UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission File Number 2-85602-D
Mid-Power Service Corporation
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(Exact name of small business issuer as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
87-0398403
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(I.R.S. Employer Identification No.)
3800 Howard Hughes Parkway, Suite 860A, Las Vegas, Nevada 89109
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(Address of principal executive offices)
702-214-3615
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(Issuer's telephone number)
n/a
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(Former name, former address and former fiscal year,
if changed since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of November 18, 2002, issuer had
27,972,276 shares of issued and outstanding common stock, par value $0.001.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-POWER SERVICE CORPORATION
Unaudited Consolidated Balance Sheet
September 30, 2002
Assets
Current assets:
Cash and cash equivalents $ 154,273
Prepaids and other assets 171,225
Inventory 26,199
Current portion of notes receivable 102,462
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Total current assets 454,159
Notes receivable 44,098
Property and equipment, net 550,369
Oil and gas property, developed, net 642,395
Oil and gas property, undeveloped 42,693,834
Investment in equipment 900,000
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$ 45,284,855
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 409,372
Accrued liabilities 498,075
Related party notes payable 13,083,029
Current portion of long-term debt 21,651
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Total current liabilities 14,012,127
Long-term debt, principally due to related party 1,250,800
Deferred income taxes 8,490,000
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Total liabilities 23,752,927
Commitments and contingencies --
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued and outstanding --
Common stock, $.001 par value, 100,000,000 shares authorized,
27,972,276 issued and outstanding 27,972
Additional paid-in capital 28,627,215
Accumulated deficit (7,123,259)
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Total stockholders' equity 21,531,928
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Total liabilities and stockholders' equity $ 45,284,855
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See accompanying notes to financial statements
2
MID-POWER SERVICE CORPORATION
Unaudited Consolidated Statement of Operations
For the Three Months
Ended September 30,
-------------------------------
2002 2001
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Revenues $ 112,275 $ --
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Costs and expenses
Production expenses 57,854 40,695
Exploration costs 757,647 107,437
General and administrative 960,879 235,966
Research and development 213,450 --
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Total costs and expenses 1,989,830 384,098
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Loss from operations (1,877,555) (384,098)
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Other income (expense):
Minority interest in net loss of subsidiary -- 35,668
Interest income 38,676 35,599
Interest expense (231,849) (9,829)
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Total other (expense) income (193,173) 61,438
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Net loss before income taxes (2,070,728) (322,660)
Provision for income taxes -
Deferred tax benefit 772,000 --
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Net loss $ (1,298,728) $ (322,660)
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Net loss per share - basic and diluted $ (0.05) $ (0.05)
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Weighted average shares outstanding -
basic and diluted 27,972,000 6,800,244
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See accompanying notes to financial statements
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MID-POWER SERVICE CORPORATION
Unaudited Consolidated Statement of Cashflows
For the Three Months
Ended September 30,
2002 2001
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Cash flows from operating activities:
Net loss $ (1,298,728) $ (322,660)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and depletion 28,954 2,664
Minority interest in loss of subsidiary (35,668)
Write-off of notes receivable 328,575 --
Deferred tax benefit (772,000)
Changes in operating assets and liabilities
Receivables (78,960) (92,168)
Prepaids and other assets (157,744) --
Accounts payable 217,262 196,535
Accrued liabilities 238,276 53,972
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Net cash used in operating activities (1,494,365) (197,325)
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Cash flows from investing activities:
Advances for notes receivable (44,098) --
Payments on note receivable 350,000
Sale of (purchase of) investment -- (150,000)
Purchase of property and equipment (26,199) (47,021)
Purchase of oil and gas property (2,333,025) (683,301)
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Net cash used in investing activities (2,053,322) (880,322)
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Cash flows from financing activities:
Proceeds from long-term debt 3,083,029 --
Principal payments on long-term debt (20,609) (1,007,600)
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Net cash provided by (used in) financing activities 3,062,420 (1,007,600)
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Net (decrease) increase in cash and cash equivalents (485,267) (2,085,247)
Cash and cash equivalents at beginning of period 639,540 5,481,771
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Cash and cash equivalents at end of period $ 154,273 $ 3,396,524
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See accompanying notes to financial statements
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MID-POWER SERVICE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The consolidated financial statements 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-KSB for the year ended
June 30, 2002.
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) that 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,
2002 and 2001, 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: Related-Party Notes Payable and Other Transactions
New Notes
The Company has notes payable and accrued interest to SCRS Investors,
LLC, an 86% controlled entity of an officer of the Company in the amount of
$4,372,968 of which $63,600 is accrued interest. New loans for the quarter
ending September 30, 2002 were $3,083,029 of which $1,350,000 is due April 30,
2003.
The Company has notes payable and accrued interest to Edward Mike
Davis, majority stockholder of the Company in the amount of $10,183,333, of
which $183,333 is accrued interest.
Colorado and Wyoming Venture Agreements
The Company executed agreements with Edward Mike Davis in September and
October 2002 to earn a 35% working interest, equivalent to a 28% net revenue
interest in oil and gas ventures in Washington County, Colorado and Laramie
County, Wyoming. The Company provided the initial $1,300,000 of which $800,000
was advanced to the Wyoming venture and $500,000 to the Colorado venture. The
funds advanced are to acquire leases and to gather geologic information on the
venture prospects with any funds remaining to be applied to the drilling of the
first well. The Company can continue to earn a 35% working interest in the
separate Colorado and Wyoming prospects on well-by-well basis for as long as the
Company continues to bear 100% of the drilling and completion costs for
successive well.
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The Company has entered into to a loan commitment from SCRS Investors
to provide up to $1,700,000 for the Colorado and Wyoming ventures, of which
$1,300,000 had been advanced at September 30, 2002. The funds provided by SCRS
Investors will be repayable with interest at 9% and due April, 2003.
The Company believed that its performance under these agreements was
conditioned on completion of its funding arrangements and its determination of
whether to take the agreements within the Company and seek outside funding or to
place the agreements directly in the name of its funding partner, subject to the
right to obtain a reversionary interest.
Note 3 Supplemental Cash Flow Information
Operations reflect actual amounts paid for interest and income taxes as
follows:
2002 2001
---- ----
Interest $6,944 $9,829
Income taxes -- --
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 our 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.
Results of Operations
Three Months Ended September 30, 2002,
as compared with Three Months Ended September 30, 2001
During the quarter ended September 30, 2002, we had revenues of
approximately $112,000 from the sale of oil and gas from our California
producing properties. During the quarter ended September 30, 2001, we had no
revenues. We incurred total costs and expenses of approximately $2 million
during the quarter ended September 30, 2002, including $961,000 in general and
administrative expenses, of which approximately $328,000 is a bad debt write-off
on a loan receivable, $758,000 in exploration costs, and $58,000 in production
expenses, for a loss from operations of approximately $1,877,000. This loss from
operations represents an increase of approximately $1,493,000.
We recognized net other expense of $193,000 in the quarter ended
September 30, 2002, as compared to net other income of $61,000 in the quarter
ended September 30, 2001, resulting from interest earned on net proceeds
received from the sale of equity securities. The majority of interest expense
relates to the purchase of the Clear Creek property.
For the three months ended September 30, 2001, income consisted
entirely of interest income on our 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, 2001, we had acquired long-term debt
resulting from the acquisition of a fixed asset in our subsidiary, MaxCo Oil.
Liquidity and Capital Resources
Our liquidity position is less at September 30, 2002, as compared to
June 30, 2002, and is reflected by a $4,227,454 decrease in working capital. The
working capital deficit is the result of a net decrease of $485,267 in cash on
hand and a net increase of $3,070,977 in the current portion of long-term debt
and related-party notes payable. As of September 30, 2002, we had current assets
of $454,159 and current liabilities of $14,012,127, including $10.0 million on
our note payable to Edward Mike Davis due into escrow on December 2002.
We have not established any source of funding except for our credit
facility with SCRS Investors. Under this credit facility, we can draw up to
$20.0 million to pay the $10.0 million due Edward Mike Davis on December 2002
and provide $10.0 million for exploration of the Clear Creek property and other
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activities. SCRS Investors has informed us that it does not have the cash or
cash items available at this time and has provided us with no assurances that it
will have funds available to us if, as we plan, we attempt to draw $10.0 million
in December 2002 for a payment into escrow to Edward Mike Davis for the purchase
of the Clear Creek property and/or an additional $10.0 million in 2003 for
exploration and other activities. Accordingly, we cannot assure that SCRS
Investors will be able to provide the funds committed under the credit facility.
If SCRS Investors is unable to provide such funds as agreed, we will be forced
to attempt to secure alternate financing, and we cannot assure that we will be
able to do so on terms favorable to us, or at all, particularly in view of the
restrictions in our agreement with Edward Mike Davis on our ability to issue
additional shares to obtain equity. In view of the foregoing, we have initiated
discussions with Edward Mike Davis to obtain extended payment terms and
facilitate our efforts to obtain additional equity capital. We cannot assure
that these efforts will be successful.
Possible Future Transactions
We anticipate that in the future we may enter into additional
agreements with Edward Mike Davis, SCRS Investors, their respective affiliates,
or other related parties in transactions that will not be the result of
arm's-length negotiations. We have not established any procedures for resolving
conflicts of interest between us and our officers, directors and principal
stockholders or their respective affiliates. We do not have an audit or other
committee composed of independent directors to review transactions with
affiliates to determine whether they are fair to our stockholders.
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. We plan 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.
ITEM 3. CONTROLS AND PROCEDURES
We maintain a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of our consolidated financial
statements and other disclosures included in this report. Our board of directors
provides oversight to our financial reporting process.
Within the 90-day period prior to the date of this report, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based
upon that evaluation, our chief executive officer and our chief financial
officer concluded that our disclosure controls and procedures are effective in
alerting them in a timely manner to material information relating to Mid-Power
Service Corporation required to be included in this quarterly report on Form
10-QSB.
There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date that we carried out our evaluation and there have been no corrective
actions regarding significant deficiencies or material weaknesses.
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PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
We executed agreements with Edward Mike Davis in September and October
2002 to earn a 35% working interest, equivalent to a 28% net revenue interest in
oil and gas ventures in Washington County, Colorado and Laramie County, Wyoming.
We provided the initial $1,300,000 of which $800,000 was advanced to the Wyoming
venture and $500,000 to the Colorado venture. The funds advanced are to acquire
leases and to gather geologic information on the venture prospects with any
funds remaining to be applied to the drilling of the first well. We can continue
to earn a 35% working interest in the separate Colorado and Wyoming prospects on
well-by-well basis for as long as we continue to bear 100% of the drilling and
completion costs for successive well.
We have entered into to a loan commitment from SCRS Investors to
provide up to $1,700,000 for the Colorado and Wyoming ventures, of which
$1,300,000 had been advanced at September 30, 2002. The funds provided by SCRS
Investors will be repayable with interest at 9% and due April 2003.
We believed that our performance under these agreements was conditioned
on completion of our funding arrangements and our determination of whether to
take the agreements within the Company and seek outside funding or to place the
agreements directly in the name of its funding partner, subject to the right to
obtain a reversionary interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
SEC
Exhibit Reference
Number Number Title of Document Location
- -------------- ------------ ------------------------------------------------------------------- -------------------
Item 10 Material Contracts
- -------------- ------------ ------------------------------------------------------------------- -------------------
10.01 10 Colorado Venture Agreement of Mid-Power Resource Corporation and This filing
Edward Mike Davis and/or his Designees dated September 24, 2002
10.02 10 Wyoming Venture Agreement of Mid-Power Resource Corporation and This filing
Edward Mike Davis and/or his Designees dated September 24, 2002
10.03 10 SCRS Investors, LLC/Mid-Power Service Loan Terms entered October This filing
31, 2002
Item 99 Miscellaneous
- -------------- ------------ ------------------------------------------------------------------- -------------------
99.01 99 Certification Pursuant to 18 U.S.C. Section 1350, as adopted This filing
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer)
99.02 99 Certification Pursuant to 18 U.S.C. Section 1350, as adopted This filing
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer)
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(b) Reports on Form 8-K. During the quarter ended September 30, 2002,
we filed the following:
Report Date of Event Reported Item Reported
------ ---------------------- -------------
Form 8-K 08/01/02 Item 5. Other Events
Item 7. Financial Statements and Exhibits
Form 8-K/A 06/14/02 Item 7. Financial Statements and Exhibits
Form 8-K/A 06/14/02 Item 7. Financial Statements and Exhibits
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SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MID-POWER SERVICE CORPORATION
Date: November 19, 2002 By /s/ James W. Scott
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James W. Scott
President and Chief Executive Officer
Date: November 19, 2002 By /s/ Kenneth M. Emter
-------------------------------------
Kenneth M. Emter
Secretary and Chief Financial Officer
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CERTIFICATION
I, James W. Scott, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Mid-Power
Service Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
/s/ James W. Scott
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James W. Scott
Principal Executive Officer
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CERTIFICATION
I, Kenneth M. Emter, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Mid-Power
Service Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
/s/ Kenneth M. Emter
- -------------------------------------
Kenneth M. Emter
Principal Financial Officer
13