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: March 31, 1998
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.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1078201
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1999 Broadway, Ste. 3235, Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (303) 292 2992
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: As of November 30, 1998, there
were 3,489,957 shares of common stock outstanding and 16,270,077 common share
equivalents.
<PAGE>
I. PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MIDLAND, INC.
BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
------ ---- ----
(Unaudited)
CURRENT ASSETS
Cash $ 162,232 $ 7,984
Subscription receivable 100,000 0
Investment in subsidiary 329,000 0
TOTAL CURRENT ASSETS $ 591,232 $ 7,984
LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
Accounts payable $ 237,498 $ 245,223
Accounts payable:
related parties 121,000 274,000
Notes payable 45,000 45,000
Accrued expenses 23,004 21,991
Accrued payroll taxes 8,510 8,510
TOTAL CURRENT LIABILITIES 435,012 594,724
STOCKHOLDERS' EQUITY (DEFICIT)
Series A Preferred stock,
$0.40 par value (360,000 shares
authorized, 124,617 and
250,121 issued and outstanding
December 31, 1997 and March
31, 1998, respectively) 136,049 49,847
Common stock, $0.40 par value
(10,000,000 shares authorized,
2,623,207 and 2,823,207 issued
and outstanding as of
December 31, 1997 and March
31, 1998, respectively) 909,709 753,494
Additional paid in capital 1,845,647 1,125,504
Accumulated deficit (2,735,185) (2,515,585)
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) 156,220 (586,740)
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 591,232 $ 7,984
<PAGE>
MIDLAND, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
------------------------------
March 31, March 31,
1998 1997
---- ----
SALES $ 0 $ 19,329
COST OF SALES 0 6,844
Gross profit 0 12,485
OPERATING EXPENSES
General and administrative 220,863 120,125
Depreciation 0 3,550
TOTAL OPERATING EXPENSES 220,863 123,675
LOSS FROM OPERATIONS (220,863) (111,190)
OTHER INCOME (EXPENSES)
Interest income 1,264 0
Interest expense 0 (2,740)
LOSS BEFORE INCOME TAXES (219,599) (113,930)
Provision for income tax 0 800
NET LOSS $ (219,599) $ (114,730)
Net loss per common share $ (.08) $ (.14)
Weighted average number
of shares outstanding 2,823,207 845,565
<PAGE>
MIDLAND, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
--------------------------
March 31, March 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(219,599) $(114,730)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation 0 3,550
Gain on sale of property
and equipment 0 (7,782)
Changes in operating assets and liabilities:
Accounts receivables 0 24,615
Inventory 0 5,000
Prepaid expenses 0 (22,968)
Other assets 0 43,525
Increase (decrease) in:
Subscription receivables (100,000) 0
Accounts payable (7,726) 17,425
Accounts payable: related party (153,000) 0
Accrued expenses 1,013 (137,174)
Bank overdraft 0 (76,822)
NET CASH USED IN
OPERATING ACTIVITIES (479,312) (265,361)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary (329,000) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long term debt 0 (1,176)
Net proceeds from long term debt 0 129,580
Proceeds from sale of
series A preferred stock 86,2020 0
Proceed from sale of
common stock 156,215 0
Proceeds from additional
paid in capital 720,143 242,780
NET CASH PROVIDED BY
FINANCING ACTIVITIES 962,560 371,184
NET INCREASE IN CASH 154,248 105,823
CASH, BEGINNING OF PERIOD 7,984 2,688
CASH, END OF PERIOD $ 162,232 $ 108,511
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
New Departures Acquisition and Recission: On October 10, 1997 (New Departures
Closing Date), the Company closed under a Plan and Agreement of Purchase (New
Departures Purchase Agreement) with the shareholders (New Departures
Shareholders) of New Departure Corporation, a Texas corporation (New
Departures), and New Departures itself. The Company, the New Departures
Shareholders and New Departures, on January 22, 1998, rescinded the New
Departures Purchase Agreement under applicable federal securities laws effective
the date of the original acquisition; thus, for legal and accounting purposes it
is as if the acquisition had never taken place. The recision resulted in (1) the
return of all Series B Preferred Stock issued in the acquisition of New
Departures and (2) the resignation of all then officers and directors of the
Company, with the exception of Mr. Duke, who remained a director of the Company.
ArconEnergy Acquisition and Recision: On January 22, 1998 (Arcon Closing Date),
the Company closed under a Plan and Agreement of Purchase (Arcon Purchase
Agreement) with the shareholders (Arcon Shareholders) of Arconenergy, Inc., a
Texas corporation (ArconEnergy), and ArconEnergy. The Company acquired from the
Arcon Shareholders all of the outstanding proprietary interest of ArconEnergy,
which made ArconEnergy a wholly owned subsidiary. The Arcon Shareholders
received 140,943 shares of Series B Preferred Stock. The Board of Directors was
reconstituted and joining Mr. Duke were Messrs. Daniel W. Fisher, Edward Fisher,
John H. Spriggs and James R. Clark. The newly constituted board then appointed
(1) Mr. Daniel W. Fisher Chairman of the Board of Directors and Chief Executive
Officer, (2) Mr. Spriggs President and Chief Operating and Financial Officer,
(3) Mr. Willard G. McAndrew, III, Senior Vice President/Investments and (4) Mr.
Pierce Secretary.
The Arcon Shareholders and ArconEnergy on the Arcon Closing Date undertook to
deliver audited financial statements of ArconEnergy as of and for the period
beginning at the inception of ArconEnergy up to and including November 30, 1997,
all as required by applicable securities laws. Further, the Arcon Shareholders
and ArconEnergy represented and warranted, among other things, that the patents
pertaining to a product referred to as DF 144 would have an audited value of
$16,000,000 (U.S.) and that certain oil and gas assets would have an audited
value of $25,000,000 (U.S.), leaving a minimum shareholders' equity for the
ArconEnergy of approximately $41,000,000 (U.S.).
On June 15, 1998, the Company rescinded its acquisition of ArconEnergy due to
the fraud perpetrated by Mr. Daniel W. Fisher in obtaining the execution and
delivery of the Arcon Purchase Agreement. In accordance with the recision, all
shares of ArconEnergy held by the Company were returned to the former
shareholders of ArconEnergy and the Company became entitled to obtain the return
of all shares issued to the Arcon Shareholders. Mr. Spriggs returned all 46,831
shares of Series B Preferred Stock held by him to the Company immediately
following June 15, 1998.
<PAGE>
Mr. Daniel W. Fisher returned the remaining shares of Series B Preferred Stock
issued in the acquisition of ArconEnergy on August 21, 1998.
The recision was based on the: (1) failure of ArconEnergy to deliver the agreed
on financial statements required pursuant to applicable securities regulations,
(2) misrepresentations of ArconEnergy and Mr. Daniel W. Fisher as to the
ownership of the patents and certain oil and gas rights which they claimed to
own through ArconEnergy; (3) misrepresentations of ArconEnergy and Mr. Daniel W.
Fisher as to the value of these patents and oil and gas rights under Generally
Accepted Accounting Principles; (4) misrepresentations of ArconEnergy and Mr.
Daniel W. Fisher as to the outstanding liabilities of ArconEnergy; (5)
misrepresentations of ArconEnergy and Mr. Daniel W. Fisher concerning the
capital structure of ArconEnergy; (6) misrepresentations of ArconEnergy and Mr.
Daniel W. Fisher as to the outstanding liabilities of ArconEnergy; and (7)
various other misrepresentations of ArconEnergy and Mr. Daniel W. Fisher. The
Company learned of these misrepresentations on Friday, June 12, 1998, and acted
on them on Monday, June 15, 1998. Mr. Daniel W. Fisher was given notice of and
an opportunity to defend these matters at a properly called board meeting held
in Dallas, Texas, and was allowed to attend by telephone and be represented by
legal counsel. A majority of the directors of the Company were present at the
meeting and a quorum was established. Mr. Fisher notified the board of his
intention of being present at this meeting; however, he failed to appear, as did
his attorney.
Immediately following the recision, on June 15, 1998, two of the remaining three
members of the Board of Directors resigned, those being Messrs. Spriggs and
Clark. The Board of Directors then consisted of Messrs. Duke and Pierce, the
latter of whom was appointed a director at a second meeting immediately
following the first on this date, and who was then appointed to serve as CEO,
President and Treasurer of the Company. Mr. Duke resigned all positions with the
Company on July 16, 1998.
On July 9, 1998, the Company filed a complaint (No. 98 D 1495) against
ArconEnergy, St. Andrews, Inc. (an affiliate of Mr. Fisher's), Daniel W. Fisher
and Morgan Guaranty, Ltd. (another affiliate of Mr. Fisher's), in the federal
United States District Court for the District of Colorado. The complaint alleges
that the defendants defrauded the Company and violated federal and state
securities acts and state common law principles (1) in obtaining the Arcon
Purchase Agreement and the issuance of the Series B Preferred Stock thereunder,
(2) in issuing 180,000 shares of Series A Preferred Stock and 9,000,000 Series A
Warrants to affiliates of Mr. Fisher; (3) in the sale of 42,004 shares of Series
A Preferred Stock in exchange for approximate cash proceeds of $570,060 and the
(4) the misappropriation of those funds. As of the date of this report, all of
the defendants had been served and defaults obtained. The Company has made
application for a final judgment against all defendants.
<PAGE>
The Company on August 21, 1998, entered into an agreement with Mr. Daniel W.
Fisher and his two affiliates, St. Andrews, Inc., and Morgan Guaranty, Ltd.,
whereby Mr. Daniel W. Fisher returned 134,800 shares of Series A Preferred
Stock, 9,000,000 Series A Warrants and all of the remaining shares of Series B
Preferred Stock then outstanding to the Company, all of which have been
surrendered to treasury. In addition, Mr. Daniel W. Fisher paid to the Company
the sum of approximately $615,964.98, half of which was agreed to be released to
the mediator for resolving the disagreements between the parties. In addition,
Mr. Fisher agreed to surrender to the Company all securities and money held in a
brokerage account in the United States and to surrender the accounting records
of the Company. Subsequently, the Company learned that there were no securities
or cash in the United States brokerage account, and Mr. Fisher refused to return
the accounting records; thus, the Company declared the agreement to be null and
void and is again pursuing judgments against Mr. Fisher and his affiliates.
Other Acquisitions: It has come to the attention of the Company that an
agreement was executed and delivered, but never closed under, with one Mr.
Stephen King and pertaining to Jet View Holdings. Contrary to the assertion of
Mr. King, as he announced to the media without the authority of the Company, Jet
View was never acquired since the agreement lapsed by its terms prior to
closing. Furthermore, Mr. King was never officially appointed to serve on the
Board of Directors. The Company also negotiated for and obtained a commitment to
acquire two separate corporations, DRC, Inc., and Disk Man. Both agreements
failed to close.
Series A and B Preferred Stock Reconciliations: There were 54,000 shares of
Series A Preferred Stock and no shares of Series B Preferred Stock outstanding
at December 31, 1996. At November 30, 1998, there were 301,821 shares of Series
A Preferred Stock and no shares of Series B Preferred Stock outstanding.
On February 17, 1997, the Company issued 74,604 shares of Series A Preferred
Stock and 149,259 shares of Series B Preferred Stock to the MegaHel
Shareholders. On February 17, 1997, the Company also issued 41,617 shares of
Series A Preferred Stock to officers and directors in recognition of their
services. The MegaHel acquisition was subsequently rescinded, and the 74,604
shares of Series A Preferred Stock and 149,259 shares of Series B Preferred
Stock issued were returned to treasury. Also on August 29, 1997, an officer and
director was issued 29,000 shares of Series A Preferred Stock in recognition of
<PAGE>
services prior to that date. On October 10, 1997, the Company issued 70,000
shares of Series B Preferred Stock to the New Departure Shareholders.
Subsequently, on January 22, 1998, this acquisition was rescinded and the 70,000
shares of Series B Preferred Stock were returned to treasury. On January 22,
1998, the Company issued 140,493 shares of Series B Preferred Stock to the Arcon
Shareholders. On February 6, 1998, a former officer and director was issued
90,000 shares of Series A Preferred Stock in recognition of his services from
August 29, 1997, through January 21, 1998. From February through April, 1998, a
former officer and director of the Company, Mr. Daniel W. Fisher, conducted a
private offering of Series A Preferred Stock, the result of which was the
issuance of 42,004 shares for cash of approximately $570,060. In May, 1998, Mr.
Daniel W. Fisher, misappropriated 180,000 shares of Series A Preferred Stock, of
which 134,800 were retrieved and returned to treasury in August and September of
1998; thus, 45,200 shares were irretrievably sold into market. Subsequently, on
June 15, 1998, the ArconEnergy acquisition was rescinded, and the 140,493
outstanding shares of Series B Preferred Stock returned to treasury.
In summary, as of the date of this report, there were 301,821 shares of Series A
Preferred Stock and no shares of Series B Preferred Stock outstanding. The
following tables reconcile the discussion in the foregoing paragraph:
Series A:
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54,000 Secondary Offering August 16, 1996
41,617 Officers and Directors February 17, 1997
74,604 MegaHell Acquisition February 17, 1997
(74,604) MegaHell Recission August 29, 1997
29,000 Officer and Director August 29, 1997
90,000 Officer and Director February 6, 1998
42,004 Private Offering February through April, 1998
45,200 Daniel W. Fisher May, 1998
301,821
Series B:
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149,259 MegaHell Acquisition February 17, 1997
(149,259) MegaHell Recission August 29, 1997
70,000 New Departure Acquisition October 10, 1997
(70,000) New Departure Recission January 22, 1998
140,493 ArconEnergy Acquisition January 22, 1998
(140,493) ArconEnergy Recission June 15, 1998
There were 70,617 shares of Series A Preferred Stock issued during 1997; thus,
there were 124,617 shares of Series A Preferred Stock outstanding at December
31, 1997. There were no shares of Series B Preferred Stock outstanding at year
end due to the recission of the MegaHel and New Departures acquisitions. There
were 125,504 shares of Series A Preferred Stock issued during the first quarter
of 1998; thus, there were 250,121 shares of Series A Preferred Stock outstanding
at March 31, 1998. There were no shares of Series B Preferred Stock outstanding
at the end of the first quarter of 1998 due to the recission of the ArconEnergy
acquisition. There were 51,700 shares of Series A Preferred Stock issued during
the second quarter of 1998; thus, there were 301,821 shares of Series A
Preferred Stock outstanding at June 30, 1998. No shares were issued during the
third quarter of 1998; thus, the number of outstanding shares at that date
remained 301,821 in number.
<PAGE>
Common Stock Reconciliation: There were 845,567 shares of Common Stock
outstanding at December 31, 1996. At November 30, 1998, there were 3,489,957
shares outstanding.
On February 17, 1997, 552,640 shares of Common Stock were issued to directors.
There were 725,000 shares of Common Stock issued from January 10, 1997, through
December 11, 1997, pursuant to the exercise of previously issued warrants to
bridge loan holders. On July 29, 1997, 500,000 shares of Common Stock were
issued to officers and directors under an Incentive Stock Ownership Plan. The
Company, on March 31, 1998, issued 200,000 shares of Common Stock under a
contract with a third party, Mr. Stephen King, in exchange for an agreement to
pay $100,000. The 200,000 shares were issued, but the $100,000 was never
received and is still owed. During the second quarter of 1998, approximately
449,306 Series A Warrants were exercised. On September 30, 1998, the Company
issued 217,444 shares to an individual in satisfaction of debt.
In summary, as of the date of this report, there were 3,489,957 shares of Common
Stock outstanding. The following table reconciles the discussion in the
foregoing paragraph:
Common Stock:
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845,567 Previously Issued Shares December 31, 1996
552,640 Directors February 17, 1997
725,000 Bridge Loan Holders February/December, 1997
500,000 Officers and Directors July 29, 1997
200,000 Third Party March 31, 1998
449,306 Series A Warrants Second Quarter of 1998
217,444 Debt Settlement September 30, 1998
3,489,957
There were 1,777,640 shares of Common Stock issued during 1997; thus, there were
2,623,207 shares of Common Stock outstanding at December 31, 1997. There were
200,000 shares of Common Stock issued during the first quarter of 1998; thus,
there were 2,823,207 shares of Common Stock outstanding at March 31, 1998. There
were 449,306 shares of Common Stock issued during the second quarter of 1998;
thus, there were 3,272,513 shares of Common Stock outstanding at June 30, 1998.
There were 217,444 shares of Common Stock issued during the third quarter of
1998; thus, there were 3,489,957 shares of Common Stock outstanding at September
30, 1998. In December, 1998, two holders of Series A Preferred Stock were
allowed to convert their shares into Common Stock since there were sufficient
common shares so as to allow for conversion. The Company is allowing holders of
Series A Preferred Stock who request conversion in writing to convert to Common
Stock; however, there is no assurance that the Company will be able to continue
to allow these requests since there is insufficient capitalization so as to
allow for the conversion of all shares of Series A Preferred Stock at the
present time.
<PAGE>
Preferred Stock Dividend: The Company, on or about May 18, 1998, during the
tenure of Mr. Daniel W. Fisher, declared a stock dividend on its Series A
Preferred Stock. The dividend announced would have resulted in the Company
issuing one additional share of Series A Preferred Stock for each two shares
outstanding on the date of declaration. This would have resulted in their being
50% more shares of Series Preferred Stock outstanding after the dividend than
are actually now outstanding. The dividend has not been distributed, however,
due to the difficulties which arose between the Company and its former transfer
agent, Signature Stock Transfer. The Company has not determined what, if
anything, it will do so bring this distribution into effect. All statements
regarding share figures in this filing are to pre dividend shares.
Reduction in Strike Price of Series A Warrants: Each Series A Warrant originally
entitled the holder to purchase one share of Common Stock (Warrant Share) at an
exercise price of $1.00 per Warrant Share until August 14, 2001. The strike
price was reduced to $.50 per share on or about May 18, 1998. Series A Warrants
are subject to redemption by the Company at a price of $0.05 each on thirty days
prior written notice; provided, however, that the closing sales price per share
for the Common Stock has equaled or exceeded $2.50 for ten consecutive trading
days. The Company presently has no right to call the Series A Warrants.
Liquidating Trust: The Company, on June 30, 1998, announced that it had
established a liquidating trust for the purpose of gathering all of the assets
of the Company on that date and then, first, providing for the payment of
administrative and collection expenses, secondly, providing for the payment of
all creditors and, finally, distributing the remainder to shareholders.
Subsequent to the date of the establishment of the liquidating trust it became
apparent that the Company would not have sufficient funds to provide for the
administration costs and expenses and the satisfaction of creditors; therefore,
the Company, as the grantor of the trust, elected not to fund its corpus, the
practical effect of which is that the trust will be dissolved as if it had never
been created.
<PAGE>
Order Suspending Trading: The Securities and Exchange Commission (Commission) on
August 18, 1998, issued an order suspending trading in the securities of the
Company claiming a lack of current and accurate information and because of
questions regarding the accuracy and adequacy of information disseminated by and
about the Company. The concerns related to, among other things: (1) the assets
and liabilities of the Company; (2) the identity and assets of the businesses
the Company had announced plans to acquire; (3) the current operations and
business prospects of the Company; (4) the composition and involvement in
affairs of the Company by management; (5) the possible misappropriation of
assets by officers of the Company; and (6) the failure of the Company to file
the reports required under the Securities Exchange Act of 1934. The order
suspended trading from August 18, 1998, through August 31, 1998. The Company has
been informed by the National Association of Securities Dealers, Inc. (NASD),
that, before trading may resume in its securities, an NASD member must sponsor
the Company for the purpose of publishing a quote. The Company, therefore, has
devoted its efforts towards fully and accurately addressing each issued raised
by the Commission in the issuance of the order suspending trading and is now
current in its reports. At the date of this report, the Company is seeking an
NASD member to sponsor its securities for trading, once again, on the OTC
Bulletin Board maintained by the NASD.
Pending Acquisition: The Company, during August, 1998, announced to the public
that it had reached an agreement in principal to acquire several entities based
in Greece which are involved in shipping and trading in the Mediterranean and
Black Sea regions. These entities are affiliated with Mr. Traios, the individual
discussed above in this item under Mega Hell and Mill Agro Acquisitions. Since
the previous recision of these acquisitions, Mr. Traios has expanded his
businesses and has obtained additional equity funding. Due to the cessation of
trading occasioned by the Commission, the pursuit of this acquisition was placed
in abeyance until such time as the Company could assure Mr. Traios that the
filings by the Company with the Commission under the Securities Exchange Act of
1934 were current and accurate. The Company is now current in its reports and is
again pursuing the announced acquisition, although definitive terms and
conditions have not been reached. There can be no assurance the Company will be
successful in this endeavor.
<PAGE>
Results of Operations: The Company has had recurring losses from operations
since inception and had a net capital deficiency at December 31, 1997, each of
which raised substantial doubts about the ability of the Company to continue as
a going concern. The Company, as a result of the cessation of its coffee
business, the recision of two separate acquisitions and the failure of its other
reported acquisitions, had no operations during 1997 or 1998; thus, no
meaningful comparison can be made to prior periods. The Company generated no
sales or cost of sales during the period, and incurred only general and
administrative expenses of $220,863 in regards of its operations.
At March 31, 1998, the Company reported a cash balance of $162,232 and an
investment in subsidiary of $329,000. (The subsidiary was ArconEnergy.) This
cash was misappropriated by Mr. Fisher and/or invested in ArconEnergy , and
became the basis of the law suit discussed below under Part II, Item 1: Fisher
Federal Court Litigation. The subsidiary investment was subsequently written off
as a loss when the acquisition of ArconEnergy was rescinded. At that date there
was also a subscription receivable in the amount $100,000 from Mr. King and his
StockstoWatch.com which was subsequently written off as uncollectible. This is
further discussed below under Part II, Item 1: StockstoWatch.com Threat.
Accounts payable at March 31, 1998, aggregated$121,000 to related parties. This
represented a $153,000 decrease from year end which was the result of the
delivery of 90,000 shares of Series A Preferred Stock to a former officer and
director in exchange for his services from August 29, 1997, through and
including January 22, 1998. The sum of $153,000 was accrued at year end for
these services and an additional $27,000 was incurred during the first quarter
of 1998, all of which was satisfied through the delivery of the stock. The
remaining $121,000 in related party accounts payable was subsequently satisfied
as well.
Subsequent to the period covered by this report, the Company made a loan to an
unaffiliated entity of approximately $90,000 on a short term basis at an above
market rate and invested $22,500 in common stock from this entity.
Liquidity and Capital Resources: The Company, from inception and until August
14, 1996, the date on which a secondary offering of stock was concluded, had two
sources of working capital for its operations and expansion, those being the
cash flow generated from existing operations and the extension of credit by its
coffee supplier. The Company, during the final quarter of 1995 and until August
14, 1996, relied on a series of bridge loans to provide for the expenses
incurred in conducting the secondary public offering. The secondary offering
closed on August 14, 1996, and a substantial portion of the proceeds received
from the offering were used to repay the bridge loans incurred. During the
fourth quarter of 1996, the Company negotiated a release of its contract with
Ralph's and subsequently received the release of liabilities aggregating
$707,234 from creditors following the cessation of its coffee business in
exchange for partial payments against the debt owed. The Company, subsequent to
August 14, 1996, and through December, 1997, relied on the proceeds received
from the exercise of outstanding bridge loan warrants registered under the
secondary offering to provide liquidity. Since December, 1997, the Company has
principally relied on the cash proceeds resulting from the Fisher settlement and
the exercise of Series A Warrants to provide operating capital.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Litigation.
Fisher Federal Court Litigation: On July 9, 1998, the Company filed a complaint
(No. 98 D 1495) against Mr. Daniel W. Fisher, ArconEnergy, St. Andrews, Inc. (an
affiliate of Mr. Fisher's), and Morgan Guaranty, Ltd. (another affiliate of Mr.
Fisher's), in the United States District Court for the District of Colorado. The
complaint alleges that the defendants defrauded the Company and violated federal
and state securities acts and state common law principles (1) in obtaining the
Arcon Purchase Agreement and the issuance of the Series B Preferred Stock under
that agreement, (2) in issuing 180,000 shares of Series A Preferred Stock and
9,000,000 Series A Warrants to Mr. Fisher indirectly through his affiliates,
those being St. Andrews, Inc, and Morgan Guaranty, Ltd., and (3) in the sale of
42,004 shares of Series A Preferred Stock in exchange for approximate cash
proceeds of $570,060 and the mis appropriation of those funds. As of the date of
this report, all of the defendants had been served, defaults taken and a default
judgment motion made against them.
The Company on August 21, 1998, entered into an agreement with Mr. Daniel W.
Fisher and two of his affiliates, St. Andrews, Inc., and Morgan Guaranty, Ltd.,
whereby Mr. Fisher returned 134,800 shares of Series A Preferred Stock,
9,000,000 Series A Warrants and all of the remaining shares of Series B
Preferred Stock then outstanding to the treasury of the Company. In addition,
Mr. Fisher paid to the Company the sum of $614,164.98, half of which was agreed
to be released to the mediator for resolving the disagreements between the
parties. In addition, Mr. Fisher agreed to surrender to the Company all
securities and money held in a brokerage account in the United States and to
surrender the accounting records of the Company. Subsequently, the Company
learned that there were no securities or cash in the United States brokerage
account, and Mr. Fisher refused to return the accounting records; thus, the
Company declared the agreement to be null and void and is again pursuing
judgments against Mr. Fisher and his affiliates.
<PAGE>
Matossian and Fidiparex S.A.: In December, 1995, counsel for Robert Matossian
and Fidiparex, S.A., demanded the rescission of and subsequent conversion into
Common Stock of promissory notes which the Company had executed and delivered in
favor of certain persons who were then affiliated with the Company, including
Mr. Pierce. The complaint as filled alleged, among other things, breach of
fiduciary duty to the Company. The suit was filed in San Diego, California,
Superior Court (Case No. 704105). Counter claims were filed by the defendants
alleging breach of contract and fiduciary duty to the Company, securities fraud
and other related claims. The suit was settled during the first quarter of 1998
at no expense to the Company or Mr. Pierce.
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
claimed that the Company had breached the lease of the premises and sought
damages for rent from the date of the claimed breach through the end of the
lease. The suit was ultimately settled by the Company relinquishing the space
with no additional liability.
DayStar Litigation: On May 14, 1998, Business Growth Fund of Southern
California, LP, and Daystar Partners, Inc., sued the Company in Los Angeles
Superior Court (Case No. BC191159) alleging that the Company failed to deliver
to them Common Stock and warrants which they claim to have been entitled as a
result of their agreements concerning certain bridge loans to the Company during
1996, the proceeds of which were used, in part, to provide for the secondary
offering made by the Company in August, 1996, and further claiming moneys due to
them in regards of their exercise of certain bridge loan warrants issued them.
The Company has not been served with the suit, but has responded by letter to
the plaintiffs informing them that they have no basis for the suit and seeking
to find an accommodation so as to avoid the incurrence of unnecessary legal
fees. If served, the Company intends to vigorously defend the suit.
Abraham & Christiansen, Inc. Judgement: On September 26, 1997, a former creditor
received a judgement in the state of Florida, which it domesticated in the state
of California, against the Company amounting to $55,506. In conjunction with the
judgement, a lien from the state of California was placed on Company property.
As of the date of the judgement and lien, the Company held no property in the
State of California. Management believes for the judgement and lien to be
effective, they must first litigate the case in the state where the services
claimed were performed, which did not occur. If such an action were to be
commenced, the Company intends to vigorously defend the matter.
<PAGE>
StockstoWatch.Com Threat: The Company has been informed that it is currently the
defendant in a suit by Stockstowatch.com, Inc., filed in the Twelfth Judicial
Circuit Court in Sarasota County, Florida (Case No. 98 5426 CA 01), although no
service of process has yet been effected. Management has spoken to a
representative of the plaintiff, Mr. Stephen King, and has been informed that
the plaintiff does not currently intend to pursue litigation. The complaint, as
presented to the Company, claims that plaintiff entered into a consulting
contract with the Company pursuant to which the Company inexplicably issued
200,000 shares of Common Stock without receiving the agreed on cash therefor and
then somehow breached the contract by refusing to deliver an additional 400,000
shares of Common Stock and 10,000 shares of Series A Preferred Stock. There is
no record of there ever having been a demand of the Company for payment under
the contract, nor is there any indication the plaintiff performed its end of the
bargain. The Company had, prior to the initiation of the suit, demanded payment
for the 200,000 shares of Common Stock given to the plaintiff without
consideration, and had agreed to the surrender of approximately 160,000 of the
200,000 shares issued and the payment of $20,000 cash; however, plaintiff
breached this oral agreement and elected to file the complaint instead. The
Company has informed counsel to plaintiff that Florida has no basis for
entertaining the matter and that the Company will vigorously defend against the
claims made. Subsequent to the initiation of the complaint, Stockstowatch.com,
Inc., and Mr. King were named in a civil securities fraud suit brought by the
Securities and Exchange Commission in Florida alleging that Stockstowatch.com,
Inc., and Mr. King engaged in scalping in their promotion of the securities of
several corporations, including those of the Company.
Item 2. Change in Securities.
This item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities.
This item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
This item is not applicable to the Company.
Item 5. Other Information.
This item is not applicable to the Company.
<PAGE>
Item 6. Exhibits and Reports on Form 8 K.
This item is not applicable to the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, this 18th day of December, 1998.
MIDLAND, INC.
(Registrant)
By: /s/ Mark S. Pierce
--------------------------------
Mark S. Pierce, Chief Executive,
Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant in the
capacity on this 14th day of December, 1998.
By: /s/ Mark S. Pierce
--------------------------------
Mark S. Pierce, Director
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