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 December 31, 2001
Commission File Number 2-85602-D
Mid-Power Service Corporation
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(Exact name of registrant as specified in its charter)
Nevada 87-0398403
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3800 Howard Hughes Parkway, Suite 860-A
Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
702-319-7153
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(Registrant's telephone number, including area code)
Check whether the issuer (1) 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]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of February 11, 2002, registrant
had 6,800,244 shares of issued and outstanding common stock, par value $0.001.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-POWER SERVICE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2001 June 30, 2001
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ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,163,007 $ 5,481,771
Inventory 2,996 --
Notes receivable - current portion 100,000 --
Other receivables 42,388 50,000
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Total current assets 2,308,391 5,531,771
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PROPERTY AND EQUIPMENT, net of accumulated depreciation 345,251 7,217
LONG-TERM NOTE RECEIVABLE - less current portion 200,000 --
INVESTMENTS 1,026,225 1,001,225
UNEVALUATED OIL AND GAS PROPERTIES 640,311 --
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TOTAL ASSETS $ 4,520,178 $ 6,540,213
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 40,384 $ 1,000,000
Accounts payable 83,350 26,486
Accrued payroll and other 3,865 1,374
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Total current liabilities 127,599 1,027,860
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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
December 31, 2001 and June 30, 2001, respectively 6,800 6,800
Additional paid-in capital 7,005,268 7,005,268
Accumulated deficit (2,619,489) (1,499,715)
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Total stockholders' equity 4,392,579 5,512,353
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,520,178 $ 6,540,213
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See accompanying notes to condensed consolidated financial statements.
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MID-POWER SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months For the six months
ended December 31, ended December 31,
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2001 2000 2001 2000
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REVENUES $ 20,212 $ -- $ 20,212 $ --
COST & EXPENSES:
Product development 196,796 -- 237,491 --
Lease operating expense 410,634 -- 518,071 --
Professional fees 126,774 (2,647) 290,267 9,697
General and administrative 119,878 2,927 189,687 3,540
Depreciation 15,818 -- 18,482 --
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Total costs and expenses 869,900 280 1,253,998 13,237
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LOSS FROM OPERATIONS (849,688) (280) (1,233,786) (13,237)
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OTHER INCOME (EXPENSE):
Minority interest in net loss of
subsidiary 32,736 -- 68,404 --
Interest income 19,838 -- 55,396 --
Interest expense -- -- (9,788) --
------------- ------------ ------------- -----------
Total other income 52,574 -- 114,012 --
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LOSS FROM OPERATIONS
BEFORE INCOME TAXES (797,114) (280) (1,119,774) (13,237)
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NET (LOSS) $ (797,114) $ (280) $ (1,119,774) $ (13,237)
============= ============ ============= ===========
BASIC & DILUTED NET LOSS
PER SHARE $ (0.12) $ (0.01) $ (0.17) $ (0.01)
============= ============ ============= ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING (BASIC & DILUTED) 6,800,244 3,600,793 6,800,244 3,600,793
============= ============ ============= ===========
See accompanying notes to condensed consolidated financial statements.
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MID-POWER SERVICE CORPORATION
Statements of Cash Flows
(Unaudited)
Six Months Six Months
Ended Ended
December 31, 2001 December 31, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,119,774) $ (13,237)
Adjustments to Reconcile Net Loss to Net Cash Used In
Operating Activities:
Depreciation expense 18,482 --
Minority interest and loss (68,404) --
Abandonment of investment 150,000 --
Changes in Operating Assets and Liabilities:
Inventory $ (2,996) $ --
Other receivables 7,612 --
Accounts payable 56,863 --
Accrued payroll and other 2,491 --
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Net cash used in operating activities (955,726) (13,237)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable (300,000) --
Deposit on investment (25,000) --
Investment in fluidized combustion (150,000)
Purchase of oil and gas properties (531,523) --
Purchase of property and equipment (356,515) --
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Net cash used in investing activities (1,363,038) --
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CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on notes payable (1,000,000) --
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Net cash used in financing activities (1,000,000) --
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DECREASE IN CASH AND CASH EQUIVALENTS (3,318,764) (13,237)
CASH AND CASH EQUIVALENTS, beginning of period 5,481,771 20,590
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CASH AND CASH EQUIVALENTS, end of period $ 2,163,007 $ 7,353
================ =================
See accompanying notes to these condensed consolidated financial statements.
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MID-POWER SERVICE 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. Certain balances in the 2001 interim financial statements have
been reclassified to conform to the current quarter presentation. These changes
had no effect on total assets, total liabilities, stockholders' equity or net
loss.
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 recurring accruals) that the Company considers
necessary for a fair presentation of the results of operations for the periods
indicated. The results for the six-month period ended December 31, 2001 and
2000, are not necessarily indicative of the results to be expected for the full
year.
The accompanying unaudited condensed consolidated 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 an acquisition of 70% of
MaxCo Oil Co., Inc., or MaxCo, through its wholly-owned subsidiary, Mid-Power
Resource Corporation (MPRC). Pursuant to the acquisition, aggregate
consideration paid to MaxCo stockholders 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 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
commercial production wells. Half of the shares would be delivered upon
satisfaction of the condition, with the remaining half delivered one year
thereafter. As a result of the condition, the restricted common stock has not
been allocated to the purchase price.
On December 31, 2001, MPRC entered into an Agreement to acquire the
remaining 30% of the issued and outstanding shares of MaxCo common stock held by
two stockholders, James G. Maxey and H. Thomas Cotter. After completion of the
transaction, MPRC will own 100% of MaxCo.
The employment contract between James G. Maxey and MaxCo was terminated
on December 31, 2001. James Maxey shall receive a service agreement with MaxCo
to provide onsite services for a period of one year, commencing on January 1,
2002. Mr. Maxey will be paid $25,000 in cash along with the transfer of oil
equipment valued at MaxCo's book value of $167,254. Mr. Maxey relinquished his
right to 225,000 shares of the Company's restricted common stock, which was
issued conditionally under the August 30, 2001, agreement.
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Mr. Cotter received a note in the amount of $40,384 for the purchase of
his employment contract with MaxCo. Pursuant to the terms and conditions in the
August 30, 2001, agreement, Mr. Cotter will assume the $53,000 payment that was
to have been made by the Company. In addition, Mr. Cotter will retain his right
to the conditional 225,000 shares of the Company's restricted common stock.
The acquisitions of 70% of MaxCo, completed on August 30, 2001, and 30%
of MaxCo, completed on December 31, 2001, have been accounted for as a purchase,
and the acquisition cost of $632,638 (not including the conditional issuance of
225,000 shares of restricted common stock) has been allocated to assets acquired
and liabilities assumed based on fair estimated value. Unevaluated oil and gas
properties of $640,311 reflect the fair value of the assets acquired.
The Company's consolidated results of operations include MaxCo's
activity from the effective date of the August 30, 2001, acquisition.
Eliminations have been made for intercompany transactions, and the minority
interest portion of the loss for the period has been accounted for and allocated
accordingly.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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. All share and per share amounts have been adjusted to give effect to
this reverse split.
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On August 30, 2001, the Company completed an acquisition of 70% of
MaxCo Oil Co., Inc., or MaxCo, through its wholly-owned subsidiary, Mid-Power
Resource Corporation (MPRC). On December 31, 2001, MPRC entered into an
Agreement to acquire the remaining 30% of the issued and outstanding shares of
MaxCo common stock held by two stockholders, James G. Maxey and H. Thomas
Cotter. After completion of the transaction, MPRC will own 100% of MaxCo.
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 December 31, 2001, as Compared with Three Months Ended
December 31, 2000
The Company had no operations for the three months ended December 31,
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
December 31, 2000, are not indicative of results to be compared to in the
future.
For the three months ended December 31, 2001, income consisted of
interest income of the Company funds with a diminutive amount of revenue derived
from the development of the oil and gas properties. As the Company is in the
initial stage of its business plan, operations are limited to the development of
its oil properties. As a result, the majority of the costs and expenses has been
related to oil development with the remaining expenditures consisting of general
and administrative costs for rent, insurance, office expenses, salaries for
employees, consultant fees, as well as accounting, legal and other professional
fees.
Six Months Ended December 31, 2001, as Compared with Six Months Ended
December 31, 2000
The Company had no operations for the six months ended December 31,
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 six months ended
December 31, 2000, are not indicative of results to be compared to in the
future.
For the six months ended December 31, 2001, income consisted of
interest income of the Company funds with a diminutive amount of revenue derived
from the development of the oil and gas properties. As the Company is in the
initial stage of its business plan, operations are limited to the development of
its oil properties. As a result, the majority of the costs and expenses has been
related to oil development with the remaining expenditures consisting of general
and administrative costs for rent, insurance, office expenses, salaries for
employees, consultant fees, as well as accounting, legal and other professional
fees.
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Liquidity and Capital Resources
Our liquidity position was greater at December 31, 2001, than compared
to December 31, 2000, as is shown by a $2,173,439 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 $2,155,654 in cash on hand as
of December 31, 2001, as compared to a year earlier. We have sufficient funds to
meet our current requirements for the foreseeable future.
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.
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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
None.
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 December 31,
2001, the Company did not file any reports on Form 8-K.
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: February 12, 2002 By /s/ Kenneth M. Emter
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Kenneth M. Emter
Secretary and Chief Financial Officer
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