UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
- --------------------------------------------------------------------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --------- ACT OF 1934
For the quarterly period ended December 31, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from _____ to _____
- --------------------------------------------------------------------------------
Commission File Number: 1-12572
MILLENNIA, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 59-2158586
(State of incorporation) (IRS Employer ID Number)
16910 Dallas Parkway, Suite 100, Dallas TX 75248
------------------------------------------------
(Address of principal executive offices)
(972) 248-1922
(Issuer's telephone number)
- --------------------------------------------------------------------------------
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 the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: February 15, 1998: 2,276,907
Transitional Small Business Disclosure Format (check one): YES NO X
<PAGE>
MILLENNIA, INC.
Form 10-QSB for the Quarter ended December 31, 1997
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 13
Part II - Other Information
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
2
<PAGE>
Part 1 - Item 1 - Financial Statements
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and June 30, 1997
ASSETS
-----
(Unaudited (Audited)
December 31, June 30,
1997 1997
---------- ----------
Current Assets
Cash on hand and in bank $ 62,366 $ 54,048
Marketable securities -- --
Accounts receivable, net of allowance for doubtful
accounts of $30,000 and $25,000, respectively 61,226 70,021
Accrued oil & gas sales 115,000 115,894
Due from stockholder 71,609 --
Income taxes recoverable -- 10,659
Inventory 107,329 106,440
Prepaid expenses and other 3,333 583
---------- ----------
Total current assets 420,863 357,645
---------- ----------
Oil & Gas Properties, net of accumulated
depletion of $229,862 and $154,449, respectively 1,680,138 1,774,243
---------- ----------
Other Assets
Investment in affiliated company 393,082 614,281
Other property and equipment - net 44,448 26,223
Other 6,463 6,107
---------- ----------
Total other assets 443,993 646,611
---------- ----------
TOTAL ASSETS $2,544,994 $2,778,499
========== ==========
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements. The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
3
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 1997 and June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
(Unaudited) (Audited)
December 31, June 30,
1997 1997
------------ -----------
Current Liabilities
Current portion of long-term debt $ 3,930 $ 3,930
Cash overdraft 19,478 --
Accounts payable - trade 417,197 215,162
Due to stockholder and other affiliated entities 380,810 258,800
Other accrued liabilities and deferred credits 327,227 260,509
----------- -----------
Total current liabilities 1,148,642 738,401
----------- -----------
Long-term Debt, net of current maturities 1,594,308 1,594,308
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Preferred stock - $0.00001 par value. 10,000,000 shares
authorized. None issued and outstanding -- --
Common stock - $0.0002 par value. 50,000,000 shares
authorized. 2,276,907 and 2,274,385 issued
and outstanding, respectively 455 454
Additional paid-in capital 6,875,837 6,786,614
Shares deemed to be treasury stock (43,692 and
84,318 shares, respectively) (3,058) (35,049)
Unrealized gain (loss) on marketable securities -- --
Retained earnings (7,071,190) (6,306,229)
----------- -----------
Total stockholders' equity (197,956) 445,790
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,544,994 $ 2,778,499
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
4
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six and Three months ended December 31, 1997 and 1996
(Unaudited)
<S> <C> <C>
Six months Six months Three months Three months
ended ended ended ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net Revenues $ 611,211 $ 447,386 $ 307,352 $ 317,221
Cost of Sales 586,715 322,888 289,563 226,056
----------- ----------- ----------- -----------
24,496 124,498 17,787 91,165
----------- ----------- ----------- -----------
Operating Expenses
Selling expenses 28,759 27,795 16,333 16,126
General and administrative expenses 348,298 457,819 215,398 206,351
Depreciation and depletion 83,070 25,154 45,414 23,942
----------- ----------- ----------- -----------
Total operating expenses 460,127 510,768 277,145 246,419
----------- ----------- ----------- -----------
Loss from Operations (435,631) (386,270) (259,358) (155,254)
Other Income (Expenses)
Gain (loss) on sales of marketable
securities and securities of
affiliated entity (62,619) 27,785 (81,370) 16,566
Interest and other income 460 -- 152 --
Interest expense (97,087) (10,639) (48,640) (46,094)
Equity in loss of affiliated entity (170,084) 46,654 (48,231) 52,440
----------- ----------- ----------- -----------
Loss from Continuing Operations
before Provision for Income Taxes (764,961) (322,470) (437,447) (132,342)
Benefit from Income Taxes -- (101,954) -- (103,383)
----------- ----------- ----------- -----------
Loss from Continuing Operations (764,961) (424,424) (437,447) (235,725)
Discontinued Operations, net of
income taxes
Loss from discontinued operations of
American Quality Manufacturing
Corporation, net of income tax
benefits of $217,000 -- (566,991) -- --
Gain on disposition of American
Quality Manufacturing Corporation,
net of income tax provision of
$539,000 -- 1,585,566 -- --
----------- ----------- ----------- -----------
Income from discontinued operations -- 1,018,575 -- --
----------- ----------- ----------- -----------
Net Income (Loss) $ (764,961) $ 594,151 $ (437,447) $ (235,725)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
5
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
Six and Three months ended December 31, 1997 and 1996
(Unaudited)
<S> <C>
Six months Six months Three months Three months
ended ended ended ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Loss from Continuing Operations $ (764,961) $ (424,424) $ (437,447) $ (235,725)
Income from discontinued operations -- 1,018,575 -- --
----------- ----------- ----------- -----------
Net Income (Loss) $ (764,961) $ 594,151 $ (437,447) $ (235,725)
=========== =========== =========== ===========
Earnings (loss) per weighted-
average share of common
stock outstanding
From continuing operations $ (0.34) $ (0.20) $ (0.19) $ (0.11)
From discontinued operations -- 0.48 -- --
----------- ----------- ----------- -----------
Total loss per share $ (0.34) $ 0.28 $ (0.19) $ (0.11)
=========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 2,275,436 2,092,769 2,276,133 2,101,597
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
6
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1997 and 1996
(Unaudited)
<S> <C>
1997 1996
----------- -----------
Cash Flows from Operating Activities
Net income (loss) $ (764,961) $ 594,151
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation and depletion 85,496 25,124
Provision for doubtful accounts 5,000 12,500
Stock issued for director fees 5,406 --
(Gain) loss on sales of marketable securities
and securities of affiliated entity 62,619 (27,785)
Equity in earnings (loss) of affiliated entity 170,084 (46,654)
Discontinued operations -- (1,575,695)
(Increase) decrease in:
Accounts receivable 3,795 (18,425)
Accrued oil and gas sales 894 --
Recoverable income taxes 10,659 --
Inventory (889) 8,419
Prepaid expenses and other (4,323) 426,424
Deferred tax benefit -- 615,522
Increase (decrease) in:
Accounts payable 202,035 24,043
Other accrued liabilities 66,718 113,111
----------- -----------
Net cash provided by (used in) operating activities (157,467) 180,765
----------- -----------
Cash Flows from Investing Activities
Purchase of oil & gas properties and
other property and equipment (9,805) (105,414)
Advances to stockholder (71,609) --
Proceeds from sales of securities of affiliated entity 143,363 22,273
Proceeds from sales of marketable securities 108,442 375,163
Purchases of marketable securities (148,594) (562,846)
----------- -----------
Net cash provided by (used in) investing activities 21,797 (270,824)
----------- -----------
Cash Flows from Financing Activities
Increase (decrease) in cash overdraft 19,478 --
Repayment of advances from officer -- (16,000)
Advances from stockholder 122,010 171,000
Proceeds from exercise of employee stock options 2,500 --
----------- -----------
Net cash used in financing activities 143,988 155,000
----------- -----------
Increase in Cash and Cash Equivalents 8,318 64,941
Cash and cash equivalents at beginning of period 54,048 36,628
----------- -----------
Cash and cash equivalents at end of period $ 62,366 $ 101,569
=========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements. The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
7
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Six months ended December 31, 1997 and 1996
(Unaudited)
1997 1996
-------- --------
Supplemental Disclosures of
Interest and Income Taxes Paid
Interest paid during the period $ 18,527 $1,523
======== ======
Income taxes paid (refunded) $(10,659) $ -
======== ======
Supplemental schedule of noncash investing and financing activities
The Company acquired certain oil & gas properties on November 30, 1996. The
purchase price consisted of $100,000 in cash, a $1,615,689 promissory note and
120,000 shares of the Company's common stock, valued at $150,000.
The Company's investment in Digital Communications Technology Corporation was
reduced by $185,419 during the six months ended December 31, 1996 due to the
dilutive effects of the issuance, by Digital Communications Technology
Corporation, of approximately 858,000 shares of common stock.
The accompanying notes are an integral part of these consolidated financial
statements. The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
8
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 1 - Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Millennia, Inc. and all majority-owned subsidiaries, collectively referred to as
"Company". The consolidated subsidiaries include Omni Doors, Inc. (Omni),
Doblique Energy, Inc. (Doblique) and Millennia Entertainment, Inc. (MEI). All
significant intercompany accounts and transactions have been eliminated.
The Company holds an approximate 9.7% and 13.2% interest in Digital
Communications Technology Corporation as of December 31, 1997 and June 30, 1997,
respectively. The Company held equivalent interests of approximately 15.3% and
17.6% as of December 31, 1996 and June 30, 1996, respectively.
Effective August 31, 1996, the Company sold 100.0% of its ownership interest in
American Quality Manufacturing Corporation (AQM) to a corporate unrelated third
party for the assumption of all outstanding liabilities of AQM as of the sale
date. The results of operations of AQM are presented in the accompanying
statement of operations as discontinued operations.
During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission.
The June 30, 1997 balance sheet data was derived from audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. Users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending June 30, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Summary of Significant Accounting Policies
a) Marketable securities
The Company held no marketable securities as of December 31, 1997 other than
its investment in Digital Communications Technology Corporation. The Company,
from time to time, maintains a marketable securities portfolio and the
portfolio may contain net unrealized gains or losses which are reported as a
separate component of stockholders' equity. The Company's marketable
securities portfolio is classified as "available for sale" securities.
9
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
Notes to Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies - continued
b) Pending changes in accounting standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (FAS 128). FAS
128 specifies new standards designed to improve the EPS information provided
in financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that common
stock equivalents are not considered in computing basic EPS, (b) eliminating
the modified treasury stock method and the three percent materiality
provision, and (c) revising the contingent share provisions and the
supplemental EPS data requirements. FAS 128 also makes a number of changes to
existing disclosure requirements. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. There has been no significant impact from the adoption of
this standard.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes standards for reporting and display of
comprehensive income. The purpose of reporting comprehensive income is to
present a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. SFAS 130 requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated capital in the equity section of the
balance sheet. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, with earlier application permitted. The Company has not
yet determined the impact, if any, of the implementation of SFAS 130.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. Once operating segments have
been determined, SFAS 131 provides for a two-tier test for determining those
operating segments that would need to be disclosed for external reporting
purposes. In addition to providing the required disclosures for reportable
segments, SFAS 131 also requires disclosure of certain "second level"
information by geographic area and for products/services. SFAS 131 also makes
a number of changes to existing disclosure requirements. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, with earlier
application encouraged. The Company has not yet determined the impact, if
any, of the implementation of SFAS 131.
Note 3 - Inventory
Inventory consists of purchased doors, related parts and other supplies
necessary to assemble commercial metal doors for resale. These items are carried
at the lower of cost or market using the first-in, first-out method of
accounting. Inventory consists of the following components as of September 30,
1997 and June 30, 1997, respectively:
December 31, June 30,
1997 1997
---------- ---------
Finished goods and purchased product $ 91,230 $ 99,777
Other raw materials and supplies 16,099 6,663
--------- ---------
$ 107,329 $ 106,440
========= =========
10
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
Notes to Financial Statements - Continued
Note 4 - Equity investment in DCT
Summarized financial statement information for DCT is presented below
(unaudited)
For the six For the six
months ended months ended
December 31, December 31,
1997 1996
------------ ------------
Net sales $3,388,841 $15,814,416
Operating profit (loss) $(2,031,826) $614,292
Income (loss) from continuing operations $(1,584,647) $301,940
Net income (loss) $(1,584,647) $297,255
Total net earnings (loss) per share $(2.14) $0.47
As of As of
December 31, June 30,
1997 1997
------------ ------------
Total assets $12,226,009 $12,345,302
Total liabilities $7,073,334 $7,699,408
Total stockholders' equity $4,867,451 $4,645,894
Note 5 - Litigation
The Company may from time to time be party to various legal actions arising
during the ordinary course of its business. In addition, the Company is
currently involved in the following litigation:
On March 4, 1996, Adrian Jacoby, allegedly on behalf of the Company, and Richard
Abrons, allegedly on behalf of an affiliate company, Digital Communications
Technology Corporation ("DCT"), brought a purported shareholder derivative
lawsuit against the Company's board of directors - Kevin B. Halter, Kevin B.
Halter, Jr., Gary C. Evans and James Smith - as well as Halter Capital
Corporation and Securities Transfer Corporation. In addition, the Company and
DCT have been joined as "nominal defendants." In the lawsuit, the plaintiffs
have alleged breaches of fiduciary duty, fraud, and violations of state
securities laws. The plaintiffs seek unspecified actual and exemplary damages, a
constructive trust against the assets of the defendants and an accounting of the
affairs of the defendants with respect to their dealings with the Company and
DCT. In addition, the plaintiffs have requested a temporary injunction and the
appointment of a receiver for the Company and DCT.
In 1995, Halter Capital Corporation ("HCC"), in which Kevin B. Halter and Kevin
B. Halter, Jr. (the "Halters") are principals, negotiated the satisfaction of
$1,217,000 in debt owed to creditors by Millennia's subsidiary, American Quality
Manufacturing Corporation ("AQM," since sold). The Halters are also officers and
directors of Millennia. HCC satisfied these debts by transferring, in the
aggregate, 1,659,000 shares of Millennia common stock it owned to the creditors.
To repay HCC for the AQM indebtedness HCC paid, Millennia transferred to HCC
1,622,000 shares of DCT Common Stock it held as an investment. With the payment
of DCT Common Stock to HCC and the salaries or other compensation received from
Millennia by the Halters, Mr. Evans and Mr. Smith, plaintiffs assert that each
breached their duties of loyalty, usurped corporate opportunities and committed
gross mismanagement by wrongfully using Millennia and DCT as instruments for
their own and HCC's pecuniary gain
11
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Note 5 - Litigation - continued
to the detriment of Millennia, DCT and their shareholders. If any damages are
ultimately awarded to the plaintiffs, those damages will be on behalf of, and
for the benefit of, the Company and all of its shareholders. If they are
successful, the plaintiffs may recover certain attorney's fees and costs. This
case is entitled Richard Abrons et al v. Kevin B. Halter et al, Cause No.
96-02169-G, in the 134th Judicial District, Dallas County, Texas. Even though
the Company is a nominal defendant in the lawsuit, the Plaintiffs have not
sought to recover any damages against the Company. In this type of lawsuit, the
Company is joined as a procedural matter to make it a party to the lawsuit.
All of the defendants have answered denying all of the material allegations and
claims in the Petition, disputing the plaintiffs' contention that it is a proper
shareholder derivative action, denying that the plaintiffs have the right to
pursue this lawsuit on behalf of the Company and Millennia and are vigorously
defending the lawsuit. In addition, the defendants have filed counterclaims
against the plaintiffs and third party actions against Blake Beckham, Attorney
at Law, Beckham & Thomas, L.L.P., Sanford Whitman, the former CFO of the Company
and Jack D. Brown Jr., the former President of the Company, seeking damages in
excess of $50 million. In its counterclaim, the Company has asserted that the
filing of this lawsuit and the temporary restraining order the plaintiffs caused
to be issued in the case resulted in damages to the Company.
A court hearing related to this case commenced on February 9, 1998 to ascertain
if the Plaintiffs have met the legal requirements to file and pursue this case.
The Company continues to believe that the results of this lawsuit will not have
any material impact on the operations or financial condition of the Company
other than the expenditure of legal and professional fees, which are currently
in excess of $600,000 in the aggregate, related to this specific matter.
(Remainder of this page left blank intentionally)
12
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
(2) Results of Operations
Overview
Gross revenues for the six months of Fiscal 1998 increased approximately
$164,000 from amounts realized for the same period in Fiscal 1997. The most
significant reason for this increase was the addition of the Company's
wholly-owned subsidiary, Doblique Energy Corporation during the second quarter
of Fiscal 1997. The addition of this operating subsidiary also caused the
Company to experience significant increases in costs of sales related to the
operation of various oil and gas wells, principally located in Texas and New
Mexico. During the second quarter of Fiscal 1998, Doblique Energy Corporation
experienced diminished gross margins between the recognized revenues and
expenses. Management continues to utilize the services of a third-party operator
for this business segment and consistently monitors revenue and expenditure
levels.
Operating expenses declined by a net of approximately $51,000 for the six months
of Fiscal 1998 compared to the first six months of Fiscal 1997 due to reduced
corporate overhead expenses and lower legal and professional fees related to the
stockholder derivative litigation. Some of these cost savings were offset by
depletion expenses related to Doblique Energy Corporation.
The Company experienced losses on sales of marketable securities and sales of
securities of an affiliated entity, Digital Communications Technology
Corporation (DCT), of approximately $(62,719) during the first six months of
Fiscal 1998 as compared to gains of approximately $27,785 realized during the
first six months of Fiscal 1997.
The Company continues to experience non-monetary losses related to the use of
the equity method of accounting related to its approximate 9.7% investment in
DCT. During the first six months of Fiscal 1997, this accounting transaction
recognized income of approximately $47,000 while the Company recognized
approximately $170,000 in proportionate losses for the first quarter of Fiscal
1998. Additionally, on December 12, 1997, DCT announced that it had been forced
to curtail its video tape duplication operations and lay off most of its
employees due to severe cash flow problems which had been caused by its
inability to draw funds under the Bank One, Texas, N. A. line of credit.
The Company experienced losses from continuing operations per weighted-average
share of common stock outstanding of approximately $0.34 per share for the first
six months of Fiscal 1998 as compared to losses of approximately $0.20 per share
for the first quarter of Fiscal 1997. Approximately $0.07, or one-half of the
comparative increase, is attributable to the non-monetary loss recognition of
the Company's proportionate share of
13
<PAGE>
the net losses of DCT. The balance in the increased loss per share related to
increased operating expenses and lower revenues experienced in Doblique Energy
Corporation.
Door Distribution Segment
Omni Doors, Inc. is the Company's oldest continuing operating subsidiary. For
the six and three months of Fiscal 1998, respectively, Omni experienced revenues
of approximately $258,000 and $$130,000 as compared to approximately $271,000
and $141,000 for the equivalent periods during Fiscal 1997. This overall decline
is nominal and reflective of the highly competitive construction market in South
Florida which can lead to periodic fluctuations which are caused by price
sensitive consumer demands and overall construction activity. During Fiscal
1997, Omni had an exterior door product approved for installation in Dade
County, Florida. This approval process was initiated at the local governmental
level in response to damages caused by Hurricane Andrew to the South Florida
region. Management is of the opinion that having approved products will enhance
the overall product line and acceptability of Omni in the South Florida
marketplace.
Omni experienced a year-to-date net loss from operations of approximately
$24,000 for the first six months of Fiscal 1998 as compared to a comparable net
income of approximately $2,400 for the same period during Fiscal 1997. The
primary reason for this loss relates to increases in various selling expenses
for increased visibility of Omni and its product lines in the South Florida
region.
Oil and Natural Gas Segment
Operations in Doblique Energy Corporation were started on October 1, 1997.
During the three month period from July 1997 to September 1997, Doblique
experienced revenues of approximately $129,000 from sales of oil and natural gas
products. During the second quarter (October to December) of Fiscal 1998,
Doblique recognized revenues of approximately $280,000 as compared to
approximately $177,000 for the same period during Fiscal 1977. For comparative
purposes, due to domestic demand and pricing fluctuations and other market
pressures, Doblique experienced second quarter production and management costs
related to these sales of approximately $121,000 for both the October to
December 1997 and 1996 periods, respectively. Further, depletion on the
properties was approximately $42,000 and 23,000 for the second quarter periods
in Fiscal 1998 and 1998, respectively. The Company has also experienced interest
expenses related to the acquisition debt of approximately $49,000 and $32,000,
respectively during the second quarter of Fiscal 1998 and 1997. The overall
year-to-date operating loss incurred in this operating segment was approximately
$155,000, with approximately $56,000 occurring in the second quarter of Fiscal
1998. The second quarter loss of approximately $56,000 compares to a second
quarter operating income of approximately $20,000 for Fiscal 1997.
Video Duplication and Distribution Segment
The Company formed Millennia Entertainment, Inc. (MEI) in February 1997 to
acquire and distribute family classic films and other home video products on a
"by order" basis. MEI acquires the rights to duplicate the programming,
outsources the physical duplication of the programming and distributes the
finished product to the buyer. By working on a "by order" basis, MEI is best
able to control its inventory requirements and minimize lead times between the
time an order is placed and ultimately shipped to MEI's customers.
Due to the start-up nature of this venture, MEI is currently operating in a
deficit position for the first six months of Fiscal 1998. During the first six
months of Fiscal 1998, MEI experienced revenues of approximately $73,000 and
generated a loss from operations of approximately $76,000. Management is
pursuing all possible avenues of marketing and market penetration to elevate
sales levels to meet or exceed all fixed operational costs. Further, due to
competitive pressures, management continually monitors all raw material and
production costs to assure that both MEI and its customers receive the best
value for the contracted sales prices.
14
<PAGE>
Investment in Digital Communications Technology Corporation
On August 21, 1997, DCT's lending institution, Bank One, Texas, N. A., notified
DCT that the lending institution intended, 120 days subsequent to the notice, to
stop making further advances on DCT's line of credit and accelerate the maturity
of the debt then owed.
On December 1, 1997, DCT announced that it had filed a lender liability lawsuit
in Dallas County, Texas against Bank One, Texas, N. A. (Bank) in connection with
the Bank's commitment in November 1996 to lend up to approximately $9 million
for working capital and funds needed to permit the relocation and expansion of
DCT's business. In the lawsuit, DCT has alleged that the Bank's conduct
constitutes breach of contract, fraud in the inducement and several violations
of the Bank's statutory duties of good faith and fair dealings which have
resulted in damages exceeding $5 million to DCT.
Funds to reduce the Bank debt are being generated from the collection of
accounts receivable and the sale of video tape duplication equipment. The
inability to draw upon the Bank credit facility has left DCT with few
alternatives other than to retire the outstanding bank debt and allow the
release of existing liens which cover virtually all of DCT's assets.
DCT anticipates having sufficient remaining equipment to continue its video tape
duplication business on a reduced scale, if it so chooses, or it may enter
another line of business.
As a result of these events, DCT effectively ceased all video tape duplication
activities on December 31, 1997 and has laid off a significant portion of its
workforce.
Further, DCT, at this time, does not fully satisfy all of the American Stock
Exchange guidelines for continued listing and, accordingly, there is no
assurance that such listing will be continued by the American Stock Exchange.
DCT continues to experience elevated general and administrative costs due to
general overhead matters and legal and professional costs related to the
stockholder derivative litigation. A court hearing related to this case
commenced on February 9, 1998 to ascertain if the Plaintiffs have met the legal
requirements to file and pursue this case. The Company continues to believe that
the results of this lawsuit will not have any material impact on the operations
or financial condition of the Company other than the expenditure of legal and
professional fees, which are currently in excess of $600,000 in the aggregate,
related to this specific matter.
DCT's Results of operations
DCT experienced a decline in second quarter sales volume from approximately $8.8
million for the three months ended December 31, 1996 to approximately $1.2
million for the three months ended December 31, 1997. Further, the DCT's
revenues for the first six months of Fiscal 1998 were approximately $3.4 million
as compared to approximately $15.8 million for the comparable period in Fiscal
1997. Several factors impacted this decline in sales including, but not limited
to, management evaluation of DCT's customer base and elimination of inefficient
and unprofitable accounts and the overall industry decline in product sales.
Additionally, due to the lack of available funding on its existing credit
facilities, DCT effectively ceased all video tape duplication operations,
effective December 31, 1997. The full impact of this curtailment will be
realized in future periods.
The industry consensus is that the overall industry sales activity during
Calendar 1997 was significantly slower than expected. DCT has experienced severe
cash flow problems caused by its inability to access its line of credit from its
lending institution which will negatively impact its ability to solicit sales to
customers during the last half of DCT's fiscal year ending June 30, 1998.
DCT incurred costs of sales of approximately $1.25 million and $3.24 million,
respectively, for the three and six month periods ended December 31, 1997 as
compared to approximately $7.09 million and $12.65 million for the
15
<PAGE>
comparable periods ended December 31, 1996. The primary component of these
expenses are DCT's fixed costs related to its production facility in
Indianapolis, Indiana and its former production facility in Ft. Lauderdale,
Florida. These costs were approximately 106% and 95.6% of sales for the three
and six months ended December 31, 1997 as compared to approximately 80.4% and
80.0% for the comparable periods ended December 31, 1996. Management continues
to evaluate its fixed and variable costs in relation to sales activity to strive
towards optimum efficiency and profitable operations. Further, DCT intends to
continuing to reduce its inventory levels to achieve a better utilization of
available resources.
Selling expenses decreased by approximately $305,000 and $494,000 for the three
and six months ended December 31, 1997 from the comparable periods ended
December 31, 1996. These costs continue to decline as a result of reduced
business activity related to diminished cash flows as a direct result of the
inability to access DCT's existing credit facilities.
General and administrative expenses continue to experience pressure from general
corporate overhead and legal and professional fees. DCT incurred aggregate costs
of approximately $362,000 and $1.3 million during the three and six month
periods ended December 31, 1997, respectively. These costs were approximately
$564,000 and $1.2 million for the comparable period ended December 31, 1996. A
significant component of these expenses occurred during the July-September 1997
quarter as an effect of closing and relocating of the Ft. Lauderdale, Florida
operations to the Indianapolis, Indiana facility. DCT's management was of the
opinion that the closing of the Ft. Lauderdale facility and the sale of the
assets of its satellite uplink operation would significantly contribute to
future cost savings for DCT.
DCT's Liquidity and capital requirements
During the first six months of Fiscal 1998, DCT experienced net cash provided by
operations of approximately $1.583 million as compared to using net cash in
operations of approximately $(224,000) during the same period of the preceding
year. Included in this net cash flow into DCT was the collection, and affiliated
reduction, of accounts receivable of approximately $930,000 and the reduction of
inventories of approximately $965,000. The funds provided by these inflows were
utilized to reduce accounts payable by approximately $569,000.
Further liquidity was provided by approximately $168,000 in proceeds from the
sale of the satellite uplink equipment to an unrelated third party and
approximately $500,000 in proceeds from the sale of the closed Ft. Lauderdale
facility. These cash inflows were offset by purchases and upgrading of video
duplication equipment and leaseholds at the Indianapolis facility of
approximately $739,000.
DCT also utilized cash during the first half of Fiscal 1998 to reduce a book
cash overdraft by approximately $137,000, to lower the outstanding balance on
DCT's revolving line of credit of approximately $772,000 and to reduce DCT's
long-term debt by approximately $224,000. Further, during January 1998, DCT
utilized the proceeds from the sale of excess equipment and collection of trade
accounts receivable to further reduce outstanding bank debt due to Bank One,
Texas, N. A.
Overall, DCT's available cash on hand decreased by approximately $225,000 from
June 30, 1997 to December 31, 1997 with the net change relating principally to
the overall increase in property and equipment at the Indianapolis facility as a
result of relocating the Ft. Lauderdale operations.
DCT relocated and expanded the entire Indianapolis facility into a new 172,000
square foot building during Fiscal 1997. The Indianapolis plant opened in June
1997 with an increased operating capacity of approximately 20%. The new facility
layout is designed to optimize process flow, to reduce product handling and to
minimize the total cycle time of productions from order entry to delivery. As
mentioned, DCT added approximately $739,000 in property and equipment during the
first six months of Fiscal 1998. In the event that DCT continues its video tape
duplication business, due to the capital intensive and high technology nature of
this business line, certain levels of capital acquisitions for new duplication
and production equipment and/or upgrades of existing equipment may be required
to keep DCT competitive in the marketplace. Any such expenditures, if necessary,
are proposed, at this time, to
16
<PAGE>
potentially be financed through operations and/or separate financing/leasing
arrangements. There can be no assurances, however, that DCT will either continue
its video tape duplication business or actually incur further capital
expenditures. At this time, DCT has no plans to acquire or upgrade any equipment
for the remainder of the fiscal year ending June 30, 1998.
(3) Liquidity and Capital Resources of Millennia, Inc.
During the first six months of Fiscal 1998, the Company experienced net cash
requirements for operating activities of approximately $157,000 as compared to
cash provided by operating activities during the first six months of Fiscal 1997
of approximately $181,000. Further, the Company experienced net positive cash
flows from marketable securities transactions of approximately $103,000. These
proceeds were utilized to support the cash deficit created by operating
activities.
The primary sources of funding for the operations of the Company during Fiscal
1998 will be proceeds from transactions in its marketable securities portfolio.
Additionally, the Company intends to seek out additional business acquisition
candidates which will provide supplemental operating cash necessary to further
fund the Company's operational requirements.
(4) Other Comments
The Company's door distribution segment's sales levels historically follow the
commercial construction market and activity levels in South Florida. Therefore,
this segment is subject to economic, climatic and other intangible influences
that affect the segment's trade area.
The Company's activities have not been, and in the near term are not expected to
be, materially affected by inflation or changing prices in general. However, the
results of operations and cash flow of the Company's oil and natural gas segment
have been and will continue to be affected to a certain extent by the domestic
and international volatility in oil and natural gas prices. Should this segment
experience a significant increase in oil and natural gas prices that is
sustained over a prolonged period, it would be anticipated that corresponding
increases in production costs and related operating expenses would occur.
(Remainder of this page left blank intentionally)
17
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
See Notes to the Consolidated Financial Statements
Item 2 - Changes in Securities
None
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on November 25, 1997.
All four of its current directors, Kevin B. Halter, Kevin B. Halter, Jr.,
Don R. Benton and James Smith, were re- elected each receiving the
favorable vote of more than 98.0% of the shares actually voted.
The stockholders also ratified the appointment of Hein + Associates, LLP as
the Company's independent auditors.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MILLENNIA, INC.
February 16, 1998 /s/ Kevin B. Halter
------ ---------------------------------
Kevin B. Halter
Chairman and Principal Accounting Officer
19
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