As filed with the Securities and Exchange Commission on August 15, 2005
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the Quarterly Period Ended June 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from ______________ to ________________
Commission File No. 0-28315
MIDLAND INTERNATIONAL CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
AZONIC CORPORATION
(Former name of corporation if changed since last report)
Nevada 84-1517404
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation)
765 15th Sideroad
King City, Ontario, Canada L7B 1K5
(Address of Principal Executive Offices)
(905) 773-3529
(Issuer'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|X| No| |
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes| | No|X|
The issuer's revenue for the quarter ended June 30, 2005 were $0.
As of June 30, 2005, the number of common stock outstanding was 30,478,000.
================================================================================
Midland International Corporation
INDEX
PART I Financial Information
Item 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheet.......................... 3
Condensed Statements of Operations............... 4
Condensed Statements of Stockholders' Equity..... 5
Condensed Statements of Cash Flows............... 6
Notes to Condensed Financial Statements.......... 7
Item 2. Management's Discussion and Analysis.................... 13
Item 3. Controls and Procedures................................. 18
PART II. Other Information
Item 1. Legal Proceedings....................................... 19
Item 2. Change in Securities and Use of Proceeds................ 19
Item 3. Defaults Upon Senior Securities......................... 19
Item 4. Submission of Matters to a Vote of Security Holders..... 19
Item 5. Other Information....................................... 19
Item 6. Exhibits................................................ 19
A) Exhibit 31
B) Exhibit 32
Signatures............................................................ 21
2
PART I. Financial Information
Item 1. Condensed Financial Statements
Midland International Corporation
Condensed Balance Sheet
June 30, 2005
(UNAUDITED)
June 30, 2005
(Unaudited)
ASSETS
Current Assets:
Inventory $ 49,500
Prepaid expenses 27,194
----------------------------------------------------------------------------
76,694
----------------------------------------------------------------------------
Tools and molds, net of accumulated amortization of $0 25,000
Intangible assets and goodwill (Note 5) 30,003
----------------------------------------------------------------------------
TOTAL ASSETS $ 131,697
----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 8,384
Accounts payable and accrued liabilities 74,502
Due to related party (Note 4) 318,493
----------------------------------------------------------------------------
Total current liabilities 401,379
Stockholders' equity
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, No shares issued and outstanding --
Common stock, $0.001 par value, 100,000,000
shares authorized, 30,478,000 shares issued and
outstanding at June 30, 2005 30,478
Additional paid-in capital 474,825
Accumulated deficit (774,985)
----------------------------------------------------------------------------
Total stockholders' equity (269,682)
----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 131,697
----------------------------------------------------------------------------
See accompanying notes to financial statements.
3
Midland International Corporation
Condensed Statements of Operations
(UNAUDITED)
Three Months Ended May 1, 1996
June 30, (Inception)
to June 30,
2005 2004 2005
------------ ------------ ------------
Revenues $ -- $ -- $ --
Selling and administrative costs:
Management fees 129,000 -- 397,000
Office and general 4,241 18,754 135,031
Professional and consulting 64,154 -- 242,904
Amortization -- -- 50
------------------------------------------------------------------------------------------------------------
Total costs and expenses 197,395 18,754 774,985
------------------------------------------------------------------------------------------------------------
Net loss before income taxes (197,395) (18,754) (774,985)
------------------------------------------------------------------------------------------------------------
Provision for income taxes (Note 7) -- -- --
------------------------------------------------------------------------------------------------------------
Net loss $ (197,395) $ (18,754) $ (774,985)
============================================================================================================
Loss per share of common stock:
Weighted average number of common shares outstanding - Basic 29,983,495 24,000,000 17,131,923
and diluted
Loss per share of common stock - Basic and diluted $ (0.01) $ 0.00 ($ 0.05)
See accompanying notes to financial statements.
4
Midland International Corporation
Condensed Statement of Change in Stockholders' Equity
May 1, 1996 to June 30, 2005
(UNAUDITED)
Common Stock
------------------------
Common Additional Accumulated Total
Stock Paid-in Income Stockholders'
Shares Amount Subscribed Capital (Deficit) Equity
-------------------------------------------------------------------------------
Balance, May 1, 1996 -- $ -- -- -- -- --
-------------------------------------------------------------------------------
Issuance of common stock 24,000,000 24,000 -- (23,700) -- 300
Net loss for the period from
inception to March 31, 2004 -- -- -- -- (19,186) (19,186)
-------------------------------------------------------------------------------
Balance, March 31, 2004 24,000,000 $ 24,000 -- (23,700) (19,186) (18,886)
-------------------------------------------------------------------------------
Exchange of debt for equity -- -- -- 30,500 -- 30,500
Shares issued as consideration for
assets purchased 3,000,000 3,000 -- 71,503 -- 74,503
Common stock issued for services 78,000 78 -- 59,922 -- 60,000
Issuance of common stock pursuant
to private placements 1,250,000 1,250 -- 213,750 -- 215,000
Common stock issued for consulting
services provided 650,000 650 -- 64,350 -- 65,000
Net income (loss) for the year
ended March 31, 2005 -- -- -- -- (558,404) (558,404)
-------------------------------------------------------------------------------
Balance, March 31, 2005 28,978,000 $ 28,978 -- 416,325 (577,590) (132,287)
-------------------------------------------------------------------------------
Issuance of common stock pursuant
to cash received in prior period 900,000 900 -- (900) -- --
Issuance of common stock pursuant
to private placements 600,000 600 -- 59,400 -- 60,000
Net income (loss) for the period
ended June 30, 2005 -- -- -- -- (197,395) (197,395)
-------------------------------------------------------------------------------
Balance, June 30, 2005 30,478,000 $ 30,478 -- 474,825 (774,985) (269,682)
===============================================================================
See accompanying notes to financial statements.
5
Midland International Corporation
Condensed Statements of Cash Flows
(UNAUDITED)
Three Months Ended
June 30,
2005 2004
-----------------------------------------------------------------------------------------
Net cash provided by (used in) operations
Net income (loss) $ (197,395) $ (18,754)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash expenses 40,000 --
Changes in operating assets and liabilities:
Prepaid expenses (25,527) --
Accounts payable and accrued liabilities 4,371 10,503
-----------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (178,551) (8,251)
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
Issuance of common shares 60,000 --
-----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities: 60,000 --
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in bank overdraft 8,384 --
Increase (decrease) in due to related parties 61,885 751
-----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities: 70,269 751
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Increase in cash (42,282) (7,500)
-----------------------------------------------------------------------------------------
Cash, beginning of period 48,282 7,500
-----------------------------------------------------------------------------------------
Cash, end of period $ -- $ --
-----------------------------------------------------------------------------------------
Non cash financing activities:
During the three month period ended June 30, 2005, the Company:
o During the twelve month period ended March 31, 2005, the Company agreed to
issue 78,000 in exchange for a 12 month stock research service contract
valued at $60,000. This was recorded in prepaid expenses and is being
amortized at $5,000 per month. During the current quarter $15,000 of this
amount was expensed. At June 30, 2005 $25,000 remains unamortized in
prepaid expenses.
o During the twelve month period ended March 31, 2005, the Company issued
shares in exchange for a 12 month technical support contract valued at
$100,000. This is being amortized at $8,333 per month. During the current
quarter $25,000 of the contract was expensed. At June 30, 2005 $41,667
remains unamortized.
During the three month period ended June 30, 2004 the Company:
o No non-cash financing activities to be reported
See accompanying notes to financial statements.
6
Midland International Corporation
Notes to the Condensed Financial Statements
June 30, 2005
(Unaudited)
Note 1 - Basis of Presentation and business operations
Basis of presentation - Going concern
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. As shown in the accompanying financial statements,
the Company had assets of $131,697, had a working capital deficit of $324,685
and a deficit of $774,985 at June 30, 2005. As a result, substantial doubt
exists about the Company's ability to continue to fund future operations using
its existing resources.
For the quarter ended June 30, 2005, the Company's operations were funded by
Wireless Age Communications, Inc., ("Wireless Age") a shareholder of the Company
with common management. Although the amounts due to Wireless Age are reflected
as current liabilities there are no specific repayment terms. In order to ensure
the success of the new business, the Company will have to raise additional
financing to satisfy existing liabilities and to provide the necessary funding
for future operations.
The accompanying condensed unaudited financial statements of Midland
International Corporation, (the "Company"), have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management of the Company, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended June 30, 2005,
are not necessarily indicative of the results that may be expected for the year
ending March 31, 2006. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended March 31, 2005.
Business operations
The Company was originally incorporated in the State of Colorado on May 1, 1996
as Grand Canyon Ventures Two, Incorporated. The Company changed its name to
Azonic Engineering Corporation on September 23, 1998. On November 12, 1999 was
re-domiciled to the State of Nevada by merging into its wholly owned subsidiary
Azonic Corporation, a Nevada corporation. On July 21, 2005 the Azonic
Corporation changed its name to Midland International Corporation (referred to
herein as "Midland," the "Company," Registrant" and Issuer).
7
Note 2 - Recent developments
Corporate name and stock symbol change
On July 21, 2005 the Company officially changed its name from Azonic Corporation
to Midland International Corporation. This was completed by submitting the
necessary filings with the United States Securities and Exchange Commission and
the State of Nevada. The stock symbol was changed to MLIC.OB effective July 21,
2005.
Note 3 - Summary of Significant Accounting Policies
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
The financial statements have, in management's opinion been properly prepared
within reasonable limits of materiality and within the framework of the
significant accounting polices summarized below:
Use of 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
the reported amounts of revenue and expenses during the period. Actual results
could differ from those estimates, and such differences could be material.
Cash and cash equivalents
Cash and cash equivalents include time deposit, certificates of deposits, and
all highly liquid debt instruments with original maturities of three months or
less. The Company maintains cash and cash equivalents at financial institutions,
which periodically may exceed federal insured amounts.
Tools and molds
Tools and molds are recorded at cost less accumulated depreciation. Depreciation
is provided over the estimated useful life of the assets using the following
annual rates:
Tools and molds $1 per use
Tools and molds are reviewed for impairment in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which was adopted effective January 1, 2002.
Under SFAS No. 144, these assets are tested for recoverability whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable. An impairment is recognized for the amount, if, any, which the
carrying value of the asset exceeds the fair value.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market. The
Company evaluates the net realizable value of inventory on hand considering
deterioration, obsolescence, replacement costs and other pertinent factors, and
records adjustments as necessary.
8
Intangible assets, goodwill and other assets
The Company follows SFAS No 142, "Goodwill and Other Intangible Assets". SFAS
No. 142 no longer permits the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under prescribed conditions) for impairment in accordance with this
statement. If the carrying amount of the reporting unit's goodwill or
indefinite-lived intangible assets exceeds the implied fair value, an impairment
loss is recognized for an amount equal to that excess. Intangible assets that do
not have indefinite lives are amortized over their useful lives. The adoption of
SFAS No. 142 did not impact the results of operations or financial position
because the Company had no goodwill or indefinite-lived intangible assets at the
date of adoption.
Research and development costs
Research and development costs, other than certain software development costs
disclosed below, are expensed as incurred.
Software development costs
Software development meeting revocability tests are capitalized, under SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," and amortized on a product-by-product basis over their
economic life, ranging from three to five years, or the ratio of current
revenues to current and anticipated revenues from such software, whichever
provides greater amortization in a particular period. The Company capitalized
$30,000 of development costs in the year ended March 31, 2005 and to date no
portion of this has been expensed as amortization. The Company periodically
reviews the carrying value of capitalized software development costs and
impairments are recognized in the results of operations when the expected future
undiscounted operating cash flow derived from the capitalized software is less
then its carrying value. No charges for impairment were required in the current
period.
Development stage
The Company has operated as a development stage enterprise since its inception
by devoting substantially all of its efforts to financial planning, raising
capital, research and development, and developing markets for its products.
Accordingly, the financial statements of the Company have been prepared in
accordance with the accounting and reporting principles prescribed by SFAS No.
7, "Accounting and Reporting by Development Stage Enterprises," issued by FASB.
The Company was substantially inactive from May 1, 1996 through September 30,
2004. Activities began on or about October 1, 2004.
Fair value of financial instruments
The carrying value of receivables, bank indebtedness, accounts payable and
accrued liabilities, income taxes payable, and customer deposits approximates
fair value because of the short maturity of these instruments. The carrying
value of long-term debt and due to and from related parties also approximates
fair value. Unless otherwise noted, it is management's opinion that the Company
is not exposed to significant interest, currency or credit risk arising from
these financial instruments.
9
Income taxes
The Company provides for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under the assets and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Additionally, a valuation allowance is established when
necessary to reduce deferred income tax assets to the amounts expected to be
realized. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Basic and diluted earnings (loss) per share
The Company reports basic earnings (loss) per share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings
(loss) per share is computed using the weighted average number of shares
outstanding during the year. Diluted earnings per share includes the potentially
dilutive effect of outstanding common stock options and warrants which are
convertible to common shares.
Foreign Currency Translation
The functional currency of the Company is United States dollars. However, some
of the transactions occurred in Canadian dollars which has been translated into
US dollars, the reporting currency, in accordance with Statement of Financial
Accounting Standards No. 52 "Foreign Currency Translation". Assets and
liabilities are translated at the exchange rate at the balance sheet date and
revenue and expenses are translated at the exchange rate at the date those
elements are recognized. Any translation adjustments resulting are not included
in determining net income but are included in other comprehensive income.
Recent issued accounting standards
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 151 "Inventory Costs -
an amendment of ARB No. 43, Chapter 4" ("SFAS 151"). This statement amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). SFAS 151 requires that those items be
recognized as current-period charges. In addition, this statement requires that
allocation of fixed production overheads to costs of conversion be based upon
the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for fiscal years beginning after June 15, 2005. As such, the Company
is required to adopt these provisions at the beginning of the fiscal year ended
March 31, 2007. The Company is currently evaluating the impact of SFAS 151 on
its consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 replaces the
exception from fair value measurement in APB Opinion No. 29 for nonmonetary
exchanges of similar productive assets with a general exception from fair value
measurement for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for all interim periods beginning after June 15,
2005. As such, the Company is required to adopt these provisions at the
beginning of the fiscal quarter ended September 30, 2005. The Company is
currently evaluating the impact of SFAS 153 on its financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections"("SFAS 154"). SFAS 154 replaces APB No. 20, "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements" and
establishes retrospective application as the required method for reporting a
change in accounting principle. SFAS 154 provides guidance for determining
whether retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective application is
impracticable. The reporting of a correction of an error by restating previously
issued financial statements is also addressed. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not anticipate that the adoption of
SFAS 154 will have a material impact on its consolidated balance sheets and
statements of operations, shareholders' equity and cash flows.
10
Note 4 - Related Party Transactions
Periodically, the Company advances funds and pays expenses on behalf of related
parties and funds are advanced and expenses are paid by related parties on
behalf of the Company. These transactions result in non-interest bearing
payables or receivables to related parties. At June 30, 2005, net payables to
related parties amounted to $318,493. Related parties of the Company include
shareholders and entities under common management.
The Company's corporate offices have been relocated to the offices of Wireless
Age, a shareholder of the Company and a company with common officers and common
management. The Company is obligated to pay $120,000 ($20,000 per month) for
management services to Wireless Age and $120,000 ($20,000 per month) to Simmonds
Mercantile and Management Inc. ("Simmonds Mercantile") for executive level
management services. Certain shareholders of Simmonds Mercantile are also
shareholders of the Company.
During the period ended June 30, 2005, the Company paid $9,000 ($3,000 per
month) for consulting services provided by David Smardon who is a shareholder
and Chairman of the Company's board of directors.
At June 30, 2005, the amounts due to related parties were:
Wireless Age Communications, Inc. including
wholly owned subsidiaries $ 284,522
Simmonds Management Mercantile Inc. 19,332
Infinity Capital Group, Inc. 14,639
---------------
$ 318,493
---------------
Note 5 - Intangible Assets & Goodwill
--------------------------------
Accumulated
Cost Amortization Net
------- ------------ -------
Patents $ 1 $ -- $ 1
FCC License 1 -- 1
Software license 1 -- 1
Software development costs 30,000 -- 30,000
------- ------------ -------
$30,003 $ -- $30,003
======= ============ =======
During October 2004 the Company acquired the above intangible assets along with
other assets in exchange for three million common shares. The value of the
intangible assets was nominal based on management's expectation of their
usefulness going forward.
Note 6 - Forward Looking Statements
This report contains certain forward-looking statements and information relating
to Midland that are based on the beliefs of its management as well as
assumptions made by and information currently available to its management. When
used in this report, the words "anticipate," "believe," "estimate," "expect,"
"intend," "plan" and similar expressions, as they relate to Midland or its
management, are intended to identify forward-looking statements. These
statements reflect management's current view of Midland concerning future events
and are subject to certain risks, uncertainties and assumptions, including among
many others: a general economic downturn; a downturn in the securities markets;
federal or state laws or regulations having an adverse effect on all companies
and on companies which could be construed as "shell" companies or "blank check"
companies, Securities and Exchange Commission regulations which affect trading
in the securities of "penny stocks," and other risks and uncertainties. Should
any of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this report as anticipated, estimated or expected. Readers should
realize that Midland is in the development stage, with virtually no assets, and
that for Midland to succeed requires that it either originate a successful
business (for which it lacks the funds) or acquire a successful business.
Midland's realization of its business aims as stated herein will depend in the
near future principally on the successful completion of its acquisition of a
business, as discussed below.
11
Note 7 - Income taxes
The provision for income taxes has the following components.
2005 2004
---- ----
Current income taxes -- --
Deferred income taxes -- --
----------------------------------
-- --
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
June 30, June 30,
2005 2004
-------- --------
Deferred tax assets (liabilities)
Net operating loss carryforwards 270,000 13,000
Valuation allowance (270,000) (13,000)
-------------------
Net deferred tax assets (liability) -- --
At June 30, 2005 the Company has net operating loss carryforwards of $770,000.
If not used, the carryforwards will expire as follows:
2024 19,000
2025 558,000
2026 193,000
-----------
770,000
===========
12
Item 2. Management's Discussion and Analysis or Plan of Operation.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Annual Report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and as such may involve risks and uncertainties. These forward-looking
statements relate to, among other things, expectations of the business
environment in which the Company operates, projections of future performance,
perceived opportunities in the market and statements regarding the Company's
goals. The Company's actual results, performance, or achievements expressed or
implied in such forward-looking statements may differ.
BACKGROUND
Azonic was incorporated in the State of Colorado on May 1, 1996 as Grand Canyon
Ventures Two, Incorporated. The Company changed its name to Azonic Engineering
Corporation on June 23, 1998. On November 12, 1999, it was re-domiciled to the
State of Nevada by merging into its wholly owned subsidiary Azonic Corporation
("Company"), a Nevada corporation. On July 21, 2005 the Company officially
changed its name to Midland International Corporation ("Midland").
The Company is in the development stage in accordance with Financial Accounting
Standards Board Standard No. 7. The Company has not been operational, other than
described below, nor has earned revenue other than interest income since its
inception.
RESULTS OF OPERATION
OVERVIEW
The Company obtained certain business assets during the third quarter of fiscal
2005 associated with a low cost cellular phone. Since that point in time
management has been in the process of assembling the necessary business partners
to launch the business. The necessary business partners include manufacturing,
air time providers, marketing, financing and distribution entities. Management
believes that the process of targeting the prospective partners is largely
complete. However, at this stage definitive terms and conditions to all
necessary partnerships are not yet complete. There can be no assurance that
management will in fact be successful in negotiating favorable business terms
and conditions.
RESULTS OF OPERATIONS FOR QUARTER ENDED JUNE 30, 2005 AS COMPARED TO THE SIMILAR
PERIOD ENDED JUNE 30, 2004
The Company had no revenues in the three month periods ended June 30, 2005 and
2004.
The Company incurred office and general expenses of $4,241 in the three month
period ended June 30, 2005 compared to $18,754 in the same period ended June 30,
2004. Office and general expenses include travel, communications and other
similar costs associated with operating the business in its current state of
evolution.
The Company incurred management fees of $129,000 in the three month period ended
June 30, 2005 compared to $0 in the same period ended June 30, 2004. Management
fees consisted of $60,000 paid to Simmonds Mercantile and Management Inc. (a
related party due to certain common directors and stockholders) for the services
of John Simmonds, the Company's CEO, Gary Hokkanen, the Company's CFO and Carrie
Weiler, the Company's Corporate Secretary, and other non executive personnel,
$60,000 paid to Wireless Age Communications, Inc. also a related party due to
certain common officers, directors and ownership, for the services of David
MacKinnon, the Company's CTO and James Hardy, the Company's COO, and other
managerial level accounting and finance personnel, and $9,000 paid to David
Smardon, Chairman of the Board of Directors, for strategic consulting services.
13
The Company also incurred professional and consulting fees to related parties of
$64,154 in the three month period ended June 30, 2005 compared to $0 in the same
period ended June 30, 2004. Professional and consulting fees consisted of
services provided for investor relations paid with 78,000 shares of the
Company's common stock valued at $60,000, $15,000 of which has been expensed in
the current quarter, technology development costs associated with a new
application of the low-cost cell phone in the gaming marketplace, paid with
650,000 shares of the Company's common stock, valued at $130,000 of which
$25,000 has been expensed in the current quarter, legal and accounting fees
totaling $13,952 and consulting fees of $10,202.
The loss on operations was ($197,395) in the three month period ended June 30,
2005 compared to ($18,754) the same period ended June 30, 2004. Loss per share
was ($0.01) in 2005 compared to $0.00 in 2004.
Management expects the operating losses to continue until all necessary business
partners are assembled and commercially reasonable terms have been negotiated.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of results of operations and financial condition are
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP). The preparation of these consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Management evaluates the estimates on an
on-going basis, including those related to bad debts, inventories, investments,
customer accounts, intangible assets, income taxes, and contingencies and
litigation. Management bases its estimates on historical experience and on
various other assumptions that they believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Note 3 of the "Notes to Condensed Financial
Statements" includes a summary of the significant accounting policies and
methods used in the preparation of the consolidated financial statements. The
following is a brief description of the more significant accounting policies and
methods the Company uses.
Intangibles, Goodwill and Other Assets
The Company regularly reviews all of its long-lived assets, including goodwill
and other intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
the Company considers important that could trigger an impairment review include,
but are not limited to, significant underperformance relative to historical or
projected future operating results, significant changes in the manner of use of
the acquired assets or the strategy for the Company's overall business, and
significant negative industry or economic trends. When management determines
that an impairment review is necessary based upon the existence of one or more
of the above indicators of impairment, the Company measures any impairment based
on a projected discounted cash flow method using a discount rate commensurate
with the risk inherent in our current business model. Significant judgment is
required in the development of projected cash flows for these purposes including
assumptions regarding the appropriate level of aggregation of cash flows, their
term and discount rate as well as the underlying forecasts of expected future
revenue and expense. To the extent that events or circumstances cause
assumptions to change, charges may be required which could be material.
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Effective October 1, 2004, the Company adopted SFAS No 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 no longer permits the amortization of goodwill
and indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under prescribed conditions) for impairment in
accordance with this statement. If the carrying amount of the reporting unit's
goodwill or indefinite-lived intangible assets exceeds the implied fair value,
an impairment loss is recognized for an amount equal to that excess. Intangible
assets that do not have indefinite lives are amortized over their useful lives.
Fair Value of Financial Instruments
The carrying value of receivables, bank indebtedness, accounts payable and
accrued liabilities income taxes payable and customer deposits approximates fair
value because of the short maturity of these instruments. The carrying value of
long-term debt, obligations under capital lease and due to and from related
parties also approximates fair value. Unless otherwise noted, it is management's
opinion that the Company is not exposed to significant interest, currency or
credit risk arising from these financial instruments.
FINANCIAL CONDITION
Total assets of the Company decreased from $194,452 at March 31, 2005 to
$131,697 at June 30, 2005. The decrease in total assets during the quarter ended
June 30, 2005 is the result of a decrease in cash and prepaid expenses.
Tools and molds, net of accumulated depreciation of $0 remained the same at
$25,000 as no amortization was taken during the quarter ended June 30, 2005.
Intangible assets totaling $30,003 were acquired during the previous year were
still carried at cost on the balance sheet at June 30, 2005. These intangible
assets include software development costs, patents, licenses and other assets.
Total liabilities of the Company increased from $326,739 at March 31, 2005 to
$401,379 at June 30, 2005. The increase is the result of an increase in bank
overdraft and borrowings from related parties. Due to related party amounts do
not have specific repayment terms and it is expected that these amounts will be
repaid as the financial position of the Company improves.
The stockholders' deficit increased from ($132,287) at March 31, 2005 to
($269,682) at June 30, 2005. The increase is attributable to a net increase in
common stock, additional paid-in capital offset by the loss for the year. Common
stock and additional paid-in capital increased by $60,000. (See Statement of
Stockholders' Equity contained in the financial statements).
The Company's accumulated deficit increased from ($577,590) at March 31, 2005 to
($774,985) at June 30, 2005 as a result of the ($197,395) loss for the quarter.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2005, the Company had a working capital deficit of $324,685. The
Company had bank overdraft of $8,384 at June 30, 2005 arising from expenditures
on operating expenses and equity private placements completed. The Company also
expects to realize on its current inventory to assist in the settlement of
liabilities as they come due. However the Company is largely reliant upon the
ability of the Company to arrange equity private placements or alternatively
advances from related parties to pay any expenses incurred. In addition to
normal accounts payable of $74,502 the Company also owes related companies
$318,493. Its only source for capital could be sale or licensing of the patents
held by the Company, loans, or private placements of common stock.
The Company remains in the development stage and, since inception, has
experienced significant liquidity problems and has no significant capital
resources now at March 31, 2005.
Plan of Operations and Need for Additional Funding
The current cash resources are insufficient support the business over the next
12 months and the Company is unable to carry out any plan of business without
funding. The Company cannot predict to what extent its current lack of liquidity
and capital resources will impair the business operations whether it will incur
further operating losses. There is no assurance that the Company can continue as
a going concern without substantial funding. Management has taken steps to begin
sourcing the necessary funding to begin to execute the business plan.
The Company estimates it will require approximately $500,000 to cover legal,
accounting, transfer, consulting, management fees and the miscellaneous costs of
being a reporting company in the next fiscal year. In addition, management
estimates that approximately $2,500,000 will be required for manufacturing of
the cell phone and deposits required with air time service providers.
The Company does not intend to pursue or fund any research or development
activities during the coming year.
The Company does not intend to add any additional part-time or full-time
employees until the activities of the Company can support it. It may become
necessary for the Company to hire a sales person or sales staff in the near
future.
Going concern qualification. The Company has incurred significant losses from
operations for the quarter ended June 30, 2005, and such losses are expected to
continue. In addition, the Company has no working capital. The foregoing raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans include seeking additional capital and/or debt financing or
the possible sale of the Company. There is no guarantee that additional capital
and/or debt financing will be available when and to the extent required, or that
if available, it will be on terms acceptable to the Company. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company does not have any contractual debt obligations and or any other
commercial commitments that represent prospective cash requirements in addition
to any capital expenditure programs. The Company is obligated to pay $40,000
monthly management fee to a related party for management services and $3,000 per
month to the Chairman of the Board for strategic consulting services. The
Company shares its premises located at 765 15th Sideroad, King City, Ontario,
Canada L7B 1K5, with Wireless Age Communications, Inc. a stockholder of the
Company and a company with common officers and management. The Company pays no
rent for the premises.
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Item 3. Controls and Procedures
We maintain a system of disclosure controls and procedures that are
designed to provide reasonable assurance that material information related to
the Company, including our consolidated subsidiaries, is made known to our Chief
Executive Officer and our Chief Financial Officer on a regular basis. Our Board
of Directors, operating through its Audit Committee, which is composed entirely
of independent outside directors, provides oversight to our financial reporting
process. Management has reviewed this system of disclosure controls and
procedures as of the end of the period covered by this report. The results of
such evaluation were presented to the Audit Committee of the Board of Directors.
On the basis of such evaluation, our CEO and CFO concluded there were no
significant deficiencies or material weaknesses in the Company's disclosure
controls and procedures and that the design and operation of these disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities and Exchange Act of 1934 is recorded, processed, summarized and
reported within the time period specified in SEC rules and forms. The CEO and
CFO have concluded that the disclosure controls and procedures are effective at
a reasonable level as of the evaluation date of this report.
There were no significant changes in the Company's internal controls or
in any other factors that could significantly affect these controls subsequent
to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
The term "disclosure controls and procedures" as used in this report
means, as defined in Rule 13a-15(e) promulgated under the Securities and
Exchange Act of 1934, as amended, (the "Exchange Act"), controls and other
procedures of our Company that are designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Act is accumulated and
communicated to Company's management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
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PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the second quarter of 2005, the Company made issuances in the aggregate
of 2,750,000 shares of unregistered Common Stock at a purchase price of $.10 per
share. All such shares were issued in a private non-public private placement
pursuant to exemption registration under the Securities Act of 1933, as amended
(the "Securities Act"), under Regulation S promulgated under the Securities Act.
The proceeds of such issuances were used for general corporate purposes. All
purchasers of the shares are non-U.S. persons and/or Non-U.S. organizations. The
following persons and organizations were the purchasers of such shares
(subscribed and paid as of the respective date show with issuance of the stock
certificate on or after April 1, 2005):
Global Village Market Holdings Limited 1,000,000 Shares March 16, 2005
Paul Marsiglio 375,000 Shares April 6, 2005
Catharine Doncaster 375,000 Shares April 6, 2005
David Atlin 250,000 Shares April 6, 2005
Bradley Poulos 100,000 Shares March 31, 2005
Glenn Poulos 50,000 Shares March 31, 2005
Marsilgio Enterprises 500,000 Shares June 20, 2005
Mark Mickleborough 100,000 Shares April 19, 2005
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 14, 2005, the holders of a majority of the Company's voting
power consented to the proposal to amend the Company's certificate of
incorporation to change the name of the Company from Azonic Corporation to
Midland International Corporation. The amendment became effective July 18, 2005.
No solicitation or proxy was made to stockholders other than the consenting
shareholders.
Item 5. Other Information
None
Item 6. Exhibits and Form 8-K Filings
Exhibits
Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive Officer.
Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial Executive.
Exhibit 32 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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Form 8-K Filings
Form 8-K filed with the Commission on July 21, 2005 relating to the July
18, 2005 name change from Azonic Corporation to Midland International
Corporation and change of the Company stock trading symbol to MLIC.
Form 8-K filed with the Commission on May 12, 2005 relating to the May
9, 2005 termination of services of Larry O'Donnell CPA, P.C. as the Company's
independent auditor and the appointment of Rotenberg & Co. LLP as the Company's
new independent auditor.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATE: August 15, 2005 BY: /s/ John G. Simmonds
----------------------------
John G. Simmonds
CEO/Director
DATE: August 15, 2005 BY: /s/ Gary N. Hokkanen
----------------------------
Gary N. Hokkanen
CFO
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