SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0 24736
Midland, Inc.
(Exact name of small business issuer as specified in its charter)
Colorado 84 107820
(State or other jurisdiction of (I.R.S. employer incorporation or
organization) identification number)
3863 Princess Lane 75229
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (214) 357 3324
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of
December10, 1997, there were outstanding: approximately 17,184,077
shares of common stock and common stock equivalents.
I. PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MIDLAND, INC.
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
CURRENT ASSETS
Cash $ 6,470 $ 2,688
Accounts receivable,
no allowance deemed necessary - 58,424
Inventories - 5,000
Prepaid expense and other - 27,487
TOTAL CURRENT ASSETS 6,470 93,599
PROPERTY AND EQUIPMENT, net - 25,795
OTHER ASSETS
License agreement, net - 131,250
Slotting fee, net - 41,448
TOTAL OTHER ASSETS - 172,698
$ 6,470 $ 292,092
LIABILITIES AND
STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable 296,622 512,500
Bank overdraft - 76,822
Accrued expenses - 239,194
Current portion of long term debt - 109,614
TOTAL CURRENT LIABILITIES 296,622 938,130
LONG TERM DEBT,
less current portion - 25,375
STOCKHOLDERS' DEFICIT
Preferred stock, $0.40 par value
(1,000,000 shares authorized,
54,000 and 63,000 issued and
outstanding December 31, 1996,
and September 30, 1997,
respectively) 25,200 21,600
Common stock $.40 par value
(10,000,000 shares authorized,
845,565 issued and outstanding
as of December 31, 1996, and
1,739,170 outstanding on
September 30, 1997) 716,468 338,226
Additional paid in capital 1,188,346 940,366
Accumulated deficit (2,220,166) (1,971,605)
TOTAL STOCKHOLDERS' DEFICIT (290,152) (671,413)
$ 6,470 $ 292,092
MIDLAND, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the nine months ended September 30, 1997, and September 30,
1996, respectively
SALES $ 19,329 $ 1,697,667
COST OF SALES 6,844 685,169
Gross profit 12,485 1,012,498
OPERATING EXPENSES
General and administrative
expenses 139,226 1,691,779
Depreciation 3,550 43,288
TOTAL OPERATING EXPENSES 142,796 1,735,067
LOSS FROM OPERATIONS (130,291) (722,569)
OTHER INCOME (EXPENSES)
Interest (2,740) (28,691)
Other - (81,330)
TOTAL OTHER INCOME (EXPENSES) (2,740) (110,021)
LOSS BEFORE INCOME TAXES (133,031) (832,590)
Provision for income tax 800 800
NET LOSS $(132,231) $(832,590)
Net loss per common share $ (.074) $ (.98)
Weighted average number
of shares outstanding 1,791,970 845,567
MIDLAND, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(132,231) $(832,590)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation - 43,288
Property Plant and Equipment 25,795 -
Changes in operating
assets and liabilities:
Accounts receivable 58,424 66,599
Inventory 5,000 47,626
Prepaid expenses 27,487 (3,196)
Other assets 172,698 (23,929)
Increase (decrease) in:
Accounts payable (215,878) 282,596
Long Term Debt,
Including Current Portion (134,989) 25,926
Accrued expenses (239,194) -
License Agreement - 100,000
Bank overdraft (76,822) -
NET CASH USED IN OPERATING
ACTIVITIES (509,710) (293,641)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and equipment - (176,043)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt - (185,677)
Proceeds from issuance of common stock - 17,410
Deferred Offering Costs - 72,060
Proceeds from additional
paid-in-capital/offering cost - 643,199
NET CASH PROVIDED BY
FINANCING ACTIVITIES 513,492 546,992
NET INCREASE (DECREASE) IN CASH 3,782 77,308
CASH, BEGINNING OF PERIOD 2,688 32,727
CASH, END OF PERIOD $ 6,470 $ 110,035
MIDLAND, INC.
Notes to Financial Statements
(Unaudited)
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
of the financial condition of registrant have been included, and
the disclosures are adequate to make the information presented not
misleading.
Note 1. A summary of significant accounting policies is currently
on file with the U.S. Securities and Exchange Commission in
registrant's Form 8 A.
Note 2. The loss per share was computed by dividing net loss by
the weighted average number of shares of common stock outstanding
during the period.
Note 3. Registrant has not declared or paid dividends on its
common shares since inception.
Note 4. The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10 Q and do
not include all information and footnotes required by generally
accepted accounting principles for complete financial statements.
Note 5. Income taxes have not been provided for in that registrant
has not had a tax liability from inception to the date of these
notes.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations:
Failure of Coffee Business:
The Company, during 1996, was engaged in the sale of gourmet
coffee, related products and accessories through service
concessions located in a chain of grocery stores in Southern
California. The Company owned and operated service concessions,
almost all of which were located in one supermarket chain in
Southern California, Ralph's.
Beginning in late October, 1996, the Company began to experience
difficulties in its relationship with Ralphs, the result of which
was that Ralphs refused to pay the Company for the coffee which the
Company was selling to Ralphs, which, in turn, caused the Company
to default on its obligations to Daymar and also to Restaurant
Blend, which, in turn, resulted in the Company being unable to
deliver coffee to Ralphs and its other sales outlets, which, in
turn, resulted in Ralphs and the Company's other sales outlets
notifying the Company of their intention to terminate their
respective relationships. The Company negotiated a settlement with
Ralphs in February, 1997, whereby their contract was mutually
terminated. Ralphs kept the slotting fees paid by the Company and
the Company was relieved of all liabilities claimed by Ralphs.
Subsequently, the Company settled all liabilities with Brothers,
Daymar, Restaurant Blend and most, if not all, of its others
creditors; however, the Company is presently in default of many of
the settlement agreements which it reached with these entities.
Mega-Hell and Mill Agro Acquisitions:
On February 18, 1997 (the Closing Date), the Company executed,
delivered and closed under a Plan and Agreement of Purchase (the
Purchase Agreement) with the shareholders (the Shareholders) of
MILL-AGRO (HELLAS) SA, a Panamanian company, and MEGAHEL NAUTICAL
SA, a Greek company (both of which business entities are
collectively referred to herein as the Subsidiaries), whereby the
Company acquired from the Shareholders all of the outstanding
proprietary interest of these entities, thereby making them
wholly-owned subsidiaries of the Company. This acquisition was
subsequently rescinded.
New Departures Acquisition:
On October 10, 1997 (the Closing Date), the Company executed,
delivered and closed under a Plan and Agreement of Purchase (the
Purchase Agreement) with the shareholders (the Shareholders) of New
Departure Corporation, a Texas corporation (the Subsidiary), and
the Subsidiary itself whereby the Company acquired from the
Shareholders all of the outstanding proprietary interest of the
Subsidiary, thereby making New Departure Corporation a wholly owned
subsidiary of the Company.
The Company issued and caused to be delivered to the Shareholders,
immediately subsequent to the Closing Date, 70,000 shares of its
previously authorized Series B Preferred Stock (Series B Preferred
Stock). The Series B Preferred Stock consists of 149,259 shares,
with each outstanding share (i) to be automatically converted into
150 shares of Common Stock on October 1, 1998, or sooner at the
election of the holder, (ii) being entitled to 150 votes on each
matter submitted to the shareholders of the Company, with certain
super majority provisions being applicable in certain instances,
(iii) not being entitled to a liquidation preference, (iv) not
being redeemable and (v) not being entitled to dividends. This
series has certain non dilution provisions applicable to it in the
event of stock dividends, stock splits and other extraordinary
corporate events. The Series B Preferred Stock is considered a
common share equivalent and, therefore, the Company is considered
for purposes of applicable securities laws to now have an
additional 10,500,000 common shares outstanding under this series
of preferred stock.
Immediately following the execution, delivery and consummation of
the Purchase Agreement, the board of directors of the Company
(Board of Directors) was reduced to five in number, and joining
Messrs. Charles Stidham, Robert W. Marsik, E. Robert Barbee and
Arthur Malcolm to fill the remaining empty seat on the board was R.
Wayne Duke. All directors will serve until the next annual meeting
of shareholders and until their respective successors are duly
elected and qualified, or until they earlier resign or are
dismissed. No director has any contractual rights to his position.
The newly constituted Board of Directors then appointed (i) Mr.
Duke as Chairman of the Board of Directors and as Chief Executive
Officer and President, (ii) Mr. Marsik as Executive Vice President,
and (iii) Mr. Mark S. Pierce as Secretary. The board elected to
defer the decision of who would serve Registrant as Chief Financial
and Accounting Officer and Treasurer.
The Subsidiary is in the bearing and power transmission business
and is a start up company. A division of the Subsidiary will lease
Bearings and Power transmission equipment to large corporations and
provide a software interchange program to distributors on a lease
program. Another division of the Subsidiary will acquire obsolete
inventory from distributors and liquidate inventory through an
interchange program.
As a result of the acquisition of the Subsidiary, Registrant now
has the following outstanding securities: (i) 2,575,217 shares of
Common Stock; (ii) Bridge Loan Options which, upon exercise, will
require the issuance of up to an additional 1,150,980 shares of
Common Stock and additional Series A Warrants, each of which
warrants will allow for the acquisition of one additional share of
Common Stock; (iii) 117,396 shares of Series A Preferred Stock
which, upon conversion and assuming no dividends, will require the
issuance of approximately 4,108,860 shares of Common Stock, and
additional Series A warrants, each of which warrants will allow for
the acquisition of one additional share of Common Stock; and (iv)
70,000 shares of Series B Preferred Stock which, upon conversion
and assuming no dividends, will require the issuance of
approximately 10,500,000 additional shares of Common Stock.
Registrant does not have a sufficiently authorized capitalization
to provide for the exercise and/or conversion of all of the
foregoing securities, and will, therefore, call and hold a
shareholders' meeting for the purpose of increasing its
capitalization. The Series A and B Preferred Stock, given their
terms and conditions, are considered to be a part of the same class
of securities as the Common Stock for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended, and Rule 144
thereunder; thus, as of the date of this report, there were
considered to be approximately 17,184,077 shares of Common Stock
outstanding.
Liquidity and Capital Resources:
The Company presently has, and during the period of this report,
had no source of liquidity or capital, other than such liquidity as
resulted from the exercise of outstanding warrants and the receipt
of proceeds therefrom.
PART II OTHER INFORMATION
Item 1. Litigation
There is no pending litigation to which the Company is presently a
party which has not been satisfied prior to the date of this
filing, and which is required to be disclosed under this item,
other than the following:
Matossian and Fidiparex S.A.: In December of 1995 counsel for
Robert Matossian and Fidiparex S.A. demanded rescission of and
subsequent conversion into Common Stock of notes which the Company
had entered into with certain affiliates of a former director of
the Company, Mr. Mark S. Pierce, on December 30, 1994, alleging,
among other claims, breach of fiduciary duty to the Company by
Messrs. Robert W. Marsik and Pierce. The notes were converted into
Common Stock on August 17, 1995. Mr. Matossian was a consultant to
the Company from June 1, 1993, until July 31, 1995, when his
consulting agreement was terminated by the Company. Mr. Matossian
was also a director of the Company with Messrs. Pierce and Marsik
during the time that the notes were entered into and the conversion
of the notes effected. Matossian, through various nominees on his
behlaf, filed suit purportedly on behalf of the Company against
Messrs. Pierce and Marsik essentially reiterating the foregoing
points. The suit was filed in the San Diego, California, Superior
Court (Case No. 704105). Messrs. Pierce and Marsik and the Company
filed counter-claims against Mr. Matossian and his nominees
alleging breach of contract and fiduciary duty to the Company,
securities fraud and other related claims. The Company is of the
opinion that Matossian has no claims, and has been advised by
independent counsel that the claims of Matossian are frivolous and
groundless and initiated solely for the purpose of attempting to
interpose corporate black mail to gain a pecuniary settlement.
Matossian had previously offered to settle his so-called claims for
260,000 shares of Common Stock and $162,500 in cash.
Office Park Litigation: In March, 1997, the Company was sued by
the owner of the office park facility in which its Los Angeles
operations were located. The suit claims that the Company has
breached the lease, and seeks damages for rent from the date of the
claimed breach, December, 1996, through the end of the lease in
September, 1998. The maximum exposure from the suit approximates
$30,000, and is currently being negotiated for settlement as a part
of the debt restructuring initiated by the Company in the final
quarter of 1996.
Item 2. Change in Securities: This item is not applicable to the
Company for the period covered by this report.
Item 3. Defaults Upon Senior Securities: This item is not
applicable to the Company for the period covered by this report.
Item 4. Submission of Matters to a Vote of Security Holders:
There were no meetings of security holders during the period
covered by this report; thus, this item is not applicable.
Item 5. Other Information: There is no additional information
which the Company is electing to report under this item at this
time.
Item 6. Exhibits and Reports on Form 8 K: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 9th day of September, 1997.
MIDLAND, INC.
(Registrant)
By: /s/ R. Wayne Duke
R. Wayne Duke, President
and Chief Executive Officer
By /s/ R. Wayne Duke
R. Wayne Duke, Chief Financial
and Accounting Officer and Treasurer
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