SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0 24736
Midland, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1078201
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
1073 4th Street, No. 3, Stone Mountain, Georgia 30083
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(Address of principal executive offices) (Zip Code)
P.O. Box 2469, Stone Mountain, Georgia 30086 2469
(Mailing address) (Zip Code)
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Registrant's telephone number: (770) 413 8734
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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State the aggregate market value of the voting stock held by non affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing: On
March 31, 1999, there were outstanding: (i) 3,696,807 shares of common stock and
(ii) 295,911 shares of Series A Preferred Stock convertible into approximately
12,531,831 shares of common stock. The Series A Preferred Stock is considered to
be a common stock equivalent for purposes of this calculation. There were,
therefore, 16,228,638 common share equivalents outstanding, of which affiliates
held none, leaving no common share equivalents held by non affiliates. There
were no bid or asked quotations for the common stock on that date; thus, there
was no aggregate market value for the voting stock equivalents held by
non-affiliates on March 31, 1999.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: As of March 31, 1999, there
were 3,696,807 shares of common stock outstanding and 16,228,638 common share
equivalents.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of this Form
10-KSB into which the document is incorporated: None.
Item 1. Description of Business.
Secondary Offering: The Company, on August 14, 1996, completed a secondary
offering to the public of 54,000 units (Units), each Unit consisting of one
share of Series A Preferred Stock (Series A Preferred Stock) and fifty
Redeemable Common Stock Purchase Warrants (Series A Warrants).
The Series A Preferred Stock was to have been automatically converted into
shares of common (Common Stock) on October 1, 1998; however, there were an
insufficient number of shares authorized to provide for conversion. The Company
has allowed preferred shareholders who request conversion in writing to obtain
shares of Common Stock, but there is no assurance the Company will continue to
be able to do so. The Company anticipates calling and holding an annual meeting
of shareholders during April, 1999, and, in addition to the election of
directors, will place on the ballot a proposal to increase its authorized
capitalization to an amount sufficient to provide for conversion. Until
conversion is effected, each share of Series A Preferred Stock is entitled to 35
votes on each matter submitted to a vote to the Common Stock as if the two
classes, common and preferred, constituted one class. Each share of Preferred
Stock is currently convertible into approximately 42.35 shares of Common Stock.
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The Company, on or about May 18, 1998, during the tenure of Mr. Daniel W.
Fisher, discussed in more detail below, 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 determined not to pay the
dividend. All statements regarding Series A Preferred Stock share figures in
this filing are to pre dividend shares.
The Series A Warrants 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 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.
New Departures Acquisition: 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 acquired from the New Departures Shareholders all of the
outstanding proprietary interest of New Departures, which made New Departures a
wholly owned subsidiary.
The Company issued to the New Departures Shareholders 70,000 shares of Series B
Preferred Stock in exchange for the outstanding shares of New Departures. Mr. R.
Wayne Duke then joined Messrs. Robert W. Marsik, E. Robert Barbee and Arthur
Malcolm on the Board of Directors. The board then appointed (1) Mr. Duke as
Chairman of the Board of Directors, Chief Executive Officer and President, (2)
Mr. Marsik Executive Vice President, and (3) Mr. Mark S. Pierce Secretary. The
board elected to defer the decision of who would serve as Chief Financial and
Accounting Officer and Treasurer. The New Departures Shareholders and New
Departures undertook to deliver audited financial statements of New Departures
as of and for the period beginning at inception of the entity up to and
including September 30, 1997, all as required by applicable securities laws. Mr.
Marsik subsequently resigned all positions with the Company on December 18,
1997.
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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 to the Company's treasury 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.
ArconEnergy Acquisition: 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 in exchange for all outstanding ArconEnergy
shares. The Board of Directors was then 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. John H. 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
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. Mr. Daniel W. Fisher returned the remaining shares of
Series B Preferred Stock issued in the acquisition of ArconEnergy on August 21,
1998.
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The recision was based, in significant part, 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; and (6) misrepresentations of
ArconEnergy and Mr. Daniel W. Fisher as to the outstanding liabilities of
ArconEnergy. 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 subsequently 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 alleged
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. All of the defendants were served with
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the complaint, and defaults were obtained. The Company then made application for
a final judgment against all defendants; however, the hearing on the matter was
twice postponed unilaterally by the court from September, 1998, until,
ultimately, January, 1999, by which time Mr. Fisher and his affiliates had
removed themselves and all recognizable assets to the Bahamas. The Company then
unilaterally withdrew without prejudice its motion for judgment, as well as the
complaint itself, against Mr. Fisher and his affiliates since no judgment by a
U.S. court is enforceable in the Bahamas.
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 again began pursuing judgments against Mr. Fisher and his affiliates.
These efforts were subsequently abandoned.
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 acquisition 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 124,617 shares of
Series A Preferred Stock outstanding at December 31, 1997 and no shares of
Series B Preferred Stock outstanding. At December 31, 1998, and as of the date
of this report, there were 295,911 shares of Series A Preferred Stock and no
shares of Series B Preferred Stock outstanding.
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
<PAGE>
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. The Company had allowed, as of February 2, 1999, the
conversion of 5,910 shares of Series A Preferred Stock into 206,850 shares of
Common Stock pursuant to the mandatory conversion provisions of the series.
In summary, as of December 31, 1998, and the date of this report, there were
295,911 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:
124,617 Outstanding December 31, 1997
90,000 Officer and Director February 6, 1998
42,004 Private Offering February through April, 1998
45,200 Daniel W. Fisher May, 1998
(5,910) Converted Shares November 1998 through December 31, 1999
295,911
Series B:
0 Outstanding December 31, 1997
140,493 ArconEnergy Acquisition January 22, 1998
(140,493) ArconEnergy Recission June 15, 1998
0
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
December 31, 1997, 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
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shares were issued during the third quarter of 1998; thus, the number of
outstanding shares at that date remained 301,821 in number. During the final
quarter of 1998, 5,910 shares of Series A Preferred Stock were converted into
206,850 shares of Common Stock; thus, there were 295,911 shares of Series A
Preferred Stock outstanding at December 31, 1998, and at the date of this
report.
Common Stock Reconciliation: There were 2,623,207 shares of Common Stock
outstanding at December 31, 1997. At February 2, 1999, there were 3,696,807
shares outstanding. 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, although the amount was written
off in 1998 for financial accounting purposes. 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. During the final quarter of 1998, 206,850 shares of Common Stock were
issued on conversion of Series A Preferred Stock.
In summary, as of December 31, 1998, and as of the date of this report, there
were 3,696,807 shares of Common Stock outstanding. The following table
reconciles the discussion in the foregoing paragraph:
Common Stock:
2,623,207 Outstanding December 31, 1997
200,000 Third Party March 31, 1998
449,306 Series A Warrants Second Quarter of 1998
217,444 Debt Settlement September 30, 1998
206,850 Preferred Conversion October 1 1998
through December 31, 1998
3,696,807
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, 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
<PAGE>
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. During the final quarter of 1998, 206,850 shares of Common Stock
were issued in this regards; thus, there were 3,696,807 shares of Common Stock
outstanding at December 31, 1998. No further shares were issued through the date
of this report; thus, the foregoing number remains the number of shares
outstanding at the date of this report.
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 was dissolved as if it had never
been created.
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. These issues
raised by the Commission in its order were previously addressed by the Company
in filings with the Commission under the Securities Exchange Act of 1934, and
the Company 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.
<PAGE>
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. 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 the acquisition target that the filings by the Company with
the Commission under the Securities Exchange Act of 1934 were current and
accurate and could again obtain a listing of the Common Stock on the OTC
Bulletin Board. The Company is now current in its reports and is pursuing the
Bulletin Board listing. After these objectives are accomplished, the Company
will again pursue this acquisition; however, there can be no assurance that the
acquisition candidate is still interested in the prospects of the Company or
that the Company will be otherwise successful in this endeavor.
Year 2000 Issues: The Company has evaluated all internal software against
anticipated Year 2000 concerns, and believes, first, that its business will not
be substantially affected, and, secondly, that it has no significant exposure to
contingencies related to this from past business. The Company has upgraded all
internal software and conducted testing on its information technology to further
ensure that all aspects of its business are Year 2000 compliant. These
procedures had no material effect on the Company or its business contacts and
did not require any material expenditures or other material diversion of
resources.
Facilities: The executive offices of the Company, as of the date of this report,
were located at 1073 4th Street, No. 3, Stone Mountain, Georgia 30083. There is
no separate telephone number at this address, but calls are being accepted at
(770) 413 8734.
Item 2. Description of Properties.
The Company owns no real property.
Item 3. 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 federal United States District Court for the District of
Colorado. The complaint alleged 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
<PAGE>
his affiliates, those being St. Andrews, Inc, and Morgan Guaranty, Ltd., (3) in
the sale of 42,004 shares of Series A Preferred Stock in exchange for
approximate cash proceeds of $570,060 and (4) the misappropriation of those
funds.
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 again pursued judgments
against Mr. Fisher and his affiliates; however, a hearing on the matter which
was required by the court was twice unilaterally postponed by the court, and
during this time Mr. Fisher took what remaining assets he had in the United
States of which management was aware to the Bahamas The Company then
unilaterally withdrew without prejudice its motion for judgment, as well as the
complaint itself, against Mr. Fisher and his affiliates since no judgment by a
U.S. court is enforceable in the Bahamas.
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.
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
<PAGE>
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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market: The Common Stock, until August 18, 1998, was traded on the Bulletin
Board under the symbol MIDL. On that date the Commission suspended trading in
all securities of the Company until August 31, 1998. The Company was previously
informed by the NASD that trading on the Bulletin Board could not recommence
until such time as the Company became current in its reports under applicable
securities laws and resubmitted filed reports to the NASD for review and
comment. The Company became current in its reports under applicable securities
laws earlier this year and resubmitted these reports to the NASD for review and
comment. The NASD has completed the review and comment process, and the Company
now anticipates that the Common Stock will be cleared for trading through the
Bulletin Board on or about March 22, 1999. No other securities of the Company
were submitted to the NASD for trading.
The following table sets forth the range of high and low bid prices per share of
Common Stock, as reported by the NASD, for the periods indicated.
Year Ended December 31, 1996:
1st Quarter $1.00 $0.875
2nd Quarter 2.375 1.00
3rd Quarter 1.50 0.50
4th Quarter 1.0625 0.125
Year Ended December 31, 1997:
1st Quarter $1.25 $0.25
2nd Quarter 0.5625 0.3125
3rd Quarter 0.75 0.125
4th Quarter 0.71875 0.1875
Year Ended December 31, 1998
1st Quarter 0.875 0.30
2nd Quarter 2.46875 0.25
<PAGE>
The above prices represent inter-dealer quotations without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
On March 31, 1999, there were no quotations for the securities of the Company
due to the order of the Securities and Exchange Commission discussed above. As
of March 31, 1999, there were 3,696,807 shares of Common Stock issued and
outstanding, and 295,911 shares of Series A Preferred Stock issued and
outstanding. The preferred shares were then convertible into approximately
12,531,831 shares of Common Stock; thus, there were, for purposes of this
filing, approximate common share equivalents of 16,228,638 issued and
outstanding on March 31, 1999.
Dividends: Since inception the Company has not paid any cash dividends on the
Common Stock. Any declaration in the future of any cash or stock dividends will
be at the discretion of the Board of Directors and will depend upon, among other
things, earnings, the operating and financial condition of the Company, capital
expenditure requirements, and general business conditions. There are no
restrictions currently in effect which preclude the Company from granting
dividends. It is the current intention of the Company, however, to retain any
earnings in the foreseeable future to finance the development of its business.
Series A 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 was not distributed, however, due to
the difficulties which arose between the Company and its former transfer agent,
Signature Stock Transfer. The Company has determined not to bring this
distribution into effect. All statements regarding share figures in this filing
are to pre dividend shares.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of financial condition and results of operations should
be read in conjunction with the Company's audited financial statements and notes
thereto appearing elsewhere in this report.
The Company has had recurring losses from operations since inception and had a
net capital deficiency at December 31, 1998, each of which raise substantial
doubts about the ability of the Company to continue as a going concern.
Accordingly, the auditors' report and opinion included in this report contain an
explanatory paragraph about these uncertainties.
<PAGE>
Results of Operations: The Company, as a result of the cessation of its coffee
business and the recision of two separate acquisitions and the failure of its
other reported acquisitions, had no operations during 1998; thus, no meaningful
comparison can be made to prior years.
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.
Item 7. Financial Statements.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of MIDLAND, INC.
(Formerly America's Coffee Cup, Inc.):
We have audited the accompanying balance sheet of Midland, Inc. (formerly
America's Coffee Cup, Inc.) (a Colorado corporation) as of December 31, 1998 and
the related statements of operations, changes in shareholders' deficit and cash
flows for the years ended December 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midland, Inc. (formerly
America's Coffee Cup, Inc.) as of December 31, 1998 and the results of its
operations, changes in shareholders' deficit and its cash flows for the years
ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note M to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
San Diego, California
March 20, 1999
<PAGE>
MIDLAND, INC.
(Formerly America's Coffee Cup, Inc.)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 43
Restricted cash-escrow (Note B) 37,381
Note receivable (Note D) 90,000
TOTAL CURRENT ASSETS 127,424
INVESTMENT (Note C) 23,125
TOTAL ASSETS $ 150,549
LIABILITIES AND
SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable (Notes E and J) $ 209,116
Notes payable (Note F) 45,000
Accrued interest 26,041
Accrued payroll taxes 8,510
Accrued income tax 800
TOTAL CURRENT LIABILITIES 289,467
COMMITMENTS AND CONTINGENCIES
(Notes E, H, J, M, N)
SHAREHOLDERS' DEFICIT
Series A preferred stock,
$0.40 par value,
360,000 shares authorized,
295,911 issued and outstanding
(Note H) 118,365
Series B preferred stock,
$0.40 par value,
149,259 shares authorized,
no shares issued or outstanding --
Common stock, $0.40 par value,
10,000,000 shares authorized,
3,696,807 shares issued
and outstanding 1,106,928
Additional paid in capital 1,789,134
Accumulated deficit (3,153,345)
TOTAL SHAREHOLDERS' DEFICIT (138,918)
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 150,549
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDLAND, INC.
(Formerly America's Coffee Cup, Inc.)
STATEMENTS OF OPERATIONS
For the years ended
December 31, December 31,
1998 1997
---- ----
REVENUES $ -- $ 13,422
COST OF SALES -- 5,937
GROSS PROFIT -- 7,485
OPERATING EXPENSES
General and
administrative
expenses 374,669 993,530
Depreciation -- 3,550
TOTAL OPERATING EXPENSES 374,669 997,080
LOSS FROM OPERATIONS (374,669) (989,595)
OTHER INCOME (EXPENSES)
Interest expense (4,050) (4,057)
Finance expense -- (17,500)
Loss on disposition
of equipment -- (17,681)
Loss on investment (Note N) (258,241) --
TOTAL OTHER INCOME (EXPENSES) (262,291) (39,238)
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (636,960) (1,028,833)
Income Taxes (Note G) 800 1,600
NET LOSS BEFORE
EXTRAORDINARY ITEM (637,760) (1,030,433)
Extraordinary item,
net of tax (Note -- 486,453
NET LOSS (637,760) $ (543,980)
NET LOSS PER COMMON
SHARE BEFORE
EXTRAORDINARY ITEM $ (.20) $ (0.50)
Extraordinary item -- .24
NET LOSS PER COMMON SHARE $ (.20) $ (0.26)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,231,154 2,073,820
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
MIDLAND, INC.
(Formerly America's Coffee Cup, Inc.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
Additional Total
Preferred Stock Common Stock Paid-in Accumulated Shareholders
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 54,000 $ 21,600 845,567 $ 338,226 $ 940,366 $(1,971,605) $ (671,413)
Issuance of stock for services 70,617 28,247 1,052,640 131,580 108,146 -- 267,973
Issuance of stock for cash -- -- 725,000 283,688 76,992 -- 360,680
Net loss -- -- -- -- -- (543,980) (543,980)
Balance, December 31, 1997 124,617 $ 49,847 2,623,200 $ 753,494 $ 1,125,504 $(2,515,585) $ (586,740)
Issuance of stock for cash 87,204 34,882 449,306 179,822 580,006 -- 794,710
Conversion of Series A (5,910) (2,364) 206,850 82,740 (80,376) -- --
Issuance of stock for services 90,000 36,000 417,444 90,872 164,000 -- 290,872
Net loss -- -- -- -- -- (637,760) (637,760)
Balance, December 31, 1998 295,911 $ 118,365 3,696,807 $ 1,106,928 $ 1,789,134 $(3,153,345) $ (138,918)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MIDLAND, INC.
(Formerly America's Coffee Cup, Inc.)
STATEMENTS OF CASH FLOWS
For the years ended
December 31, December 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (637,760) $(543,980)
Adjustments to reconcile
net loss to net
cash used in
operating activities:
Depreciation and amortization -- 3,550
Loss on investment 258,241 --
Loss on disposition of equipment -- 17,681
Write off of intangibles -- 172,698
Issuance of stock for
services (Note K) 290,872 267,973
Extraordinary item -
extinguishment of debt (Note L) -- (486,453)
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts receivable -- 58,424
Restricted cash-escrow (37,381) --
Inventories -- 5,000
Prepaid expense and other -- 27,487
Increase (Decrease) in:
Accounts payable (310,107) 403,187
Bank overdraft -- (74,134)
Accrued expenses 4,850 (208,693)
NET CASH USED IN
OPERATING ACTIVITIES (431,285) (357,260)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of investment (23,125) --
Issuance of note receivable (90,000) --
Purchase of property
and equipment -- (7,781)
Proceeds from disposal
of property and equipment -- 12,345
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (113,125) 4,564
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
preferred stock 34,882 --
Proceeds from issuance
of common stock 501,587 360,680
NET CASH PROVIDED BY
FINANCING ACTIVITIES 536,469 360,680
NET INCREASE (DECREASE) IN CASH (7,941) 7,984
CASH, BEGINNING OF YEAR 7,984 --
CASH, END OF YEAR $ 43 $ 7,984
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDLAND, INC.
(Formerly America's Coffee Cup, Inc.)
NOTES TO FINANCIAL STATEMENTS
A. Organization and Summary of Significant Accounting Policies:
Organization: The Company was incorporated as FOA Industries, Inc. (FOA) under
the laws of the State of Delaware on February 10, 1988. On June 19, 1989, FOA
acquired all of the assets and liabilities of A.C.C., a California limited
partnership engaged in the retail gourmet coffee business. In conjunction with
this transaction, A.C.C. and its general partner, America's Coffee Cup, Inc. (a
California corporation), were dissolved and the Company changed its name to
America's Coffee Cup, Inc. During November 1995, the Company changed its state
of incorporation from Delaware to Colorado. On January 30, 1997, the Company
changed its name to Wayward Ventures, Inc. On February 17, 1997, the Company
changed its name from Wayward Ventures, Inc. to Midland, Inc., in conjunction
with an acquisition which was subsequently rescinded. During 1997, the Company
ceased operating in the retail coffee business. The Company currently has no
operations and is seeking a merger candidate.
Estimates: 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 reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Cash: For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
and money market funds to be cash equivalents.
Investments: In accordance with Statement of Financial Accounting Standards No.
115 (SFAS No. 115) Accounting for Certain Investments in Debt and Equity
Securities, trading secrities are reported at fair value with unrealized gains
and losses recognized in the Statement of Operations, and available for sale
securities are also reported at fair value with unrealized gains and losses
reported in shareholders' equity.
Loss Per Share: Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS No. 128) Earnings Per Share. Basic
loss per share is computed by dividing losses available to common shareholders
by the weighted average number of common shares outstanding during the period.
Diluted loss per share reflects per share amounts that would have resulted if
dilutive common stock equivalents had been converted to common stock. At
December 31, 1998 and 1997, basic and dilutive loss per share are the same. The
net loss per share calculations reflect the effect of stock dividends and stock
splits.
Income Taxes: Income taxes provide for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to net operating loss carryforwards and differences
between the basis of various assets for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
Fair Value of Financial Instruments: The carrying amount for cash approximates
fair value due to the short period to maturity of the instruments. The fair
value of notes payable is estimated based on interest rates for the same or
similar debt offered to the Company having the same or similar remaining
maturities and collateral requirements. Carrying amounts of notes payable
approximates fair value. The fair value of note receivable is estimated on
discounted cash flows using a current risk weighted interest rate and on the
current rates offered based by the Company for notes of the same remaining
maturities.
<PAGE>
B. Restricted Cash Escrow: During 1998, the Company established an escrow
account with a former officer of the Company. Funds totaling $37,381 were
available to the Company at December 31, 1998.
C. Investment: During 1998, the Company purchased common shares in Cyberquest,
Ltd., a privately held Colorado corporation (Cyberquest), for $23,125. These
shares of Cyberquest were later exchanged for 1,315,800 common shares of CBQ,
Inc. (formerly known as Freedom Funding, Inc. ), a publicly held corporation
(CBQI). This exchange was characterized as a tax free reorganization under the
Internal Revenue Code and resulted in Cyberquest becoming a wholly owned
subsidiary of CBQI and the Company holding restricted shares in CBQI. A former
executive officer and director of the Company at the time of the investment in
Cyberquest and the exchange with CBQI was also then a majority shareholder,
executive officer and director of CBQI, although this person was never a
shareholder, executive officer or director of Cyberquest. Cyberquest is a
developmental stage company operating in the internet business. The Company's
investment is stated at cost at December 31, 1998. Management believes the
stated cost of the investment approximates fair market value at December 31,
1998. It is reasonably possible that management's estimate of the fair value may
change.
D. Note Receivable: In conjunction with the investment in Note C, the Company
entered into an agreement to loan Cyberquest $90,000. The agreement provides for
interest on the outstanding balance to accrue at 1% per month, is unsecured and
is due on demand.
E. Accounts Payable: At December 31, 1998, the majority of accounts payable
consists of balances due on settlement of previous accounts payable balances. A
majority of the agreements were entered into in March 1997 and called for
payment of 10% of the previous outstanding balance in consideration for the
entire balance. Vendors may consider the agreements null and void due to the
Company's failure to pay the obligations; therefore, the Company is contingently
liable for $697,616 of previously forgiven accounts payable.
F. Notes Payable: The Company has notes payable to a group of foreign investors
totaling $45,000 which are unsecured. Interest is payable at 9% and all unpaid
principal and interest was due December 31, 1997. Notes are convertible in whole
or in part at any time on or before maturity for "restricted" common shares at a
conversion rate of $9 per share. In 1996, the Company modified the conversion
price to $2 per share. The notes are past due. Included in the accompanying
balance sheet is accrued interest of $26,041 at December 31, 1998.
G. Income Taxes: The provision for income taxes for the year ended December 31,
1998 and 1997 consisted solely of minimum state taxes.
The Company's total deferred tax assets as of December 31 were as follows:
1998 1997
---- ----
Net operating loss carryforward $ 1,414,000 $ 1,319,000
Valuation allowance (1,414,000)
Net deferred tax assets $ -- --
<PAGE>
A valuation allowance has been established for the entire amount of the deferred
tax asset. The likelihood of full utilization by the Company of the net
operating losses incurred to date over the available carryover period is highly
unlikely based upon the change of ownership tax rules and on the current
operations of the Company. The decrease in the valuation allowance from December
31, 1997 to December 31, 1998 was $1,319,000.
The Companies net operating loss carryforwards expire as follows:
Year Ending
December 31, Federal California
- ------------ ------- ----------
1999 - 34,100
2000 - 361,500
2001 - 573,700
2002 - 272,000
2003 38,400 -
2004 183,700 -
2005 327,600 -
2006 252,200 -
2007 205,600 -
2008 34,900 -
2009 721,200 -
2010 1,149,200 -
2011 544,000 -
2012 637,800 -
Total $4,094,600 $1,241,300
The realization of any future income tax benefits from the utilization of net
operating losses has been determined to be limited. Federal and state tax laws
provide that when a more than 50% change in ownership of a company occurs within
a three year period, the net operating loss is limited. As a result of the
conversion of the one year convertible notes into common stock, the Company has
determined that the net operating losses are limited.
H. Shareholders' Deficit:
Series A Preferred Stock: Of the 1,000,000 shares of preferred stock, the
Company designated 360,000 shares as Series A preferred stock. Each share of
Series A preferred stock is entitled to thirty five votes with the Series A
preferred stock and common stock voting together as though they constitute one
class.
<PAGE>
Series A Warrants : In connection with the secondary offering concluded August
16, 1996, the Company authorized the issuance of up to 5,205,650 Series A
Warrants (including 405,000 Series A Warrants that may be issued upon exercise
of the Underwriters' over allotment option, 270,000 Warrants which are issuable
pursuant to the Underwriters Warrants and 652,050 Warrants together with an
equivalent number of shares of common stock for issuance upon the conversion of
the Series A preferred stock) and has reserved an equivalent number of shares of
common stock for issuance upon exercise of the Series A warrants actually
issued. Each warrant will entitle the holder to purchase one share of common
stock at a price of $.50 per share. The warrants are currently exercisable and
are separately traded until August 14, 2001, unless earlier redeemed. The Series
A warrants are redeemable by the Company at $.05 per warrant, upon 30 days'
notice, at any time after February 14, 1997, if the closing bid price per share
of the common stock for ten consecutive trading days' prior to the date of
notice of redemption is given equals or exceeds $2.50 per share. In the event
the Company gives notice of its intention to redeem, a holder would be forced
either to exercise their Series A warrant within 30 days after the date of
notice or accept the redemption price.
The exercise price of the Series A warrants may be reduced at any time and from
time to time at the discretion of the Board of Directors when it appears to be
in the best interests of the Company to do so. Any such reduction would impair
the value to holders exercising their warrants prior to the effective date of
the reduction.
The following is a summary of activity involving Series A Warrants:
Warrants outstanding at December 31, 1996 2,700,000
Warrants issued to officers for services 2,080,850
Warrants exercised -
Warrants outstanding at December 31, 1997 4,780,850
Warrants issued for services 5,633,656
Warrants exercised (449,306)
Warrants outstanding at December 31, 1998 9,965,200
As of December 31, 1998, the Company had issued Series A Warrants in excess of
the amount authorized. Effective February 5, 1999, the Board of Directors
increased the number of Series A Warrants authorized to 10,000,000.
<PAGE>
Series B Preferred Stock:
In connection with acquisitions, the Company issued 149,259, 70,000, and 140,493
shares of Series B preferred stock. The shares of preferred stock may be
immediately converted into 150 shares of common stock for each share of Series B
preferred stock at any time at the option of the Holder. The stockholders are
entitled to 150 votes and are not entitled to liquidation preferences or
dividends. The acquisitions were rescinded and the stock was returned in 1997
and 1998, and therefore, no shares are reported as outstanding at December 31,
1998.
Bridge Loan Warrants: In conjunction with certain bridge loans obtained for the
purpose of completing the public offering in 1996, the Company issued warrants
to purchase 1,809,955 units, each unit consisting of one share of common stock
and two warrants at a price of $.39 per unit. During 1997, warrants were
exercised and 707,000 shares of common stock were issued at $.50 per share which
generated capital of $353,500. In accordance with the issuances, the Company
agreed to pay $.11 per share to the bridgeholders. However, management contends
the bridgeholders did not meet their obligations under the transaction and
therefore, the Company is not obligated to pay $.11 per share to the
bridgeholders (Note M).
I. Supplemental Cash Flow Information: Cash paid for interest and income taxes
for the years ended December 31, 1998 and 1997:
December 31, December 31,
1998 1997
---- ----
Interest $ -- $ --
Income taxes 800 $1,600
Non cash financing disclosure: In December, 1998, the Company converted 5,910
Preferred A shares into 206,850 common shares.
In December, 1998, the Company converted 5,910 Series A Preferred shares into
206,850 common shares.
J. Termination Agreement: On August 23, 1995, the Company entered into an
agreement (the Supply Termination Agreement) with BGC. Under the terms of the
Supply Termination Agreement, the Company and BGC terminated the obligation of
the Company to purchase its supply of coffee exclusively from BGC and further
agreed to the restructuring and repayment of certain debt with BGC. During 1997,
the Company and BGC renegotiated the debt to $160,000 which is included in the
accounts payable for the year ended December 31, 1998.
K. Related Party Transactions: On February 17, 1997, the Company issued 41,617
shares of Series A preferred stock, totaling $68,791, 1,830,500 Series A
warrants and 552,640 shares of common stock totaling $69,080 to officers and
directors of the Company. On July 31, 1997, another 500,000 shares of common
stock were issued to officers and directors under the ISO totaling $62,500. On
August 29, 1997, the Company issued 29,000 shares of Series A Preferred stock
amounting to $58,000 to a former director in exchange for his services as an
officer and director of the Company from February 17, 1997, through August 29,
1997. On February 6, 1998, the Company issued another 90,000 shares of Series A
preferred stock amounting to $180,000 and 4,500,000 Series A warrants to this
former officer and director in exchange for his services rendered from August
29, 1997, through January 22, 1998. During 1997, the Company paid consulting
fees amounting to $19,500 to officers and directors of the Company.
Additionally, the Company paid a former director 14,826 shares of common stock
valued at $24,508 during the year ended December 31, 1997, and, paid during 1998
and 1997, respectively, cash of $121,395 and $9,040 for legal services incurred
during the years ended December 31, 1997, and December 31, 1996, respectively.
Common stock issued in exchange for services were valued at the market price of
the stock on the date of issuance. Additionally, see Notes B, C and D for other
related party activities.
<PAGE>
L. Extraordinary Item: Under terms of certain settlement agreements entered into
with creditors, the Company, through a negotiator, has its liabilities and debt
related to its coffee operations by $486,453 for the year ended December 31,
1997.
M. Going Concern: As shown in the accompanying financial statements, the Company
incurred net operating losses of $637,760 and $543,980 for the years ended
December 31, 1998 and 1997, respectively. As of December 31, 1998, current
liabilities exceed current assets by $162,043. These factors as well as the
uncertainty regarding the Company's ability to continue to raise capital through
the sale of equity securities creates substantial doubt about the Company's
ability to continue as a going concern.
During 1998, the Company received working capital from two sources: (1) the
receipt of proceeds from the sale of securities by Mr. Fisher and his affiliates
(Note N), which was to have been in settlement of those claims which the Company
had against Mr. Fisher and his affiliates, each of whom subsequently breached
the settlement agreement; and (2) the exercise of Series A Warrants. The funds
received are not sufficient to provide for the satisfaction of all liabilities,
including contingent liabilities, which are currently outstanding or which are
being asserted against the Company; however, management believes that the
Company will be able to obtain full and complete settlements with its creditors,
whether contingent or otherwise, and that, subsequent to these settlements, it
will have sufficient working capital reserves in which to pursue its business
plan. Further, the Company anticipates that it will be able to effectuate its
business plan and make an acquisition which will allow it to move forward as a
going concern. However, there can be no assurance that any of the foregoing will
occur.
The ability of the Company to continue as a going concern is dependent upon its
ability to obtain additional working capital and obtain profitable operations.
The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
N. Contingencies:
Fisher: On January 22, 1998 the Company entered into a purchase agreement to
merge with Arcon Energy. Based on improprieties discovered by the Board of
Directors of the Company, the agreement was deemed null and void on June 15,
1998, and the purchase agreement was rescinded. On July 9, 1998, the Company
filed a compliant (No. 98 D 1495) against Mr. Daniel W. Fisher, Arcon Energy,
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 compliant alleged that the defendants defrauded the
Company and violated federal and state securities acts and state common law
principles (i) in obtaining the Arcon Purchase Agreement and the issuance of the
Series B preferred stock thereunder, (ii) 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
(iii) in the sale of 42,044 shares of Series A preferred stock in exchange for
approximate cash proceeds of $570,060 and the misappropriation of those funds.
On August 21, 1998, the Company 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, in
September, 1998, Mr. Fisher paid the Company the sum of $614,165, 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 brokage account in the United States and to
<PAGE>
surrender the accounting records of the Company. Subsequently, the Company
learned that there were no securities or cash in the United States brokage
account, and Mr. Fisher refused to return the accounting records; thus, the
Company declared the agreement to be null and void and once again pursued
judgements against Mr. Fisher and his affiliates in the Federal District Court
action discussed in the preceding paragraph; however, the hearings in this
matter were twice unilaterally postponed by the court so that by the time of the
final hearing date Mr. Fisher and his affiliates had removed themselves and
their assets to the Bahamas. Judgments in the United States are not enforceable
in the Bahamas; therefore, the Company withdrew its motion and the complaint
(without prejudice). As a result of these activities, the Company incurred a
loss of $258,241 which is included in the statements of operations for the year
ended December 31, 1998.
DayStar Litigation: On May 14, 1998, Business Growth Fund of Southern
California, L.P. and DayStar Partners, Inc. sued the Company in Los Angeles
Superior Court (Case No. BC191159) alleging that the Company failed to deliver
to them warrants which they claim to have been entitled to 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 $77,770 due to them in
regards of their exercise of certain bridge loan warrants issued to them. The
Company is seeking to find an accommodation. The Company believes it is unlikely
it will pay the amount claimed. If served, the Company intends to vigorously
defend the suit.
O. Loss Per Share: The following reconciles amounts reported in the financial
statements for the years ended December 31, 1998 and 1997, respectively:
1998
-----------------------------------------
Income (loss) Shares Per-share
(Numerator) (Denominator) Amount
---------- ------------- ------
Income (loss)
from continuous operations $(637,760) -- --
Less preferred stock dividends -- -- --
Income (loss) from available
to common share (637,760) 3,231,154 $ (.20)
Extraordinary item -- -- --
Income (loss) available to
common share holders
basic earnings per share $(637,760) 3,231,154 $ (.20)
1997
------------------------------------------
Income (loss) Shares Per-share
(Numerator) (Denominator) Amount
Income (loss) from
continuous operations $(1,030,433) -- $--
Less preferred stock dividends -- -- --
Income (loss) from available
to common share holders
basic earnings per share (1,030,433) 2,073,820 $ (.50)
Extraordinary item 486,453 -- .24
Income (loss) available to
common share holders
diluted earnings per share $ (543,980) 2,073,820 $ (.26)
<PAGE>
During 1998 and 1997, the Company had warrants and stock options outstanding,
each convertible into common stock. These instruments were not included in the
computation of diluted earnings per share for any of the years presented, due to
their anti dilutive effects based on the net loss reported each year. During
1998, 1,073,600 shares of common stock has been issued.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The Company has had several changes in its directors and executive officers
during the period at issue and to the date of this report. Following is a
synopsis of the directors and executive officers of the Company during 1998:
Until January 21, 1998
R. Wayne Duke Chairman of the Board, CEO, President
E. Robert Barbee Director, Vice President
Arthur Malcolm Director
Anne DeuPree Secretary
January 22, 1998, through June 5, 1998
Daniel W. Fisher Chairman of the Board, CEO
Edward Fisher Director
John H. Spriggs Director, President, COO and CFO
Willard McAndrew Sr. Vice President/Investments
James R. Clark Director
R. Wayne Duke Director
June 6, 1998, through June 15, 1998:
John H. Spriggs Chairman, CEO, President, Treasurer
James R. Clark Director
R. Wayne Duke Director
June 16, 1998, through July 16, 1998:
Mark S. Pierce Director, CEO, President, CFO and Treasurer
R. Wayne Duke Director
July 17, 1998, through December 30, 1998:
Mark S. Pierce Director, CEO, President, CFO and Treasurer
December 30, 1998, through the date of this report:
Roger F. Tompkins Director, CEO, President, CFO and Treasurer
Table of Directors and Executive Officers:
The following table sets forth all current directors and executive officers of
the Company, as well as their ages, as of the date of the filing of this report:
Name Age Position
---- --- --------
Roger F. Tompkins 54 Director, President, CEO, CFO and Treasurer
Profiles of Directors and Executive Officers: Roger F. Tompkins first served as
a director of the Company from September 18, 1995, through December 30, 1996.
From November, 1985, through January, 1996, Mr. Tompkins was a director and the
sole executive officer of Power Capital Corporation, a consulting firm which,
<PAGE>
through a wholly owned subsidiary, Concepts Associates, Inc., specialized in
mergers, acquisitions, corporate finance and public relations. Power Capital is
publicly held, and acquired in January of 1996 a business in China which is
developing a Sheraton Hotel and adjoining commercial complex in the Beijing
metropolitan area. Mr. Tompkins resigned as an officer and as a director of this
entity after the acquisition. Since August, 1980, Mr. Tompkins has been a
director and an executive officer of Concepts Associates, which, until January
of 1996, was a wholly owned subsidiary of Power Capital. Mr. Tompkins purchased
Concepts Associates from Power Capital in January, 1996, and is now conducting
the previous business of Power Capital through Concepts Associates. During 1961
and 1962, Mr. Tompkins attended Farleigh Dickenson University but did not
receive a degree.
No current director has any arrangement or understanding whereby they are or
will be selected as a director or as an executive officer. All directors will
hold office until the next annual meeting of shareholders and until their
successors have been duly elected and qualified, unless and until they earlier
resign or are removed from office. The executive officers of the Company are
elected by the Board of Directors at its annual meeting immediately following
the shareholders' annual meeting. The Company does not have any standing audit,
nominating or compensation committee, or any committee performing similar
functions.
Item 10. Executive Compensation.
The following table sets forth information concerning the compensation paid to
all executive officers of the Company during 1997. No compensation was paid to
executive officers during 1998; thus, no presentation is made in the following
table in this regards.
Summary Compensation Table
Annual Compensation
-------------------
Name, Principal Position (1) Year Salary Bonus
- ---------------------------- ---- ------ -----
Robert W. Marsik,
president, CEO and CFO 1997 $0 $44,284 (2)
(1) Mr. Tompkins was not appointed an executive officer until December 30, 1998;
consequently, he received no compensation from the Company for services rendered
during 1998.
(2) On termination of his employment agreement, Mr. Marsik received 26,791
shares of Series A Preferred Stock and 1,217,800 Series A Warrants. The figure
in this table is the market value of these securities as determined by the
independent members of the Board of Directors on that date.
Employment Agreements: Mr. Robert W. Marsik entered into an employment contract
with the Company on September 1, 1995, which had a five year term ending
September 1, 2000. The contract was mutually terminated without any further
obligation of the Company on February 17, 1997.
<PAGE>
Item 11. Security Ownership of Management and Certain Others.
The following table sets forth certain information regarding the beneficial
ownership as of March 31, 1999, of the Common Stock by (1) each person known by
the Company to be the beneficial owner of more than five percent of the Common
Stock, (2) each director and executive officer of the Company, and (3) all
directors and executive officers as a group. Except as otherwise indicated, each
stockholder identified in the table possesses sole voting and investment power
with respect to its or his shares.
Name of Number of Shares Percentage of
Beneficial Owner Beneficially Owned Ownership *
- ---------------- ------------------ -----------
Roger F. Tompkins 0 0%
All executive officers
and directors as a group (one person) 0%
* These shares and percentages are based upon the assumed conversion of all
outstanding shares of Series A Preferred Stock, on March 31, 1999, which would
have resulted in there having been 16,228,638 shares of Common Stock outstanding
on that date.
Item 12. Certain Transactions.
On February 6, 1998, the Company issued 90,000 shares of Series A preferred
stock valued at $180,000 and 4,500,000 Series A warrants to a former officer and
director in exchange for his services rendered from August 29, 1997, through
January 22, 1998. In February, 1998, the Company paid a former director 14,826
shares of common stock valued at $24,508 for services rendered during the year
ended December 31, 1997. During 1998 and 1997, respectively, the Company paid
this former director and executive officer cash of $121,395 and $9,040 for legal
services rendered during the years ended December 31, 1997 and December 31,
1996, respectively. Common stock issued in exchange for services were valued at
the market price of the stock on the date of issuance.
During 1998, the Company established an escrow account with a former officer of
the Company. Funds totaling $37,381 were available to the Company at December
31, 1998.
During 1998, the Company purchased common shares in Cyberquest, Ltd., a
privately held Colorado corporation (Cyberquest), for $23,125. These shares of
Cyberquest were later exchanged for 1,315,800 common shares of CBQ, Inc.
(formerly known as Freedom Funding, Inc. ), a publicly held corporation (CBQI).
This exchange was characterized as a tax free reorganization under the Internal
Revenue Code and resulted in Cyberquest becoming a wholly owned subsidiary of
CBQI and in the Company holding restricted shares in CBQI. A former executive
officer and director of the Company at the time of the investment in Cyberquest
and the exchange with CBQI was also then a majority shareholder, executive
officer and director of CBQI, although this person was never a shareholder,
executive officer or director of Cyberquest. In conjunction with this
investment, the Company entered into an agreement to loan Cyberquest $90,000.
The agreement provides for interest on the outstanding balance to accrue at 1%
per month, is unsecured and due on demand.
Item 13. Exhibits and Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the 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, in the City of Stone
Mountain, State of Georgia on the 8th day of April, 1999.
MIDLAND, INC.
(Registrant)
By: /s/ Roger F. Tompkins
----------------------------------
Roger F. Tompkins, 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 indicated on the 8th day of April, 1999.
By: /s/ Roger F. Tompkins
----------------------------------
Roger F. Tompkins, Director
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,424
<SECURITIES> 23,125
<RECEIVABLES> 0
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118,365
<COMMON> 1,225,293
<OTHER-SE> (3,153,345)
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