atlantic ~~Entries~~Nevada ~~ProForma~~California ~~Cottage~~Corporate ~~OPERATING~~Total ~~EXPENSES~~------------ ----------- ----------- ----------- ------------ ---------- ------------- 2002 ----- Net sales $ ~~(103~~9,~~174)~~179,106 $2,482,496 45$1,~~543~~443,277 $824,647 -, $ 1,868,119 $ 52,814 $15,850,459 Income (~~148~~loss) from operations (409,~~717~~515) ~~OTHER~~189,438 ~~INCOME~~(21,437) (~~EXPENSES~~12,158) $(525,522) 393,635 (385,559) Depreciation and amortization 46,509 1,495 6,~~051~~233 $934 5931 - 56,~~917~~102 $Assets 3,736,831 840,294 807,564 282,250 410,020 83,828 6,110,787 Capital expenditures 19,773 6,213 42,377 - $5,912 ~~134~~8,572 82,847 ---------------------------------------------------------------------------------------- ~~NET~~2001 ~~LOSS~~----- Net sales $11,931,741 ~~(97~~$1,~~123)~~321,640 $1,128,554 51$ 357,~~460~~664 $ 374,983 $ - $ ~~(148~~15,~~583)~~114,582 ~~======================================================================~~Income ~~WEIGHTED~~(loss) ~~AVERAGE~~from ~~COMMON~~operations ~~SHARES~~(86,961) ~~157~~(13,~~536~~254) (54,~~562~~926) ~~157~~(49,~~536~~203) (89,~~562~~417) ~~USED~~- IN(293,761) ~~COMPUTING~~Depreciation ~~BASIC~~and ~~AND~~amortization ~~DILUTED~~38,081 ~~LOSS~~894 ~~PER~~5,022 ~~SHARE~~934 ~~BASIC~~- ~~AND~~- ~~DILUTED~~44,931 ~~LOSS~~Assets ~~PER~~5,387,044 $139,524 452,395 (~~0.00~~34,153) $45,969 ~~(0.00)~~- ~~COMMON~~5,990,779 ~~SHARE~~Capital expenditures 60,089 4,689 3,209 - - - 67,987 ----------------------------------------------------------------------------------------

NOTE 5 STOCK ISSUANCES ------ --------------- On June 6, 2002, the Company issued 300,000 shares of common stock to a consultant for services. The shares were valued at $105,000, the fair value on the date of grant. On April 30, 2002, the Company issued 4,000,000 shares of common stock for cash proceeds of $1,000,000. On April 2, 2002, a consultant returned 470,000 shares of common stock per a settlement agreement. The shares were valued at $615,000, the fair value on the date of grant. 6 PAVING STONE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 ------------------- NOTE 6 SUBSEQUENT EVENT ------ ---------------- (A) COMMON STOCK ISSUANCE ---------------------------- On July 15, 2002, the Company issued 35,000 shares of common stock to its employees, as consideration for services rendered to the Company. The shares were valued for financial accounting purposes at $.21 per share, the fair value at the date of grant, resulting in employee benefits expense of $7,350. The shares were issued to all employees who were employed on or before December 15, 2001. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW During the second quarter of 2002, in spite of an unusually high amount of rainfall in our Florida markets, we posted a 4% increase in net sales over the second quarter of 2001. In addition, we increased our gross margins up to 26% from 20% over the second quarter of 2001, resulting in a 137% increase of net income. We continue to shift our business away from the high volume and low margin work (primarily in Florida), which characterized our company in prior years. As a result of our expansion into new markets around the country over the last two years, and our shift towards remodeling work, we are making a deliberate transition into higher priced and more profitable business. The second quarter also marked the beginning of the roll out of our exclusive installation program with Home Depot in Florida and Eastern Massachusetts. We are pleased with the initial success in new sales volume, and expect this program to continue to expand and have a positive impact on sales during the second half of this year. Lastly, at the beginning of the second quarter, we closed on our first round of equity financing and set the stage for additional funding for our expansion. FINANCIAL CONDITION Total assets as of June 30, 2002 were $6,110,787, a decrease of $829,603, or 12%, from total assets of $6,940,390 at December 31, 2001. The decrease was primarily attributable to a reduction in accounts receivable of $1,253,572, which reflects a normal seasonal decline in volume from the fourth quarter of the prior year. This reduction was offset by an increase in costs in excess of billings of $342,825, which reflects an increase in uncompleted jobs in progress, caused by the heavy rainfall in June 2002. Current liabilities decreased by $829,384, or 12%, from $6,785,668 at December 31, 2001 to $5,956,284 at June 30, 2002. The decrease is primarily attributable to a decrease in accounts payable and accrued expenses of $939,492. Stockholders' equity increased from $14,368 at December 31, 2001 to $26,133 at June 30, 2002, an increase of $11,765, or 82%. The increase is primarily attributable to an increase in paid in capital of $439,262, offset by a year-to-date net operating loss of $477,535. 8 RESULTS OF OPERATIONS Net sales increased by $324,581, or 3.8%, and $735,877, or 4.9%, for the three-month and six-month periods ended June 30, 2002, respectively, as compared to the same periods in the prior year. The increases were primarily due to the expansion into new markets in 2001. Cost of goods sold decreased $227,890, or 3.4%, and $300,149 or 2.4%, for the three-month and six-month periods ended June 30, 2002, respectively, as compared to the same periods in the prior year. The decreases reflect efficiencies gained in labor and material costs over the prior year. Selling, general and administrative expenses increased by $971,793, or 56.0%, and $1,127,824 or 36.3%, for the three-month and six-month periods ended June 30, 2002, respectively, as compared to the same periods in the prior year. The increases are primarily attributable to the expansion into new markets in the prior year. We generated a net profit of $20,248 for the three-month period ended June 30, 2002 as compared to a net loss of $55,224 for the three months ended June 30, 2001. The increase in net profit of $75,472, or 137%, was largely a result of the increases in gross margins described above along with a net gain on stock issuances and settlements of certain consulting contracts. We incurred a net loss of $477,535 for the six-month period ended June 30, 2002 as compared to a net loss of $371,940 for the same period in the prior year. The increase in net loss of $105,595 or 28% occurred primarily in the first quarter of 2002 and was the result of expansion in the prior year. LIQUIDITY AND CAPITAL RESOURCES During the six-month period ended June 30, 2002, operating activities consumed $1,141,350 of cash as compared to $140,951 for the same period in the prior year. The increase in cash consumed was partially due to our national expansion in the last half of 2001. In addition, cash inflows decreased over 2001 in our southernmost Florida operation as a result of new construction declines caused by full saturation of the new construction market. The primary sources of funding came from an equity financing with a private investor totaling $1,000,000 in gross proceeds, along with an increase in our line of credit of $250,000, bringing the total credit facility up to $2,500,000. We continue to monitor our cash situation and may continue to pursue additional equity funding as appropriate. 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. PART II: OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS. The Company knows of no material legal proceedings at this time. Periodically, the Company becomes party to legal claims that arise in the ordinary course of business. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. (c) Recent Sales of Unregistered Securities. On April 12, 2002, the ------------------------------------------ Company conducted a private placement of equity securities. Under the terms of the subscription agreement, the Company received consideration equivalent to $1,000,000, in exchange for 4,000,000 shares of common stock, $0.00001 par value, and a warrant to purchase 1,500,000 shares of common stock, $0.00001 par value. The shares of common stock were issued on April 18, 2002. The warrant is exercisable beginning six months and ending thirty months after April 17, 2002, at a price equal to a 30% discount to the average closing bid price of the common stock of the Company as trading on the over-the-counter bulletin board market, for a period of 10 days prior to exercise, not to exceed $1.00. The 10 Company believes that the sale of the Common Stock was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder by the Securities and Exchange Commission. The Company has agreed to file a registration statement for the shares issued and underlying the warrant to be effective on or before December 31, 2002. The Company has used the proceeds to reduce debt and to fund working capital needs and expansion. The Company entered into an Acquisition Agreement on October 11, 2001, a copy of which was filed with the Securities and Exchange Commission as an Exhibit to a Report on Form 8-K on October 17, 2001. The acquisition closed on December 17, 2001, as reported on a Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2002. Under the terms of the Acquisition Agreement, the Company acquired five corporations, which became operating subsidiaries of the Company, in exchange for a total of 20,000,000 shares of common stock, $0.00001 par value, to be issued to certain directors, officers and consultants of the Company. The financial statements for this report have assumed the issuance of such shares for the purpose of determining earnings per share and other equity-related calculations. The number of shares had been placed in reserve pending actions by the board of directors to authorize the transfer of shares. On April 25, 2002, at the direction of the board of directors, the Company issued 17,360,000 shares of common stock, par value $0.00001, in accordance with the Acquisition Agreement, of which 16,040,000 shares were issued to Maurice Sigouin, the Chief Executive Officer, President, and Chairman of the Board of Directors, and 1,320,000 shares were issued to Jace Simmons, the Executive Vice President of Finance, Chief Financial Officer and a Director of the Company. The Company believes that the issuance of the shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. On June 6, 2002, the Company issued 300,000 shares of common stock to a consultant for services. The shares were valued at $105,000, the fair value on the date of grant. The Company believes that the issuance of the shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. -------- 99.1 (CEO) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 (CFO) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. The Company did not file any reports on Form -------------------- 8-K during the fiscal quarter. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PAVING STONE CORPORATION By: /s/ Jace Simmons --------------------- Jace Simmons, Executive Vice President-Finance, Chief Financial Officer, and Director (Duly Authorized Officer and Principal Financial Officer) Dated: August 14, 2002 12

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