SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended September 30, 2001
Commission File Number 2-85602-D
Mid-Power Service Corporation
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0398403
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3800 Howard Hughes Parkway, Suite 860
Las Vegas, Nevada 89109
----------------- -----
(Address of principal executive offices) (Zip Code)
702-319-7153
------------
(Registrant's telephone number, including area code)
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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of November 14, 2001,
registrant had 6,800,244 shares of issued and outstanding common stock, par
value $0.001.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-POWER SERVICE CORPORATION
(Formerly Caplan Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2001 June 30, 2001 *
----------------- ------------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 3,396,524 $ 5,481,771
Other receivables 142,168 50,000
------------------ ------------------
Total current assets 3,538,692 5,531,771
------------------ ------------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 51,573 7,217
INVESTMENTS 1,151,225 1,001,225
UNEVALUATED OIL AND GAS PROPERTIES 825,740 --
------------------ ------------------
TOTAL ASSETS $ 5,567,230 $ 6,540,213
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - current portion $ 16,369 $ 1,000,000
Accounts payable 223,023 26,486
Accrued payroll and other 55,345 1,374
------------------ ------------------
Total current liabilities 294,737 1,027,860
------------------ ------------------
LONG-TERM LIABILITIES, less current portion 52,064 --
MINIORITY INTEREST IN CONSOLIDATED SUBSIDARY 30,736 --
------------------ ------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 10,000,000
shares authorized, none issued and outstanding -- --
Common stock, $0.001 par value, 100,000,000 shares authorized,
6,800,244 and 6,800,244 shares issued and outstanding at
September 30, 2001 and June 30, 2001, respectively 6,800 6,800
Additional paid-in capital 7,005,268 7,005,268
Accumulated deficit (1,822,375) (1,499,715)
------------------ ------------------
Total stockholders' equity 5,189,693 5,512,353
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,567,230 $ 6,540,213
================== ==================
* Condensed from the June 30, 2001 audited financial statements included in the
Company's Form 10-K
See accompanying notes to condensed consolidated financial statements
2
MID-POWER SERVICE CORPORATION
(Formerly Caplan Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months
ended September 30,
--------------------------------------------------
2001 2000
----------------------- --------------------
REVENUES $ -- $ --
----------------------- --------------------
COST & EXPENSES:
Product development 40,695 --
Lease operating expense 107,437 --
Professional fees 163,493 12,344
General and administrative 69,809 613
Depreciation 2,664 --
----------------------- --------------------
Total costs and expenses 384,098 12,957
----------------------- --------------------
LOSS FROM OPERATIONS (384,098) (12,957)
----------------------- --------------------
OTHER INCOME (EXPENSE):
Minority interest in net loss of subsidiary 35,668 --
Interest income 35,599 --
Interest expense (9,829) --
----------------------- --------------------
Total other income 61,438 --
----------------------- --------------------
LOSS FROM OPERATIONS BEFORE INCOME TAXES (322,660) (12,957)
----------------------- --------------------
NET (LOSS) $ (322,660) $ (12,957)
======================= ====================
BASIC & DILUTED NET LOSS PER SHARE $ (0.05) $ (0.01)
======================= ====================
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC & DILUTED) 6,800,244 3,600,793
----------------------- --------------------
See accompanying notes to these condensed consolidated financial statements.
3
MID-POWER SERVICE CORPORATION
(Formerly Caplan Corporation)
Statements of Cash Flows
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
2001 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (322,660) $ (12,957)
Adjustments to Reconcile Net Loss to Net Cash Used In
Operating Activities:
Depreciation expense 2,664 --
Minority interest in loss of subsidiary (35,668) --
Changes in Operating Assets and Liabilities:
Other receivables (92,168) --
Accounts payable 196,535 7,344
Accrued payroll and other 53,972 --
------------------ ------------------
Net cash used in operating activities (197,325) (5,613)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Fluidized Combustion (150,000) --
Purchase of oil & gas properties (683,301)
Purchase of property and equipment (47,021) --
------------------ ------------------
Net cash used in investing activities (880,322) --
------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on notes payable (1,007,600) --
------------------ ------------------
Net cash used in financing activities (1,007,600) --
------------------ ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (2,085,247) (5,613)
CASH AND CASH EQUIVALENTS, beginning of period 5,481,771 20,590
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 3,396,524 $ 14,977
================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 9,829 $ --
================== ==================
Income Taxes $ -- $ --
================== ==================
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Purchase of equipment for issuance of note payable $ 76,034
==================
See accompanying notes to these condensed consolidated financial statements
4
MID-POWER SERVICE CORPORATION
(Formerly Caplan Corporation)
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The financial statements, management's discussion and these notes to
the consolidated financial statements are condensed and should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
June 30, 2001.
The financial information contained herein is unaudited but, in the
opinion of the management of Mid-Power Service Corporation, includes all
adjustments (consisting of normal reoccurring accruals) which the Company
considers necessary for a fair presentation of the results of operations for the
periods indicated. The results for the three month period ended
September 30, 2001 and 2000 are not necessarily indicative of the results to be
expected for the full year.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions for Form 10-QSB and, therefore, do
not include all footnotes and certain financial presentations necessary for a
fair presentation of financial position and results of operations in conformity
with general accepted accounting principles.
Note 2: Acquisition
On August 30, 2001, the Company completed its acquisition of 70% of
MaxCo Oil Company, Inc. through its wholly owned subsidiary, Mid-Power Resource
Corporation. Pursuant to the acquisition, aggregate consideration made to MaxCo
shareholders consisted of $400,000 in cash, with an additional payment of
$53,000 to be made within 12 months, and the conditional issuance of 450,000
shares of the Company's restricted common stock.
MaxCo is a privately-owned oil company based in Bakersfield, California
and has been engaged in oil and gas exploration in Kern County since June 2000.
The acquisition has been accounted for as a purchase and the purchase
price of $453,000 (not including the conditional issuance of 450,000 shares of
restricted common stock) has been allocated to assets acquired and liabilities
assumed based on estimated fair value. Assets acquired totaled $428,448,
including $40,611 in cash and liabilities assumed totaled $199,218, of which
$198,000 were loans made by the Company. Unevaluated oil and gas properties of
$825,740 includes the fair value of the assets acquired and the excess of
purchase price over the book value of MaxCo's net tangible assets in the amount
of $292,539.
The Company has filed a Form 8-K announcing this acquisition, however,
management is evaluating whether audited financial statements and pro forma
financial information is required to be filed in an amended Form 8-K. The
Company will do so if such information is required.
The actual delivery of the 450,000 shares of restricted common stock is
conditional upon MaxCo's meeting its goal of developing an agreed number of
commercially productive wells. Half of the shares will be delivered upon
satisfaction of the condition, with the remaining half delivered one year
thereafter. As a result of the condition, no accounting recognition has been
given to the restricted common stock to be issued and the restricted common
stock has not been allocated to the purchase price.
The Company's consolidated results of operations include MaxCo's
activity from the effective date of the August 30, 2001 acquisition.
5
Eliminations have been made for intercompany transactions and the minority
interest portion of the loss for the period have been accounted for and
allocated accordingly.
In addition, MaxCo has entered into employment agreements with the two
minority shareholders. The terms of the agreements commenced on the effective
date and shall terminate one (1) year thereafter, unless sooner termination
occurs for cause. The agreements shall be subject to automatic annual renewal,
unless at least 60 days prior to the end of the term of the agreement or any
annual renewal period, the employees or employer are given written notice to the
other that the agreement shall not be renewed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
BUSINESS REVIEW
Notice Regarding Forward-Looking Statements
This report contains forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"could," "may," "foresee" and similar expressions are intended to identify
forward-looking statements. These statements include information regarding
expected development of the Company's business, lending activities, relationship
with customers, and development in the oil and gas industry. Should one or more
of these risks or uncertainties occur, or should underlying assumptions prove
incorrect, actual results may vary materially and adversely from those
anticipated, believed, estimated or otherwise indicated.
General
As of June 30, 2000, and through June 30, 2001, we were inactive as all
investments and ongoing business activities had been disposed of prior to
June 30, 2000.
On March 12, 2001, eight individuals purchased an aggregate of
1,500,000 shares of restricted common stock (187,500 each) from six stockholders
of the Company, at a price of $0.22 per share. Additionally, for the sum of
$25,000 (which will be credited against the purchase price if the option is
exercised), one investor purchased an irrevocable proxy to vote 500,000 shares
of outstanding common stock and an option to purchase 100,0000 outstanding
shares of restricted common stock. As a result of the foregoing transactions,
the eight purchasers have voting control over approximately 55% of the Company's
common stock.
Also on March 12, 2001, the stockholders of the Company, by majority
written consent, elected a new board of directors, which in turn elected new
officers. The Company then affected a two-to-one reverse split of the common
stock of the Company and voted to change its name to "Mid-Power Service
Corporation," effective April 10, 2001, for all stockholders of record on
April 9, 2001.
On August 30, 2001, the Company purchased 70% of the issued and
outstanding stock of MaxCo Oil Co., Inc. ("MaxCo"), a privately owned oil
company based in Bakersfield, California, with unevaluated oil and gas
properties in Kern County, California. This transaction was completed by the
Company's wholly owned subsidiary, Mid-Power Resource Corporation. MaxCo has
6
been engaged in oil and gas exploration in Kern County since June 2000.
Mid-Power purchased the MaxCo stock from MaxCo's three stockholders, none of
whom had any relationship with Mid-Power or any of Mid-Power's affiliates.
In the acquisition, the Company agreed to pay $453,000 in cash and
issue 450,000 shares of its restricted common stock. The actual delivery of the
shares is conditional upon MaxCo's meeting its goal of developing an agreed
number of commercially productive wells. MaxCo proposes to meet this goal both
by reworking and returning to production shut-in wells it currently owns and
acquiring other wells and placing them into production. One half of the shares
will be delivered upon satisfaction of the condition, with the remaining half
delivered one year thereafter.
MaxCo holds leases to the oil and gas rights on 1,010 gross acres,
which include over 50 wells at depths of between 550 to 6,300 feet. Based on the
current level of oil prices, we believe that MaxCo can rework the shut-in wells
to develop a number of commercially productive wells.
We are continuing our review of the distributed power-generation
opportunities, which consist of placing relatively small generating units at or
near consumer sites to meet specific consumer power needs. We believe that the
MaxCo acquisition will contribute to the implementation of our strategic plan.
Certain MaxCo oil wells will be utilized once they are reworked to produce
natural gas in sufficient amounts to power the gas generators, thereby,
producing electricity for sale in the Bakersfield area.
Results of Operations
Three Months Ended September 30, 2001 as compared with Three Months Ended
September 30, 2000
The Company had no operations for the three months ended
September 30, 2000. Costs and expenses consisted of minimal expenses required to
maintain the corporate good standing of the Company and meet its periodic
reporting obligations pursuant to the securities laws. As a result, the three
months ended September 30, 2000, are not indicative of results to be compared to
in the future.
For the three months ended September 30, 2001, income also consisted
entirely of interest income on the Company funds as limited operations began. As
a result, due to the implementation of our new business plan and the need for
new office space, costs and expenses consisted of General and Administrative
costs of rent, insurance, office expenses, salaries for employees, consultant
fees, as well as accounting, legal and other professional fees.
In addition, as of September 30, 3001, the Company has acquired long
term debt resulting from the acquisition of a fixed asset in its subsidiary,
MaxCo Oil.
Liquidity and Capital Resources
Our liquidity position was greater at September 30, 2001, than compared
to September 30, 2000, as is shown by a $3,228,978 increase in working capital,
principally due to the receipt of net proceeds of $5,732,705 from the sale of
common stock. This resulted in a net increase of $3,381,547 in cash on hand as
of September 30, 2001, as compared to a year earlier.
7
Future Operations
We have initial capital to implement our plan to generate and trade
electrical power, to develop energy-related technologies, and to acquire oil and
gas fuel for power generation through exploration, development or acquisitions.
Additional funds will be required to operate the power generation projects and
fuel projects. The Company plans to seek debt or other project financing for
specific power generation projects and fuel acquisitions. However, at this time,
there are no such commitments for any future financings.
Management does not believe that the business of the Company is
affected by seasonality or inflation.
8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By majority written consent of the holders of 3,508,825 shares, or 52%,
of the issued and outstanding common stock, on August 9, 2001, the stockholders
approved a merger of the Company with its wholly owned subsidiary, Mid-Power
Service Corporation, for the purpose of changing the domicile of the Company
from Delaware to Nevada.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. During the quarter ended
September 30, 2001, the Company filed the following items on
Form 8-K.
Date of Event Reported Item Reported
---------------------- ----------------------------------
August 3, 2001 Item 4. Changes in Registrant's
Certifying Accountant
August 30, 2001 Item 2. Acquisition of Assets
9
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MID-POWER SERVICE CORPORATION
Date: November 15, 2001 By /s/ Kenneth M. Emter
--------------------------------------
Kenneth M. Emter
Secretary and Chief Financial Officer
10