UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---------- ACT OF 1934
For the quarterly period ended March 31, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
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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)
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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: May 21, 1998: 2,276,907
Transitional Small Business Disclosure Format (check one): YES NO X
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MILLENNIA, INC.
Form 10-QSB for the Quarter ended March 31, 1998
Table of Contents
Page
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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
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2
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Part 1 - Item 1 - Financial Statements
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and June 30, 1997
ASSETS
(Unaudited) (Audited)
March 31, June 30,
1998 1997
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Current Assets
Cash on hand and in bank $ 37,116 $ 54,048
Marketable securities -- --
Accounts receivable, net of allowance for doubtful
accounts of $30,000 and $25,000, respectively 117,158 70,021
Accrued oil & gas sales -- 115,894
Due from stockholder 39,110 --
Income taxes recoverable -- 10,659
Inventory 84,851 106,440
Prepaid expenses and other 2,201 583
----------- -----------
Total current assets 280,436 357,645
----------- -----------
Oil & Gas Properties, net of accumulated
depletion of $258,891 and $154,449, respectively 1,651,109 1,774,243
----------- -----------
Other Assets
Investment in affiliated company (649,063) 614,281
Other property and equipment - net 41,585 26,223
Other 6,811 6,107
----------- -----------
Total other assets (600,667) 646,611
----------- -----------
TOTAL ASSETS $ 1,330,878 $ 2,778,499
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</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.
3
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MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 1998 and June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) (Audited)
March 31, June 30,
1998 1997
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Current Liabilities
Current portion of long-term debt $ 3,930 $ 3,930
Cash overdraft 56,515 --
Accounts payable - trade 430,593 215,162
Due to stockholder and other affiliated entities 722,680 258,800
Other accrued liabilities and deferred credits 361,508 260,509
----------- -----------
Total current liabilities 1,575,226 738,401
----------- -----------
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 6,808,649 6,786,614
Shares deemed to be treasury stock (-0- and
84,318 shares, respectively) -- (35,049)
Retained earnings (8,647,760) (6,306,229)
----------- -----------
Total stockholders' equity (1,838,656) 445,790
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,330,878 $ 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
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MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine and Three months ended March 31, 1998 and 1997
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
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Net Revenues $ 916,841 $ 789,330 $ 305,630 $ 341,944
Cost of Sales 964,402 541,093 377,687 218,205
----------- ----------- ----------- -----------
(47,561) 248,237 (72,057) 123,739
----------- ----------- ----------- -----------
Operating Expenses
Selling expenses 43,454 42,304 14,695 14,510
General and administrative expenses 795,973 621,814 447,675 163,995
Depreciation and depletion 113,938 58,881 30,868 33,726
----------- ----------- ----------- -----------
Total operating expenses 953,365 722,999 493,238 212,231
----------- ----------- ----------- -----------
Loss from Operations (1,000,926) (474,762) (565,295) (88,492)
Other Income (Expenses)
Gain (loss) on sales of marketable
securities and securities of
affiliated entity (62,619) 32,674 -- 15,342
Interest and other income 550 -- 90 --
Interest expense (130,436) (52,566) (33,349) (52,380)
Equity in loss of affiliated entity (1,148,100) (68,854) (978,016) (115,508)
----------- ----------- ----------- -----------
Loss from Continuing Operations
before Provision for Income Taxes (2,341,531) (563,508) (1,576,570) (241,038)
Benefit from (Provision for) Income Taxes -- (144,069) -- (42,115)
----------- ----------- ----------- -----------
Loss from Continuing Operations (2,341,961) (707,577) (1,576,570) (283,153)
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) $(2,341,531) $ 310,998 $(1,576,570) $ (283,153)
=========== =========== =========== ===========
</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
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MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
Nine and Three months ended March 31, 1998 and 1997
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- -------------
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Loss from Continuing Operations $(2,341,531) $ (707,577) $(1,576,570) $ (283,153)
Income from discontinued operations -- 1,018,575 -- --
----------- ----------- ----------- -----------
Net Income (Loss) $(2,341,531) $ 310,998 $(1,576,570) $ (283,153)
=========== =========== =========== ===========
Earnings (loss) per weighted-
average share of common
stock outstanding
From continuing operations $ (1.03) $ (0.33) $ (0.69) $ (0.13)
From discontinued operations -- 0.48 -- --
----------- ----------- ----------- -----------
Total loss per share $ (1.03) $ 0.15 $ (0.69) $ (0.13)
=========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 2,275,909 2,127,679 2,276,907 2,199,118
=========== =========== =========== ===========
</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
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MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
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Cash Flows from Operating Activities
Net income (loss) $(2,341,531) $ 310,998
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation and depletion 117,576 58,880
Provision for doubtful accounts 5,000 14,500
Stock issued for director fees 5,406 --
(Gain) loss on sales of marketable securities
and securities of affiliated entity 62,619 (42,354)
Equity in earnings (loss) of affiliated entity 1,148,100 66,854
Discontinued operations -- (1,575,695)
(Increase) decrease in:
Accounts receivable (52,137) (23,505)
Accrued oil and gas sales 115,894 --
Recoverable income taxes 10,659 --
Inventory 21,589 (1,563)
Prepaid expenses and other (3,728) 491,097
Deferred tax benefit -- 656,556
Increase (decrease) in:
Accounts payable 215,431 156,338
Other accrued liabilities 100,999 38,017
----------- -----------
Net cash provided by (used in) operating activities (594,123) 150,123
----------- -----------
Cash Flows from Investing Activities
Purchase of oil & gas properties and
other property and equipment (9,805) (110,888)
Advances to stockholder (39,110) --
Proceeds from sales of securities of affiliated entity 143,363 45,710
Proceeds from sales of marketable securities 108,442 492,559
Purchases of marketable securities (148,594) (777,476)
----------- -----------
Net cash provided by (used in) investing activities 54,296 (350,095)
----------- -----------
Cash Flows from Financing Activities
Increase (decrease) in cash overdraft 56,515 --
Repayment of advances from officer -- (16,000)
Advances from stockholder, net of repayments 463,880 238,100
Repayments on note payable -- (13,458)
Proceeds from exercise of employee stock options 2,500 --
----------- -----------
Net cash used in financing activities 522,895 208,642
----------- -----------
Increase in Cash and Cash Equivalents (16,932) 8,670
Cash and cash equivalents at beginning of period 54,048 36,628
----------- -----------
Cash and cash equivalents at end of period $ 37,116 $ 45,298
=========== ===========
</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
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MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
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Supplemental Disclosures of Interest and Income Taxes Paid
Interest paid during the period $ 18,526 $3,684
======= =====
Income taxes paid (refunded) $(10,659) $ --
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</TABLE>
Supplemental schedule of noncash investing and financing activities
The Company acquired certain oil & gas properties on November 4, 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 an aggregate of approximately $49,180 and $200,763 during the nine
month periods ended March 31, 1998 and 1997, respectively, due to the dilutive
effects of the issuance, by Digital Communications Technology Corporation, of
approximately 983,000 shares of common stock and the changes in the unrealized
loss on marketable equity securities owned by Digital Communications Technology
Corporation.
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
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MILLENNIA, INC. AND SUBSIDIARIES
Notes to Consolidated 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 (DCT) as of March 31, 1998 and June 30,
1997, respectively. The Company held equivalent interests of approximately 14.8%
and 17.6% as of March 31, 1997 and June 30, 1996, respectively. The changes in
ownership percentage are due to the dilutive effects of the issuance of
additional common stock by DCT and to the Company's open market purchases and
sales of DCT common stock.
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 March 31, 1998 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
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MILLENNIA, INC. AND SUBSIDIARIES
Notes to Consolidated 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 became effective for reporting periods beginning
after December 15, 1997, with earlier application permitted. As of March 31,
1998 and 1997, respectively, the initial reporting period for which the
Company is subject to this new accounting standard, the Company had no items
other than those reported on the accompanying statement of operations which
require disclosure as "Other comprehensive income" items. Accordingly, no
additional disclosures are required to be presented by the Company and the
Company anticipates no material disclosure effect on its financial statements
in future periods.
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.
10
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MILLENNIA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
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 March 31, 1998
and June 30, 1997, respectively:
<TABLE>
March 31, June 30,
1998 1997
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Finished goods and purchased product $76,366 $ 99,777
Other raw materials and supplies 8,485 6,663
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$84,851 $ 106,440
====== ========
Note 4 - Equity investment in DCT
Summarized financial statement information for DCT is presented below (unaudited)
For the nine For the nine
months ended months ended
March 31, March 31,
1998 1997
------------ -----------
Net sales $3,415,560 $19,795,659
Operating profit (loss) $(4,093,466) $(307,105)
Income (loss) from continuing operations $(7,976,907) $(497,555)
Net income (loss) $(7,976,907) $(499,277)
Total net earnings (loss) per share $(10.73) $(1.16)
As of As of
March 31, June 30,
1998 1997
---------------- ----------
Total assets $1,396,252 $12,345,302
Total liabilities $4,418,481 $7,699,408
Total stockholders' equity $(3,022,229) $4,645,894
</TABLE>
Note 5 - Earnings per share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (FAS 128) to be effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. 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 made a number of changes to
former disclosure requirements. There has been no effect on the Company's
presentation of basic earnings per share in the implementation of this standard.
Due to the Company's net operating loss position, all outstanding stock options
are considered anti-dilutive and no fully diluted earnings per share is
presented.
11
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MILLENNIA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
Note 6 - 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 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.
The Company does not believe that the results of this lawsuit will have a
material impact on the financial condition of the Company beyond its
expenditures for legal and professional fees.
(Remainder of this page left blank intentionally)
12
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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
Net revenues for the first nine months of Fiscal 1998 increased approximately
$127,000 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 and third quarters of Fiscal 1998, Doblique Energy
Corporation experienced diminished gross margins between the recognized revenues
and expenses. On or about May 20, 1998, the Company entered into an agreement,
pending approval by both party's Boards of Directors, whereby the initial
selling party of the oil &gas properties to the Company will purchase 100.0% of
the issued and outstanding stock of Doblique from the Company for the assumption
of all Doblique debts and the release of the Company from any guarantees on the
acquisition debt.
Direct operating expenses related to selling, general and administrative
expenses increased from an aggregate of approximately $664,118 for the first
nine months of Fiscal 1997 to an aggregate of approximately $839,427 for the
same period in Fiscal 1998. The most significant increase relates to higher than
anticipated levels of legal and professional expenses and general corporate
overhead costs. Increases in depreciation, amortization and depletion expenses
relate primarily to calculated depletion of oil & gas properties due to third
quarter production results in Doblique.
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 nine months of
Fiscal 1998 as compared to gains of approximately $32,674 realized during the
first nine 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 nine months of Fiscal 1997, this accounting transaction
recognized a loss of approximately $(52,600) while the Company recognized
approximately $(1,148,000) in proportionate losses for the first three quarters
of Fiscal 1998. Effective December 31, 1997, DCT ceased all videotape
duplication activities and laid off a significant portion of its workforce.
During the third quarter of Fiscal 1998, the Company exchanged various inventory
and capital assets to various creditors in settlement of various litigation and
open trade payables. On March 26, 1998, DCT conducted a public auction in
Indianapolis Indiana at which virtually all of DCT's remaining tangible assets
were sold with all net proceeds applied against
13
<PAGE>
the outstanding bank debt due to Bank One, Texas, N. A.
The Company experienced losses from continuing operations per weighted-average
share of common stock outstanding of approximately $(1.03) per share for the
first nine months of Fiscal 1998 as compared to losses of approximately $(0.33)
per share for the first quarter of Fiscal 1997. Approximately $(0.50), or
approximately two-thirds of the comparative increase, is attributable to the
non-monetary loss recognition of the Company's proportionate share of 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 nine months and the third quarter of Fiscal 1998, respectively, Omni
experienced revenues of approximately $378,000 and $120,000 as compared to
approximately $411,000 and $140,000 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
$32,000 for the first nine months of Fiscal 1998 as compared to a comparable net
income of approximately $4,400 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. Additionally, various weather and other factors contributed to an
overall slowdown of building activity during the third quarter of Fiscal 1998 as
compared to Fiscal 1997.
Oil and Natural Gas Segment
Operations in Doblique Energy Corporation were started on October 1, 1996.
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 and third quarters (October to March ) of Fiscal
1998, Doblique recognized revenues of approximately $271,000 as compared to
approximately $378,000 for the same period during Fiscal 1977. Doblique
continues to experience direct operating costs in excess of the revenue streams
from its oil & gas properties, as well as increased provisions for depletion
based on oil & gas production. For the periods ended March 31, 1998 and 1997,
respectively, Doblique experienced losses from operations of approximately
$347,000 and $6,900. One component of this increase in the operating loss
relates to interest expense of approximately $130,000 during Fiscal 1998 as a
direct result of negatively impacted oil & gas prices which have not allowed
Doblique to adequately cover its operating expenses and generate additional
capital resources to utilize for debt service.
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 nine
months of Fiscal 1998, MEI experienced revenues of approximately $139,000 and
generated a loss from operations of approximately $58,000. 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
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MEI and its customers receive the best value for the contracted sales prices.
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.
During the first calendar quarter of 1998, funds to reduce the Bank debt were
generated from the collection of accounts receivable and the sale of videotape
duplication equipment and all of the DCT's other tangible assets. 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
in favor of the Bank which cover virtually all of DCT's assets.
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. During the third quarter of Fiscal 1998, the Company exchanged
various inventory and capital assets to various creditors in settlement of
various litigation and open trade payables. Further, DCT has sold various
capital assets with the net proceeds going directly to DCT's financial
institution for settlement of outstanding debts. On March 26, 1998, a public
auction was held in Indianapolis Indiana at which virtually all of DCT's
remaining tangible assets were sold.
Further, DCT has been delisted by the American Stock Exchange and currently has
its common stock listed for trading on the NASDAQ Bulletin Board.
DCT's Results of operations
Due to the actions of Bank One, Texas, N. A., and the resultant cessation of
operations, the Company realized net revenues of approximately $27,000 during
the third quarter of Fiscal 1998 as compared to approximately $4.0 million for
the comparable quarter of Fiscal 1997. Gross year to date revenues for Fiscal
1998 and 1997 were approximately $3.4 million and $19.8 million, respectively.
Due to the lack of available funding on its existing credit facilities, the
Company effectively ceased all video tape duplication operations, effective
December 31, 1997. The full impact of this curtailment was realized in the
current quarter, and by April 1, 1998, the Company ceased operations completely
and terminated its few remaining employees.
The industry consensus is that the overall industry sales activity during
Calendar 1997 was significantly slower than expected. The Company has
experienced severe cash flow problems caused by its inability to access its line
of credit from its lending institution which negatively impacted its ability to
solicit sales to customers and forced the Company to cease operations.
The Company incurred costs of sales of approximately $966,000 and $4.9 million,
respectively, for the three and nine month periods ended March 31, 1998 as
compared to approximately $3.6 million and $16.2 million for the comparable
periods ended March 31, 1997. The primary component of these expenses are the
Company's fixed costs related to its production facility in Indianapolis,
Indiana and its former production facility in Ft. Lauderdale, Florida. These
costs during the third quarter of Fiscal 1998 relate to the abandonment of
unsalable inventory that could not be liquidated due to the actions of Bank One,
Texas, N. A. Had the Bank not taken the actions taken, this
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inventory would have been usable by the Company in its on-going operations.
Due to the cessation of videotape duplication efforts, the Company's selling
expenses declined to approximately $18,000 for the quarter ended March 31, 1998.
It is anticipated that the Company will incur only nominal selling expenses
related to the operation of DCT-Internet Corporation, a wholly-owned subsidiary
of the Company.
General and administrative expenses experienced pressure from general corporate
overhead and legal and professional fees. The Company incurred aggregate costs
of approximately $1.1 million and $2.4 million during the three and nine month
periods ended March 31, 1998 and 1997, respectively. These costs were
approximately $616,000 and $1.8 million for the comparable periods ended March
31, 1997. A 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. 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 the Company. Additionally, the actions of Bank One, Texas, N. A.
caused increased legal, appraisal and liquidation expenses to the Company. It is
anticipated that these expense items will continue into future periods until the
litigation associated with the Bank's actions are completed.
The blanket lien held by Bank One, Texas, N. A. caused the Company into a forced
liquidation of various assets and settlement of open accounts receivable and
settlement of open accounts payable. As this situation was an involuntary action
by the Company, the Company was unable to control the orderly and systematic
liquidation of these items and, accordingly, did not receive the highest value
for all of the items disposed. Accordingly, the Company experienced a net loss
on the disposition of assets of approximately $(3.4) million for the nine month
period ended March 31, 1998 and approximately $(4.0) million during the third
quarter of Fiscal 1998.
The Company experienced a year-to-date net loss per share of approximately
$(10.73) per weighted-average share outstanding as of March 31, 1998 as compared
to a net loss per share of approximately $(1.16) per weighted-average share. The
effect of the forced liquidation of various assets contributed approximately
$(4.64) per share for Fiscal 1998.
DCT's Liquidity and capital resources
During the first nine months of Fiscal 1998, the Company experienced net cash
provided by operations of approximately $2.79 million as compared to using net
cash in operations of approximately $(1.72) during the same period of the
preceding year. Included in this net cash flow into the Company was the
collection, and affiliated reduction, of accounts receivable of approximately $3
million and the reduction of inventories of approximately $1.7 million. The
funds provided by these inflows were directly collected by Bank One, Texas, N.
A. and were applied against the outstanding balances on loans payable to the
Bank.
Further liquidity was provided by approximately $1.9 million in proceeds from
the sale various fixed assets including the sale of satellite uplink equipment
and 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, during the first quarter
of Fiscal 1998. Any residual amounts were collected by Bank One, Texas, N. A.
and were applied against the outstanding balances on loans payable to the Bank.
The net proceeds from the sale of assets and the funds generated from operating
activities reduced the Company's aggregate outstanding bank debt by
approximately $3.875 million.
The Company 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 was designed to optimize process flow, to reduce product
handling and to minimize the total cycle time of productions from order entry to
delivery. The Company added approximately $739,000 in property and equipment
during the first six months of Fiscal 1998. On April 6, 1998, the Company was
evicted from this facility by the landlord and ownership of all leasehold
improvements passed to the landlord which has filed suit to attempt to recover
more than $400,000 which the landlord alleges is currently due to it.
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(3) Liquidity and Capital Resources of Millennia, Inc.
During the first nine months of Fiscal 1998, the Company experienced net cash
requirements for operating activities of approximately $594,000 as compared to
cash provided by operating activities during the first six months of Fiscal 1997
of approximately $150,000. 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. Further operating capital was provided by advances from shareholders
and related entities of approximately $464,000.
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 any significant fluctuations in oil and natural gas prices that are
sustained over a prolonged period, it would be anticipated that corresponding
increases in variable production costs and related operating expenses would
occur.
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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
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
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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, thereunto duly
authorized.
MILLENNIA, INC.
May 21 , 1998 /s/ Kevin B. Halter
------ -----------------------------------------
Kevin B. Halter
Chairman and Principal Accounting Officer
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