As Filed on August 14, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended: June 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to __________
Commission File No. 0-28223
MERIDIAN USA HOLDINGS, INC.
----------------------------
(Exact Name of Small Business Issuer
as Specified in Its Charter)
Florida 65-0510294
------------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3350 N.W. 2nd Avenue, Suite A28, Boca Raton, FL 33431
--------------------------------------------------------------
(Address of Principal Executive Offices)
(561)-417-6800
-----------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes x No
--- ---
(The Company became subject to the reporting requirements on January 20,
2000)
APPLICABLE ONLY TO CORPORATE ISSUERS
As of July 7, 2000, the issuer had issued and outstanding: (i)
6,191,399 shares of its common stock, par value $0.001 per share; (ii) 3,500
shares of Series I Preferred Stock, each of which is convertible at any time
into three hundred (300) shares of the Company's Common Stock;(iii) 385,000
warrants to purchase one share each of Common Stock at the greater of $2.50 or
the average trading price during the twenty (20) days prior to exercise; iv)
698,948 warrants to purchase one share each of Common Stock at $1.75 per share;
and (v) 450,000 options to purchase one share each of Common Stock at prices
ranging from $.50 to $1.00 per share.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -------
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MERIDIAN USA HOLDINGS, INC.
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1 Consolidated Financial Statements
Consolidated Balance Sheet at
June 30, 2000 (unaudited) p. 4
Consolidated Statements of Operations for the
three months and six months ended June 30, 2000
and 1999 (unaudited) p. 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and
1999 (unaudited) p. 6
Notes to Consolidated Financial Statements p. 7
Item 2 Management's Discussion and Analysis of Results
of Operations p. 9
PART II - OTHER INFORMATION p. 10
Item 1 Legal proceedings p. 10
Item 2 Changes in securities and use of proceeds p. 10
Item 3 Defaults upon senior securities p. 10
Item 4 Submission of matters to a vote of
security holders p. 10
Item 5 Other events p. 10
Item 6(a) Exhibits p. 10
Item 6(b) Reports on Form 8-K p. 10
Signatures p. 11
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MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
--------------------------
JUNE 30, 2000
-------------
(UNAUDITED)
ASSETS
------
<S> <C>
Current assets:
Cash $ 357,096
Marketable securities 6,681,751
Accounts receivable, net 208,994
Inventory 68,712
Advances - stockholders 99,000
----------
Total current assets 7,415,553
Property and equipment, net 47,742
Deferred financing costs, net 577,555
Licensing agreement, net 161,333
----------
$8,202,183
==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accounts payable 216,629
Accrued expenses and other current liabilities 193,489
Current portion - note payable 2,680
------------
Total current liabilities 412,798
------------
Note payable 13,815
Convertible note payable, net of discount 7,032,640
--
Stockholders' deficit:
Convertible preferred stock, par value $1.00 -
Authorized 1,000,000 shares, 3,500 shares
issued and outstanding 3,500
Series II convertible preferred stock, par
value $.01 - authorized 8,500 shares, no
shares issued and outstanding --
Common stock, par value $.001 - authorized
20,000,000 shares, issued and
outstanding 6,191,399 6,192
Additional paid-in capital 3,771,333
Accumulated other comprehensive loss - marketable
securities (6,888)
Accumulated deficit $(3,031,207)
------------
$ 742,930
------------
$ 8,202,183
============
See notes to consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
------------------------------------------
CONSOLDIATED STATEMENTS OF OPERATIONS
-------------------------------------
Three Months Ended June 30,
--------------------------------
2000 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 263,156 $ 82,306
Cost of goods sold 179,928 36,508
------------ ------------
Gross profit 83,228 45,798
Selling, general and administrative 615,810 81,865
------------ ------------
Net loss from operations (532,582) (36,067)
Interest income 9,960 --
------------ ------------
Net loss $ (522,622) $ (36,067)
============ ============
Net loss per common share - basic and
diluted $ (0.08) $ (0.01)
============ ============
Weighted average number of common shares
outstanding $ 6,191,399 $ 5,222,333
============ ============
Other comprehensive loss:
Net loss $ (522,622) $ (36,067)
Unrealized loss on marketable
securities (6,888) --
------------ ------------
Comprehensive loss $ (529,510) $ (36,067)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
2000 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 671,728 $ 111,505
Cost of goods sold 416,632 51,567
------------ ------------
Gross profit 255,096 59,938
Selling, general and administrative 1,057,331 300,151
------------ ------------
Net loss from operations (802,235) (240,213)
Interest income 12,288 --
------------ ------------
Net loss $ (789,947) $ (240,213)
============ ============
Net loss per common share - basic and
diluted $ (0.13) $ (0.05)
============ ============
Weighted average number of common shares
outstanding $ 6,116,416 $ 4,915,425
============ ============
Other comprehensive loss: $ (789,947) $ (240,213)
Net loss
Unrealized loss on marketable
securities (6,888) --
------------ ------------
Comprehensive loss $ (796,835) $ (240,213)
============ ============
See notes to consolidated financial statements
</TABLE>
5
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<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
Six Months Ended June 30,
-----------------------------
2000 1999
------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (789,947) $(240,213)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 38,133 4,222
Common stock issued for services 8,125 --
Amortization of debt discount 56,580 --
Changes in current assets and liabilities:
Accounts receivable (165,701) (16,402)
Inventories (21,528) (31,232)
Accounts payable 64,279 116,583
Accrued expenses and other current
liabilities (148,256) 6,152
------------ ----------
Net cash used in operating activities (958,315) (160,530)
------------ ----------
Cash flows from investing activities:
Capital expenditures (43,522) --
Purchase of marketable securities (6,688,639) --
------------ ----------
Net cash used in investing activities (43,522) --
------------ ----------
Cash flows from financing activities:
Advances - stockholders -- (47,456)
Proceeds from note payable 17,184 --
Principal payments on notes payable (689) --
Convertible notes 7,366,334 --
Debt issue costs 31,000 --
Repurchase of common stock -- (50,000)
Sale of common stock 450,000 273,400
Proceeds from contributions of capital 116,044 --
------------ ----------
Net cash provided by financing activities 7,979,873 175,944
------------ ----------
Net increase in cash 289,397 15,414
Cash, beginning of year 67,699 3,632
------------ ----------
Cash, end of year $ 357,096 19,046
============ ==========
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Non-cash financing activities:
Issuance of common stock and convertible
preferred stock in reverse merger $ -- $ 3,377
============ ==========
Issuance of common stock related to
reverse merger $ -- $ 620,000
============ ==========
Issuance of warrants in conjunction with convertible note payable $ 1,023,940 $ --
============ ==========
See notes to consolidated financial statements
</TABLE>
6
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MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
BASIS OF PREPARATION
----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required for annual financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes for the year ended December 31, 1999 included
in the Form 10-KSB for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of June 30, 2000, and the results of operations and cash flows for
the three-month and six-month periods ended June 30, 2000 and 1999 have been
included.
The results of operations for the six-month period ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB as filed with the
Securities and Exchange Commission for the year ended December 31, 1999.
MARKETABLE SECURITIES
----------------------
Investments in marketable securities are classified as available-for-sale and
are recorded at fair value with any unrealized holding gains or losses included
in other accumulated comprehensive loss, which is a component of
stockholders' equity.
NOTE PAYABLE
-------------
In May 2000, the Company entered into a note payable for $17,184, the proceeds
for which were used to acquire a vehicle. Such borrowing bears interest at 9%
per annum and is payable in sixty monthly installments.
CONVERTIBLE NOTES PAYABLE
---------------------------
On June 16, 2000, the Company entered into a convertible debt agreement with a
bank. Such agreement includes a convertible note payable for $8,000,000. This
note bears interest at 5.00% per annum and is automatically converted on June
15, 2001. The note may be converted prior to its mandatory conversion date by
either the Company or the note holder upon the satisfaction of certain
conditions. The note is convertible into shares of the Company's Series II
Convertible Preferred Stock at one share for each $1,000 in debt, to include all
outstanding accrued interest. The Company received net proceeds of $7,366,344
and recorded deferred financing costs of $602,666, to be amortized over one
year. In the event the Company is sold or liquidated, the note will be due upon
demand, to include all outstanding accrued interest.
On May 11, 2000, the Company received bridge financing from the same note
holders for $500,000, such debt was satisfied upon issuance of the convertible
note. For the six months ended June 30, 2000, the Company has recorded
$31,000 in interest expense.
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Additionally, the Company issued along with the convertible note 698,948
warrants to acquire shares of the Company's common stock. The warrants are
exercisable at $1.75 per share and expire seven years from the date of issuance.
The Company has recorded these warrants as a discount to the convertible note of
$1,357,922, such discount was derived utilizing the Black-Scholes option pricing
model using the following assumptions: expected stock price volatility 171%;
risk-free interest rate of 5.70%; and an expected 4 year life. Such discount is
to be amortized as interest expense over one year. With respect to such
discount, the Company has recorded amortization expense of $56,580 for the
period ended June 30, 2000.
STOCKHOLDERS' EQUITY
---------------------
During the six months ended June 30, 2000, the Company's issued 450,000 shares
of its common stock at $1.00 per share, aggregating proceeds of $450,000.
Additionally, the Company issued along with these shares, 250,000 options to
purchase shares of the Company's common stock. The exercise price of the
options issued was between $0.50 and $1.00 per share of common stock.
In January 2000, the Company issued 5,000 shares of common stock to a member of
the Company's advisory board. The Company has recorded $8,125 in noncash
compensation to reflect the transaction.
On June 16, 2000, the Company amended its articles of incorporation to designate
Series II Convertible Preferred Stock ("Series II"). The Company authorized
8,500 shares of Series II stock, $.01 par value. Series II stock accrues
preferred dividends at 5% per annum and each share is convertible into
approximately 571 shares of the Company's common stock based upon a $1.75
conversion price where each Series II share converts into a $1,000 unit of
common stock. The conversion price shall be adjusted one year from the date of
issuance. The adjusted conversion price shall be the lower of $1.75 or the
average of the closing prices of the common stock for the ten-day period ending
one year from the date of issuance. Additionally, these shares have a right of
mandatory redemption ten years from the date of issuance.
8
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Item 2 Management's Discussion and Analysis.
RESULTS OF OPERATIONS
-----------------------
Meridian's sales revenues for the three months and six months ended June 30,
2000 were $263,156 and $671,728, respectively, as compared to $82,306 and
$111,505, respectively, in the comparable periods of 1999. The increases were
attributable to continued expansion of the market for Meridian's Sweet'N Low(R)
brand syrups. Meridian's gross margin; however, decreased from 54% in the six
months ended June 30, 2000 to 38% in the comparable 1999 period. This decrease
was attributable primarily to greater discounts allowed by Meridian
relating to a change in the mix of Meridian's customers from individual retail
outlets to large national chains. This change led to substantially
increased sales revenues, but reduced margins. Management believes that sales
volume will continue to grow and that, as Meridian's products become more
well-established in the market, margins will stabilize.
Selling, general and administrative expenses increased from $81,865 in the
second quarter of 1999 to $615,810 in the second quarter of 2000 and from
$300,351 in the first six months of 1999 to $1,057,331 in the first six months
of 2000. This increase resulted primarily from three factors: the costs
attributable to the U.S. Bancorp transaction (interest expenses of $105,366
versus $0.00 in 1999, plus substantially increased professional fees); increased
wages for officers and employees ($210,000 in 2000 versus $20,000 in 1999) and
increased advertising and marketing expenditure (approximately $220,000 in 2000
versus $7,000 in 1999). In addition, the Company began paying sales commission
in 2000 to its outside food brokers, resulting in a $44,000 expenses in the 2000
period. The Company will recognize additional expenses related to the U.S.
Bancorp transaction during the next four quarters. In addition, Meridian plans
to increase advertising and media expenses during the balance of 2000 for both
the sports refresher and syrup products.
Meridian had a net loss of $522,622 ($.08 per share) in the current quarter, as
compared to a net loss of $36,067 ($.01 per share) in the prior comparable
quarter, and a net loss of $789,947 ($.13 per share) during the six months ended
June 30, 2000, as compared to a net loss of $240,213 ($.05 per share) during the
comparable prior period.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
Meridian's available cash and marketable securities at June 30, 2000 were
$7,038,847, as compared to $18,626 at June 30, 1999. The increase is
attributable primarily to the proceeds of Meridian's issuance of its Series A
Convertible Note to U.S. Bancorp Investments, Inc. in June 2000 and, to a lesser
extent, to increased sales of Meridian's products.
As a result of the U.S. Bancorp financing, management believes that it has
sufficient working capital to carry out its business plan for the operation and
expansion of its syrup business and for the introduction and growth of its
sports refresher drink business for at least the next 18 months. In addition,
Meridian believes that operations will contribute to increased cash flow during
the same period.
9
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PART II
OTHER INFORMATION
Item 1 Legal Proceedings
------------------
None.
Item 2 Changes in Securities and Use of Proceeds
-----------------------------------------------
During the quarter ended June 30, 2000, Meridian issued the following
securities in transactions not registered under the Securities Act of 1933: (i)
$8,000,000 Series A Convertible 5% Note issued to U.S. Bancorp Investments,
Inc., which Note is required to be converted on or prior to June 15, 2001 into
Series II Convertible Preferred Stock, and (ii) 180,000 Common Stock Purchase
Options, exercisable at $1.00 per share.
Item 3 Defaults Upon Senior Securities
----------------------------------
None.
Item 4 Submissions of Matters to a Vote of Security
---------------------------------------------------
Holders
-------
None.
Item 5 Other Events
-------------
On June 16, 2000, Meridian issued its $8,000,000 Series A Convertible Note to
U.S. Bancorp Investments, Inc. The terms and conditions of that Note and the
related agreements entered into between Meridian and U.S. Bancorp were disclosed
in a Current Report on Form 8-K dated June 16, 2000 and filed with the SEC on
June 21, 2000.
Item 6 Exhibits and Reports on Form 8-K
-------------------------------------
A. Exhibits
--------
None.
B. Reports on Form 8-K
----------------------
On June 21, 2000, Meridian filed a Current Report on Form 8-K dated June
16, 2000 relating to the financing transaction with U.S. Bancorp Investments,
Inc.
10
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SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
MERIDIAN USA HOLDINGS, INC.
By: /s/ Mark Streisfeld, President
-----------------------------------
Mark Streisfeld, President
Date: August 14, 2000
11
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