December 11, 1997
MIDLAND INC (MIDL)
Quarterly Report (SEC form 10QSB)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations:
Failure of Coffee Business:
The Company, during 1996, was engaged in the sale of gourmet coffee, related products and accessories through service concessions located in a chain of grocery stores in Southern California. The Company owned and operated service concessions, almost all of which were located in one supermarket chain in Southern California, Ralph's.
Beginning in late October, 1996, the Company began to experience difficulties in its relationship with Ralphs, the result of which was that Ralphs refused to pay the Company for the coffee which the Company was selling to Ralphs, which, in turn, caused the Company to default on its obligations to Daymar and also to Restaurant Blend, which, in turn, resulted in the Company being unable to deliver coffee to Ralphs and its other sales outlets, which, in turn, resulted in Ralphs and the Company's other sales outlets notifying the Company of their intention to terminate their respective relationships. The Company negotiated a settlement with Ralphs in February, 1997, whereby their contract was mutually terminated. Ralphs kept the slotting fees paid by the Company and the Company was relieved of all liabilities claimed by Ralphs. Subsequently, the Company settled all liabilities with Brothers, Daymar, Restaurant Blend and most, if not all, of its others creditors; however, the Company is presently in default of many of the settlement agreements which it reached with these entities.
Mega-Hell and Mill Agro Acquisitions:
On February 18, 1997 (the Closing Date), the Company executed, delivered and closed under a Plan and Agreement of Purchase (the Purchase Agreement) with the shareholders (the Shareholders) of MILL-AGRO (HELLAS) SA, a Panamanian company, and MEGAHEL NAUTICAL SA, a Greek company (both of which business entities are collectively referred to herein as the Subsidiaries), whereby the Company acquired from the Shareholders all of the outstanding proprietary interest of these entities, thereby making them wholly-owned subsidiaries of the Company. This acquisition was subsequently rescinded.
New Departures Acquisition:
On October 10, 1997 (the Closing Date), the Company executed, delivered and closed under a Plan and Agreement of Purchase (the Purchase Agreement) with the shareholders (the Shareholders) of New Departure Corporation, a Texas corporation (the Subsidiary), and the Subsidiary itself whereby the Company acquired from the Shareholders all of the outstanding proprietary interest of the Subsidiary, thereby making New Departure Corporation a wholly owned subsidiary of the Company.
The Company issued and caused to be delivered to the Shareholders, immediately subsequent to the Closing Date, 70,000 shares of its previously authorized Series B Preferred Stock (Series B Preferred Stock). The Series B Preferred Stock consists of 149,259 shares, with each outstanding share (i) to be automatically converted into 150 shares of Common Stock on October 1, 1998, or sooner at the election of the holder, (ii) being entitled to 150 votes on each matter submitted to the shareholders of the Company, with certain super majority provisions being applicable in certain instances, (iii) not being entitled to a liquidation preference, (iv) not being redeemable and (v) not being entitled to dividends. This series has certain non dilution provisions applicable to it in the event of stock dividends, stock splits and other extraordinary corporate events. The Series B Preferred Stock is considered a common share equivalent and, therefore, the Company is considered for purposes of applicable securities laws to now have an additional 10,500,000 common shares outstanding under this series of preferred stock.
Immediately following the execution, delivery and consummation of the Purchase Agreement, the board of directors of the Company (Board of Directors) was reduced to five in number, and joining Messrs. Charles Stidham, Robert W. Marsik, E. Robert Barbee and Arthur Malcolm to fill the remaining empty seat on the board was R. Wayne Duke. All directors will serve until the next annual meeting of shareholders and until their respective successors are duly elected and qualified, or until they earlier resign or are dismissed. No director has any contractual rights to his position.
The newly constituted Board of Directors then appointed (i) Mr. Duke as Chairman of the Board of Directors and as Chief Executive Officer and President, (ii) Mr. Marsik as Executive Vice President, and (iii) Mr. Mark S. Pierce as Secretary. The board elected to defer the decision of who would serve Registrant as Chief Financial and Accounting Officer and Treasurer.
The Subsidiary is in the bearing and power transmission business and is a start up company. A division of the Subsidiary will lease Bearings and Power transmission equipment to large corporations and provide a software interchange program to distributors on a lease program. Another division of the Subsidiary will acquire obsolete inventory from distributors and liquidate inventory through an interchange program.
As a result of the acquisition of the Subsidiary, Registrant now has the following outstanding securities: (i) 2,575,217 shares of Common Stock; (ii) Bridge Loan Options which, upon exercise, will require the issuance of up to an additional 1,150,980 shares of Common Stock and additional Series A Warrants, each of which warrants will allow for the acquisition of one additional share of Common Stock; (iii) 117,396 shares of Series A Preferred Stock which, upon conversion and assuming no dividends, will require the issuance of approximately 4,108,860 shares of Common Stock, and additional Series A warrants, each of which warrants will allow for the acquisition of one additional share of Common Stock; and (iv) 70,000 shares of Series B Preferred Stock which, upon conversion and assuming no dividends, will require the issuance of approximately 10,500,000 additional shares of Common Stock. Registrant does not have a sufficiently authorized capitalization to provide for the exercise and/or conversion of all of the foregoing securities, and will, therefore, call and hold a shareholders' meeting for the purpose of increasing its capitalization. The Series A and B Preferred Stock, given their terms and conditions, are considered to be a part of the same class of securities as the Common Stock for purposes of Section 16 of the Securities Exchange Act of 1934, as amended, and Rule 144 thereunder; thus, as of the date of this report, there were considered to be approximately 17,184,077 shares of Common Stock outstanding.
Liquidity and Capital Resources:
The Company presently has, and during the period of this report, had no source of liquidity or capital, other than such liquidity as resulted from the exercise of outstanding warrants and the receipt of proceeds therefrom.
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